On May 7, 2013, Timken Co. announced that its shareholders approved a nonbinding proposal from activist shareholders (Relational Investors and Calstrs—California State Teachers’ Retirement System, who together own 7.28% of the Company) to spin-off the Company’s steel business into a separate entity. The Company’s Board had opposed the proposal.

The Company said that 47% of outstanding shares (53% of the shares voted) were voted in favor of the plan to create a separate company, while 41% of outstanding shares (47% of the shares voted) voted against the proposal.

In a joint statement released on May 7, 2013, Relational and Calstrs stated that Timken’s Board "must now acquiesce to the will of the shareholders consistent with their fiduciary duties."  On the same date, Chairman Tim Timken Jr. stated, "We appreciate the thoughtful feedback we’ve received from our shareholders on the spin-off proposal as well as their broader input on corporate governance and capital allocation. The board will carefully evaluate the views of our shareholders and announce next steps within 45 days."

The real work for the Timken Board now begins.  The Board will need to work through their fiduciary duties to act in the best interests of all their shareholders and determine an appropriate course of action.  Merely acquiescing to shareholders’ favoring the nonbinding proposal will not necessarily fulfill their fiduciary obligations.  Prior to the vote, as part of their fiduciary obligations, the Board determined that the proposal and subsequent spin-off were not in the best interests of the shareholders.  The real question for them now is, other than the vote which was by no means overwhelming, what has changed?  It is these types of situations that test the true mettle of a director.  Timken’s Board is between a rock and a hard place and there are no easy answers.