Investment
Office
P.O. Box
2749
Sacramento, CA
95812-2749
Telecommunications
Device for the Deaf - (916) 795-3240
Telephone: (916)
795-2731; Fax (916) 795-2842
March 25,
2008
Dear Shareowner of
Eli Lilly & Co.:
I
am writing to you on behalf of the California Public Employees’ Retirement
System (CalPERS). CalPERS is the largest public pension system in the U.S. with
approximately $240 billion in assets. We manage retirement benefits and health
insurance on behalf of nearly 1.5 million members. CalPERS is a significant
long-term shareowner of Eli Lilly and Company (“Eli Lilly”) owning approximately
4.7 million shares.
We
are writing to call your attention to the Annual Meeting of Shareowners to be
held on April 21, 2008, and an important proposal that urges the Board to give
shareowners the right to amend the Company’s bylaws by a majority vote. CalPERS urges Eli Lilly shareowners
to vote “FOR” Proposal #7.
POOR LONG-TERM STOCK
PERFORMANCE & GOVERNANCE PRACTICES
|
Periods
Ending 2/29/08
|
Eli
Lilly & Co (LLY)
|
S&P
500 Index
|
LLY
Relative to S&P 500 Index
|
S&P
500 Health Care Index
|
LLY
Relative to S&P 500 Health Care Index
|
|
10
years
|
-6.49%
|
48.95%
|
-55.44%
|
49.21%
|
-55.70%
|
|
5
years
|
1.16%
|
73.31%
|
-72.15%
|
36.67%
|
-35.51%
|
|
3
years
|
-2.24%
|
16.99%
|
-19.23%
|
14.44%
|
-16.68%
|
*Source
Bloomberg
CalPERS believes
directors should be accountable to shareowners. Significant long-term total
stock return underperformance and the existence of egregious corporate
governance practices at Eli Lilly suggest an inappropriate level of board
accountability.
For example, Eli
Lilly:
|
•
|
Generated an
absolute total stock return of -6.46% over the last ten
years.
|
|
•
|
Underperformed
both the S&P 500 Index and the S&P 500 Health Care Index over the
three, five and ten year time periods ending February 29,
2008.
|
|
•
|
Shareowners
do not have the right to amend the company’s bylaws. Approximately 95% of
companies in the S&P 500 and the Russell 1000 allow shareowners this
right.
|
|
•
|
Shareowners
do not have the right to call special meetings, remove directors without
cause, or fill board
vacancies.
|
|
•
|
Even on
actions for which shareowners do have voting rights, many voting items
would require an 80% supermajority vote such as approving mergers or
business combinations (without board approval). The effect of this was
evident at the 2007 annual meeting, when a management supported proposal
to declassify the board failed after receiving support from 75% of the
outstanding shares.
|
VOTE FOR PROPOSAL #7 –
IMPROVE SHAREOWNER RIGHTS
Please take note of
Proposal #7 in Eli Lilly’s proxy statement, which we have submitted to urge the
company to give shareowners the right to amend the Company’s bylaws by a
majority vote.
CalPERS believes
that approval of proposal #7 will send a strong message to the management and
Board of Eli Lilly to make changes to its governance structure, while having a
positive impact on shareowner value. We believe that the higher the vote in
favor of this advisory proposal, the louder the message Eli Lilly will hear that
shareowners are serious about holding their director representatives
accountable.
YOU CAN HELP – VOTE “FOR”
PROPOSAL #7
|
•
|
Send a
powerful message by voting FOR proposal # 7 on Eli Lilly’s proxy
card
|
|
•
|
Furthermore,
we ask our fellow investors to publicize their vote to further unite and
encourage investors to support this campaign.
|
|
•
|
Do not be
misled. If you are a large holder and find yourself under pressure from
Eli Lilly management to vote against our proposal, ask yourself why
defeating this initiative – which is intended to improve board
accountability, shareowner rights, and shareowner value – is so important
to them.
|
Please refer to the
company’s proxy statement for more information. If you have any questions or
need assistance in voting your shares, call BNY Mellon Shareowner Services, who
is assisting us with this effort, at 201-680-5235.
Sincerely,
Dennis Johnson,
CFA
Senior Portfolio
Manager
PLEASE NOTE: The cost of this
solicitation is being borne entirely by CalPERS and is being done through the
use of one or more of the following forms of communication: mail, e-mail, and/or
telephone communication. CalPERS is not asking for your proxy card. Please do not send us your proxy card
but return it to the proxy-voting agent in the envelope that was provided to
you.