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When Shareholders Attack!!!

These are usually the kinds of stories I don’t pay much attention to. Last week, I received a press release from Eastman announcing a few changes to its board.

CEO James P. Rogers is becoming chairman at the beginning of next year, replacing former CEO J. Brian Ferguson. No surprise there.

Independent director Gary E. Anderson is coming lead director of the company. Who would be better in such a position than the former CEO of Dow Corning?

And, Eastman plans to “declassify” its board. That doesn’t mean that some secret directors will now be known to the public. It means that Eastman’s eleven directors are divided into three classes. Each of the classes is elected to staggered, three-year terms. The class of three directors elected in 2010 is up for re-election in 2013; the class of four directors elected in 2011 will be up for re-election in 2014; and so on.

At its 2011 annual meeting, Eastman shareholders will decide whether they want to elect all of the directors each year. The move would ostensibly make the board more accountable to shareholders. It is sort of like the difference between the U.S. Senate and the U.S. House of Representatives.

“The board believes these latest actions are in the best interests of Eastman and its stockholders, and are further demonstration of the company’s ongoing commitment to strong corporate governance,” the company said in a statement.

The board hasn’t always thought that.

At the annual meeting back in May, Eastman was fighting a proposal to declassify its board. Gerald R. Armstrong submitted the proposal. He’s a Denver retiree who owns 98 Eastman shares. He has submitted shareholder rights proposals to a number of different companies in recent years. There are many people like him nowadays. I suppose you can call it a kind of hobby.

Back then, Eastman said “a classified board structure remains in the best interests of Eastman and its shareholders.” To Eastman, a classified board meant stability and a greater ability to maintain a long-term strategy in a cyclical environment. Eastman also argued that the classified board is a defense against hostile takeovers. That isn’t a silly argument. The biggest obstacle to Air Products’ bid for Airgas is Airgas’ staggered board.

But never underestimate a Denver retiree. Some 41,292,223 shares voted with Mr. Armstrong, 75.24% of Eastman’s total. He won big. The proposal was adopted.

So, is Eastman just doing what it is being forced to do anyway? Not quite. As Eastman spokeswoman Tracy Broadwater pointed out to me, the adopted proposal was non-binding.

I suppose Eastman was just nagged into doing it, really.

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