How to use data for the height of proxy season, plus Paramount and Norfolk updates
PROXY COUNTDOWN SCRIPT
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This is Proxy Countdown. Welcome to the big show for the week of April 29, 2024 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:
Paramount CEO Bob Bakish replaced by an “Office of the CEO.”
Unions and Proxy Advisers weigh in at the Norfolk Southern proxy cage match
Glass Lewis has an opinion about the Boeing board
At AGM votes, directors keep their jobs
And on the Big Vote, we try something different
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Trade Wire - BUY/SELL
Top Stories:
CEO Kevin Hourican is consolidating power at Sysco Corporation after board chair Edward Shirley announced he is stepping down for health reasons. Now that the CEO is also the chair, Larry Glasscock will become Lead Independent Director. So why not just make Mr. Glasscock the chair in the first place?
Marvell Technology, despite having only three female directors with a combined 6% influence, is appointing two more male members to its board: Rick Wallace and Daniel Durn.
William P. Stengel, II will be the new CEO at Genuine Parts. Before you get too excited, however, former CEO Paul Donahue will remain on the board as its Executive Chair
Padraig McDonnell is the new CEO at Agilent Technologies as Michael McMullen is retiring. And yes, he is actually leaving the board, so have at it Padraig.
Matthew Bromberg is the new CEO at Unity Software. Just for showing up he will receive a golden hello bonus of $2M in cash and over 3 million restricted stock units and stock options. Two-thirds of that equity award is not tied to performance of any kind.
CEO Bob Bakish is out at Paramount Global and will be replaced by a three-headed monster called Brian Robbins, Chris McCarthy and George Cheeks in what is being called the “Office of the CEO.”
According to reports, Bakish alienated Shari Redstone, chair of Paramount and CEO of National Amusements, which controls 77% of Paramount’s voting stock.
According to Fortune, Bakish lost Redstone’s loyalty in a way that echoes the treatment she endured at the hands of her father, billionaire media mogul Sumner Redstone. The elder Redstone was known to belittle her in meetings in front of executives, badmouth her in the press, and undercut her chances at succeeding him in the CEO role. The Wall Street Journal reported Bakish reportedly went behind Redstone’s back in floating a potential streaming partnership with Comcast earlier this year, which Redstone said was a bad deal for the company and could complicate a potential sale—which she is eager to complete.
Paramount is currently mired in one of the most dramatic corporate takeover battles in recent memory, with dueling offers from a group led by Oracle founder Larry Ellison’s son David’s Skydance Media, and a $26 billion joint bid from Sony and private equity firm Apollo.
Skydance’s proposal would pay Redstone a hefty premium for her voting shares, allowing it to take control of National Amusements and Paramount without having to offer non-voting Paramount shareholders anything except equity.
Apollo’s proposal would offer every shareholder a smaller premium, more popular with Bakish and with Paramount’s broader investor base, but it would result in a much smaller windfall for Redstone, who also controls enough of a voting stake in the company that she could potentially block it.
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PROXY CAGE MATCH
Let’s start at Boeing where Proxy Adviser Glass Lewis is recommending a vote against CEO Dave Calhoun
Glass Lewis is also targeting Audit Committee chair Akhil Johri, who has been the board since only 2020 and Aerospace Safety Committee chair David Joyce, the former CEO at GE Aviation who has been on the board since only 2021
Glass Lewis is also recommending that Boeing shareholders vote to approve Say on Pay for 2023 compensation, despite the fact that CEO Calhoun’s pay package rose about 45% to nearly $33 million.
The battle at Norfolk Southern has some new opinions
ISS’ Taft-Hartley Advisory Services and Social Advisory Services, which focus their recommendations on regulated unions and socially-responsible investors respectively, said in their reports that investors should back Norfolk Southern activist Ancora and its CEO pick Jim Barber, saying that an Ancora majority would help address “negligence” by the current board and address its “serious concerns with accountability.”
On the other hand, ISS’ main advisory arm endorsed only five of Ancora’s seven nominees, withholding support for Acora’s proposed CEO Jim Barber, but noting that he would likely be a capable executive as well.
ISS did, however, recommend that shareholders withhold support from incumbent board chair Amy Miles while also endorsing current CEO Alan Shaw’s reelection
Glass Lewis recommended that shareholders support six of Ancora’s seven nominees earlier this week, including CEO pick Barber.
Significantly, the proxy advisory also recommended that shareholders withhold their support from both current CEO Shaw and board chair Amy Miles.
Finally, the Brotherhood of Locomotive Engineers and Trainmen (BLET) Teamsters said they would back activist Ancora’s efforts to oust Norfolk Southern CEO Alan Shaw in favor of new management
It’s the second union endorsement for the activist’s seven-director slate and is unprecedented at an activist railroad campaign. This comes after support from the Brotherhood of Maintenance of Way Employees (BMWED) Teamsters
It means roughly half of the unionized workforce at Norfolk Southern is supporting Ancora.
After news of Ancora’s union support broke, a coalition of nearly a dozen unions reiterated their support for Norfolk Southern management.
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VOTE RESULTS TABLE
Moving over to our vote results table, AGM season is in full swing:
I looked at 36 large cap AGM vote results:
13 were complete nothings
Only four directors received more than 20% votes against:
Global Payments’ Joseph Osnoss 26% NO
Snap-on’s David Adams 22% NO
Charter Communications’ Gregory Maffei 20% NO
Carlisle Companies’ Maia Hansen 20% NO
That’s it! So that’s roughly 4/360=1%
Other than that, there were only 19 directors over 10%, or 19/360=5%
Some directors are so wonderful that shareholders couldn’t contain themselves:
At HP, ALL directors received between 98.7% and 99.7% in support of their election
Newmont Corporation was similar: All directors between 97.49% and 99.62%
And at NRG Energy, former EVP Kevin Howell is wonderful to the tune of 99.8% of the vote
Not much going on in Say on Pay either:
Only eight were over 10% NO, and of those only one was above 17%: Citizens Financial Group with 37% of voters saying NO on Pay.
Despite that, all directors received at least 93% of the vote, including the members of the Pay Committee
Finally, let’s look at some notable shareholder proposals:
As far as the anti-ESG ones are concerned: I don’t care anymore. They are walking hate crimes and get very little support
4 independent chair proposals were oddly consistent: 31%, 33%, 35%, 32%. Those were at Bank of America, Textron, Pfizer, and Kellanova
The only climate-related proposals that gained any traction were the ones at Bank of America:
disclosure of clean energy financing ratio (26%)
report on lobbying alignment with Bank of America’s climate goals (27%)
Near misses include the right to call a special meeting at Texas Instruments and Cigna Group: 46% and 48%
And finally, this spring’s clear winner so far: the simple majority vote:
Just missed at Fastenal (41%)
But big wins at Teledyne Technologies (81%) and Eversource Energy (93%)
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THE BIG VOTE
Here’s the problem:
There are 79 US large cap companies with AGMs in the next 7 days
They have 849 directors to vote on
How is an investor – even an institutional investor with a stewardship team and hundreds of thousands of dollars worth of data – supposed to have an informed vote on all those directors at once?
Right now, those decisions are generally decided by policy or by proxy advisor or both
Vote against nominating chairs for poor diversity on the board…
Vote against compensation chairs for outsized CEO pay…
Vote against chair when they don’t follow through with a SHP vote that passed last year…
OR, vote with ISS or Glass Lewis since they supposedly do the analysis (full of “maybe” and “probably”)
So let’s try a big data approach instead and set out some bare minimum requirements – focusing on non-totalitarian boards first – there are 57 of them, which is 72% of the group
FIRST…
Boards should represent investors – directors need a minimum of independence
Boards should have necessary experience – executives shouldn’t be the only board members with relevant industry experience
Boards shouldn’t have obvious red flags – a history of restatements, a history of poor investor returns
It brings us to a new problem – when we look at boards where NONE of those are issues, we’re left with only 4 companies out of the 57.
In fact, fully 42 of the 57 non-totalitarian boards have members who sat on boards that restated financials in their past. 28 of them – basically half - have independence problems, defined as either 50% or more of the board is connected or 50% of the influence or more is controlled by insiders. 18 have zero directors with experience in the actual industry of the company they’re on the board of.
So on every board with a problem – which in this case is all but 4 – a vote against someone is definitely warranted to make a spot for a different team player.
On top of that, we have some pretty amazing BASIC problems and outliers that warrant voting on. Things like people above mandatory retirement ages with lots of influence, or super long tenured lead directors that aren’t actually independent, or directors with history of restatements sitting on audit committees.
COMPANIES WITH PROBLEMS
The worst of the problem companies in the next 7 days:
GENERAL ELECTRIC COMPANY
UBER TECHNOLOGIES, INC.
ARTHUR J. GALLAGHER & CO.
COLGATE-PALMOLIVE COMPANY
CSX Corporation
WEC ENERGY GROUP, INC.
Each have an independence, experience, AND performance problem – here are targets:
Arthur Gallagher
CEO/chair/Gallagher kid Pat Gallagher has 49% influence, just under “totalitarian” but ridiculous
Been on the board with David Johnson for 20 years and Bill Bax for 18 years, with average company tenure at 14 years – the three control 67% of board influence
For their efforts, investors have gotten a strong TSR and weak earnings, but multiple restatements
Bill Bax is over the average mandatory retirement age for SP500 companies, to boot
Break up the power trio, bring in new directors -
Vote AGAINST Bax
Vote AGAINST Johnson
Uber
All short tenured directors thanks to Kalanik’s failure, but the Ron Sugar stamp of connectivity is all over this board
Ursula Burns and Sugar have 7 loops back to the board, primarily with and through Bob Eckert and Wang Ling Martello – ALL of whom are on the nominating committee
Sugar has higher influence than CEO Dara, which happens infrequently and usually indicates a board-led company – and Sugar has a history of controversies
When Uber needed a professional board of adults post-Kalanik, this may have been the answer, but now it needs uncompromised independence and to shed an ongoing set of controversial business activity
It’s a self serving board picking its own friends to join them – just over 50% of board influence held by the nominating committee
Break up the ringleaders and bring in actual independent directors without damaging the fact that the board has power over management
Vote AGAINST Ron Sugar
GE
Ed Garden, despite getting on the board via Trian and Nelson Peltz, has 12 loops back to other board members and is highly connected to them
His board history, including Wendy’s and BNY, has resulting in a NEGATIVE market cap value add of -$563m, and a decidedly average .501 TSR batting average
Meanwhile, Sebastian Bazin has 8 flags for restatements across all his boards and Steve Angel is a former executive at GE, and Garden and Angel combined have higher influence than Culp
Trian’s role here is over
Vote AGAINST Ed Garden
Colgate
Noel Wallace, the CEO with 25% influence, has been with Colgate since 1987 – and is on the board with THREE current and former lead “independent” directors, two of whom (John Cahill and Steve Sadove) have 19 and 17 years tenure, are the most connected to other directors, and Sadove has more influence than current lead director Lorrie Norrington
Cahill has a -$3.4bn cap value added in his career and a company worst .286 TSR batting average
Only one director on the board has actual experience in Colgate’s business lines directly
THREE ex lead directors is TWO too many
Vote AGAINST Sadove
Vote AGAINST Cahill
CSX
Joe Hinrichs, the new CEO, barely ekes out not one but TWO directors for influence – he has 17% to Suzanne Vautrinot’s 15% and John Zilmer’s 15%
Vautrinot has 5 restatements to her name and a -$2bn in cap value added
There is NO ONE with direct rail experience on the board except Hinrichs – in fact, 44% of board experience is finance and law – and zero non exec in transportation, much less trains
Vautrinout is on the audit committee and is a lawyer by trade
Vote AGAINST Vautrinot
WEC
Gale Klappa is exec chair while Lauber is CEO, but Klappa is sitting on a board he’s been on for 20 years with TWO other directors who have been there 20 years in Ulice Payne and Curt Culver
Payne is connected to other directors in 15 different ways
Payne is pay chair and pays BOTH Klappa and Lauber
Klappa is NOT the founder – there is no reason to have an exec chair that isn’t the founder if you want to empower the current CEO
Payne is the worst performer for TSR on the board batting 418
Vote AGAINST Payne
Vote AGAINST Klappa
DIRECTOR OUTLIERS
Long tenured non-executives, non-founders… the “why are you still here?” crowd, special 30 year edition
Mike Smith, 18% influence, Zebra Technologies - ex chair, current lead “independent” director, on the board for 33 years, nom chair, pay committee, not a founder
Leo Coleman, 21% influence, Omnicom – lead “independent” director, nom and comp committees, 31 years tenure, connections to other board members, average TSR at 508
David Preiser, 17% influence, NVR – pay and nom committees
Jack Welch the board… the “bottom 10%ers”
Peter Wilver, 8% influence, Baxter International - on 3 boards and somehow managed a .102 TSR batting average despite a .439 EBITDA
Norman Wright, 6% influence, First Solar - on 2 boards, bats .179 for TSR
The overnetworked and overworked…
Alex Cutler, 22% influence, Keycorp - 22 loops back to the company and nom chair and lead “independent” director - clearly choosing friends after 24 years on the board
Melanie Healy, 9% influence, Verizon - 12 years on the board and 21 board loops
SUMMARY:
Vote AGAINST…
Bill Bax, Arthur Gallagher
David Johnson, Arthur Gallagher
Ron Sugar, Uber
Ed Garden, GE
Steve Sadove, Colgate
John Cahill, Colgate
Zan Vautrinaut, CSX
Gale Klappa, WEC
Ulice Payne, WEC
Mike Smith, Zebra Technologies
Leo Coleman, Omnicom
David Presier, NVR
Peter Wilver, Baxter
Norman Wright, First Solar
Alex Cutler, Keycorp
Melanie Healy, Verizon
That’s 16 votes against in a pool of 854 candidates where we don’t even bother with totalitarian, family run, dual class, fake public, single influencer boards - or 16 votes of 618 non-totalitarian board members
That would increase the vote against rate from an average of 0.2% to 1.8% - how is it aggressive to suggest a mere 1.8% of directors are either not the right fit or have had a chance and should make room for new directors? Create vacancies?
League 4:
May 4
Berkshire Hathaway
League 4
Stock up overall but down 5% in last month
Munger sadness and “final days” of buff mark turnaround from 4-year low of 93.9%
May 8
Advanced Micro Devices
League 4
$207 in March; $144 today: suggests downward trending
20023 AGM stock was in steady climb since October 2022
DAMION:
That’s the Proxy Countdown for the week of April 29, 2024. Join us next week when we jump back into the Alternative Democracy pool... forever on the lookout for shareholder sharks, floating bandaids, and wayward directors.
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