STOCKHOLDER PROPOSALS Some of the following stockholder proposals contain assertions about IBM that we believe are incorrect. We have not attempted to refute all of these inaccuracies. Your Board of Directors opposes the following proposals for the reasons stated after each proposal 5. STOCKHOLDER PROPOSAL ON LOBBYING DISCLOSURE Management has been advised that Walden Asset Management, One Beacon Street, Boston, MA 02108, the beneficial owner of over $2,000 in market value of IBM shares, together with multiple co-filers, whose names, addresses and beneficial holdings are available on request, intends to submit the following proposal at the meeting: Whereas, we believe in full disclosure of our company s direct and indirect lobbying activities and expenditures to assess whether our lobbying is consistent with IBM s expressed goals and in the best interests of shareholders. IBM spent approximately $30 million from 2011 2015 on federal lobbying (Senate reports). This total does not include expenditures to influence legislation in states and provides limited information regarding lobbying conducted by third parties. Resolved, the shareholders of IBM request the preparation of a report, updated annually, and disclosing: 1. Company policy and procedures governing lobbying, both direct and indirect lobbying communications. 2. Payments by IBM used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. 3. Description of the decision making process and oversight by management and the Board for making payments described in sections 1 and 2 above. For purposes of this proposal, a grassroots lobbying communication is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. Indirect lobbying is lobbying engaged in by any trade association or other organization of which IBM is a member. Both direct and indirect lobbying and grassroots lobbying communications include efforts at the local, state and federal levels. The report shall be presented to the Audit Committee or other relevant oversight committees and posted on IBM s website. Supporting Statement IBM is to be commended for its thoughtful disclosure regarding political spending and the electoral process. IBM s policy prohibits political contributions with company funds. We believe IBM should establish high standards for evaluating and disclosing company participation and extensive spending in the legislative process through lobbying. IBM does not disclose its memberships in, or payments to, trade associations, or the portions of these payments used for lobbying. In contrast, competitors Microsoft, Xerox and Intel publicly disclose indirect expenditures made by their trade associations. Absent a system of accountability and disclosure. corporate assets may be used for objectives that pose risks to the company. For example, IBM sits on the board of the US Chamber of Commerce, which since 1998 spent over $1.2 billion dollars on lobbying. IBM does not disclose its Chamber payments nor the portion used for lobbying.
IBM s statement on climate change policy states that IBM recognizes climate change is a serious concern that warrants meaningful action on a global basis to stabilize the atmospheric concentration of greenhouse gases (GHGs). In contrast, the Chamber is publicly attacking the EPA and sued to stop the Clean Power Plan addressing climate change. IBM s payments to the Chamber help fund these attacks and conflict with IBM s positive climate goals. This resolution received 25% vote in 2016. We urge IBM to expand its public disclosure of lobbying. This proposal requests additional disclosure by IBM of lobbying activities and expenditures. IBM already discloses lobbying activities and expenditures, including expenditures made through trade associations, as required by law. Furthermore, IBM has established clear oversight over such activities and expenditures through numerous written corporate policies, instructions and guidelines. This proposal does not appear to properly consider IBM s well known policies and practices in this area, and the Board recommends against this proposal. IBM s policy on Lobbying is set forth in the IBM Business Conduct Guidelines under the section entitled Lobbying, and is published by the Company on its website at: https://www.ibm.com/investor/att/pdf/bcg_c_2016.pdf Specifically, the IBM Business Conduct Guidelines provide that all lobbying activities, including lobbying activities by third parties on behalf of IBM and grassroots lobbying, require the prior approval of IBM s Government and Regulatory Affairs office a globally integrated function providing public policy and government relations expertise in support of IBM s business operations worldwide. All IBM employees are required to comply with these guidelines. The IBM Government and Regulatory Affairs office works to advocate the public policy interests of IBM and its stockholders and employees with governments around the world. The Company provides disclosure on its website about its key public policy positions as well as its policies and practices with regard to public policy matters, including trade and industry associations and lobbying activities and expenditures. See http:// www.ibm.com/investor/governance/public-policy-matters.html Further, IBM s U.S. federal lobbying reports disclose in extensive detail all issues lobbied and total U.S. federal lobbying expenditures made by IBM. Contrary to the proposal s supporting statement, IBM s total reported U.S. federal lobbying expenditures do, in fact, include expenditures for indirect lobbying via trade associations, as required by law. These reports are available for public review at http://disclosures.house.gov/ld/ldsearch.aspx IBM also complies fully with U.S. state and local lobbying disclosure laws, which vary by jurisdiction, but which do, in most cases, require lobbyists to register and disclose their lobbying activities. Finally, IBM periodically reports to its Board of Directors about IBM s policies and practices in connection with governmental relations, public policy and related expenditures. Given all of the foregoing, the Board views the proposal as unnecessary. THEREFORE, THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL. 6. STOCKHOLDER PROPOSAL ON SPECIAL SHAREOWNER MEETINGS Management has been advised that John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, the owner of at least 25 shares of IBM stock, intends to submit the following proposal at the meeting: Resolved, Shareowners ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 10% of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our board s current power to call a special meeting. Delaware law allows 10% of our shares to call a special meeting. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowner input on the timing of shareowner meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This is important because there could be 15-months or more between annual meetings.
This proposal is particularly important because our company does not provide for us as shareholders to act by written consent. A majority of Fortune 500 companies provide for shareholders to call special meetings and to act by written consent. We as shareholders need to be empowered especially since the price of our stock has been dead money for the last 5-years. It may be possible to adopt this proposal by incorporating brief text similar to this into our governing documents: Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President, and shall be called by the Chairman of the Board or President or Secretary upon the order in writing of a majority of or by resolution of the Board of Directors, or at the request in writing of stockholders owning 10% of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Please vote to enhance shareholder value: Special Shareowner Meetings Proposal 6 The Board believes that the adoption of this proposal is unnecessary because of its existing special meeting by-law provision. The current provision, which allows stockholders owning at least 25% of IBM s shares to call a special meeting, can be found in Article II, Section 3 of IBM s by-laws at https://www.ibm.com/investor/governance/bylaws.html. The current 25% threshold is consistent with market practice and already accurately reflects the preference of IBM s stockholders. At IBM s 2010 annual meeting, the same proponent presented this same proposal seeking to lower the 25% threshold to 10%. At that time, a majority of votes cast voted against lowering the threshold, clearly demonstrating the stockholders support for the 25% threshold. Lowering the threshold to 10% would allow special interest groups with small minority ownership interests to potentially cause disruption and substantial costs to be incurred by the other 90% of stockholders. Further, a lower threshold is not necessary in light of IBM s history of strong governance policies and practices, including its independent Presiding Director and existing procedures giving stockholders the ability to communicate with the Board. Therefore, the Board believes that the proponent s proposal is counterproductive to IBM s already well-respected corporate governance practices. Additionally, this same proposal has already been reviewed and rejected by a majority of the votes cast at a prior annual meeting. As IBM has an existing by-law permitting stockholders to call special meetings, and this same proposal to lower the threshold failed to receive majority support when last presented, the Board believes that this proposal is unnecessary. THEREFORE, THE IBM BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. 7. STOCKHOLDER PROPOSAL TO ADOPT A PROXY ACCESS BY-LAW Management has been advised that the Comptroller of the City of New York, One Centre Street, 8th Floor North, New York, NY 10007, on behalf of the New York City Employees Retirement System, the New York City Fire Department Pension Fund, the New York City Teachers Retirement System, the New York City Police Pension Fund and the New York City Board of Education Retirement System, each the beneficial owner of over $2,000 in market value of IBM shares, intends to submit the following proposal at the meeting: Resolved, Shareholders of International Business Machines Corporation (the Company ) ask the board of directors (the Board ) to take the steps necessary to adopt a proxy access bylaw. Such a bylaw shall require the Company to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (as defined herein) of any person nominated for election to the board by a shareholder or group (the Nominator ) that meets the criteria established below. The Company shall allow shareholders to vote on such nominee on the Company s proxy card.
The number of shareholder-nominated candidates appearing in proxy materials shall not exceed the larger of two or one quarter of the directors then serving. This bylaw, which shall supplement existing rights under Company bylaws, should provide that a Nominator must: a) have beneficially owned 3% or more of the Company s outstanding common stock continuously for at least three years before submitting the nomination; b) give the Company, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission rules about (i) the nominee, including consent to being named in the proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (the Disclosure ); and c) certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominator s communications with the Company shareholders, including the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than the Company s proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary course of business and not to change or influence control at the Company. The Nominator may submit with the Disclosure a statement not exceeding 500 words in support of each nominee (the Statement ). The Board shall adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable federal regulations, and the priority to be given to multiple nominations exceeding the one-quarter limit. Supporting Statement We believe proxy access will make directors more accountable and enhance shareholder value. A 2014 study by the CFA Institute concluded that proxy access could raise overall US market capitalization by up to $140.3 billion if adopted market-wide, with little cost or disruption. (http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1) The proposed terms are similar to those in vacated SEC Rule 14a-11 (https://www.sec.gov/rules/final/2010/33-9136.pdf). The SEC, following extensive analysis and input from market participants, determined that those terms struck the proper balance of providing shareholders with viable proxy access while containing appropriate safeguards. The proposed terms enjoy strong investor support and company acceptance. Between January 2015 and October 2016, 95 similar shareholder proposals received majority votes and at least 270 companies of various sizes across industries enacted bylaws with similar terms. We urge shareholders to vote FOR this proposal. The Board recommends that you vote against this proposal. It is the Board s view that IBM s corporate governance policies already ensure that your Board is accountable to stockholders, and that this proposal would undercut the critical role that your Board, the independent Directors, and the Directors and Corporate Governance Committee play in evaluating director nominees. This proposal calls for you to approve a process that would enable special interest groups collectively owning as little as 3% of IBM s outstanding shares to nominate directors that promote their own agendas, potentially at the expense of the long-term interests of stockholders. With independent directors constituting over 90% of the Board and receiving on average more than 95% support over the last five years from you, our stockholders, and IBM s long-standing dedication to stockholder engagement, IBM already has a Board that is accountable to stockholders, responsive to your input, and committed to promoting your best interests. In that spirit of accountability, we are putting this proposal to the vote of you, our stockholders, rather than unilaterally implementing a by-law change that would fundamentally change the director nomination process.
IBM s governance policies and track record clearly demonstrate that the Board is accountable to stockholders. For example: All directors are elected annually, by a majority vote standard in uncontested elections; Stockholders have the power to call special meetings; Stockholders have numerous clearly identified mechanisms to communicate with the Board and the nonmanagement directors, including proposing potential nominees for the Board of Directors; and Stockholders may submit proposals for consideration at an Annual Meeting and for inclusion in IBM s Proxy Statement as described in this Proxy Statement. Our Directors and Corporate Governance Committee (the Committee ), comprised solely of independent directors, and our Board of Directors are best situated to identify potential director nominees with the experience and qualities to serve on the Board, and to determine whether such candidates will contribute to an effective and well-rounded Board that operates openly and collaboratively and represents the interests of all stockholders, not just those with special interests. The Committee also carefully reviews and considers the independence of potential nominees, a complex undertaking in light of the broad and expanding scope of IBM s business. Through this process, we believe that the Committee and the Board achieve the optimal balance of identifying and nominating directors that best serve IBM and all its stockholders. This is reflected in the overwhelming support that you, our stockholders, have shown for each of our director nominees year after year. This proxy access proposal would enable a holder or group of holders with as little as 3% of IBM s outstanding shares to place directly into nomination candidates who may fail to meet the independence or other qualifications established by the Board, fail to contribute to the desired mix of perspectives, or fail to represent the interests of stockholders as a whole. For example, the Board believes that this proposal invites the influence of special interest groups who don t owe fiduciary duties to IBM on decisions that are more appropriately made by the Board. Were this proposal implemented, a small group of stockholders could nominate directors with a special interest agenda, or a slate of nominees focused on short-term interests rather than creating long-term value for, and promoting the best interests of, all stockholders. Your Board does not believe this is in the best interests of IBM or you, our stockholders. The Board believes that its accountability to stockholders and its well-developed system to identify, evaluate and nominate director candidates, makes clear that this proposal is unnecessary. Further, in the spirit of accountability, rather than unilaterally implementing a proxy access by-law provision, we want to hear from you, our stockholders, on this important topic. FOR THESE REASONS, THE BOARD RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL.