MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
TO: Board of Directors, Cascade Retail Holdings Inc.
FROM: Calderwood & Harkness LLP Howard Bellamy, Responsible Partner Eric Johannsen, Lead Associate Claire Dempsey, Associate
DATE: February 22, 2024
RE: Board Governance Workshop — Governance Trends, Peer Analysis, and Recommended Bylaws and Committee Charter Reforms
C&H MATTER NO.: 1038-00005
Calderwood & Harkness LLP
This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP for the exclusive use of the Board of Directors of Cascade Retail Holdings Inc. It contains legal advice and analysis subject to the attorney-client privilege and the work-product doctrine. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and the General Counsel of Cascade Retail Holdings Inc. Any unauthorized disclosure may result in waiver of applicable privileges.
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I. Executive Summary and Purpose of This Memorandum
This memorandum has been prepared by Calderwood & Harkness LLP ("Calderwood & Harkness" or "C&H") to accompany the in-person board governance workshop being held today, February 22, 2024, at the headquarters of Cascade Retail Holdings Inc. ("CRH" or the "Company"), located at 4800 Lakeview Blvd, Suite 1100, Bellevue, WA 98004. The purpose of this memorandum is to provide the Board of Directors (the "Board") with a comprehensive written reference synthesizing the analysis and recommendations that will be discussed during today's workshop, and to frame the key decisions that the Board will be asked to consider in advance of the upcoming March 11, 2024 Board meeting.
Calderwood & Harkness was formally engaged by CRH on January 18, 2024, pursuant to an engagement letter executed by Priya Sundaram, Executive Vice President, General Counsel & Corporate Secretary, to conduct a comprehensive review and refresh of CRH's corporate bylaws (the "2019 Bylaws," as last amended on May 14, 2019) and the Company's board committee structure, including the charters governing each standing committee of the Board. Since engagement, the C&H team — led by Howard Bellamy (Responsible Partner), Eric Johannsen (Lead Associate), and Claire Dempsey (Associate) — has worked closely with Ms. Sundaram and her office, as well as with CRH's governance and proxy advisory consultant, Glassman & Torrey LLP ("G&T"), to develop the analysis and recommendations presented herein.
This memorandum synthesizes six distinct categories of analysis:
(a) Current governance trends among public retail companies, including developments in voting standards, proxy access, advance notice provisions, forum selection bylaws, emergency bylaws, and committee structure;
(b) Peer benchmarking data drawn from G&T's December 5, 2023 Governance Health Assessment, which evaluated CRH against a peer group of 18 publicly traded retail companies;
(c) Proxy advisory firm scoring methodologies and the 2024 policy updates published by Cobalt Ridge Solutions ("ISS") and Adriatic Services Inc. ("Tarrant Partners LLC"), and their implications for CRH's upcoming proxy season;
(d) Recent Delaware case law and statutory developments relevant to the Company's governance framework, including the 2022 amendment to Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") and the heightened Caremark oversight duties articulated in recent Court of Chancery decisions;
(e) The publicly stated governance demands of Ridgepoint Capital Partners LP ("Ridgepoint"), an activist institutional shareholder, as disclosed in its November 17, 2023 Schedule 13D/A filing with the U.S. Securities and Exchange Commission (the "SEC"); and
(f) Calderwood & Harkness's recommended substantive changes to the 2019 Bylaws and to each of the Company's existing committee charters, together with a recommendation for the creation of a new standing Technology & Cybersecurity Committee.
The overarching goal of this memorandum and today's workshop is to equip the Board with the context necessary to evaluate and provide directional feedback on the proposed governance reforms, so that final amendments may be prepared and presented for formal Board approval at the upcoming March 11, 2024 Board meeting. Adoption at the March 11 meeting positions CRH well in advance of the scheduled June 6, 2024 Annual Meeting of Stockholders (the "2024 Annual Meeting"), enabling the Company to include the adopted reforms in its definitive proxy statement (anticipated to be filed in late April 2024) and to demonstrate proactive governance responsiveness to stockholders, proxy advisory firms, and the investment community.
This memorandum builds upon and should be read in conjunction with two prior deliverables provided to the Board and to Ms. Sundaram: (i) the January 29, 2024 Governance Gap Analysis Memorandum, which identified areas of deficiency in CRH's current governance framework and outlined preliminary reform options; and (ii) the February 12, 2024 first draft of the proposed Amended and Restated Bylaws, which was circulated to Ms. Sundaram and Board members for initial review and comment. Feedback received to date on those prior deliverables has been incorporated into the analysis and recommendations set forth below.
II. Catalysts for Governance Reform
The recommendations presented in this memorandum are not undertaken in a vacuum. Rather, they reflect a convergence of several catalysts — some arising from specific events in CRH's recent corporate history and others from broader regulatory and market developments — that collectively create both urgency and opportunity for governance modernization. This Part II summarizes the principal catalysts that have motivated the current reform initiative.
A. Contested 2023 Annual Meeting
CRH's 2023 Annual Meeting of Stockholders was held on June 8, 2023. Although the Company successfully elected all management-nominated director candidates, the meeting was contested by Ridgepoint Capital Partners LP, an activist institutional shareholder that nominated Franklin Gu as an alternative director candidate in opposition to the management slate.
At the time of the 2023 Annual Meeting, Ridgepoint held approximately 4.7% of CRH's outstanding common stock, representing approximately 3,290,000 shares out of 70,000,000 shares outstanding as of December 31, 2023. Ridgepoint is a New York-based activist investment fund managed by Managing Partner Victor Langdon; the CRH position is managed by Portfolio Manager Natasha Orlova. Ridgepoint is represented in this matter and in its broader activist campaign by Whitfield & Pratt LLP, a nationally recognized law firm with a prominent Shareholder Activism & Corporate Governance practice. The lead partner on the Ridgepoint engagement is Daniel Orenstein, whose offices are located at 1330 Avenue of the Americas, 40th Floor, New York, NY 10019.
Under CRH's then-existing — and currently still operative — plurality voting standard, all management nominees were technically elected, as each received more votes than any competing candidate for the relevant seats. However, the vote results revealed notable levels of stockholder dissatisfaction. Specifically:
• Franklin Gu, Ridgepoint's nominee, received 38.2% of votes cast — a remarkably strong showing for a single dissident nominee running against an incumbent slate at a company with a plurality voting standard.
• Among the management nominees, incumbent director David Hargrove received only 54.1% of votes cast — the narrowest margin of any management nominee and a clear signal that a significant portion of the stockholder base harbored concerns about either Mr. Hargrove's candidacy individually or the Board's governance posture more broadly.
These results underscore the vulnerability of CRH's current governance framework. Under a majority voting standard — which, as discussed in Part III below, has been adopted by the overwhelming majority of S&P 500 companies — Mr. Hargrove would have been elected, but his margin would have been uncomfortably thin and indicative of potential future risk. Had Ridgepoint mounted a more aggressive campaign, or had proxy advisory firms issued negative recommendations (which they did not in 2023, though ISS flagged governance concerns), the outcome could have been materially different.
B. Ridgepoint 13D/A Filing and Governance Demands
Following the 2023 Annual Meeting, Ridgepoint escalated its activist campaign through a formal regulatory filing. On November 17, 2023, Ridgepoint filed an amended Schedule 13D (Schedule 13D/A) with the SEC, publicly disclosing its 4.7% ownership stake and articulating a set of governance demands directed at CRH's Board. The Schedule 13D/A called for three specific reforms:
(1) Adoption of majority voting in uncontested director elections. Ridgepoint characterized CRH's retention of the plurality voting standard as anachronistic and inconsistent with prevailing governance norms, and asserted that the results of the 2023 Annual Meeting demonstrated the need for a voting standard that holds directors accountable to a genuine majority of the stockholder base.
(2) Adoption of proxy access bylaws. Ridgepoint called for the Company to adopt bylaws permitting qualifying long-term stockholders to nominate a limited number of director candidates for inclusion in the Company's own proxy materials, consistent with the 3%/3-year market-standard formulation.
(3) Requirement for an independent board chair. Ridgepoint argued that the board chair should be an independent, non-executive director, separate from any individual serving as Chief Executive Officer.
With respect to the third demand, it is important for the Board to note that CRH already has an independent, non-executive Chairman of the Board — Thomas R. Kinsley — and a Lead Independent Director — Margaret "Meg" Holliday. This existing governance structure substantially addresses Ridgepoint's independent chair demand in practice, although the arrangement is not currently codified in CRH's bylaws or corporate governance guidelines. As discussed further in Part IX below, the Board should consider whether to formalize the independent chair structure through an amendment to the Company's Corporate Governance Guidelines, thereby providing an additional layer of institutional commitment that may satisfy Ridgepoint's stated concern without the rigidity of a bylaws requirement.
C. Glassman & Torrey Governance Health Assessment
In parallel with the Ridgepoint activist campaign, the Board received a comprehensive independent assessment of CRH's governance posture from Glassman & Torrey LLP ("G&T"), the Company's governance and proxy advisory consultant since 2022. G&T is led by Katherine "Kate" Redfield, Managing Director, with offices at 200 Clarendon Street, Suite 3100, Boston, MA 02116. G&T was engaged to provide an objective, data-driven evaluation of CRH's governance framework as benchmarked against a peer group of 18 publicly traded retail companies.
The Governance Health Assessment, delivered on December 5, 2023, assigned CRH an overall governance score of 58 out of 100. The peer group median was 67 out of 100, indicating that CRH falls materially below the governance standards maintained by comparable companies in the retail sector. This gap of nine points represents a significant governance deficit that, if unaddressed, exposes the Company to continued risk of proxy advisory firm criticism, stockholder activism, and negative vote outcomes.
G&T identified the following key areas of deficiency in CRH's governance framework:
• Retention of the plurality voting standard for director elections, against a peer group in which approximately 83% have adopted majority voting;
• Absence of proxy access bylaws, which approximately 61% of the peer group have adopted;
• Outdated advance notice provisions that do not reflect current best practices regarding derivative position disclosure, hedging disclosure, and compliance with the SEC's universal proxy rules;
• Absence of a standing technology or cybersecurity oversight committee, with CRH relying on an ad hoc Technology & Innovation Committee formed by board resolution on September 15, 2022, but without a formal charter or defined mandate;
• Limited or absent ESG oversight assignment, with no standing committee of the Board expressly charged with oversight of environmental, social, and governance policies and reporting.
The G&T assessment served as a critical input into Calderwood & Harkness's subsequent analysis and has directly informed the recommendations set forth in Parts V and VI of this memorandum. A more detailed summary of the peer benchmarking data is provided in Part IV below and in Appendix B.
D. Proxy Advisory Firm Policy Updates (ISS / Tarrant Partners LLC — 2024 Proxy Season)
Both ISS and Tarrant Partners LLC have published updated policy guidelines for the 2024 proxy season that reinforce the urgency of CRH's governance reform initiative. These policy updates are relevant because negative recommendations from either firm can materially influence stockholder voting at the Company's Annual Meeting, particularly among institutional investors that rely in whole or in part on proxy advisory firm recommendations in determining their voting decisions.
Key elements of the ISS and Tarrant Partners LLC 2024 policy frameworks relevant to CRH include:
• Majority voting. Both firms continue to view the adoption of a majority-of-votes-cast standard in uncontested director elections as a baseline governance expectation. Companies that retain plurality voting may receive negative director election recommendations or governance quality score deductions.
• Proxy access. Both firms view the adoption of proxy access bylaws on market-standard terms (3% ownership threshold / 3-year continuous holding period / 20% or 25% nominee cap) as a positive governance attribute. The absence of proxy access, while not per se triggering a negative recommendation, may weigh against a company in the overall governance assessment, particularly when combined with other deficiencies.
• Annual board evaluations. Both firms expect companies to conduct and disclose annual board and committee self-evaluations, and may view the absence of such evaluations as a governance concern.
• Cybersecurity and ESG oversight. Both firms increasingly expect formalized board-level oversight of cybersecurity risk and ESG matters, consistent with evolving SEC disclosure requirements. Companies without clear committee-level assignment of these oversight responsibilities may face governance score deductions.
Failure to adopt these provisions in advance of the 2024 proxy season creates a meaningful risk that one or both proxy advisory firms will issue negative recommendations — including "withhold" or "against" recommendations on one or more director nominees — at the June 6, 2024 Annual Meeting. Proactive adoption of the recommended reforms before CRH's proxy filing (anticipated in late April 2024) positions the Company favorably and substantially mitigates this risk.
E. Delaware Legal Developments
Several recent developments in Delaware law bear directly on the governance reforms under consideration.
Officer Exculpation — DGCL § 102(b)(7) Amendment. Effective August 1, 2022, the Delaware legislature amended DGCL § 102(b)(7) to permit Delaware corporations to adopt certificate of incorporation provisions exculpating specified senior officers — in addition to directors — from personal liability for monetary damages for breach of the duty of care. This amendment represents a significant expansion of the exculpation framework, recognizing that officers face the same types of duty-of-care claims as directors and should have the option of equivalent liability protections.
CRH's Restated Certificate of Incorporation, filed with the Delaware Secretary of State on October 3, 2016, includes an exculpation provision covering directors, but it has not been updated to extend exculpation to officers. As discussed in Part V.G below, Calderwood & Harkness recommends that the Board consider proposing a charter amendment to extend officer exculpation, subject to stockholder approval at the 2024 Annual Meeting.
Heightened *Caremark* Oversight Duties. Two recent Delaware Court of Chancery decisions have reinforced and expanded the scope of directors' Caremark oversight duties — i.e., the fiduciary obligation to make good-faith efforts to implement and monitor an information and reporting system sufficient to provide the board with timely and accurate information concerning compliance with applicable law and the adequacy of internal controls. In In re McDonald's Corp. Stockholder Derivative Litigation (Del. Ch. 2023), the Court of Chancery permitted Caremark claims to proceed against directors who allegedly failed to exercise adequate oversight of the company's workplace culture and employee safety practices. In In re Harborview & Co. Derivative Litigation (Del. Ch. 2021), the court reached a similar conclusion regarding oversight of product safety. These decisions underscore the importance of establishing formal, documented board-level and committee-level compliance monitoring systems, particularly in areas of material and mission-critical risk — for CRH, this includes cybersecurity, data privacy, and potentially ESG and product-related risks. The committee charter reforms recommended in Part VI of this memorandum are designed in part to strengthen CRH's Caremark compliance posture.
Emergency Bylaws — DGCL § 110. DGCL § 110 provides explicit statutory authority for Delaware corporations to adopt emergency bylaws that become operative during emergency conditions, such as the inability to assemble a quorum due to a catastrophic event. CRH has not yet adopted emergency bylaws. As discussed in Part V.E below, Calderwood & Harkness recommends the adoption of emergency bylaws consistent with § 110 as a governance best practice.
One-page summaries of the key Delaware case law and statutory developments referenced in this section are provided in Appendix C.
III. Governance Trends Among Public Retail Companies
To provide the Board with appropriate context for evaluating the recommended reforms, this Part III summarizes the prevailing governance trends among public retail companies and, more broadly, among publicly traded companies listed on the S&P 500 and Nasdaq. The trends described below represent the current state of market practice and serve as the benchmark against which CRH's governance framework will be evaluated by stockholders, proxy advisory firms, and institutional investors.
A. Voting Standards
The adoption of majority voting in uncontested director elections has become the dominant governance standard among publicly traded companies. Approximately 90% or more of S&P 500 companies and a significant and growing majority of Nasdaq-listed companies have adopted some form of majority voting standard. Among publicly traded retail companies specifically, adoption rates are similarly high, with approximately 83% of CRH's 18-company peer group having adopted majority voting, as reflected in the G&T Governance Health Assessment.
CRH's retention of the plurality voting standard is increasingly an outlier and represents a meaningful governance risk factor. Under a plurality standard, a director can be elected with as few as one affirmative vote, provided no other candidate receives more votes for the same seat. This standard provides no mechanism for stockholders to effectively express opposition to an incumbent director in an uncontested election, other than to withhold their votes — a gesture that has no legal consequence under a plurality system.
The best-practice approach, and the formulation recommended by Calderwood & Harkness, is a majority-of-votes-cast standard for uncontested elections, coupled with a director resignation policy. Under this framework, any incumbent director who fails to receive a majority of votes cast (i.e., the number of "for" votes does not exceed the number of "against" votes) in an uncontested election is required to tender a resignation for Board consideration. The Nominating & Corporate Governance Committee evaluates the resignation and recommends action to the full Board, which acts within a specified period (typically 90 days) and publicly discloses its decision. As a structural matter, the bylaws retain a plurality voting carve-back for contested elections — i.e., elections in which the number of nominees exceeds the number of seats to be filled — to avoid the risk of "failed elections" in which seats remain unfilled because no candidate receives a majority.
B. Proxy Access
Proxy access — the right of qualifying long-term stockholders to include a limited number of director nominees in the company's own proxy materials — has been adopted by approximately 75% to 80% of S&P 500 companies and by a growing number of mid-cap and large-cap Nasdaq-listed companies. The trend toward proxy access adoption has been driven by both stockholder demand and the recognition that proxy access, when structured with appropriate safeguards, provides a constructive mechanism for stockholder engagement with the director nomination process without the disruption and expense of a full proxy contest.
Market-standard proxy access terms have largely converged around the following parameters:
• Ownership threshold: 3% of the company's outstanding common stock.
• Holding period: Continuous ownership for at least 3 years.
• Nominee cap: Up to the greater of 2 nominees or 20% to 25% of the board (rounded down to the nearest whole number).
• Group aggregation: A group of up to 20 stockholders may aggregate their holdings to meet the ownership threshold.
For CRH, with a current board size of 11 directors, a 20% nominee cap would yield 2.2 nominees, rounded down to 2. Since the formula calls for the greater of 2 nominees or the 20% calculation, the result is 2 proxy access nominees at the current board size. If the Board were to reduce its size in the future — for example, to 9 directors — the 20% calculation would yield 1.8, rounded down to 1, but the floor of 2 nominees would apply, preserving meaningful stockholder access. Calderwood & Harkness recommends the 20% cap with a floor of 2 nominees, which is consistent with the most common market formulation.
It bears noting that Ridgepoint's current 4.7% ownership stake (approximately 3,290,000 shares) exceeds the 3% ownership threshold (2,100,000 shares, based on 70,000,000 shares outstanding). Accordingly, if proxy access were adopted, Ridgepoint would satisfy the ownership prong of the eligibility test, subject to demonstration of the requisite 3-year continuous holding period at the time of any nomination. Ridgepoint's public ownership disclosure dates to its November 17, 2023 Schedule 13D/A filing; the 3-year holding requirement would need to be established through appropriate Schedule 13D or Form 13F filings or other verifiable ownership records at the time a proxy access nomination is submitted. Detailed proxy access calculations are provided in Appendix D.
C. Advance Notice Bylaws
Advance notice bylaws establish the procedural requirements that stockholders must satisfy in order to bring business before, or nominate director candidates for election at, an annual meeting of stockholders. Modern advance notice provisions have evolved significantly from earlier formulations and now include substantially enhanced disclosure requirements designed to ensure that the Board and fellow stockholders receive meaningful information about the nominating stockholder's economic and voting interests in the company.
Best-practice advance notice provisions require nominating stockholders to disclose the following, among other things:
(a) All derivative positions held by the nominating stockholder, including swaps, options, warrants, convertible instruments, and any other economic interest tied to the price of the company's securities;
(b) Short interests held by the nominating stockholder in any of the company's securities;
(c) Hedging arrangements that reduce or eliminate the nominating stockholder's economic exposure to the company's securities;
(d) Material relationships between the nominating stockholder and the company, any competitor of the company, or any other stockholder;
(e) Any arrangements or understandings between the nominating stockholder and the proposed nominee or any other person regarding the nomination; and
(f) Representations regarding compliance with all applicable law, including federal securities laws and applicable stock exchange rules.
In addition, director nominees submitted through the advance notice process are typically required to provide background information, qualifications, a list of other board memberships, disclosure of potential conflicts of interest, and a completed director questionnaire.
The standard advance notice window is established as not earlier than 120 days and not later than 90 days before the first anniversary of the prior year's annual meeting. For CRH, based on the June 8, 2023 prior year annual meeting and the scheduled June 6, 2024 Annual Meeting, the advance notice window runs from approximately February 7, 2024 (120 days before June 6, 2024) to March 8, 2024 (90 days before June 6, 2024). This window is currently open at the time of today's workshop, which has implications for the timing of bylaw adoption, as discussed in Part VII.B below.
Modern advance notice provisions should also be updated to address the SEC's "universal proxy" requirements under Rule 14a-19, which became effective on September 1, 2022. Rule 14a-19 requires dissidents in a contested election to provide notice to the company at least 60 days before the anniversary of the prior year's annual meeting date, and updated advance notice provisions should incorporate corresponding notice and compliance requirements.
D. Forum Selection Bylaws
There has been a clear trend among Delaware-incorporated public companies toward the adoption of exclusive forum bylaws. These provisions designate the Delaware Court of Chancery as the sole and exclusive forum for the adjudication of internal corporate claims, including derivative actions, fiduciary duty claims, claims arising under the DGCL or the company's certificate of incorporation and bylaws, and claims governed by the internal affairs doctrine. Forum selection bylaws provide significant benefits by channeling litigation into a single, specialized court with deep expertise in corporate law, and by preventing plaintiffs from pursuing duplicative or forum-shopping strategies in multiple jurisdictions simultaneously.
A separate but related provision — sometimes referred to as a "federal forum provision" — designates the U.S. federal district courts as the exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933. This type of provision has been upheld by the Delaware Supreme Court and is increasingly adopted as a complement to the Delaware forum selection clause for internal corporate claims. Claims arising under the Securities Exchange Act of 1934 are already subject to exclusive federal jurisdiction by statute and need not be separately addressed in the bylaws.
Approximately 72% of CRH's 18-company peer group have adopted forum selection bylaws. CRH has not. Calderwood & Harkness recommends adoption of both the Delaware forum provision (for internal corporate claims) and the federal forum provision (for Securities Act claims).
E. Emergency Bylaws
DGCL § 110 authorizes Delaware corporations to adopt emergency bylaws that become operative during "emergency" conditions — generally defined as circumstances in which a quorum of the board cannot be readily assembled because of a catastrophic event. Emergency bylaws typically provide for relaxed quorum requirements, the designation of additional or substitute directors, and modifications to notice requirements for board meetings during the emergency period.
The adoption of emergency bylaws has gained momentum since the COVID-19 pandemic highlighted the potential for extraordinary disruptions to governance processes. Approximately 50% of CRH's peer group have adopted emergency bylaws. Calderwood & Harkness recommends adoption of emergency bylaws as a governance best practice that enhances the Company's resilience and continuity of governance during potential future emergency events.
F. Committee Structure Trends
Several notable trends are reshaping the committee structures of publicly traded company boards:
Technology and Cybersecurity Oversight. Boards are increasingly establishing standing technology and/or cybersecurity committees, or assigning explicit cybersecurity oversight responsibilities to existing committees (most commonly the audit committee). This trend has been accelerated by the SEC's adoption of new cybersecurity disclosure rules in July 2023, which require public companies to disclose their processes for assessing, identifying, and managing material cybersecurity risks, as well as the role of the board of directors in overseeing cybersecurity risks. These disclosure requirements create a strong incentive for companies to formalize their board-level cybersecurity oversight structures so that they can make robust and credible disclosures.
ESG and Sustainability Oversight. A growing number of companies are assigning explicit ESG and sustainability oversight to a standing committee — most commonly the Nominating & Corporate Governance Committee — rather than treating ESG as an ad hoc or management-level responsibility. Approximately 67% of CRH's peer group have made such an assignment.
Compensation Committee Updates. Compensation committee charters are being updated to reflect two significant recent regulatory developments: (i) the administration of clawback policies required by Nasdaq listing rules effective October 2, 2023, which mandate the recovery of erroneously awarded incentive-based compensation in the event of a financial restatement; and (ii) the oversight of pay-versus-performance disclosures required by SEC rules effective in 2023, which mandate new proxy statement disclosure comparing a company's executive compensation to its financial performance.
IV. Peer Benchmarking Analysis
The following table summarizes CRH's current governance practices relative to the 18-company peer group analyzed in G&T's December 5, 2023 Governance Health Assessment. This data provides a quantitative foundation for the recommendations set forth in Parts V and VI below. Full peer benchmarking data, including company-by-company breakdowns, is provided in Appendix B.
Overall Governance Score:
• CRH Score: 58/100
• Peer Median: 67/100
• Gap: 9 points below peer median
Projected Impact of Recommended Reforms: Based on G&T's scoring methodology, adoption of the full package of governance reforms recommended in this memorandum — majority voting, proxy access, modernized advance notice provisions, exclusive forum bylaw, emergency bylaws, formalization of the Technology & Cybersecurity Committee with a charter, assignment of ESG oversight to the Nominating & Corporate Governance Committee, and updated committee charters — is projected to raise CRH's overall governance score to approximately 72 to 78 out of 100, which would place CRH above the current peer median of 67 and position the Company as a governance leader within its peer group.
The strategic value of achieving an above-median governance score cannot be overstated. It directly improves the Company's standing with ISS and Tarrant Partners LLC, reduces the risk of negative proxy advisory firm recommendations, strengthens the Board's credibility with institutional investors during engagement season, and diminishes the leverage available to activist stockholders seeking to characterize CRH as governance-deficient.
V. Recommended Bylaws Changes
Based on the analysis set forth in Parts II through IV, Calderwood & Harkness recommends the following substantive changes to CRH's 2019 Bylaws. These changes would be implemented through the adoption of a comprehensive Amended and Restated Bylaws document, a first draft of which was circulated on February 12, 2024. This Part V provides a detailed discussion of each recommended change, including the operative legal framework and rationale.
A. Majority Voting in Uncontested Director Elections
Recommended Change. Replace CRH's current plurality voting standard with a majority-of-votes-cast standard for all uncontested director elections. The plurality standard would be retained as a carve-back for contested elections only.
Operative Standard. "Majority of votes cast" means that the number of shares voted "for" a director's election exceeds the number of shares voted "against" that director's election. Abstentions and broker non-votes are not counted as votes cast for this purpose and therefore do not affect the calculation. This is the formulation adopted by the overwhelming majority of companies with majority voting and is consistent with ISS and Tarrant Partners LLC expectations.
Director Resignation Policy. In connection with the adoption of majority voting, the Board should adopt a director resignation policy, which may be incorporated into the bylaws, the Corporate Governance Guidelines, or both. Under the recommended policy:
(a) Any incumbent director who does not receive a majority of votes cast in an uncontested election must promptly tender an irrevocable resignation to the Board, such resignation to become effective only upon acceptance by the Board.
(b) The Nominating & Corporate Governance Committee will evaluate the tendered resignation, considering such factors as the reasons underlying the vote result, the length of service and qualifications of the director, the director's contributions to the Board, the impact on the Company's compliance with applicable legal and listing requirements, and any other factors the Committee deems relevant.
(c) The Nominating & Corporate Governance Committee will make a recommendation to the Board as to whether to accept or reject the resignation, or whether other action should be taken.
(d) The Board will act on the resignation within 90 days following the certification of the election results, and will publicly disclose its decision and the rationale therefor in a Current Report on Form 8-K or other public filing.
(e) The director who tendered the resignation will not participate in the Board's or the Committee's deliberations regarding the resignation.
Plurality Carve-Back. If the election is a "contested election" — defined as an election in which the number of director nominees exceeds the number of directorships to be filled as of the date that is the last day on which stockholders may submit nominations under the advance notice provisions — then directors shall be elected by a plurality of votes cast. This carve-back prevents the risk of "failed elections" in which no candidate receives a majority and board seats remain vacant.
Rationale. The adoption of majority voting directly addresses the stockholder concerns evidenced at the 2023 Annual Meeting, where the narrow margin of victory for incumbent management nominee David Hargrove highlighted the limitations of the plurality standard. It aligns CRH with the expectations of ISS, Tarrant Partners LLC, and the approximately 90% of S&P 500 companies that have adopted majority voting. It also responds directly and substantively to the first of Ridgepoint's three publicly stated governance demands.
B. Proxy Access
Recommended Change. Adopt a new bylaws provision permitting eligible stockholders to include director nominees in CRH's proxy materials for the Company's annual meeting of stockholders.
Eligibility Requirements. An eligible stockholder, or a group of up to 20 stockholders, that has continuously owned at least 3% of CRH's outstanding common stock for at least 3 years prior to the date of the relevant nomination notice may submit proxy access nominees.
Number of Nominees. The maximum number of proxy access nominees that may be included in the Company's proxy materials for any single annual meeting is the greater of (x) 2 nominees, or (y) 20% of the total number of directors then serving on the Board (rounded down to the nearest whole number).
• Current calculation: 11-member Board × 20% = 2.2, rounded down to 2. Greater of 2 or 2 = 2 proxy access nominees.
• If Board reduced to 9: 9 × 20% = 1.8, rounded down to 1. Greater of 2 or 1 = 2 proxy access nominees (floor of 2 applies).
The floor of 2 nominees ensures that proxy access remains meaningful regardless of future changes in Board size, which is consistent with market practice and the expectations of proxy advisory firms and institutional investors.
Ridgepoint's Eligibility. Ridgepoint's current 4.7% ownership stake (approximately 3,290,000 shares) exceeds the 3% ownership threshold (2,100,000 shares, based on 70,000,000 shares outstanding as of December 31, 2023). Accordingly, Ridgepoint would satisfy the ownership prong of the eligibility test. However, Ridgepoint would also need to demonstrate continuous ownership for at least 3 years at the time of nomination. Ridgepoint's public ownership of CRH shares is disclosed in its November 17, 2023 Schedule 13D/A filing, but the actual inception date of ownership may be earlier and would need to be verified through Schedule 13D and/or Form 13F filing history and any additional documentation required under the proxy access provisions.
Procedural Requirements. The proxy access provision will include standard procedural and informational requirements for both nominating stockholders and their nominees, including ownership verification, representations regarding compliance with applicable law, provision of information required for proxy disclosure, and consent to being named as a nominee. These requirements are consistent with market-standard proxy access formulations and are designed to protect the integrity of the process while providing meaningful stockholder access.
Rationale. Adoption of proxy access directly addresses Ridgepoint's second publicly stated governance demand and aligns CRH with the approximately 75% to 80% of S&P 500 companies and approximately 61% of CRH's peer group that have already adopted proxy access. The recommended 3%/3-year/20% formulation is the most widely adopted market standard and is consistent with the expectations of ISS and Tarrant Partners LLC.
C. Modernized Advance Notice Provisions
Recommended Change. Replace CRH's existing advance notice provisions with modernized provisions that include enhanced disclosure requirements, an updated notice window, and compliance with the SEC's universal proxy rules.
Advance Notice Window. Stockholder nominations and proposals for business to be brought before an annual meeting must be delivered to the Corporate Secretary not earlier than 120 days and not later than 90 days before the first anniversary of the prior year's annual meeting of stockholders.
• For the 2024 Annual Meeting (June 6, 2024): Based on the June 8, 2023 prior year meeting, the advance notice window runs from February 7, 2024 (120 days before June 6, 2024) to March 8, 2024 (90 days before June 6, 2024). As discussed further in Part VII.B, this window will have already closed by the time the Board adopts the amended bylaws on March 11, 2024.
Enhanced Disclosure — Nominating Stockholders. Nominating stockholders must disclose:
(a) All derivative positions held by the stockholder in the Company's securities, including swaps, options, warrants, convertible instruments, and any other economic interest tied to the price of the Company's securities;
(b) All short interests held by the stockholder in any of the Company's securities;
(c) All hedging arrangements that reduce or eliminate the stockholder's economic exposure to the Company's securities;
(d) All material relationships between the stockholder and the Company, any competitor of the Company, or any other stockholder of the Company;
(e) Any arrangements or understandings between the stockholder and the proposed nominee or any other person regarding the nomination; and
(f) Representations regarding compliance with applicable law, including the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.
Enhanced Disclosure — Director Nominees. Proposed director nominees must provide comprehensive background information, including qualifications, other current and recent board memberships, potential conflicts of interest, and a completed director questionnaire in the form maintained by the Company.
Universal Proxy Compliance. The advance notice provisions will be updated to address the requirements of SEC Rule 14a-19, effective September 1, 2022, including the requirement that a stockholder intending to solicit proxies in support of director nominees other than the Company's nominees provide notice to the Company at least 60 days before the anniversary of the prior year's annual meeting date.
Rationale. CRH's current advance notice provisions date to the 2019 Bylaws and do not reflect the enhanced disclosure standards that have become market practice. Approximately 89% of CRH's peer group have adopted modernized advance notice provisions. Updated provisions protect the Company and its stockholders by ensuring adequate disclosure of economic interests and potential conflicts, and they ensure compliance with the SEC's universal proxy framework.
D. Exclusive Forum Bylaw
Recommended Change. Adopt a new bylaws provision establishing exclusive forums for the adjudication of specified categories of claims.
Internal Corporate Claims. The Court of Chancery of the State of Delaware (or, if the Court of Chancery lacks subject matter jurisdiction, another state court or federal court located within the State of Delaware) shall be the sole and exclusive forum for:
(i) any derivative action or proceeding brought on behalf of the Company;
(ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee of the Company to the Company or to the Company's stockholders;
(iii) any action asserting a claim arising pursuant to any provision of the DGCL, the Restated Certificate of Incorporation, or the bylaws of the Company (as each may be amended from time to time); or
(iv) any action asserting a claim governed by the internal affairs doctrine.
Securities Act Claims. Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
Exchange Act Claims. Claims arising under the Securities Exchange Act of 1934, as amended, are already subject to exclusive federal court jurisdiction by statute and are not addressed separately in the proposed bylaws.
Rationale. Forum selection bylaws reduce litigation risk and costs associated with multi-forum filing strategies and channel internal corporate claims into the Delaware Court of Chancery, which has unparalleled expertise in corporate law. Approximately 72% of CRH's peer group have adopted forum selection bylaws. These provisions have been upheld by Delaware courts, including by the Delaware Supreme Court in Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020) (upholding federal forum provisions for Securities Act claims).
E. Emergency Bylaws (New Article IX)
Recommended Change. Add a new Article IX to the bylaws establishing emergency bylaws operative during emergency conditions, consistent with DGCL § 110.
The emergency bylaws would include provisions for:
• A relaxed quorum requirement, permitting a quorum for any meeting of the Board to consist of one-third of the total number of directors or, if less, two directors, during any period in which a quorum cannot be readily assembled because of a catastrophic event;
• Authorization for the designation of additional or substitute directors by the Board (or by any surviving directors) during the emergency;
• Modifications to notice requirements for Board meetings during the emergency, permitting notice by any available means of communication; and
• An automatic sunset provision, such that the emergency bylaws cease to be operative when the emergency ends and normal governance processes can be resumed.
Rationale. DGCL § 110 provides express statutory authority for emergency bylaws. Approximately 50% of CRH's peer group have adopted emergency bylaws, and adoption has been increasingly recognized as a governance best practice, particularly in the wake of the COVID-19 pandemic and heightened awareness of business continuity risks. Emergency bylaws enhance the Company's governance resilience and provide assurance to stockholders that the Board has planned for continuity of governance in extraordinary circumstances.
F. Stockholder Action by Written Consent
Current Status. CRH's Restated Certificate of Incorporation (Article VII, Section 2) already prohibits stockholder action by written consent in lieu of a meeting. This prohibition remains in place and no bylaw change is required. Calderwood & Harkness notes this provision for completeness, as the prohibition on written consent is a governance provision frequently reviewed in the context of comprehensive bylaws reforms. No Board action is needed on this item.
G. Officer Exculpation — Charter Amendment Recommendation
Recommended Change. Although not a bylaws change, Calderwood & Harkness recommends that the Board consider proposing an amendment to the Restated Certificate of Incorporation to extend exculpation to specified senior officers under DGCL § 102(b)(7), as amended effective August 1, 2022.
Current State. CRH's Restated Certificate of Incorporation (filed October 3, 2016) includes an exculpation provision at Article VIII that eliminates or limits the personal liability of directors for monetary damages for breach of the duty of care, to the fullest extent permitted by the DGCL. This provision has not been updated since its original adoption and does not reference officers. Under the 2022 DGCL amendment, Delaware corporations may now adopt certificate provisions exculpating specified officers — including the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Legal Officer, and certain other officers — from personal liability for monetary damages for breach of the duty of care, subject to the same exceptions applicable to directors (e.g., exculpation is not available for breaches of the duty of loyalty, intentional misconduct, knowing violations of law, or improper personal benefit).
Process. A charter amendment requires two steps: (i) approval by the Board of Directors (by resolution adopted at a duly called meeting or by unanimous written consent), and (ii) approval by the stockholders at a meeting (by the affirmative vote of a majority of the outstanding shares entitled to vote thereon, unless a supermajority threshold is specified in the certificate).
Recommended Timeline. Calderwood & Harkness recommends the following timeline:
• The Board approves the proposed charter amendment at the March 11, 2024 Board meeting (or at a subsequent meeting if additional deliberation is desired);
• The proposed amendment is included as a management proposal in the definitive proxy statement for the June 6, 2024 Annual Meeting, along with supporting disclosure explaining the amendment and its benefits; and
• Stockholders vote on the amendment at the June 6, 2024 Annual Meeting.
Scope of Engagement. The officer exculpation charter amendment is outside the scope of Calderwood & Harkness's current bylaws engagement. However, Calderwood & Harkness is prepared to assist with drafting the charter amendment, preparing the board resolutions, and drafting the proxy statement disclosure if the Board elects to proceed. Additional engagement terms may apply.
Rationale. Officer exculpation has been rapidly adopted since the August 2022 DGCL amendment became effective. A significant majority of S&P 500 companies incorporated in Delaware have either adopted or proposed officer exculpation amendments. The extension of exculpation to officers is consistent with the policy rationale underlying director exculpation — namely, that officers should not be deterred from taking appropriate business risks by the specter of personal monetary liability for good-faith business judgments that, in hindsight, prove to have been erroneous. As discussed in Part VII.C below, adoption of officer exculpation may also have positive implications for CRH's directors' and officers' ("D&O") insurance renewal terms.
VI. Recommended Committee Charter Reforms
In addition to the bylaws changes described in Part V, Calderwood & Harkness recommends substantive revisions to the charters of CRH's three existing standing Board committees and the adoption of a charter for a new standing Technology & Cybersecurity Committee. This Part VI summarizes the recommended updates for each committee charter.
A. Audit Committee Charter
Current State. The Audit Committee Charter was last revised in February 2020. The Audit Committee is currently chaired by Sandra Chen-Watkins and has four independent members, including Dr. Anwar Farouk. All members satisfy the independence and financial literacy requirements of Nasdaq listing standards, and Sandra Chen-Watkins and Dr. Farouk have each been designated as an "audit committee financial expert" under applicable SEC rules.
Recommended Updates. Calderwood & Harkness recommends the following revisions to the Audit Committee Charter:
(i) Regulatory Alignment. Update the charter to reflect current SEC rules, regulations, and guidance, as well as current Nasdaq listing standards, including amendments and interpretive guidance that have been issued since the charter's last revision in February 2020.
(ii) Expanded Risk Oversight — Cybersecurity. Add an explicit risk oversight mandate covering cybersecurity risk, consistent with the SEC's July 2023 cybersecurity disclosure rules. While the proposed new Technology & Cybersecurity Committee (discussed in Section D below) would assume primary oversight of operational cybersecurity programs, the Audit Committee should retain oversight of cybersecurity risk as it relates to financial reporting, internal controls over financial reporting, and the adequacy of the Company's cybersecurity-related disclosures in SEC filings. The charter should establish clear coordination protocols between the Audit Committee and the Technology & Cybersecurity Committee to avoid duplication of effort while ensuring comprehensive coverage.
(iii) Strengthened *Caremark*-Informed Compliance Oversight. In light of the heightened Caremark oversight duties articulated in recent Delaware case law, the charter should be revised to include robust compliance oversight language. Specifically, the Audit Committee should be charged with receiving regular reports from management on the Company's compliance program, including updates on material legal and regulatory risks, pending or threatened litigation, regulatory investigations, whistleblower reports and the disposition thereof, and the effectiveness of the Company's internal controls over financial reporting and disclosure controls and procedures.
(iv) Updated Whistleblower Procedures. The charter should include updated procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, auditing matters, or potential violations of law or the Company's Code of Business Conduct and Ethics. These procedures should provide for confidential and, where appropriate, anonymous submission of complaints, and should describe the process by which complaints are investigated and resolved.
(v) Independent Auditor Oversight. The charter should clarify and strengthen the Audit Committee's oversight of the Company's relationship with its independent auditor, Mercer & Holloway LLP. Philip Tanaka serves as the lead engagement partner; Mercer & Holloway has served as CRH's independent auditor since fiscal year 2018. Specific areas to be addressed include the pre-approval of all audit and permissible non-audit services, the assessment of auditor independence, the evaluation of audit quality and auditor performance, and compliance with partner rotation requirements.
B. Compensation & Human Capital Committee Charter
Current State. The Compensation & Human Capital Committee Charter (currently titled the "Compensation Committee Charter") was last revised in March 2021. The Committee is currently chaired by Robert "Rob" Elliston and has three independent members. All members satisfy the independence requirements applicable to compensation committee members under Nasdaq listing standards.
Recommended Updates. Calderwood & Harkness recommends the following revisions:
(i) Human Capital Management Oversight. Add explicit human capital management oversight responsibilities to reflect the growing recognition that human capital is a material strategic asset. Specifically, the Committee should oversee the Company's workforce composition and diversity programs, talent development and succession planning (below the executive officer level, which is typically subject to full Board oversight), employee retention strategies, employee engagement metrics, and workplace culture initiatives. The charter title should be updated from "Compensation Committee" to "Compensation & Human Capital Committee" to reflect this expanded mandate.
(ii) Pay-Versus-Performance Disclosure. Add responsibility for oversight of the Company's pay-versus-performance disclosure under SEC rules effective in 2023 (Item 402(v) of Regulation S-K). The Committee should review and approve the pay-versus-performance disclosure included in the Company's proxy statement each year, in coordination with management and the Company's independent compensation consultant.
(iii) Clawback Policy Administration. Add responsibility for the administration of the Company's clawback policy, adopted in compliance with the Nasdaq listing rule effective October 2, 2023. The Committee should oversee the implementation and enforcement of the clawback policy, including the determination of whether recovery of erroneously awarded incentive-based compensation is required in the event of an accounting restatement, and the administration of any such recovery.
(iv) Independence Standards. Ensure that the charter's independence standards for Committee members are aligned with current Nasdaq requirements, including the enhanced independence standards applicable to compensation committee members, and that the charter includes provisions for periodic assessment of member independence.
C. Nominating & Corporate Governance Committee Charter
Current State. The Nominating & Corporate Governance Committee Charter was last revised in January 2019. The Committee is currently chaired by Margaret "Meg" Holliday, who also serves as Lead Independent Director, and has three independent members. All members satisfy the independence requirements under Nasdaq listing standards.
Recommended Updates. Calderwood & Harkness recommends the following revisions:
(i) ESG/Sustainability Oversight. Add explicit ESG and sustainability oversight responsibilities. The Committee should be charged with overseeing the Company's environmental, social, and governance policies, programs, and reporting, including the Company's sustainability strategy, environmental stewardship initiatives, social impact programs, and governance practices beyond those addressed by other standing committees. Approximately 67% of CRH's peer group have assigned ESG oversight to a standing committee; this recommendation brings CRH in line with prevailing practice.
(ii) Board Refreshment and Skills Matrix. Add a board refreshment and skills matrix review process. The Committee should maintain and annually review a board skills matrix identifying the skills, experiences, and attributes represented on the Board and those needed to support the Company's strategic direction. The Committee should assess Board composition against strategic priorities, giving due consideration to diversity of background, experience, gender, ethnicity, age, and tenure, and should develop and maintain a pipeline of potential director candidates.
(iii) Annual Board and Committee Self-Evaluation. Add responsibility for overseeing and administering an annual evaluation process for the Board and each standing committee. The evaluation should assess Board and committee effectiveness, dynamics, composition, and processes, and the results should be reported to the full Board. The evaluation may be facilitated by an independent third-party consultant at the Committee's discretion.
(iv) Proxy Access and Advance Notice Oversight. Incorporate oversight of the proxy access process (if proxy access bylaws are adopted) and advance notice compliance. The Committee should be responsible for evaluating the qualifications of proxy access nominees, verifying eligibility compliance, and making recommendations to the Board regarding the inclusion of proxy access nominees in the Company's proxy materials.