February 23, 2011 MM-817 Boards & CEO’s Robert F. Radin, Ph.D. Stakeholder Theory describes the principle of whom or what really counts and to whom or what managers give their attention (Mitchell, Agle & Wood, 1997). We generally see consistency in how CEOs and boards deal with various stakeholders and there are some predictable patterns like how shareholder proxies or unsolicited takeover offers are handled. Genzyme Repeats Board’s Opposition to Sanofi-Aventis Tender (December 2010) Verizon Shareholder Issues: We have been advised that the shareholders submitting the proposals or their representatives intend to present the following proposals at the annual meeting. The Board of Directors has concluded that it cannot support these proposals for the reasons stated. 1. Mrs. Evelyn Davis, owner of 424 shares of the Company’s common stock, proposes the following: “That the Board of Directors takes the necessary steps so that NO future NEW stock options are awarded to senior executive officers, nor that any current stock options are re-priced or renewed BOARD OF DIRECTORS’ POSITION: The Human Resources Committee of the Board of Directors has not granted any stock options since 2004 and has no current plans to grant stock options. The Board believes that this proposal is too restrictive and that the Committee should have the flexibility to grant stock options if the Committee decides that it is appropriate in the future. The Board of Directors recommends a vote AGAINST this proposal. 2. Unitarian Universalist Association of Congregations, 25 Beacon Street, Boston, Massachusetts owner of 176 shares of the Company’s common stock, proposes the following: Whereas: Verizon Communications, Inc. does not explicitly prohibit discrimination based on gender identity in its written employment policy, yet Verizon’s policy already does explicitly prohibit discrimination based on sexual orientation; The Shareholders request that Verizon Communications, amend its written equal employment opportunity policy to explicitly prohibit discrimination based on both sexual orientation and gender identity, and to substantially implement this policy. BOARD OF DIRECTORS’ POSITION: As an equal opportunity employer, Verizon is committed to operating its business in full compliance with all applicable laws and regulations and providing a workplace free from discrimination and harassment of any kind. Verizon has a zero tolerance policy for any conduct that is intended to or has the effect of creating an intimidating, hostile or offensive work environment. Verizon’s current policies fully address the concerns raised by this proposal. The Board shares the proponent’s interest in preventing discrimination and harassment on the basis of gender 1 February 23, 2011 MM-817 Boards & CEO’s Robert F. Radin, Ph.D. identity and believes that Verizon’s strong anti-discrimination policies and strict enforcement of its zero tolerance policy make the requested amendment to those policies unnecessary. The Board of Directors recommends a vote AGAINST this proposal. 3. Laborers’ Staff & Affiliates Pension Fund, Washington, D.C., owner of 68,400 shares of the Company’s common stock, proposes the following: That the shareholders of Verizon Communications, Inc. (“Company”) hereby request that the Board of Directors initiate the appropriate process to amend the Company’s Corporate Governance Guidelines to adopt and disclose a written and detailed succession planning policy: CEO succession is one of the primary responsibilities of the board of directors. BOARD OF DIRECTORS’ POSITION: The Board has recognized that one of its most important duties is to ensure that Verizon is prepared for the planned or unplanned departure of the Chief Executive Officer. However, the Board believes that the Proposal is unnecessary because the Board already has in place an effective succession planning process: The Board of Directors recommends a vote AGAINST this proposal. 4. AFL-CIO Reserve Fund, Washington, D.C., owner of 2,148 shares of the Company’s common stock, proposes the following: The shareholders of Verizon Communications request that the Board of Directors adopt a policy prohibiting any current or former chief executive officers of public companies from serving on the Board’s Compensation Committee. The policy shall be implemented so that it does not affect the unexpired terms of previously elected directors. What is a Stakeholder? A stakeholder in an organization is any group or individual who can affect or whom is affected by the achievement of the organization’s objectives There are many stakeholders (shareholders, regulators, taxing authorities, cities & towns, environmentalists, customers, suppliers) With so many stakeholders, there is a lot of competing input, and difficult choices must be made, with priorities set. There is always a risk that the board and management will not have the same stakeholder priorities and this can lead to conflict. 2 February 23, 2011 MM-817 Boards & CEO’s Robert F. Radin, Ph.D. Stakeholder can be voluntary or involuntary risk bearers. Voluntary stakeholders bear some form of risk because they’ve invested some form of human or financial capital and this includes employees or shareholders while involuntary stakeholders are placed at risk because of the firm’s activities like cities and towns where companies manufacture or do business (Clarkson, 1995). Stakeholders routinely make claims against companies but the question is how do we ensure the validity of a stakeholder claim? Without the element of risk, meaning that something can be lost, there is no stake so all claims are not necessarily valid claims. Stakeholder theory is intended to explain how management’s understanding of its roles and responsibilities goes beyond profit maximization It includes persons, groups, neighborhoods, organizations, institutions, societies, and the natural environment from a moral and legal perspective. Basically, a stake in the organization goes beyond ownership. What is the usefulness of stakeholder theory? If a stakeholder has power, they can gain management’s attention Which explains why power is a crucial variable in stakeholder - management relations Power allows a stakeholder to gain and hold management’s attention and force management to take action they might not otherwise take. Management will focus on stakeholders if it serves their interests The board because if its ability to punish or reward (Agency theory), Large institutional investors because of their ability to create chaos or confusion through the proxy process 3 February 23, 2011 MM-817 Boards & CEO’s Robert F. Radin, Ph.D. From the board’s and management’s perspective, There are four dimensions that should be considered to determine whether a stakeholder warrants consideration as a priority. Power, does the stakeholder have the power to gain and hold management’s attention? Regulatory body, customers, large shareholders Legitimacy, does the stakeholder have a legitimate purpose that cannot be ignored? Large shareholder, Regulatory body, unwanted suitor Urgency, How urgent is the stakeholder’s request? What is at stake, the environment, health, (Pepsi and schoolchildren) Salience or significance, Where in the queue does the request fit considering competing priorities? Verizon shareholder requests have low salience, no urgency, they have no power but they do have legitimacy 4