Proposals to be Voted On
As summarized above, the board carefully considers a variety of factors in its annual evaluation of
its leadership structure, and has relied upon the flexibility of its existing policy to establish each year the board leadership that it believes best serves our company and our shareholders in light of then-existing circumstances. The Board of
Directors believes it is in the best interests of our shareholders for the board to retain the flexibility to determine, from time to time on an ongoing basis, whether the Chairman of the Board should be an independent director or whether board
function would be improved by having a non-independent Chairman and an independent Lead Director. The permanent independent chair structure proposed by this Proposal 4 forces the board to retain the same
leadership structure regardless of the prevailing conditions, thus depriving the board of the flexibility to structure its leadership in the manner it believes most effectively serves shareholder interests.
Lead Director and Committee Composition Provide Strong Independent Leadership
Our Corporate Governance Guidelines prescribe certain functions and responsibilities of the independent Lead Director role during periods in which we do not have an
independent Chairman. These functions and responsibilities are described in Corporate GovernanceBoard of DirectorsLeadership Structure. In addition to these fixed responsibilities, the independent directors may assign to the
independent Lead Director, from time to time, any additional duties they deem appropriate.
In addition, except for Bethany J. Mayer, who is a non-employee director, and Mr. Martin, all members of our board are independent directors, and our Audit Committee, Compensation Committee and Corporate Governance Committee consist solely of independent
directors. Further, our independent directors meet in executive sessions, which the independent Lead Director chairs, at every regular board meeting, and any director may call for an executive session at any board meeting. The members of the Audit
Committee, Compensation Committee and Corporate Governance Committee also routinely meet in executive sessions. Further, our Chairman and Chief Executive Officers performance is evaluated annually by the Corporate Governance Committee and the
Compensation Committee, respectively, which are composed entirely of independent directors.
Strong Track Record of Board Refreshment
The proponent suggests that the company has a board refreshment problem. Our board regularly reviews board and committee composition to help ensure that the full board
and each committee has the right balance of experience, competencies and backgrounds to fulfill their oversight obligations for the company and our shareholders. As part of that process, the Corporate Governance Committee and the board consider
current board and committee tenure. Our board has added a significant number of new independent directors over the last several years, with five of our 11 current independent director nominees having joined our board since 2017. In addition, rather
than focusing simply on long-tenured directors, we believe the average tenure of the entire board and the range of the directors tenures are more relevant. The average tenure of our independent directors who are nominated to stand for re-election is 6.2 years and the average tenure of all of our director nominees is 5.5 years, both of which are well below the eight-year average tenure of S&P 500 boards that was reported in 2019. In addition,
of our 11 independent director nominees, five have served fewer than five years, five have served between six and 10 years and only one has served longer than 10 years. We believe that shareholders are best served by a board composed of a select
group of longer-tenured directors who can share their wealth of experience with the full board and serve on particular committees where their expertise may be most valuable, mixed with some shorter-tenured directors who can offer new and fresh ideas
and perspectives to the discourse of the board and its committees. Our board is dedicated to attaining this balance of tenure and refreshment in the composition of the board as a whole and each of our standing board committees.
We Believe Our Board Structure Is Consistent with Best Practices and Shareholder Preferences
We believe our board structure is responsive to the overall desires of a majority of our shareholders. In response to an independent chair policy proposal at our 2019
Annual Shareholders Meeting, we undertook a robust engagement effort with holders of approximately 42% of our outstanding shares of common stock with a focus on obtaining their views on our board leadership structure. Most of the shareholders with
whom we engaged in this effort indicated no preference for an independent Chairman as long as the independent Lead Director has significant duties, as is the case at Sempra Energy, and fewer than one-third of
the shareholders with whom we engaged indicated a preference for the Chief Executive Officer and Chairman roles to be separated. Based upon this feedback and various other factors, including proxy voting guidelines we reviewed, the board believes
its existing flexible structure, pursuant to which it retains the authority to combine or separate the Chief Executive Officer and Chairman roles but must appoint an independent Lead Director with robust duties if a
non-independent board member serves as Chairman, is consistent with best governance practices and the preferences of a majority of our shareholders.
Summary
The board believes that it should retain the flexibility to select
the leadership structure that is best-suited to meet the needs of Sempra Energy and our shareholders in light of prevailing circumstances. In addition, our board believes that the adoption of an independent chair policy as suggested by the proponent
would unduly impair the boards ability to select the individual it considers to be best-suited to serve as the Chairman of the Board at any particular time, and that the adoption is unnecessary due to Sempra Energys strong governance
practices, including our robust independent Lead Director role, independent membership of key board committees and consistently strong history of board independence and refreshment.
The Board of Directors recommends that you vote AGAINST Proposal 4.
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Sempra Energy 2020 Proxy Statement
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