Risk & Compliance

Choice Hotels Scraps Poison Pill

Since last year's annual meeting season, more than 30 companies have eliminated or amended such provisions.
Stephen TaubFebruary 16, 2005

Choice Hotels International Inc. has joined a growing number of companies that are voluntarily scrapping their shareholder rights plans, also known as poison pills.

The company, known for its Comfort Inn, Quality, and Clarion hotels, announced that it will eliminated its poison pill immediately, nearly three years prior to its scheduled expiration of January 31, 2008.

“The board’s decision today to terminate the poison pill is in keeping with our constant efforts to improve corporate governance, build shareholder value and encourage investment in our company,” said chairman Stewart Bainum Jr., in a statement.

Since last year’s annual meeting season, more than 30 companies have eliminated or amended their poison pills. Among those that have announced they would scrap their pills altogether are BB&T Corp., Circuit City Stores Inc., FirstEnergy Corp., Goodyear Tire & Rubber Co., PG&E Corp., Raytheon Co., Staples Inc., and First Health Group Corp.

Institutional Shareholder Services (ISS) recently announced that it would continue to recommend withholding votes from directors whose poison pills have “dead hand” features — that is, which are poison pills that only they can remove. ISS will also recommend withholding votes from sitting directors if the company has adopted or renewed a poison pill without shareholder approval since the last annual meeting, does not put it to a vote at the current meeting, and there is no requirement to put it to a vote within 12 months of its adoption.

Last year, the 50 poison pill proposals that came to a vote received an average support of 62 percent of the votes cast, reported the Investor Responsibility Research Center. That’s about the same level of support as in 2003, according to the IRRC, when the 84 similar proposals that came to a vote received an average support of 60 percent of votes cast.

It is unclear whether Choice Hotels has adopted the controversial “fiduciary out” provision, under which companies agree to terminate their poison pill but leave themselves free to restore it in the future without seeking shareholder approval. Companies that have adopted this provision include Allstate, Bristol-Myers Squibb, Hewlett-Packard, JP Morgan, Marathon Oil, Mattel, and Visteon.