Director votes on “merit”, relocation cost to median employee ratios, and long-tenured lead directors

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of February 10, 2025 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Bath & Body Works’ New Anti-DEI Scrub

2. The present is female at Citigroup

3. BP has a profit tapeworm.

4. Shareholders continue to be pleased with pretty much everything.

5. And on the Big Votes, our top voting recommendations

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Trade Wire - BUY/SELL

Top Stories:

1. Is there a secret DEI purge going on at Bath & Body Works? Black woman Deon Riley ceased to serve as Chief Human Resources Officer without a succession planning process as “The Company will initiate a search to identify the Company’s next Chief Human Resources Officer.” Deon joined in December 2020.

2. Cloudflare now has two executive co-founders dominating its board: former COO but current President Michelle Zatlyn will be Co-Chair along with CEO Matthew Prince. The lead independent director is hardly independent: Scott Sandell joined the board one year after it was founded: 2010.

3. Citigroup continues to lean into its female board power as Titi Cole joins the board, meaning 8 of 14 directors are now women. And forgive me for celebrating something taboo in the new anti-DEI era but Titi is also the board’s only black woman.

4. Robin L. Washington is leaving Jakki Haussle all alone at the boys club known as the Vertiv Holdings board. Robin is the new COO and CFO at Salesforce. Robin has been on the Salesforce board since 2013, and was Lead Independent Director since 2022, which basically proves the fallacy that you can remain independent after serving on board so long. Along with her new dual role, Salesforce is giving her a hat full of $8.5M in Cash

5. Manhattan Associates gets to keep its monogrammed CEO hand towels as Eric Clark will succeed Eddie Capel as CEO. The new CEO will join the board with $3M in cash, $8M in stock and as a Class II director, meaning he won’t be up for his FIRST board election until 2027!

6. And finally, Skyworks Solutions’ new CEO Philip Brace, who is replacing Liam Griffin, will be welcomed with $30M in performance shares and $300,000 for relocation expenses. The relocation expenses alone represent a CEO pay ratio of 9:1 while the golden hello bonus of $30 million is 924 times greater than the median worker’s compensation. Let the power trip begin! 

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PROXY CAGE MATCH

1. Activist investor Elliott Investment Management has built a “significant” but undisclosed stake in oil major BP.

1. Elliott is expected to demand sweeping changes to BP, which could include ousting BP chair Helge Lund along with a revamped boardroom.

2. The changes are expected to include a further watering-down of BP’s climate commitments. CEO Murray Auchincloss said the company had already begun pursuing new fossil fuel projects and would restructure its low-carbon business.

3. All of this is due to an over-reactionary and short-term worship of profits which have dipped from a gigantic 14B pounds in 2023 to an enormous 9B pounds last year. 

2. Used auto-parts company LKQ is near a settlement deal with activist investor Ancora that would give the hedge fund seats on the company’s board

3. And U.S. activist fund Dalton Investments is calling for the resignation of longtime director Hisashi Hieda at Japan's Fuji Media Holdings, its latest response to a sex misconduct scandal involving a former host at Fuji Television Network.

1. Hieda is 85 and has served on the board since 1983.

2. But why stop there? There’s only one woman on this board so why not also get rid of Former Chair/CEO Masaki Miyauchi (20%) who has served since 2001. For starters.

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VOTE RESULTS TABLE 

Here are the highlights from 10 large cap annual meetings over the past two weeks:

1. Hormel Foods: all at least 94% support

2. Walgreens: Only 5% of votes wanted to punish the man responsible for Walgreens’ troubles, Stefano Pessina, less than the support for a SHP asking for a report on cigarette waste

3. Becton Dickinson: 99.5% YES Carrie Byington

4. Rockwell Automation: all 4 directors and Say on Pay about 15% NO

5. Jacobs Solutions: 4 directors over 99% support

6. Moog: boring

7. Emerson Electric: all directors received 98% support except Nominating Committee Chair Joshua Bolten, who is CEO of The Business Roundtable. 15% voted against him and it’s not really clear why. 

8. Atmos Energy: 99.5% YES Telisa Toliver

9. Tyson Foods: SHP to disaggregate shareholder voting results 13% YES; Barbara 94.3% vs John 93.7%; no Say on Pay vote

10. Franklin Resources: all directors at least 96%

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THE BIG VOTE PICKS

MATT

From Feb 18-Feb 21, there are 13 AGMs to cast votes on with 72 directors

We built an entire system to measure “merit” - that is, do directors have any three of the following:

• Advanced knowledge of the industry and its issues - we can look at where directors went to school, what they got degrees in, and what roles they had in their careers (including in which industries) and determine a base knowledge required to get to their level.  If their knowledge overlaps with knowledge required to be in the industry, we flag them as a knowledge expert.

• Leadership - easily enough, are they or were they CEOs or do they have experience across multiple boards or have a lot of influence on the board.

• Economic interest - are they a large shareholder, founder, family member, or put there by an activist.  Basically, this isn’t about what they know, but they have money at stake.

• Performance - do they have a track record on other boards of outperforming for investors - TSR or company earnings

• Network power - who do they know, on this board or others - and are the people they know powerful?

You’d put a person on the board for any one of those reasons, right?  They’re hugely connected - they know all the right people or have access to capital.  They’re CEOs and we love CEOs.  They’re super smart and knowledgeable.  They own the company.  Everywhere they go, stocks go up.  All good reasons.  For the purposes of what we’re doing, we’ll consider any THREE of those flags as someone who it would be hard to argue doesn’t merit a board slot.

At these 13 companies…

• A paltry 25% directors, on paper, merit board slots

• 33% have core industry knowledge, but nearly 50% have leadership experience

• Investors love “grizzled veterans”, but not tacticians?

• Surprisingly, 42% of the directors have strong performance - which is unusual, especially since 66% of the directors who have multiple board experience (just 24 of the 72) outperform.

• The multi-boarders are also leaning heavily on the fact that they are well networked - 63% have strong network power or connections on the boards

Top down take:

• High performing veterans with network connections > knowledge

Biggest gaps - the NO votes:

• Team that needs knowledge:

• Only 13% of Powell Industries’ board has core knowledge - Kathy Curtis, who has just under 5% influence

• Christopher Cragg, meanwhile, has 16 years of tenure, is an ex oil executive overseeing an electrical components company

• Most of the board are either Texas or ex oil - Mohit Singh is ex oil, worked at Shell, schooling in Texas, Richard Williams also ex Shell, lived in Houston, and Cragg is also Texas schooled and oil background.  James McGill went to Miami University, as did CEO and chair Cope

• Which leaves the two women - the CPA Brooks and the Virginia-based expert Curtis.  

• Cragg is duplicative and unnecessary, and long tenured.  Easy NO vote on Cragg.

• Worst performer in the group on TSR:

• Siemens Energy’s entire board basically underperforms, but maybe the worst is Jurgen Kerner who’s on 3 boards actively, bats .039 earnings, .170 TSR, and .170 on carbon, which is not great for a company whose web tagline is: “We support companies and countries to reduce emissions across the energy landscape – for a more reliable, affordable and sustainable energy system.”

• Vote NO on Jurgen

• Highly controversial:

• Siemens Siemens Siemens… some big human rights controversies, so you could write off the whole board if you want… Honestly, vote off the whole Siemens board.  They underperform as a unit, are highly controversial, and if you’re talking merit, they don’t have much.

• Outside of Siemens Energy - Raymond James Financial’s Tony Garcia, on 4 boards, 6% influence, bats .451 on controversies - the only director with multiple board slots outside of Siemens Energy that bats under .500 for controversies.  On a pure controversy basis, vote NO on Tony Garcia.

•  Least meritocratic:

• Daily Journal Corp is the weirdest company I’ve ever seen - Charlie Munger bought and joined the board in 1977 and used the company, which did small local papers and had nice cash flow putting out legally required public notices for titles, deeds, legal proceedings, etc, to buy stocks with its free cash flow

• It was like a really mediocre version of Berkshire, but now almost all of its profits are from securities Munger bought - and since he died, the company sucks at buying securities and is trying to mostly be a publication again… with a board that consists of not Mungers:

• Mary Conlin, ex marketing at Pixar, ex distribution at Warner Bros

• John Frank, VC at Oaktree Capital, ex partner at Munger, Tolles & Olson

• CEO Steven Myhill-Jones, Canada tech guy… from back in the day (was a founder in 1999 when he was 23 fresh out of college

• Rasool Rayani, just joined, ex President of Heart Pharmacy Group from Canada - moving on from Munger and toward Canadian friends of CEO?

• ZERO directors of merit on the local paper track, virtually none on the “we hold marketable securities” track… this board is just Munger hangers, but the asset might have value outside the securities for Vivek Ramaswamy in his Buzzfeed media stupidity

• Takeover target?  Board engagement?

• Vote NO on Conlin, Frank, Rayani and reconstitute?

DAMION

1. February 18

1. Hillenbrand $2B

1. Top performers overall: .707. Female board power led by CEO KimRyan with a +4% gender gap (3 of 4 most powerful directors are women.)

2. However, I’m tired of classified boards and so should you be. Vote against all members of any classified board starting now. Otherwise, advocate for actual performance criteria to properly assess board members every three years

3. At “only” $6.7M with a Pay Ratio of 125:1, CEO pay seems relatively sane.

2. Siemens Healthineers 64B EURO

2. February 19

1. Powell Industries $3B

2. Daily Journal Corp $600M

3. Metro AG 2B EURO

4. Bertrandt Aktiengesellschaft 200M EURO

3. February 20

1. Raymond James Financial $33B

1. Lead Director Jeffrey Edwards served for over a decade: automatic NO; that should take care of -12% gender gap: promote Marlene Debel to board chair (served since 2020; Risk Committee chair and Chief Risk Officer and Head of MetLife Insurance Investments) while splitting CEO/Chair role from CEO Paul Reilly and his overlarge influence (29%)

2. Pure cash bonus of nearly $12M is excessive

2. Matthews International $800M

1. Proxy contest: Barington Companies Equity Partners; 3 nominees:

1. Ana B. Amicarella, CEO of EthosEnergy, Maintenance of generators for power plants

2. Chan W. Galbato, formerly at Cerebus

3. James Mitarotonda, CEO at Barrington

2. I don’t love these nominees

3. Matthews is classified: vote for new nominee J. Michael Nauman, former CEO at Brady Corporation, but against Chair Alvaro Garcia-Tunon who has served since 2009. Strongly advocate to get rid of CEO Joseph C. Bartolacci, who has been in place since 2006.

3. IES Holdings $4B

4. TFS Financial $4B

1. Classified board

5. Siemens Energy AG 46B EURO

6. Infineon Technologies AG $50B

4. February 21

1. MarineMax $700M

1. Classified board

DAMION:

That’s the Proxy Countdown for the week of February 10, 2025. Join us next week when we jump back into the Alternative Democracy pool... forever on the lookout for shareholder sharks and wayward directors drinking rancid water.

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