Netflix flips pay, ISS and GL confuse at Palo Alto, Microsoft AGM results, and The Big Vote at Visa

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of December 11th alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown we have four big questions:

1. Is Netflix listening to its shareholders?

2. Did a French director at Krispy Kreme resign in protest?

3. Will it hurt a CEO’s feelings if you lower his pay?

4. And on The Big Vote, should Visa shareholders continue to rubber stamp their board of directors or is it time to start paying attention?

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Trade Wire - BUY/SELL

League 3&4

1. New directors at:

1. Johnson & Johnson appointed Best Buy director Eugene A. Woods to its board.

2. Analog Devices appointed Nike and Citigroup director Peter B. Henry.

1. MATT: I’m not sure bringing in a director batting .318 who sits on Nike and Citi following a less than stellar stint at the now dead GE is exactly bringing in a position player - this smells deeply like a “low risk diversity” play for a board that can’t seem to find a single black person - how about axing the 89 year old founder at some point?  It’s 2023, having founded the company in 1965 doesn’t require investors to show you any more love.

3. Bryan Segedi is newly appointed at Exelon. Bryan was Deputy Global Vice Chair, Assurance at Ernst & Young. Current Exelon director Anthony Anderson was a Vice Chair so the new director will have someone to talk to during awkward breaks.

1. MATT: Chicago alert!  EY alum alert!  Exelon most influential director is Tony Anderson, an EY alum.  Exelon Chicago based, and two ex insiders on board - Segedi is EY alum based in Chicago.

4. Gartner has re-appointed Karen E. Dykstra. Karen has been on the board since 2007 but left for exactly 6 months because she had something better to do at VMWare before it was acquired by Broadcom. In that time, Gartner’s share price went from $339 to $446. Despite serving for 16 years on Gartner’s board she held only 4% of board influence and held zero leadership positions.

2. Resignations at:

1. Alexis Black Bjorlin stepped down at Digital Realty Trust, leaving the board with only 2 women. And at Stryker, the Dean of the Harvard Business School, Srikant Datar, stepped down

3. The new CFO at Chewy, David Reeder, will receive a golden hello award worth $17M and is eligible for “unlimited paid time off subject to the needs of the Company.”

4. After a brutal Say on Pay loss at Netflix’s annual meeting in June where only 29% of shareholders supported Executive Pay, Netflix has finally announced some pay changes. Highlights include:

1. Executives will no longer be able to allocate their compensation between Cash and Stock Options. A perk that existed basically nowhere.

2. Base salaries have been drastically reduced: notably, the co-CEOs $20M base salary is now $3M.

1. $3M for the co-CEOs

1. $20M last year

2. $100k for the Executive Chair

1. $650k last year

3. $1.5M for other NEOs

1. $7M/$6M/$5.5M last year

3. And massive stock option awards–Last year: $49M options to Reed Hastings; $29M to Ted Sarandos–will be eliminated as executives will now receive RSUs and PSUs instead.

4. So the party’s over? Maybe? We’ll see next June of shareholders are satisfied.

5. Total target: $40M

1. Hastings/Sarandos: each over $50M last year

And before we get on to our Proxy Cage Matches there are a few tidbits from smaller companies we need to highlight:

1. At Evertec, CEO Morgan M. Schuessler, Jr. received a $6M special equity grant. Why? Just because

2. At Krispy Kreme, French director Lubomira Rochet resigned three days before the donut company opened its first store in Paris. I’ll let you draw your own conclusions

3. And lastly we have a Boomerang CEO at RingCentral.

1. Founder, former CEO. and Exec Chair Vladimir Shmunis (79%) boomerangs back to replace Tarek Robbiati (9%)

1. Tarik walks away with a $10M golden parachute, RVladimir’s way of saying “Thanks for keeping the seat warm, chump.”

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PROXY CAGE MATCH

1. Palo Alto Networks is

1. Fighting back against ISS and Glass Lewis with a supplemental deck! Here’s why:

1. Glass Lewis has recommended against two of 4 directors up for reelection;

2. ISS and Glass Lewis are  both against Say on Pay; and

3. ISS is recommending a vote against the company’s Equity Incentive Plan

2. According to the deck: “Since the Company filed its proxy statement, Glass Lewis and ISS have issued formulaic advice on how shareholders might assess these proposals.”

1. I guess “formulaic advice” is there way of saying we’re special?!

3. Palo Alto is also saying that “Glass Lewis' Recommendations on Director Nominees Are Not Compelling”

1. Before I get to who Glass Lewis wants to vote out, let me just say that the public has no access to Glass Lewis’ recommendations so we have to take Palo Alto’s word for it.

2. According to Palo Alto, Glass Lewis wants Lorraine Twohill out because of Related Party Transactions with Google, where she is Chief Marketing Officer. And they want Aparna Bawa out due to “their ultimate disapproval of our pay practices and the long-term performance and retention award we granted to our CEO in fiscal 2023.”It’s worth noting that she is the only Compensation Committee up for vote at this year’s election

4. As far as Say on Pay is concerned, Palo Alto humorously defended its pay package to CEO Nikesh Arora by claiming that since he grew accustomed to  $100 million of annual equity that it would be rude to give him only $50M going forward.

1. This is why they determined that “a meaningful equity award would be necessary to ensure that such award retains and engages Mr. Arora”

2. That “meaningful equity award” is a $144M special retention award (on top of his $38M in pay which includes nearly $4M for personal security costs and for personal usage of private aircraft.

MATT: Oh, let the hypocrisy reign!  Look, when the other pundits come claiming they have a “hard line” against related party transactions - in this case against Lorraine Twohill, Google’s CMO, and Aparna Bawa, Zoom’s Chief Legal Officer, at least they should be consistent with their recs?  We covered last week Autozone’s related party transactions - a parochial S&P 500 board of fist bumping buddies that are buying goods from each other - and where was ISS and Glass Lewis there?

Add to that the fact that, despite an absurd comp plan, comp chair John Key is NOT on ISS and GL’s radar?  Twohill is Palo Alto’s second place performer on TSR and overall, batting .630 and .680, and Bawa is a middle player - meanwhile Key is the worst performer of the group.

Don’t believe the proxy advisor hype - keep Twohill and Bawa, axe Key.

1. At Crown Castle,

1. A struggle with activist Elliot Investment Management has led to the departure of CEO Jay A. Brown, who will step down at the beginning of January.

2. Elliot said that the move was a step in the "right direction" but more changes were needed after years of underperformance.

2.  And finally, L3Harris Technologies,

1. has entered into a cooperation agreement with one of its largest shareholders, D. E. Shaw, and has appointed two new directors to the board:

1. Former JELD-WEN CEO Kirk S. Hachigian and former Raytheon CEO William H. Swanson

2. Both Swanson and Hachigian served on the board of NextEra Energy, where current L3Harris director Lewis Hay III used to be CEO so the welcome party will be full of familiar faces!

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VOTE RESULTS TABLE 

Moving over to our fabulous Vote Results Table…

1. The vote is in at Microsoft:

1. Directors received an average of 98% support.

2. Say on Pay received 94% support

3. And all nine SHPs were defeated, including 3 from the anti-woke/anti-ESG crowd which received average support of a whopping 1% of shareholders.

4. A proposal from Eko asking for a Report on Data Operations in Human Rights Hotspots fared the best with 34% support from shareholders. Eko is run by a lesbian and its board includes only one man so I guess this is yet another thing for the anti-woke/anti-ESG crowd to cry fake non-Bud Light beer tears over. 

1. Report on Gender-Based Compensation and Benefit Gaps: 1%

2. Report on Risk from Omitting Ideology in EEO Policy: <1%

3. Report on Government Takedown Requests: 2%

4. Report on Risks of Weapons Development: 15%    

5. Report on Climate Risks to Retirement Plan Beneficiaries: 9%

6. Report on Tax Transparency: 21% 

7. Report on Data Operations in Human Rights Hotspots: 34%   

8. Mandate for Third-Party Political Reporting: 5%

9. Report on AI Misinformation and Disinformation: 21%

MATT: Cue the anti woke conspiracy theories and lawsuits alleging collusion!  The gender based compensation proposal was one of the most heinous proposals ever written, but there’s a blueprint now - 26 state attorneys general penned a letter to the proxy advisors alleging they are effectively discriminating against proposals that deal with debanking and religious groups - I smell another letter on the horizon regarding reverse transgender discrimination.

1. At Cisco Systems

1. Directors received average support of 96%, despite 26% of shareholders rejecting Say on Pay. I guess shareholders are still not clear what the Compensation Committee does.

2. Say on Pay: 26% NO

3. Proposal 6: SHP to have Cisco’s Board issue a tax transparency report in consideration of the Global Reporting Initiative’s Tax Standard: 24% YES

2. Directors at Vail Resorts received average support of 97%.

3. At Stride,

1.  A shareholder proposal from the Service Employees International Union asking for a Report on Lobbying received support from 49.5% of Stride shareholders. We’ll see if Stride does the right thing here. Remember that recently AT&T created a Political Congruency Report despite receiving support from only 44% of shareholders

4. Atlassian

1. Directors average 99% YES

5.  At Xenetic Biosciences,

1. Say on Pay failed miserably: 68% said NO!

1. CEO Jeffrey Eisenberg, who only received $633K in compensation last year, was also hated by shareholders, as 46% want him out. 

2. I’m guessing they are mostly angry at the company’s share price, which was $208 five years ago but is currently under $4. Despite all the anger, the rest of the board received 94% support despite the fact that 8 of 9 directors have served since at least 2019 and average board tenure is over 6 years.

6. At Safety Shot,

1. Hector Alila received 66% votes against his election and… wait for it… he was removed the next day!

1. Served 2/19 to 12/22, then reappointed 2/23.

7. And finally, at SINTX Technologies,

1. Compensation Committee Chair Jeffrey S. White was voted out with 58% of shareholders saying NO. But he will remain on the board because of the company’s plurality vote standard which means he technically only needed one vote to get reelected.

2. Say on Pay also failed

1. Comp Committee chair voted out

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THE BIG VOTE

Visa

AGM Date: January 23, 2023

2023 Proxy

2022 Proxy

2022 Voting results

2021 Voting results

General Observations

1. Ownership

1. Vanguard 9%

2. BlackRock 8%

3. Class B

4. Class C

2. Performance outliers:

1. Overall: .513

1. Linda Rendle .333

2. EBITDA .610

1. Kermit Crawford .219

3. Carbon .645

1. Francisco Fernandez-Carbajal .309

4. TSR .456

1. Linda Rendle .154

5. Controversies .375

1. Denise Morrison .107

2. Ramon Laguarta .090

3. Maynard Webb.112

3. Leadership transition

1. Former CEO and current Exec Chair Alfred Kelley stepping down at AGM

1. 21% of influence up for grabs 

2. John Lundgren transitioning from Lead Independent Director to Independent Board Chair

3. Chris Suh new CFO in August 2023

4. “Finally, we are pleased with the significant progress Visa has made resolving claims under the U.S. Covered Litigation, and after careful consideration of this progress and input from our common stockholders across all three classes, the Board has decided to propose amendments to our Certificate of Incorporation, which, if approved at this Annual Meeting, would authorize a Class B Exchange Offer Program. As detailed in Proposal 4, the Class B Exchange Offer Program certificate amendments would allow for a programmatic and measured release of portions of Class B shares. The Board believes the Certificate of Incorporation amendments will provide benefit to all of our Class A, Class B, and Class C common stockholders.”

5. 17% YES on 2022 SHP asking for independent chair

Proposal 1: Election of 10 Directors

Annual Elections for ALL directors? YES

1. Lloyd A. Carney* 61/2015 An 6%

1. Known for: former CEO Brocade

2. Other Public Company Directorships:

1. (current) Grid Dynamics Holdings Inc. (Chairman); Vertex Pharmaceuticals

2. (prior) Nuance Communications, Inc. (Chairman); Brocade Communications Systems, Inc.; Cypress Semiconductor Corporation; Micromuse, Inc. (Chairman)

3. Votes Against Last AGM: 6%

1. Kermit R. Crawford* 64/2022 an 0%

1. Known for: former COO Rite Aid

2. Other Public Company Directorships:

1. (current) C.H. Robinson Worldwide, Inc.; The Allstate Corporation

2. (prior) TransUnion

3. Votes Against Last AGM: 0.5%

1. Francisco Javier Fernández-Carbajal* 68/2007 c 5%

1. Known for: payments and financial services career in Mexico

2. Other Public Company Directorships:

1. (current) ALFA S.A.B. de C.V.; CEMEX S.A.B. de C.V.

2. (prior) Fomento Economico Mexicano, S.A.B. de C.V.; El Puerto de Liverpool, S.A.B. de C.V.; Fresnillo, plc; Grupo Aeroportuario del Pacifico, S.A.B. de C.V.; Grupo Bimbo, S.A.B. de C.V.; Grupo Gigante, S.A.B. de C.V.; Grupo Lamosa, S.A.B. de C.V.; IXE Grupo Financiero S.A.B. de C.V.

3. Votes Against Last AGM: 3%

1. Ramon Laguarta* 60/2019 n 10%

1. Known for: former CEO Pepsi; Spanish

2. Other Public Company Directorships:

1. (current) PepsiCo, Inc.

2. (prior) none

3. Votes Against Last AGM: 1%

1. Teri L. List 60/2022 ac 8%

1. Known for: former CFO Gap/Dick’sl

2. Other Public Company Directorships:

1. (current) Danaher Corporation; Double Verify Holdings; Microsoft Corporation

2. (prior) Oscar Health, Inc.

3. Votes Against Last AGM: 1%

2. John F. Lundgren 72/2017 cN 14%

1. Known for: Lead Director since 2019 ; will become Chair at AGM; CEO Stanley Black & Decker

2. Other Public Company Directorships:

1. (current) Topgolf Callaway Brands Corp (Chairman)

2. (prior) Stanley Black & Decker, Inc.; Staples, Inc.

3. Votes Against Last AGM: 2%

3. Ryan McInerney 48/2023 13%

1. Known for: CEO since Feb 2023

2. Other Public Company Directorships:

1. none

3. Votes Against Last AGM: n/a

1. Denise M. Morrison 69/2018 aC 11%

1. Known for: former CEO Campbell Soup

2. Other Public Company Directorships:

1. (current) MetLife, Inc.; Quest Diagnostics Inc.

2. (prior) Campbell Soup Company

3. Votes Against Last AGM: 3%

1. Pamela Murphy 50/2023 n 2%

1. Known for: CEO Imperva (cybersecurity company)

2. Other Public Company Directorships:

1. (current) Rockwell Automation, Inc.

2. (prior) none

3. Votes Against Last AGM: n/a%

1. Linda J. Rendle 45/2020 n 3%

1. Known for: CEO Clorox

2. Other Public Company Directorships:

1. (current) The Clorox Company

2. (prior) none

3. Votes Against Last AGM: 1%

1. Maynard G. Webb, Jr. 68/2014 c 7%

1. Known for: VC and dumb stuff

2. Other Public Company Directorships:

1. (current) Salesforce, Inc..

2. (prior) Extensity, Inc.; Gartner, Inc.; Hyperion Solutions Corporation; LiveOps, Inc.; Niku Corporation; Yahoo! Inc.

3. Votes Against Last AGM: 3%

1. Alfred Kelly, Jr. 21%

1. Former CEO and current Executive Chair: stepping down at AGM

Our analysis: 

Visa might be the poster child for a country club board:  

• Out of 550 of the largest publicly traded US corporations, Visa ranks in the top 12% for the number of directors that know each other from other boards.  

• Fully 58% of the board are within two phone calls of one another, and they own 76% of the company’s influence.  

• The most connected team player here is Denise Morrison, connected to a full quarter of the board.  

• Morrison sits on four separate boards that have ties directly back to Visa board members, and Morrison isn’t alone.

Visa is a board-run company, not an insider run company:

• 83% of the board are current or ex-CEOs, including Morrison as chair of the comp committee - a CEO getting paid by other CEOs

• Insiders only control 34% of group influence, compared to 75% of influence controlled by connected directors - this is a board-run company

• The board pays itself very well: Visa is in the TOP 10% OF BOARD COMP - $367k on average, with escalating pay for chair and committee roles EVERY YEAR for the last five, including adding a Finance committee ON TOP of the Audit committee - Lundgren, the rising chair, made team high $480k in 2023 for 19 total meetings (4 nominating, 7 audit, and 8 board wide meetings) - $25k per meeting of awarded pay (realized is higher given equity grants)

Overall, investors are getting boringly average for their country club elections:

• .463 overall group batting average, where .500 is an “average team”

• .634 for EBITDA is above average, but .426 TSR is below average

• 34% of the board ranked as All Stars - top billing - and still they performed average - suggests putting top individuals together who are connected and unaccountable leads to average output, not winning

Free Float game time picks:

• McInerney has been a puppet CEO with Al Kelly sitting as Executive Chair - and that looks unlikely to change as Kelly steps out.  The ascension of Lundgren means two things: the CEO and Chair roles will stay separate and Lundgren, one of the most connected and influential members of the board, will take the crown of a board run company.

• PICK: Vote against Lundgren - make room for an actual outsider

• PICK: Vote against Morrison - remove the most connected director

• The lowest performer on TSR and overall is Linda Rendle, the CEO of Clorox - Clorox just had one of the largest data breaches that shut down ops.  Rendle lists “Risk” and “E-commerce” as key skills in the skills matrix.

• PICK: Vote against Rendle - give her the time to focus on Clorox, and add higher performance

• Francisco Javier Fernández-Carbajal has sat on the board since the IPO - with the wind down of litigation linked Class B and C shares

• PICK: Vote against Fernandez - 16 years is long enough

Proposal 2: Say on Pay

1. 90% yes in 2022

2. Outgoing Exec Chair and former CEO Alflred Kelly $30M last year

3. CEO Ryan McInerney $22M

1. 50% equity is non-performance

1. If 3-year TSR vs SP500 is “25th percentile or below” the modifying metric is 75%!

4. In connection with the  CEO transition: a bunch of shut up money??

1. McInerney $3M equity award

2. Chief Risk Officer Paul Fabara $3M equity award

3. President, Technology Rajat Taneja $5M equity award

4. Vice Chair, Chief People and Corporate Affairs Officer, and Corporate Secretary Kelly Mahon Tullier $5M equity award

5. CFO Chris Suh golden hello

1. $11M equity

2. About $4M cash, including $2M to say sorry to Electronic Ats, where he served as CFO for only 15 months

1. $1.3M to reimburse a portion of the sign-on bonus he received from his prior employer

2. $500k cash corresponding to the amount he was required to reimburse his prior employer for relocation and related expenses

3. Served as CFO at Electronic Arts from 3/22 to 6/23!

Note:

Board retainer agreement - comp is the least paid committee and chair role - at Mastercard, the lowest paid retainer is Nominating.  Does that mean they plug the weakest directors at Visa into comp to come up with a modifier that says “you still get 75% of your target pay if you are one of the worst companies in the S&P 500

Analysis:

Voting against Morrison, the chair of comp here, solves part of this insular board navel gazing comp problem - the bottom quartile basketball players make at most the league minimum - cash, no equity!  0%!

Proposal 3: Auditor

1. KPMG

1. 2% against 2022

Proposal 4: To approve and adopt the Class B Exchange Offer Certificate Amendments

1. Holy crap

Analysis: To be clear, these aren’t insider power consolidating shares - these are shareholder insulating shares because Visa was basically a monopoly that was overcharging every customer and settled with counterparties for billions of dollars they didn’t have.  Simplifying is good. Vote FOR.

Proposal 5:  To approve one or more adjournments of the Annual Meeting to a later date or time, if necessary or appropriate, to solicit additional proxies in favor of Proposal 4 if there are insufficient votes at the time of the Annual Meeting to For approve such proposal.

1. Seriously?

Proposal 6: To vote on a stockholder proposal requesting that the Board adopt a policy to seek shareholder ratification of certain termination pay arrangements.

1. John Chevedden

Analysis: worth quoting a line from Visa’s opposition to limited - not even stopping, just limited - golden parachutes: “Our annual Say-on-Pay vote provides opportunities for our stockholders to examine and provide their feedback on our executive compensation program.”  The voluntary vote is enough people!  Look, if Chevedden wants it, vote FOR it.   

DAMION:

That’s the Proxy Countdown for the week of December 11,  2023. 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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