Shareholders rebuke Sun
By Therese Poletti
Mercury News
Shareholders attending Sun Microsystems' annual meeting Thursday chastised Chief Executive Scott McNealy for everything from the company's performance and low stock price to his stewardship.
And in a rebuke to management, shareholders approved a proposal recommending the company revoke its anti-takeover measure known as a ``poison pill.'' The measure passed with an overwhelming 84 percent of votes cast.
A second shareholder proposal, to tie stock options for senior executives more closely to the company's performance, was defeated. But it got a sizable 42.8 percent of the votes.
Sun's meeting, held at its Santa Clara headquarters in the restored Spanish Mediterranean auditorium, was attended by about 180 shareholders.
``There are a lot of people here who are upset,'' Bob Dalziel, a retiree who lives in San Francisco and owns 15,000 shares, said before the meeting started. ``Scott McNealy keeps telling everybody to hang in there. . . . But it's done nothing,'' he added, referring to Sun's moribund stock.
The Santa Clara server and software company has been struggling to grow again after the bursting of the Internet bubble led to large losses, layoffs and a fading of its previous luster. Sun's stock, which hit an all-time high of $64.31 a share during the technology boom of 2000, is now trading under $4. On Thursday, it closed at $3.90 a share, down 2 cents.
The normally barb-yielding McNealy was serious during a brief question-and-answer session as he listened to shareholders vent.
Tony Badger, a retiree who lives in Sausalito and owns 40,000 shares, asked McNealy how much of Sun's woes were his fault, and if so, who would he replace himself with.
``The buck stops here,'' said McNealy, who dressed up for the occasion in a jacket and button-down shirt, leaving his normal blue jeans at home. ``Sun has a $14 billion market cap. Part of me says `golly,' part of me says `we are selling at one times revenues.' Part of me says the stock is stuck at 4. Yes, I feel that pressure.''
He added: ``I've been through this many times. . . . I'm a hero, I'm a chump, I'm a hero, I'm a chump.''
Sun shareholder William Steiner of Piermont, N.Y., had proposed that Sun throw out its poison pill unless it submitted the measure to a shareholder vote. The influential Institutional Shareholder Services advised investors to vote for Steiner's proposal, saying that Sun's poison pill hadn't been approved by shareholders nor did it include the features that ISS recommends.
Similar proposals have been passed at other companies. In July 2003, HP said it would submit such proposals to shareholder approval after shareholders had voted to revoke the company's poison pill then in place.
The other shareholder proposal at Sun, concerning executive pay, was presented at the meeting by Jason Ward, who represented the Service Employees International Union, and read a statement introducing the union's proposal to tie executive stock options to performance. The union owns 154,500 shares of Sun stock.
``We think such a discussion is overdue, in light of Sun's past five years of poor performance, and weak results in comparison to our peers,'' Ward said. SEIU is especially concerned that in fiscal 2005 McNealy received a $1.1 million bonus, a 20 percent salary increase and 1.25 million options.
``The leadership development and compensation committee has failed to align executive pay with performance in any meaningful way, as shareholders continue to be impacted by a long-stagnant share price,'' said Ward, research analyst of SEIU. Ward received applause after his presentation.
In the past few years, more shareholders are taking action to try to rein in executive pay. Shareholders at Intel, eBay and Apple have proposed tying stock options or restricted stock closer to company performance. Next month, Cisco Systems shareholders will vote on a similar proposal at its annual meeting. Like Sun's proposal, none of these measures have passed, but they signal shareholder discontent.
Near the end of his prepared remarks, McNealy said he understood the pain shareholders were experiencing. ``I am in there with you,'' he said. ``I am the largest individual shareholder. I think this company is the poster child for responsible compensation strategies.''
The meeting began with McNealy announcing that Sun Chief Financial Officer Steve McGowan, 57, plans to retire in June at the end of fiscal year 2006. McGowan had taken over for Mike Lehman in April 2002 amid a string of executive departures from Sun. The company said Thursday that it will begin an immediate search to find a replacement.
McNealy began his presentation by pointing out how Sun has stabilized revenues. ``It's not where this company wants to be, but we think it's solid progress.''
He added that he will work at Sun until the board asks him to do otherwise. ``I am working my tail off,'' McNealy said. ``There are no heels dug in here.''
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