Is Parker Hannifin the most parochial board ever? Also, Pfizer’s activist “defense” and Champions Oncology’s superstar

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of October 14, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. The Qualcomm board smells a lot more like Hewlett Packard

2. An early Christmas at Motorola Solutions

3. Pfizer is playing defense with a man named Mortimer

4. A moral victory for Arjuna Capital at The Procter & Gamble annual meeting

5. And on the Big Vote, Matt waxes poetic about Parker-Hannifin, the company you think you might of heard of at one point

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Trade Wire - BUY/SELL

Top Stories:

1. The QUALCOMM board has added Hewlett Packard Enterprise CFO Marie Myers. This is a positive development for fellow QUALCOMM board member Ann Livermore, who also comes from Hewlett Packard.

2. Two AutoZone directors are stepping down: D. Bryan Jordan and Enderson Guimaraes. This is a positive development for our very own Matt Mosicardi who suggested Jordan be voted out at their last annual meeting.

3. F5 increases from F3 to F5 as two women are joining the board: Julie Gonzalez and Maya McReynolds, both of whom will join the Audit Committee. F3 to F5, get it?

4. After just four months of board tenure, Ekta Singh-Bushell has decided to step down from the board of Cisco Systems. That’s it. No other information from the company. Maybe because the board is dominated by 89% influence from six male directors? This includes a male CEO, a male Chair, a male Lead Director, a male Audit Committee chair, a male Compensation Committee chair, and yes, you can see where this is going, a male Nomination Committee chair. Even the chair of the Environmental, Social, and Public Policy Committee is a man, the former CEO of the world's largest weapons manufacturer, Wesley Bush from Northrop Grumman. 

5. The Compensation Committee at Motorola Solutions has announced an early Christmas for all employees named Chief: CEO and Chair Gregory Q. Brown’s equity grants will now include an extra $5 million.

1. Similarly, “special retention grants” valued at $12 million each will be given to CFO Jason J. Winkler, COO John P. Molloy, and CTO Mahesh Saptharishi. 

6. And lastly, Mortimer J. Buckley is joining the board of Pfizer.

1. Mortimer is the former CEO of The Vanguard Group, not to be confused with Mortimer Duke, one of the two controlling founders of "Duke & Duke Commodities Brokers” alongside his brother Ranolph Duke.

2. According to one report, Randolph and Mortimer are both greedy, ruthless, and dishonest, and both believe that their wealth and social status entitles them to do whatever they want, with no consequences.

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PROXY CAGE MATCH

1. Pfizer is playing a bit of defense in its ongoing battle with activist investor Starboard Value by adding Mortimer Buckley to the board. “Tim” is the former CEO of Vanguard, Pfizer's biggest investor with 9% of voting power. Buckley's appointment was announced one day before Pfizer and Starboard Value are scheduled to meet.

1. It was just last week that Starboard accused Pfizer of threatening litigation against two renegade former executives–Former CEO Ian Read and former CFO Frank D’Amelio–that initially were supportive of the investor’s turnaround campaign at the pharmaceutical giant.

2. Activist investor Bluebell Capital Partners has called for BP chair Helge Lund to quit. Bluebell  co-founders, Guiseppe Bivona and Marco Taricco, described the petrochemical giant’s recent performance as “unacceptably dire” and “embarrassing”, voicing particular concerns about the lack of clarity from leadership around its long-term approach to fossil fuels.

1. Bluebell wants BP to be more fossil fuel-hungry like rivals Shell and Exxonmobil. Last week, Reuters claimed the firm had abandoned its target to cut oil and gas output by 40 per cent by 2030. And in June, CEO Murray Auchincloss paused all recruitment and new projects in its renewable division.

2. Bluebell, which has already successfully campaigned for the removal of Danone’s boss Emmanuel Faber and Hugo Boss chief Mark Langer, said that while reports of BP watering down its focus on renewables was welcome, the lack of clarity was “indefensible and utterly outrageous”.

3. And lastly, Activist investor Palliser Capital is Pushing for Change at AI Chip Investor SK Square. It wants to add board members with more asset-management experience and to tie executive pay to company performance.

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VOTE RESULTS TABLE 

1. The winner of the week is Champions Oncology director Scott Tobin, who received the support of 99.99% of shares voted at the company’s annual meeting.

1. A bunch of those votes came from Tobin himself, who controls 18% of voting power.

2. In case you are keeping score, it was 9,167,706 votes FOR Tobin and only 508 NO.

3. To put the love for Scott into perspective, 4 other directors received over 10% NO votes.

1. I should also add that this is one of my favorite company names: Champions Oncology. Kind of says it all.

2. They also have a wonderfully candid Board Diversity Matrix:

1. There are some pissed off shareholders at BioNexus Gene Lab Corp

1. About 60% NO for:

1. Su-Leng Tan Lee

1. CEO, Acting CFO, and Director

2. Muhammad Azrul bin Abdul Hamid

1. Chairman of the Compensation Committee, Chairman of the Corporate Governance and Nominating Committee

3. Chee Keong Yap

1. Chairman of the Audit Committee

2. Shareholders are clearly pissed off about the company’s stock price which is currently 38 cents.

Large (leagues 3&4)

1. At RPM International, the company needed at least 80% of outstanding shares to vote yes to require the annual election of Directors: they got 80.2%. That must have been a fun champagne-soaked celebration.

2. And at The Procter & Gamble Company, a shareholder proposal from Arjuna Capital requesting a report on both quantitative median and adjusted pay gaps across race and gender received the support of 30% of shareholders. Another moral victory considering Vanguard and BlackRock control more than 16% of the vote.

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THE BIG VOTE

Parker-Hannifin

AGM Date: October 23 , 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Institutional

1. Vanguard 8%

2. BlackRock 7%

2. Individual

1. n/a

2. Performance outliers: (vs. industry)

1. Overall: .642 (.583)

1. Jennifer Parmentier .805

2. Lance Fritz .445

2. EBITDA .686 (.473)

1. Jennifer Parmentier .819

2. Laura Thompson .466

3. TSR .541 (.447)

1. n/a

4. Carbon .487 (.483)

1. Lance Fritz .116

5. Controversies .789 (.805)

1. Lance Fritz .123

1. Board stuff

1. Committees

1. Audit (a)

2. Corporate Governance and Nominating (n)

3. Human Resources and Compensation (c)

2. Skills

1. (Non-Executive Directors)

1. Economics and Accounting (25%)

2. Building and Construction (15%)

3. Mechanical (9%)

4. Medicine and Dentistry (5%)

2. (Executive Directors)

1. Building and Construction (12%)

2. Mechanical (4%)

3. Diversity Gaps

1. Female Power Gap 45%/53% (8%)

1. Industry average female influence = %

4. Insider influence: %

1. Industry average %

5. Other

1. 5 of last 7 appointed directors women

2. Lots (7) of “lifer directors”: Fritz, Harty, Lobo, Parmentier, Thompson, Verrier, Wainscott

3. Director movement

1. Lee C. Banks retired 12/31/23

2. Thomas L. Williams retired from board and as Exec Chair 12/31/23

3. Åke Svensson retiring 10/23/24

1. mandatory Director retirement policy

4. Jillian C. Evanko retiring 10/23/24

Matt:

Parker

• $82bn market cap

• 64% US sales/ops, 36% non-US

• 10% of revenue is defense contracts

• Industrial parts

• CEO Parmentier has the following sexy background: worked in Motion Systems Group, Engineered Material group, Instrumentation group, Hose Products division, Fluid Connectors group, Trane residential systems

• Stock go up, no one selling (buy rec overall)

Standard “we hired a consultant to look innovative” strategy

• The “Win Strategy”... which they trademarked (???!!!)

• One of the goals is “ESG” - which is not a goal or a thing

• “Kaizen” is Japanese incremental improvement theory of business

• Not unionized

This company is so boring as to be deceiving - it’s a Fortune 250 and SP500 company

Proposal 1: Election of  Directors

Annual Elections for ALL 14 directors? YES

NOMINEES

1. Denise Russell Fleming 54 f 2023 na 5%

1. Chief Information Officer Becton, Dickinson & Company

2. Other Public Company Directorships (current in bold): None

3. Votes Against Last AGM: 1%

1. Lance M. Fritz 61 m 2021 cn 6%

1. Former Chair/CEO Union Pacific Corporation

2. Other Public Company Directorships (current in bold):

1. Fiserv Inc. (since 2024)

2. Union Pacific Corporation (former) (2015-2023)

3. Votes Against Last AGM: 3%

1. Linda A. Harty 64 f 2007 na 11%

1. Former Treasurer Medtronic plc and Cardinal Health

2. Other Public Company Directorships (current in bold):

1. Westinghouse Air Brake Technologies Corporation (Wabtec) (since 2016)

2. Chart Industries, Inc. (since 2021)

3. Syneos Health, Inc. (former) (2017-2023)

3. Votes Against Last AGM: 9%

1. Kevin A. Lobo 59 m 2013 cA 11%

1. Chair/CEO Stryker Corporation

2. Other Public Company Directorships (current in bold):

1. Stryker (since 2012)

3. Votes Against Last AGM: 3%

1. Jennifer A. Parmentier 57 f 2023 19%

1. Chair/CEO Parker-Hannifin Corporation

2. Other Public Company Directorships (current in bold):

1. Nordson Corporation (since 2020)

3. Votes Against Last AGM: 3%

1. E. Jean Savage 60 2024 na %

1. CEO Trinity Industries, Inc.

2. Other Public Company Directorships (current in bold):

1. Trinity Industries, Inc. (since 2018)

2. WestRock Company (2022-2024)

3. Votes Against Last AGM: n/a

1. Joseph Scaminace 71 m 2004 Cn 9%

1. Former Chair/CEO OM Group, Inc.

2. Other Public Company Directorships (current in bold):

1. Cintas Corporation (since 2010) (Lead Director)

3. Votes Against Last AGM: 8%

1. Laura K. Thompson 60 f 2019 na 9%

1. Former CFO The Goodyear Tire & Rubber Company

2. Other Public Company Directorships (current in bold):

1. Wesco International (since 2019)

2. Titan International, Inc. (since 2021)

3. Votes Against Last AGM: 3%

1. James R. Verrier 61 m 2016 ca 6%

1. Former CEO BorgWarner, Inc.

2. Other Public Company Directorships (current in bold):

1. BorgWarner, Inc. (former) (2013-2018)

3. Votes Against Last AGM: 1%

1. James L. Wainscott 67 m 2009 cN 11%

1. Lead Director

2. Former Chair/CEO AK Steel Holding Corporation

3. Other Public Company Directorships (current in bold):

1. CSX Corporation (since 2020)

4. Votes Against Last AGM: 7%

Matt:

We talk a lot about the midwest manufacturing mafia - traditional, mature, longstanding US companies based in the midwest, primarily around Chicago, where the board members horse trade each other for permanent job security.

Parker Hannifin isn’t just one of those companies, it might be the single most egregious board in that respect.  The amount of educational, experiential, and geographic overlap is egregious - this is a $82bn company that trades at $635/share and has existed since 1917.

Here’s the high level:

• Age/Gender

• Not too old - 60 average age

• 50/50 male/female

• Positive female power gap - 7% - from CEO/Chair

• 20% racially diverse

• Knowledge

• Mechanical: 8

• Building and Construction, Economics: 5

• Medicine, Psychology, Therapy: 3

• Comically boring/similar self disclosed skills matrix:

• Harty no “innovation” or “sales”, Lobo not in “aerospace/industrials”... and THAT’S IT??

• Tenure

• Joe Scaminace (20 years)

• Linda Harty (18 years)

• Somehow with no innovation experience??

• James Wainscott (15 years), Lead “Independent” Director

• Ake Svensson retires this year

• Joe Scaminace hits mandatory retirement next year

• Performance

• Only Lance Fritz bats below .500 overall

• Average TSR across the board, above average earnings across the board

It’s a literal snoozefest.

So let’s turn it into a midwest mafia company - here’s the company nominating policy:

• The Corporate Governance and Nominating Committee is responsible for reviewing with the Board, at least annually, the appropriate skills, qualifications and experience required of directors. This review may include an assessment of judgment, skill, integrity, independence, possible conflicts of interest, business and organizational experience and approach, risk management and oversight abilities, and any other factors the Corporate Governance and Nominating Committee deems relevant to the needs of the Board at that point in time.

First of all, nearly the WHOLE BOARD is on the nominating committee - 70% of the board sits on the committee, 80% when you exclude the CEO

Second, here’s just how ludicrously small the board talent pool they’re searching in is:

• Of the 25 connections between directors in the last decade, 16 of them go through Nordson

• Mostly ex directors and the current CEO

• Laura Thomson connection to CEO through Nordson director

• Nordson headquarters are in Westlake, Ohio - Parker Hannifin headquarters are in Cleveland, a 45 minute drive away

• For a decade, directors at Nordson and directors at Parker have cross bred remember

• We dug in to each director’s last jobs and found

• 100% of the directors on this board are less than 2 hour flights away from Parker headquarters

• The farthest by miles are Linda Harty and Lance Fritz - Fritz is from a client, they sell heavily into trains and Lee Banks (who was on the board) sat on CSX board - and Harty is long tenured and highly connected

• 4 of the 9 independent directors are inside 250 miles of headquarters

• When we factor in college/graduate institutions, 66% of the directors have lived, learned, and worked within 250 miles of Parker HQ, and half of them are under 200 miles away - A DRIVE!

• The influence of directors JUST FROM OHIO is 40% of the board

• Half the board has economics degrees

IS THERE NO ONE ELSE ON EARTH OUTSIDE OF OHIO ECON MAJORS WITH EXPERIENCE MAKING AND SELLING HYDRAULICS AND INDUSTRIAL PARTS?

They list 16 peers in their proxy for pay - there are 175 active directors at those peers.  The peers are not industry peers, they’re talent peers - and they have zero directors that worked or sat on boards at those companies.

If there’s some expectation that Parker does something different, start with the following votes:

• AGAINST Scaminace, he’s retiring anyway, has duplicative skills according to both our and their own disclosure

• AGAINST Laura Thompson, she’s never left Akron, OH, a 30 mile drive to Parker HQ, she’s connected through Nordson to CEO Palamentier

• AGAINST Wainscott, he’s not “independent” after 15 years, you can do better than an ex-steel CEO 100 miles away inside OH, and as head of the nominating committee, he needs to stop people he meets at the local West Chester OH Walgreens.

Proposal 2: Auditor

1. Nobody cares: Deloitte & Touche 3% NO 2023

1. All other fees went from $812 in 2023 to $2,236,756 in 2024 dude to “tax training”

Proposal 3: Say on Pay

1. 8% NO in 2023

2. CEO Pay Ratio: 308:1

1. $60,849 median

1. CEO’s aircraft usage: $157,553

2. We further applied the de minimis exemption, which permits exempting non-U.S. team members that account for five percent or less of our total U.S. and non-U.S. team members. In total, 746 team members were excluded

3. CEO $18M total for 2023-2024

1. LTIP pays out 50% for 25th percentile

1. For calendar year 2024-25-26 LTIP awards, the Committee determined to adjust the threshold performance level from the 35th to the 25th percentile to more closely align with the prevalent practice in the Peer Group according to data presented by Mercer. 

2. CEO eligible for $52M with change in control and $72M if terminated with change of control

Matt:

They adjusted the LTIP to 25 from 35!  That’s so nice.  Against.

DAMION:

That’s the Proxy Countdown for the week of October 14, 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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