The Big Vote at Analog Devices, plus Trian’s Disney white paper and JB Hunt’s unorthodox new board roles
PROXY COUNTDOWN SCRIPT
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This is Proxy Countdown. Welcome to the big show for the week of March 4, 2024 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:
Several leadership changes at J.B. Hunt, including a new made-up board role;
An activist investor win at Ventas;
A proxy contest fizzles at Starbucks and heats up at DIsney;
A shareholder win at Jack In the Box and near-win at Deere
And on the Big Vote, Matt bumps into a company he doesn’t hate: Analog Devices
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Trade Wire - BUY/SELL
Top Stories:
Ventas Lead Independent Director James Shelton is stepping down. Shelton held the second most influence on the Ventas board, at 13%, meaning that CEO and Chair Debra Cafaro’s power is due to grow.
However, activist investor Land & Buildings Investment Management reached a Cooperation Agreement with Ventas where two of Land & Buildings’ three board nominees will be added to the board:
Theodore R. Bigman, formerly at Morgan Stanley Investment Management; and
Joe V. Rodriguez, Jr., the former Chief Investment Officer of Invesco Real Estate
In an unusual board leadership arrangement, J.B. Hunt Transport Services appointed current Executive Chair Kirk Thompson and current director and former Chair Wayne Garrison to serve as Honorary Founding Directors.
In assuming these new roles both Kirk Thompson and Wayne Garrison will step down from the board
As Honorary Founding Directors:
They will provide advice and strategic counsel to the Board and management and will, upon invitation by the Board, be expected to attend board and committee meetings;
They will receive access to all information and materials provided to the Board
But they will not be entitled to vote on or consent to any matter considered by the Board or its committees
Also, CEO John N. Roberts, III will become the new executive board chair and Shelley Simpson will become CEO in July.
Shelley started as an hourly Customer Service Representative in 1994
And finally, in celebrity CEO news, AT&T added former Yahoo! CEO Marissa A. Mayer to its board
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PROXY CAGE MATCH
A group of labor unions said on Tuesday that it was ending its proxy fight at Starbucks, after the two sides agreed last week to work toward a “foundational framework” on collective bargaining.
The Strategic Organizing Center said this is a press release: “We feel that now is the time to acknowledge the progress that has been made and to allow the Company and its workers to focus on moving forward.”
The SOC also said it is withdrawing the three nominees it had put forth for election to Starbucks’ board.
At the Disney proxy cage
Trian released a 133-page white paper that including the following quotes:
“Restore the magic” (12 times)
“Board” (304 times)/”director” (99 times)
“We believe the root cause of Disney’s underperformance is poor oversight from a Board that lacks focus, alignment and accountability”
“Industry Disruption Does Not Absolve Disney’s Board for Poor Performance –It Is the Board’s Job to Look Over the Horizon”
“The Board’s Succession Failures Have Created a Leadership Void, an Inconsistent Strategy, and Organizational Dysfunction”
“Disney’s Board Has Overseen Poor Shareholder Returns: Disney has significantly underperformed the S&P 500 during every Director’s tenure, including over Mr. Iger’s near quarter century on the Board.”
“Fail” or “failure” (35 times)
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VOTE RESULTS TABLE
Moving over to our vote results table:
Small (leagues 0&1&2)
At Jack in the Box,
A shareholder proposal from The Accountability Board requesting greenhouse gas (“GHG”) emissions disclosures passed! 55% FOR
Roughly 42% of jack in the Box shareholders are institutional
Large (leagues 3&4)
And at Deere, there’s not much to report
All directors received more than 90% support
John C. May is the big loser = 13,281,373+920,077
Also, both anti-woke shareholder proposals failed miserably–about 1% support– while a proposal requesting shareholder ratification of golden parachutes managed 38% support
When adjusted for institutional ownership, 56% of the vote supported this resolution
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THE BIG VOTE
Analog Devices
AGM Date: March 13, 2024
Documents
General Observations
Ownership
Institutional voting power
Vanguard 9%
BlackRock 8%
Performance outliers:
Overall: .499
Andre Andonian .780
EBITDA .786
Edward Frank .580
TSR .461
All in same range
Carbon .282
Edward Frank .567
Controversies .393
Mercedes Johnson .851/Edward Frank .828
Board stuff
Diversity Power Gaps 36% Female/20% Influence
Board Leadership boondoggle: Vincent Roche is CEO and Chair; CEO since 2013; Stephen Jennings is new LD; former LD James Champy (on board for over 20 years; 13 years as LD) still on board; founder, former CEO/Chair/board members since 1965 Ray Stata still on board
Skills
Only 3 Cybersecurity, Information Systems
Champy (81), Frank, Wee
Audit Committee:
"“Our cybersecurity and information security programs, practices, and risk mitigation efforts”
“in December 2023, the Audit Committee amended its charter to clarify its role to include oversight of our cybersecurity and information security programs, practices, and risk mitigation efforts”
“[We} actively govern cybersecurity as a Board”
Does not include Champy (81), Frank, Wee
Matt:
Company stats:
Major competitors - Micron, Marvell, Texas Instruments
Circuit boards + sensors (every kind of sensor - physical to digital interaction)
Stock (underperform):
YTD: -3.5% (v 7.0% SP)
1Y: 3.3% (v 26.1%)
2Y: 22.2% (v 17.9%)
5Y: 81.9% (v 86.1%)
Analysts:
Valuation: slightly overvalued, HOLD or BUY
PE: 34.2
News:
BMW/ADI partnership on ethernet enabled autos (centralized brain vs. decentralized brain)
Sentinel CPM? FDA cleared
All upside priced in
No controversies (NONE?)
Board stats:
Oligarchy - majority influence split between two or more directors (Roche, Stata)
Less than half the board are CEOs, 42% of influence
Superstar earners, middle of the road TSR
Ranks 87th out of 533 for profitability as a team
Legacy founder - 60 year tenure! Can’t let go…
Most connected director not even on the nom committee
Politically similar, broader board community in common, no industry/education consolidation
Board CYA needs:
Water water water…
Dependent on chip makers, chip supply
Long term partnership with TSMC, who has 90+% of foundries in Taiwan, which in the last two years has experienced MULTIPLE 100 year droughts
Failure failure failure…
Sensors used everywhere to convert physical to digital, including autonomous driving - sensor failure could equal death
Future future future…
Autonomous, AI, efficiency, wearables…
Nature of the company reflected in the nature of the shareholder
No day traders, day in day out boredom
527:1 pay ratio feels “high” even if others aren’t
Engineering-background
Future bet thesis:
The big bet here is that Analog Devices will be the sensors and circuit boards of choice for every AI bot that needs eyes, ears, and feels
Even with Kenton Sicchitano stepping down, this is one of the OLDEST boards by influence weighted age thanks to Stata and James Champy, and the board and exec background skills align with company needs EXCEPT… there’s some merit to wearing a leather jacket and making these components sexy, no? The gap between earnings and TSR suggests all engineering lacks sex appeal, especially moving into a sensor-driven AI age - get a bit younger, add sex appeal to marketing/sales
Proposal 1: Election of 11 Directors
Annual Elections for ALL directors? YES
Director Slate
VINCENT ROCHE, 63 m 21%
Director Since: 2013
Principal Occupation: CEO/Chair Analog Devices, Inc.
Other Public Company Boards:
Current: None
Past 5 Years: Acacia Communications, Inc. (until 2021)
Chief Legal Officer JANENE ASGEIRSSON from Acacia
Votes Against Last AGM: 6%
LAURIE H. GLIMCHER, M.D., 72 f 10%
Director Since: 2020
Principal Occupation: Professor of Medicine at Harvard Medical School; CEO of the Dana-Farber Cancer Institute
Committee Membership(s): C
Other Public Company Boards:
Current: None
Past 5 Years: Waters Corporation (until 2020); GlaxoSmithKline plc (until 2022)
Votes Against Last AGM: 2%
STEPHEN M. JENNINGS, 62 m 9%
Lead Independent Director
Director Since: 2023
Principal Occupation: Former Principal of Deloitte LLP
Committee Membership(s): C, N (Chair)
Other Public Company Boards:
Current: None
Past 5 Years: None
Votes Against Last AGM: 6%
KAREN M. GOLZ, 69 f 3%
Director Since: 2018
Principal Occupation: Former Global Vice Chair of Ernst & Young
Other Public Company Board(s): 2
Committee Membership(s): A (Chair)
Other Public Company Boards:
Current: Aspen Technology, Inc.; iRobot Corporation
Past 5 Years: None
Votes Against Last AGM: 2%
ANDRÉ ANDONIAN, 61 m 3%
Director Since: 2022
Principal Occupation: CEO Andonian Advisory Pte. Ltd.
Other Public Company Board(s): 1
Committee Membership(s): N
Other Public Company Boards:
Current: AEM Holdings Ltd. (SGX:AWK)
Past 5 Years: None
Votes Against Last AGM: 6%
PETER B. HENRY, Ph.D., 54 m 3%
Director Since: 2023
Principal Occupation: Senior Fellow at Stanford University’s Hoover Institution; and Senior Fellow at Stanford’s Freeman Spogli Institute for International Studies
Other Public Company Board(s): 2
Committee Membership(s): A
Other Public Company Boards:
Current: Citigroup, Inc.; Nike, Inc.
Past 5 Years: None
Votes Against Last AGM: 6%
JAMES A. CHAMPY, 81 m 5%
Director Since: 2003
Lead Independent Director (2010-2023)
Principal Occupation: Former VP Dell, Inc.
Committee Membership(s): N
Other Public Company Boards:
Current: None
Past 5 Years: None
Votes Against Last AGM: 9%
MERCEDES JOHNSON, 69 f 7%
Director Since: 2021
Principal Occupation: Former CFO Avago Technologies (now Broadcom Inc.)
Other Public Company Board(s): 2
Committee Membership(s): A
Other Public Company Boards:
Current: Teradyne, Inc.; Synopsys, Inc.
Past 5 Years: Juniper Networks, Inc. (until 2019); Micron Technology, Inc. (until 2019); Maxim Integrated Products, Inc. (until 2021); Millicom International Cellular SA (until 2023)
EVP VIVEK JAIN also from Maxim Integrated; both came on M&A
Votes Against Last AGM: 3%
EDWARD H. FRANK, Ph.D., 67 m 11%
Director Since: 2014
Principal Occupation: Exec Chair of Gradient Technologies
Other Public Company Board(s): 2
Committee Membership(s): C (Chair)
Other Public Company Boards:
Current: SiTime Corp.; Rocket Lab USA, Inc.
Past 5 Years: Cavium, Inc. (until 2018); Amesite, Inc. (until 2020); Quantenna Communications, Inc. (until 2018); Marvell Technology, Inc. (until 2023)
IEEE fellow (with Susie Wee)
Votes Against Last AGM: 5%
RAY STATA, 89 m 25%
Director Since: 1965
Principal Occupation: Co-Founder and Former Chair of Analog Devices, Inc.
Other Public Company Boards:
Current: None
Past 5 Years: None
Votes Against Last AGM: 2%
SUSIE WEE, Ph.D., 54 f 3%
Director Since: 2019
Principal Occupation: Former VP Google
Committee Membership(s): C
Other Public Company Boards:
Current: None
Past 5 Years: None
IEEE fellow (with Ed Frank)
Votes Against Last AGM: 2%
Anantha P. Chandrakasan
Kenton Sicchitano
Matt:
Rare founder not-really-lead company with a founder active on the board?
89 years old, there for 60 years
Only has .01% of the stock anymore (still more than CEO, but it’s basically legacy money)
Majority influence, but gap between CEO and founder is only 4% influence - they’re basically the same
No longer active in many/any of the major industry associations
Semiconductor associations rife with conflicts/connections
Board Sills
Losing an engineer and a consultant
4 consultant/accountants, an MD, a smart guy, a founder, 4 engineer/math types, and a hybrid - I mean, they could stand to lose one more consultant and add some sales/marketing/design type, but it’s otherwise a pretty solid board for what is an unsexy product line?
Exec Skills
ALMOST ALL ENGINEERS - this feels unheard of… it’s like they need to Icahn this board, they need someone who can make the product sexy?
Vincent Roche - engineer
Janene Asgeirsson - lawyer (Chief Counsel)
Duncan Bosworth - engineer
Gregory Bryant - engineer
Martin Cotter - engineer
Richard Puccio - econ/finance (CFO)
Jerry Fan - math and computer science
John Hassett - engineer
Greg Henderson - engineer
Vivek Jain - engineer
Alan Lee - engineer
Dan Leibholz - engineer, Brown
Pat O'Doherty - engineer
Rob Oshana - engineer
Anelise Sacks - chief customer officer is ALSO an engineer
Stephanie Sidelko - engineer, also a REAL chief of staff (vs. exec assistant)
Mariya Trickett - HR (head of … HR)
Problem: they are almost ALL white engineers? Fan is Asian, Jain Indian, everyone else white
Appears to be Intel lite - half the team from Intel
Recommendation
Vote against… NO ONE
2025, Champy should go and fresh blood should be sales/marketing/design/market strategy - need to move from positioning the company as a commodity product (high earnings, low TSR) to premium (the eyes, ears, and fingers of AI)
2026, Ed Frank goes and is replaced by AI/engineering/computer science to keep balance
This a company that needs more sex appeal than anything - honestly, they’re a smart marketing campaign away from a stock bump is what it feels like, I would buy the stock while it’s going down - the multiple is still high, but there is nothing more necessary to the next few years of AI than sensors that can translate the physical to the digital brain
Proposal 2: Auditor
Ernst & Young 93% YES 2023
Proposal 3: Say on Pay
20% NO in 2023
Changes
Did not make significant changes to overall design and framework of our executive compensation program.
Increased the weighting of our CEO and Chair, Mr. Roche’s, annual long-term incentive compensation that is tied to challenging long-term performance goals to 75%, up from 65% in fiscal year 2022.
Increased the percentile achievement required for target performance of our Relative TSR PRSUs to the 55th percentile, up from the 50th percentile, beginning with the Relative TSR PRSUs granted in fiscal year 2023.
Adopted clawback policy in 9/2023 to comply with SEC/Nasdaq listing standards
2022 Goden Hello equity grant to EVP Gregory Bryant: $24M
CEO Pay Ratio: 527 to 1
CEO
Increase in CEO base salary: from $1.05M in 2021 to $1.1M in 2022 to $1.2M in 2023
Equity Awards Granted in Fiscal Year 2023 up to $20M (from $15M in 2022)
$26M Total in 2023
$243k jet; $8k cybersecurity; $4k tax planning; $500 service awards paid in connection with the company’s Employee Service Award Program
Takeaway: shareholders were pissed about a golden hello award in 2022 where an EVP made $12M more than the CEO and then stayed pissed in 2023 when the company did not change the pay plan (by say eliminating massive golden hello awards)
Proposal 4: SHP
Simple Majority Vote (John Chevedden)
DAMION:
That’s the Proxy Countdown for the week of March 4, 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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