CVS/Caremark Dissidents Fail To Defeat Directors

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, May 10, 2007

NEW YORK, May 9 -- Two candidates for CVS/Caremark's board of directors won election Wednesday but faced intense opposition from shareholder groups dissatisfied with Caremark's handling of a recent merger with CVS.

The directors who were elected, Roger L. Headrick and C.A. Lance Piccolo, had been subjects of a campaign led by CtW Investment Group, which said the two former Caremark directors in particular had failed to protect the interests of shareholders when they oversaw its merger with CVS.

CtW, which works with pension funds on shareholder issues, also contends that the two directors may have received backdated options, a charge that CVS/Caremark denies. The Securities and Exchange Commission is investigating.

Former directors of CVS, nation's second-largest drugstore chain, and Caremark Rx, a pharmacy-benefit manager, make up the board of the merged company. The transaction closed in March. Institutional Shareholder Services, a proxy advisory firm, said replacing Headrick and Piccolo would provide greater oversight.

Still, the majority of shareholders who voted at the company's annual meeting in Woonsocket, R.I., disagreed. CVS/Caremark announced that all 14 nominees to the board were reelected, with at least 55 percent of the votes.

The company said a tally would be released pending a final tabulation. But CtW said 44 percent of shares were cast against Headrick and 33 percent against Piccolo.

If accurate, Headrick's election would be the narrowest victory yet for a candidate to a board of directors in a season that has been filled with challenges from activist shareholders. Last month, New York Times Co. shareholders withheld 42 percent support from four of its directors.

William Patterson, CtW's executive director, called Wednesday's vote the "strongest rebuke" against Headrick and Piccolo and called on CVS/Caremark to "act immediately to restore shareholder confidence."

"Shareholders are now watching closely for corporate insiders who are making billions in the merger-and-acquisition boom at their expense," Patterson said in a statement. "Fraud and insider profit-taking are galvanizing real organized opposition to a growing list of boardroom failures."

Headrick and Piccolo declined comment through CVS/Caremark representatives. Carolyn Castel, a spokesman for the company, said it would not comment beyond the release, in which Chairman E. Mac Crawford praised the quality of the elected slate.

But the company noted in a recent statement that Headrick and Piccolo were members of the Caremark board during a period when the company provided shareholders with good returns.

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