Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
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240.14a-12
International Paper Company
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(Name of Registrant as Specified In Its Charter)
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The following letter was sent by International Paper Company to certain
institutional holders of International Paper common stock beginning May 2, 2003.
[LOGO OF INTERNATIONAL PAPER]
400 ATLANTIC STREET
STAMFORD, CT 06921
T 203 651 8000
May 2, 2003
Re: Annual Meeting of International Paper Company
Shareholders - May 13, 2003
Dear Shareholder,
You will by now have received the proxy statement for International
Paper's 2003 Annual Meeting on May 13th. The AFL-CIO Reserve Fund, which owns
300 shares of Company stock, plans to propose at that meeting that shareholders
adopt a resolution related to future severance agreements with senior
executives. This resolution asks that the Company's Board of Directors submit to
a shareholder vote "future severance agreements with senior executives that
provide benefits in an amount exceeding 2.99 times the sum of the executive's
base salary plus bonus." Your Board of Directors has considered this proposal,
and recommends that Company shareholders vote against it.
The AFL-CIO offers a supporting statement to explain its shareholder
proposal. It argues that adoption of the shareholder proposal "may have the
beneficial effect of insulating the Board of Directors from manipulation when
the parties negotiate such agreements." The Board disagrees with this view.
Let me explain. The Board is well aware of the current concerns
regarding executive compensation, and has responded to them. The charter of our
Management Development and Compensation Committee (published on our company
website) provides that the Committee "shall review and approve employment
agreements, severance agreements and change in control agreements . . . for
elected officers who are not also directors. Any such agreements . . . for
elected officers who are also directors shall be approved by the independent
directors."
International Paper has a long-standing commitment to good corporate
governance. The Board has established important governance processes to assure
that executive compensation issues are addressed appropriately. For instance,
from time to time, the Board has decided to enter into agreements with certain
senior executives that provide a severance payment in response to a change in
control. (The Company's current agreements, often referred to as "golden
parachutes," are described in detail on pages 26-27 of the proxy statement.) The
Board also regularly reviews which executives have such agreements, and how much
they will cost the company if triggered by a change in control. To make that
determination, the Board relies on an independent professional consultant's
estimate of the total potential cost to the Company, on a per share basis, of
those agreements, assuming the extreme and highly improbable circumstance that
every such agreement were triggered in the context of a change of control. In
deciding whether to enter into severance agreements, the Board has determined
that the amounts to be paid to executives in question would not discourage a
potential acquirer from making a bid for the Company. Also, the Board has
determined that, in its judgment, entering into these agreements would serve the
Company's interest by helping to ensure that the Company's senior
management team would remain in place and stay focused on the business in the
event of a takeover bid.
The Board has concluded that it would be quite impractical and
arbitrary to submit certain future agreements to the shareholders for approval.
This would subject the Company and its executives to the uncertainties, vagaries
and delays inherent in a vote by hundreds of thousands of shareholders. In
addition, the proposed cap of 2.99 times the sum of the executive's base salary
is arbitrary, as demonstrated by the fact that this limit may even be less, in
certain cases, than the threshold used by the Internal Revenue Service (I.R.S.)
to determine whether the severance payments are deductible by the Company.
All of this said, the proposal will detract from the role and
responsibility of the Board and its committees to determine which senior
executives should be eligible for such agreements and to review and approve the
terms of any such agreements. The Board has made the judgment that, in the
specific circumstances applicable to International Paper, it would not be in the
best long-term interests of the Company and its shareholders to submit the
Board's informed judgment to a shareholder vote. It would not be appropriate for
the Board to explain its views of how critical a particular executive was to the
future success of the Company, or how likely it would be for a particular
executive to leave the Company were he or she to conclude that a change of
control would result in termination or in a greatly diminished role after a
change in control.
We are aware that ISS has recommended that shareholders vote for this
shareholder proposal, and that many institutional investors routinely follow
ISS's recommendations on these matters. However, we strongly disagree with the
ISS recommendation. ISS has stated, in a "one size fits all" approach, that it
"supports the submission of golden parachutes and other severance provisions for
shareholder ratification as a general principle." We believe that ISS has itself
deviated from its "general principle" when it recommended earlier this year that
CitiGroup shareholders vote against a similar shareholder proposal.
In closing, we reiterate that, like you, we are acutely aware of some
of the excesses in executive compensation, and in severance agreements, which
have received so much publicity in the media over the past few years. We also
recognize, however, that it is our role, and our responsibility, to ensure that
no such excesses occur at our Company. We are committed to doing that, and we
are convinced that sound corporate governance principles make us responsible,
and accountable to you, for doing so. For these reasons, we again urge that you
vote against the AFL-CIO's shareholder proposal.
Thank you for your consideration.
Sincerely,
/s/Robert J. Eaton
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Robert J. Eaton
Chairman, Management Development and
Compensation Committee