Chairman and Chief
Executive Officer
Caterpillar
Inc.
Peoria, Illinois
61629
Dear Institutional
Investor:
What
a difference a year can make! At the 2008 annual stockholders’ meeting, I
reported our fifth straight year of record sales/revenues and profits and our
expectation for another great year in 2008. Although 2008 was a year of
tremendous accomplishment, in September we experienced a seismic shift in the
global industries we serve, which quickly and dramatically changed our
business. As you know, the global economy has been under severe
pressure ever since and, as a result, 2009 will be an extremely challenging
year.
With
that in mind, we are making tough decisions and taking aggressive and decisive
actions to position the Company for both short-term and long-term success. We
are executing “trough” plans, which have been a part of our strategy since
introduced in 2005, across the Company to, among other things, control costs
wherever possible, significantly reduce inventory and strengthen the Company’s
liquidity position. Good companies become great companies when they face and
conquer adversity. We are not merely positioned to survive the financial
downturn – rather, we are poised to strengthen our global leadership position.
Changing our governance practices and corporate structure, as contemplated by
the stockholder proposals presented below, will only divert attention and
resources from the tasks that will generate long-term stockholder value – the
successful implementation of our corporate strategy and “trough”
plans.
Because
you are a valued investor in Caterpillar stock, I want to personally explain our
position on four of the seven stockholder proposals presented in our 2009 Proxy
Statement that relate to our governance practices, and ask you to vote
AGAINST them
if you have not already done so. While
these types of proposals may have merit at some companies, for the reasons
provided below, we strongly encourage you to afford Caterpillar the benefit of
individual consideration.
Independent
Chairman of the Board
The
Company received similar proposals in 2006 and 2007, which were soundly rejected
by stockholders. The
Board believes the combined role of
Chairman and CEO promotes unified leadership and direction for the Company,
which allows for a single, clear focus for management to execute the
Company’s
strategy and business plans. Unified leadership and focused management are
needed now more than ever,
to allow the Company to navigate and excel in the current economic environment.
Splitting the role of Chairman and CEO and mandating an independent Chairman
will only add cost and drive inefficiency – actions
inconsistent with the cost reduction and efficiency
gains that are the foundation of our effective performance during this economic
downturn. We believe this to be particularly true in our case where 14 of 15
members of our Board are independent (under New York Stock Exchange Standards)
and actively
participate in the oversight and strategic direction of the Company. Lastly, the
Company has adopted or follows various corporate governance policies to
“counter–balance” the
combined role of the Chairman and CEO and ensure a strong, independent
board, such
as electing an independent Presiding Director, with responsibilities consistent
with “best
practices,” and
all committees of the Board are made up of independent directors. Accordingly,
we think the risk of ineffective Board oversight and management entrenchment
is extremely remote.
Annual
Election of Directors
The Board acknowledges that last
year a similar proposal passed. With
that in mind, the Board has evaluated and considered the most effective
structure for the Board and continues to believe that
a classified board structure is in the best long-term interests of the Company
and its stockholders. A classified board provides stability, prevents sudden
disruptive changes to the Board’s
composition, enhances long-term planning and ensures that, at
any given time, there are directors serving on the Board who are intimately
familiar with the Company, its business and its strategy - such as our
“trough”
plans. Again, this structure is particularly important given the
current challenges the Company faces,
the Company’s
global reach and our Vision 2020 strategic plan – a
commitment that stretches over several years and one that will be best fulfilled
by a stable and continuous board.
Adopt
Simple Majority Vote Standard
The
Company’s super-majority voting standards apply to a small but important number
of matters of corporate structure and governance. The super-majority standards
do not apply to the approval of a merger or business combination, for which only
a simple majority is required. These super-majority standards ensure that broad
stockholder support exists before significant changes to the Company’s corporate
or governance structure can be implemented. In fact, the Board intentionally
created these super-majority standards, in part, to protect all stockholders
from a single or small group of stockholders acting in their own self-interests.
The Board believes that a higher voting threshold for significant changes to the
Company’s corporate or governance structure is in the best long-term interests
of the Company and all of its stockholders.
Director
Election Majority Vote Standard
For the past five
years, the Company has received a similar proposal, and each year the proposal
has not passed. In light of these results and for the reasons provided below,
the Board believes that the Company’s current method of electing directors
continues to be in the best long-term interests of the Company and its
stockholders. The Company and its stockholders have a solid history of electing,
via plurality voting, a strong and independent Board:
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Over the past
ten years, the average affirmative vote for the directors has been greater
than 96%; and
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None of our
directors has ever received less than the majority of votes
cast.
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Further, the
Board,
in 2007, approved the
Director Resignation Policy, which addresses the concerns expressed in this
stockholder proposal. The
Director Resignation Policy provides that any director nominee who receives a
greater number of votes "withheld" than votes "for" will tender his or her
resignation for consideration by the Board. The Director Resignation
Policy provides stockholders a meaningful role in the election of directors and
allows the Board flexibility to exercise its independent judgment on a
case-by-case basis.
I urge you to give
these proposals particular attention and consider supporting Caterpillar - a
company with a strong history of ethical behavior, outstanding product
performance and strong corporate governance. Please vote AGAINST
these four stockholder proposals, as well as the other three stockholder
proposals found in our 2009 Proxy Statement.
Thank you again for
your consideration.
Sincerely,
/s/James W. Owens
James W.
Owens
Chairman &
CEO