The Big Vote at Abbott Laboratories, plus Tesla’s shareholder litmus test and the Free Float bump at Disney

PROXY COUNTDOWN SCRIPT

<THEME MUSIC>

This is Proxy Countdown. Welcome to the big show for the week of April 15, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Big changes at Tesla, including a petulant proxy statement

2. Comcast finally appoints a female director with media experience

3. Proxy contest chaos at Macy’s and Crown Castle

4. A detailed look at the final vote results at Disney

5. And on the Big Vote, one of our favorite Chicago Mafia companies, Abbott Laboratories 

<TRADE WIRE BUMPER>

Trade Wire - BUY/SELL

Top Stories:

1. Two of Tesla’s top executives have left in the midst of the carmaker’s largest-ever round of job cuts, as slowing electric-vehicle demand leads the company to reduce its global headcount by more than 10%.

1. Out are Senior Vice President Drew Baglino, who co-hosted earnings calls and shared the stage with CEO Elon Musk at multiple events and Rohan Patel, the carmaker’s vice president of public policy and business development

2. JPMorgan Chase announced that two of its directors, Timothy Flynn and Michael Neal, have decided to retire from the Board at the company’s 2024 Annual Meeting of Shareholders, meaning that its board will officially be half men and half women.

3. At Brown & Brown, where 73% of board influence is controlled by father and son–Chair J. Hyatt Brown and CEO J. Howell Brown, James Hays and his 2% influence, one of 12 other non-powerful non-Brown family board members, has stepped down. The company also announced that it has purchased a new stapler for one of its medium-sized conference rooms.

4. And lastly, Comcast Corporation has appointed a fourth woman to its board, Wonya Lucas. Female influence on Comcast’s board is woefully low at under 10%. Wonya, Comcast’s first black female director, will be the only woman on the board with actual media experience as she was previously CEO of Hallmark Media Networks

<PROXY CAGE MATCH BUMPER>

PROXY CAGE MATCH

Let’s get back to our non-Disney Proxy Cage Matches

1. Macy’s proxy contest with Arkhouse is over as Richard Clark and Richard Markee have been added to the board. The company also added its own nominee Douglas Sesler while board chair Jeff Genette stepped down along with Finance Committee chair Francis Blake. There are now 15 Macy’s directors, which may explain the rather confusing and overwhelming layout of its department stores

2. Chaos continues at Crown Castle as Steven Moskowitz has been named the new permanent CEO amid an ongoing proxy contest where company founder Ted Miller and Boots Capital Management have nominated four directors to the Crown Castle Board. All four nominees are men and one of their opposed nominees is a woman so if the proxy contest is successful the Crown Castle board will consist of 10 men and only two women. Notably, two Boots nominees are older than the Company's director retirement age and a third nominee is within one year of the Company's director retirement age;

3. And finally, Tesla seems to be begging for some kind of proxy contest at its upcoming annual meeting as it taunts skeptical shareholders by calling for:

1. The re-election of two of its “hardworking and dedicated directors, Kimbal Musk and James Murdoch”

2. Asking shareholders to approve moving Tesla’s state of incorporation from Delaware to Texas and

3. To re-Ratify Elon Musk’s 2018 compensation package that was recently rejected by the Delaware Court of Chancery and judge Kathaleen McCormick,

<VOTE RESULTS BUMPER>

VOTE RESULTS TABLE 

Moving over to our vote results table, AGM season is starting to pick up:

1. Large (leagues 3&4)

1. Let’s start with the big vote at Disney where Trian Funds was defeated

1. Nelson Peltz received 31% support while Jay Rasulo received a paltry 12%

2. Blackwells nominees were basically ignored: Craig Hatkoff (2%), Jessica Schell (2.1%), Leah Solivan (2%)

3. As far as Disney Directors go: CEO Bob Iger received 94% support while Trian target Maria Elena Lagomasino received 63%. Two other targets, Chair Mark Parker and Micahel Froman, received 88% of the vote.

4. 20% of voters rejected Say on Pay while all shareholder proposals failed, especially the anti-ESG ones which received average support of about 3% of the lunatic fringe of Disney shareholders

2. At Synopsys, 20% of voters said NO to Bruce Chizen while 15% of voters rejected Janice Chaffin. Despite this unrest, only 33% of the vote supported a shareholder proposal calling for an Independent chair

3. Shareholder proposals fared well at Lennar. After adjusting for CEO and Chair Stuart Miller’s 38% voting power, all three proposals would have passed: a report on political spending (38%), a report on LGBTQ equity and inclusion efforts in its human capital management strategy (31%), and a report on the Company’s plans to reduce greenhouse gas emissions (38%).

4. At A.O. Smith, all 6 class A directors were reelected with ease as the Smith family controls 97% of Class A shares. Common stock directors, however, were met with investor anger as Victoria Holt and Ilham Kadri, the only two common stock female directors, each received a majority of votes against their reelection.

5. And finally, shareholders are basically content (or not paying attention) at Hewlett Packard Enterprise,  The Bank of New York Mellon, and Matt’s favorite, Carnival Corporation

<THE BIG VOTE BUMPER>

THE BIG VOTE

Abbott Laboratories

AGM Date: April 26, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. BlackRock 8%

2. The Vanguard Group 9%

2. Performance outliers:

1. Overall: .382

1. Sally Blount .562

2. EBITDA .524

1. Robert Alpern .777

2. Darren McDew .315

3. TSR .439

1. Sally Blount .574

2. Michael Roman .220

4. Carbon .387

1. Darren McDew .767

2. Michael Roman .218

5. Controversies .187

1. Michael G. O'Grady .748

1. Board stuff

1. High votes against: 

1. Lead Director Nancy McKinstry (25%; over 20% since 2020)

2. Michael Roman (16%)

3. John Stratton (28%)

2. Diversity Gaps

1. Female Power Gap 42%/39%

1. Industry average female influence = %

2. Diversity Power Gap 25%/11%

1. Industry average diversity influence = %

3. Any diversity 50%/42%

3. Insider influence: %

1. Industry average %

Matt notes:

Company: Health devices, diagnostics, retail (formula, etc)

Peers: Bristol-Myers, Pfizer, Hologic, etc

Stock: no one should be happy

• 3M -8% vs. + 4.2% S&P500

• 1Y 0.97% vs. 21.4%

• 2Y -3.95% vs. 25.3%

• 5Y 42.8% vs. 73.6%

Board Type: Monarchy

Proposal 1: Election of 12 Directors

Annual Elections for ALL directors? YES

Director Slate

1. ROBERT J. ALPERN, M.D. n 73 m 2008 11%

1. Professor and Former Dean, Yale School of Medicine

2. Other Public Company Boards: AbbVie Inc.

3. Votes Against Last AGM: 3%

1. CLAIRE BABINEAUX-FONTENOT a 59 f 2022 3%

1. CEO, Feeding America; Walmart

2. Other Public Company Boards: none

1. Non-public: New York Life Insurance Company; Charah Solutions, Inc. (2018-2019)

3. Votes Against Last AGM: less than 1%

1. SALLY E. BLOUNT, PH.D. n 62 f 2011 6%

1. President and CEO, Catholic Charities of the Archdiocese of Chicago, and Professor and Former Dean, J.L. Kellogg Graduate School of Management

2. Other Public Company Boards: Ulta Beauty, Inc. (2017-2022)

1. Joyce Foundation; Economic Club of Chicago (2017-2023)

3. Votes Against Last AGM: 2%

1. ROBERT B. FORD 50 m 2019 21%

1. Chairman of the Board and CEO, Abbott Laboratories

2. Other Public Company Boards: none

3. Votes Against Last AGM: 8%

1. PAOLA GONZALEZ an 52 f 2021 5%

1. Vice President, Global FP&A, The Clorox Company

2. Other Public Company Boards: none

3. Votes Against Last AGM: 1%

1. MICHELLE A. KUMBIER ac 56 f 2018 11%

1. President, Turf & Consumer Products, Briggs & Stratton, LLC; former COO Harley-Davidson

2. Other Public Company Boards: Teledyne Technologies Incorporated

3. Votes Against Last AGM: 2%

1. DARREN W. McDEW n 63 m 2019 3%

1. Retired General, U.S. Air Force, and Former Commander of U.S. Transportation Command

2. Other Public Company Boards: Parsons Corporation, General Electric Company

3. Votes Against Last AGM: 1%

1. NANCY McKINSTRY Ac 65 2011 14%

1. Lead Independent Director

2. CEO and Chairman of the Executive Board, Wolters Kluwer N.V.

3. Other Public Company Boards: Accenture plc; Telefonaktiebolaget LM Ericsson (2004-2012)

1. Russell Reynolds Associates and the Board of Overseers of Columbia Business School

4. Votes Against Last AGM: 25%

1. Over 20% since 2020

1. MICHAEL G. O’GRADY cn 58 m 2023 10%

1. Chairman and CEO, Northern Trust Corporation

2. Other Public Company Boards: Northern Trust Corporation

3. Votes Against Last AGM: less than 1%

1. MICHAEL F. ROMAN c 64 m 2021 7%

1. Chairman, President, and CEO, 3M Company

2. Other Public Company Boards: 3M Company

3. Votes Against Last AGM: 16%

1. DANIEL J. STARKS C 69 m 2017 4%

1. Retired Chairman, President and CEO, St. Jude Medical, Inc.

2. Other Public Company Boards: none

3. Votes Against Last AGM: 3%

1. JOHN G. STRATTON aN 63 m 2017 6%

1. Executive Chairman, Frontier Communications Parent, Inc.

2. Other Public Company Boards: Frontier Communications Parent, Inc., General Dynamics Corporation

3. Votes Against Last AGM: 28%

Matt:

Last vote overview:

• Stratton and McKinstry got negative votes for overboarding - it was a policy vote, not a performance vote

• Roman is a mystery vote, but likely triggered by policy somewhere?

• This year we’ll argue you should forget about overboarding and focus on coziness and performance gaps

Analysis:

This is basically a foreshadow of what we’re going to see at Boeing, what we’ll see at 3M, what we’ll see at a number of midwestern based companies - Abbott is the historical poster child for the Chicago Board Mafia.  Directors that recycle each other throughout major SP500 midwestern companies, the majority of whom have strong social and business ties to Chicago specifically.

1. Chicago Mafia

1. Alpern - MD at U Chicago Pritzker School, BA at Northwestern

2. Babineaux-Fontenot - CEO Feeding America based in Chicago

3. Blount - Prof at Northwestern Kellogg

4. Gonzalez - Notre Dame Mendoza business school (1.5 hr from Chicago)

5. Kumbier - Wisconsin - Chicago adjacent?

6. McDew - stationed at Scott Air Force Base in central Illinois, military bigwig

7. McKinstry - ex CEO of CCP Legal, acquired by Kluwer, which was headquartered in Chicago (CT to RI to Philly to Chicago to Netherlands)

8. O’Grady - CEO Northern Trust, Chicago

9. Roman - Wisconsin - Chicago adjacent?

10. Starks - acquired via St Jude, Minnesota

11. Stratton - board links, no geographical

12. Put another way

1. “DIRECT” Chicago influence = 44% (ex-insider, 23%)

2. “INDIRECT” Chicago influence = 51%

3. NON-Chicago influence = 6%

2. Network Loops - hard connections and soft connections

1. HARD:

1. 182 loops since 2010 through 35 companies, 13% are 1st degree (23), involving 83 separate people (5 of the current board)

1. Only one current board member loop NOT through Abbvie

2. Closest related companies:

1. Abbvie in 61 loops (spinoff from Abbott, based in N Chicago)

2. Boeing in 33

3. Northern Trust in 30 (Chicago)

4. Allstate in 23 (Chicago suburb)

3. Cocktails

1. Economic Club of Chicago (O’Grady, Blount on board)

2. Minnesota Business Partnership (Roman, Starks)

2. SOFT: 

1. Modularity

1. Introduce a concept - social network algorithms

2. Modularity is “community circles” without direct links

3. We can try and find granular level of “communities” - groups of nodes in a network that are closely clustered have have low number of degrees between them

4. We can set boundaries basically saying “show me people who haven’t been connected necessarily but are a stone’s throw from one another” - it’s the same algorithm used by Facebook or LinkedIn that says, “you know Gus, you might also know Frances” - that’s based on community links in common and closeness in a network

5. We run the same thing on boards and find about 2,000 board communities globally across 220,000 directors in the last 15 years or so

6. When we look at the board members of Abbott, 92% of them - 92% OF THEM - all come from the same board community, and 45% of them are directly connected on other boards

2. Politics:

1. Democratic board

3. Earnings over ethics?

1. Abbott/Ford - 1,000 outstanding lawsuits on baby formula failures

2. 3M/Roman - multi billion dollar lawsuit for earplug failure

3. Boeing throughput

4. Director performance (Earnings v. controversies) - 60% of board has huge gap

1. McKinstry 496 v 041

2. Alpern 777 v 040

3. Kumbier 561 v 470

4. Roman 738 v 031

5. Stratton 639 v 035

6. Blount 608 v 546

7. Gonzalez 573 v 043

8. Starks 570 v 043

9. McDew 315 v 091

4. Skills? (ex executive)

1. Biotech+healthcare = 19% - would have had to go to Boston/New England to get biotech/healthcare!  Geo rules!

2. Consulting/retail/manufacturing = 66%

3. Finance is 13%

1. 21% influence is consulting

2. 16% is a version of retail - half of which is telecomm

3. 14%... auto components

4. 13% finance bro

5. WE ONLY WANT TO WORK WITH PEOPLE WE KNOW AND TRUST

RECOMMENDATION:

• Rock and a hard place with skills - not enough doctor/biotech outside insider and the longest tenured director - makes it hard to remove the doctor this year despite the fact that he’s been there so long, so this is a two year process of refreshment

• THIS YEAR…

• Vote AGAINST the past and Kumbier

• She’s high influence, she’s part of the overweighted skill set (lawn manufacturing?  C’mon), and she’s got the most links to the prior Abbott Chicago Mafia guard

• Vote AGAINST Stratton

• He’s linked to the past, but she has huge gap in performance - Earnings to controversies gap, plus 

• Next…

• Against Roman

• Against McKinstry

Proposal 2: Auditor

1. Ernst & Young : 1% NO 2023

Proposal 3: Say on Pay

1. 10% NO in 2023

1. 9% in 2022

2. Changes include:

1. Revised annual cash incentive plan to cap payouts at 200% of target

2. Significantly increased disclosure related to goal setting, measurement and results for both annual and long-term incentives

3. All Officers, including our Chairman and CEO, carry a human capital goal

4. Increased disclosure related to Abbott’s 2030 Sustainability Plan goals and linkage to executive pay

1. Our goal is to achieve gender balance across our global management team and in our Science, Technology, Engineering, and Mathematics (STEM) roles by 2030 and to ensure one-third of our leadership roles are held by people from underrepresented groups by 2025. Through the end of 2022, 41% of global management positions were filled by women, 45% of our STEM roles were filled by women, and 35% of our leadership roles in the U.S. were held by people from underrepresented groups.

3. Pay

1. $23.3M

2. $1.5M base salary with 175% bonus target

1. HUMAN CAPITAL METRICS

1. Goal (10% weight): Meet talent, succession planning, and diversity targets

2. What are the targets?

3. All NEOS “Achieved” except for EVP Daniel Salvadori who “Mostly Achieved”

3. $13.523M LTI target award (50% stock options)

1. No matter how poor results can’t be less than 75% or $10.14225M

4. Perks include $55k for non-business jet

Matt:

How on earth does the NEOs below the CEO not hit targets, get paid less than 100% (nutrition exec got 96%), but the CEO who they report to - and who is the one ultimately responsible for their performance! - get 112% of his targets??  Shouldn’t the rule be that the CEO can’t possibly get more than the worst NEO?

Peer group skewness is positive - meaning when you look at the sizes of the peers they chose to set pay, the MEDIAN is nearly aligned with Abbott’s size and revenue, but the SKEW shows there are more companies above the mean - pick more big companies!

DAMION:

That’s the Proxy Countdown for the week of April 15, 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.

<OUTRO THEME>