The Big Vote at Costco, plus bald men run Nikola, Petlz trolls Disney with board pick, lazy shareholders, and golden "hello again!" award season
This is Proxy Countdown. Welcome to the big show for the week of December 18th alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:
Another CEO is going to jail
Two notable pre-christmas golden hello again awards for CEOs that sell radio and tasers
The ongoing proxy cage fight at Disney
Lazy shareholders at 1-800-FLOWERS
And a big vote at America’s 2nd-most folksy company?
<TRADE WIRE BUMPER>
Trade Wire - BUY/SELL
League 3&4
Top Stories
Nikola founder/former CEO Trevor Milton was sentenced to four years in prison for defrauding investors of the electric- and hydrogen-powered truck maker.
Milton was found guilty in October 2022 on two counts of wire fraud and one count of securities fraud.
Last week, the board appointed Jonathan M. Pertchik, CEO of TravelCenters of America. Is he a Milton antidote or something?
Matt: THIS IS PURE DISCRIMINATION… AGAINST DUDES WITH HAIR. Steve Girsky, the CEO, has 51% of the influence and bats an all time low of 0.062 overall - he funded the fraudster Milton and won the lottery by getting to run the company - but turns out he’s also straight up racist again hair. Not only is the board 88% male, but it’s 63% bald. The academic research shows that people bond with people who look like them faster than others, and Girsky took it to heart as a bald man - this is a shit move, find a woman and break up the bald boys club
And sadly, another director died: Tecogen board member Fred Holubow.
New Directors
Johnson & Johnson added Best Buy director Eugene A. Woods.
Union Pacific appointed former Army Colonel and Deputy Secretary of Homeland Security John Tien. So think twice if you’re planning a great train heist.
Hyatt Hotels appointed Bath & Body Works director Alessandro Bogliolo. Alessandro is the former CEO at Tiffany’s. This guy just oozes soft skin and high thread counts and blood diamonds.
Leidos Holdings appointed FedEx director and retired Vice Admiral Nancy Ann Norton.
Executive changes
HP is making a switch at CFO, replacing Marie Myers with Tim Brown. Marie lasted less than 3 years. Average CFO tenure in the Fortune 500 is less than 5 years.
Angela Arman is the new CEO at Kilroy Realty. On top of a welcome package that includes $4M, she is receiving $15k per month for temporary housing; $200k in relocation fees; and “any deposits or tuition for private schools for her children for the current school year that cannot be recovered”
Former CEO and the founder’s son, John B. Kilroy, Jr. will remain as Chair. So have fun with that Angela.
John Jr. will receive a $92k/month consulting fee until the annual meeting and then $80k per month thereafter. Don’t you just love the needless precision? Also, “The monthly consulting fee will increase by $15,000 in certain circumstances where Mr. Kilroy no longer receives administrative support from the Company.” Does that mean that if he loses access to the fax machine they’ll give him $15k in cash? John Jr. also is getting a $16M golden parachute and will get $70k more just to stay on the board until the 2024 AGM, after which he will receive ful director pay, which is about $300k. All this despite currently holding $66M in company equity. Phew, I’m exhausted.
Booking Holdings has a new CFO, Ewout L. Steenbergen. He’s getting a golden hello of $9m equity/$1M cash just to show up.
Notable Resignations include:
Board Chair Robert F. Spoerry at Mettler-Toledo is retiring. Bob is a powerful dude: controls 41% of board influence at Bystronic; 37% at Mettler-Toledo, and 21% at Sonova.
Former PayPal CEO Dan Schulman has left the building. Current CEO Alex Chriss can wear whatever he wants now. According to reports, the PayPal board bungled the succession process which officially began last January when Dan announced his retirement.
Katherine L. Minyard stepped down at Ovintiv. She’s been on the board for two years but something tells me that when she saw our data and the fact that she controls 0.2% of influence she suffered an existential crisis.
Money! It’s golden hello again season! Where people who are already CEOs get extra money to keep being CEO.
A golden hello again! For Sirius XM Radio CEO Jennifer C. Witz: $16.5M options/$3.3M RSUs/$13.2M PSUs/car/30 hours jet. Oh, and she also gets a raise! (1.75M to $2M).
And at Axon Enterprise, CEO Patrick Smith received a one-time grant of something I’ve never heard of: eXponential Stock Units (“XSUs”), valued at $150M
Matt: Really? XSUs?
<PROXY CAGE MATCH BUMPER>
PROXY CAGE MATCH
The big news this week comes out of the proxy battle at Disney vs. Trian. Trian finally announced its nominees to Disney’s board. First there’s Trian’s own founder and CEO, Nelson Peltz. And then there’s Disney’s former CFO, Jay Rasulo.
Trian nominees:
Nelson Peltz. Nelson is Trian’s Chief Executive Officer and a Founding Partner and has served as a director on more than a dozen public company boards, including at world-class companies with best-in-class brands such as Procter & Gamble, Unilever, H. J. Heinz, Mondelēz and Ingersoll-Rand. Mr. Peltz’s experience is unparalleled among public company directors as is his track record for prompting bold action to drive operational turnarounds, transformations, effective leadership succession processes, and value creation across numerous industries.
James A. (“Jay”) Rasulo. Jay spent three decades at Disney and served as Senior Executive Vice President and Chief Financial Officer of the Company from 2010 to 2015. During his tenure as CFO, the Company delivered compound annual returns for shareholders of approximately 27% and compounded EPS at a rate of approximately 20%, paid a consistent and generous dividend, and Disney’s share price appreciated over 250%. Before being appointed CFO, Jay was Chairman of Walt Disney Parks and Resorts Worldwide from 2005 to 2009 and was President of Walt Disney Parks and Resorts from 2002 to 2005, delivering compounded high single-digit revenue and segment operating income growth annually. Bob Iger called Jay “a vital contributor to Disney’s success” with “strategic acumen and savvy insight.
“I want Disney to get back to the way it was when Jay Rasulo was here as CFO, because that’s when the company understood the taste and smell of success,” Peltz said in an interview. He also criticized Disney directors, including Iger, for not owning as much stock in the company as do the boards of other major U.S. companies.
The naming of Rasulo—once thought of as a contender for the top job—as part of Peltz’s proposed board slate is a sign that Trian wants to install a director with deep knowledge of Disney who isn’t beholden to the agenda put forth by Iger and the current board..
Matt: THIS IS THE ULTIMATE IGER TROLL.
Peltz said he has an “unparalleled” performance as a director - he is literally paralleled according to our data. He bats 0.501 overall, exactly the average director. Even his TSR is 0.537, almost exactly average. Peltz should busy himself removing his son from the Wendy’s board before tossing out “leadership succession” as a core skill
Meanwhile, Rasulo stepped down - was pushed out - after he was passed over for Iger succession in 2015 and was replaced by loyalist McCarthy, who staged the coup against Chapek and brought Iger back this year. This is a pure troll - the losses have been about shifting to streaming and Disney losses there, relative underperformance of movies overall, and linear television losses. Rasulo’s background was in… parks? He was Chapek before Chapek!
Peltz wants Disney to “get back to the way it was” - so totally fucking ignoring that Netflix exists, when people went to movies, ESPN was a cash cow, people still watched “TV”, and Disney’s big park innovation was a wristband that allows you to wait 3 hours for a ride instead of 4? This isn’t about performance or savvy - this is purely a troll, this is petty activism.
He could have named anyone - someone from the Netflix board, a heavy hitter from China like Jack Ma, or an AI/tech person - but he went for a blast from the Michael Eisner past - was Eisner busy?
Vote against Peltz, this is stupidity.
<VOTE RESULTS BUMPER>
VOTE RESULTS TABLE
Moving over to our fabulous Vote Results Table…
Let’s start with a company we talked about last week, Palo Alto Networks, where ISS and Glass Lewis were targeting Pay and Glass lewis was targeting directors Aparna Bawa and Lorraine Twohill. Here are the results:
Say on Pay failed decisively: only 38% said Yes.
However: Bawa and Twohill were each reelected with about 86% YES
And at 1-800-FLOWERS, shareholders have decided they are either too busy or don’t like to be bothered, or both, as they have decided to punt their annual Say on Pay vote to every 3 years: a full 95% of shareholders have decided that reading the company’s pay report every year is just too much of a burden.
<THE BIG VOTE BUMPER>
THE BIG VOTE
Costco
AGM Date: January 18, 2024
Proposal 1: Election of 10 Directors
Annual Elections for ALL directors? YES
General Observations
Ownership
Vanguard 9%
BlackRock 7%
Performance outliers:
Overall: .389
Ron Vachris .140
EBITDA .166
Walter Jelinek .022
Richard Galanti .022
Hamilton James .022
Carbon .722
Susan Decker .402
TSR .624
Maggie Wilderotter .494
Controversies .178
Maggie Wilderotter .534
CEO Succession
Ron Vachris has been elected to succeed Craig Jelinek as CEO effective January 1, 2024
Munger died
10 white/1 black
SHP Shareholder proposal regarding a report on the risks of state policies restricting reproductive rights:
Arjuna Capital
13% YES
Headquartered in Issaquah WA, outside Seattle
Director Slate
Hamilton E. James 72/1988 9%
Known for: Chair since 2017; Lead Director 2005-2017
Other Public Company Directorships: none
Blackstone (prior)
Votes Against Last AGM: 6%
MA upbringing, NYC lifer
Susan L. Decker 61/2004 9% a
Known for: former CFO Yahoo!
Other Public Company Directorships: Berkshire Hathaway, Vail Resorts
Intel, Pixar, Momentive Global (prior)
Ralph Lauren Corp. (2018 – present)
Qurate Retail, Inc. (2011 – 2021)
Brinker International, Inc. (2013 – 2019)
Votes Against Last AGM: 9%
Kenneth D. Denman 65/2017 12% An
Known for:
Other Public Company Directorships: VMware and Motorola Solutions
(prior) ShoreTel, Inc., United Online, Inc., Mitek Systems, and LendingClub
Votes Against Last AGM: 6%
Deep Seattle ties - board of UW Foster, trustee Seattle Children’s
Helena B. Foulkes 59/2023 n/a
Known for: CVS
Other Public Company Directorships: Skillsoft Corp
(prior) The Home Depot
Votes Against Last AGM: n/a
Richard A. Galanti 67/1995 10%
Known for: CFO
Other Public Company Directorships: none
Votes Against Last AGM: 8%
Seattle based
W. Craig Jelinek 71/2010 13%
Known for: CEO 2012-2023; stepping down 2024
Other Public Company Directorships: none
Votes Against Last AGM: 2%
Seattle based
Sally Jewell 67/2020 7% ac
Known for: former U.S. Secretary of the Interior
Other Public Company Directorships: none
Votes Against Last AGM: 1%
Ex REI CEO, headquarters outside Seattle
Jeffrey S. Raikes 65/2008 4% N
Known for: Microsoft/CEO Bill & Melinda Gates Foundation
Other Public Company Directorships: none
Votes Against Last AGM: 19%
Seattle heavy
John W. Stanton 68/2015 9% C
Known for: majority owner of the Seattle Mariners; CEO of various wireless companies
Other Public Company Directorships: Trilogy International Partners and Microsoft Corporation
(prior) Columbia Sportswear Company
Votes Against Last AGM: 1%
Seattle tie - chair of owner of the Mariners, director at MSFT
Ron M. Vachris 58/2022 7%
Known for: COO; CEO as of 1/1/2024
Other Public Company Directorships: none
Votes Against Last AGM: 4%
Seattle based
Mary Agnes (Maggie) Wilderotter 68/2015 14% cn
Known for: former CEO Frontier Communications
Other Public Company Directorships: Sana Biotechnology, Inc. and Chair at DocuSign
(prior) Xerox Corporation, DreamWorks Animation SKG, Cadence Design Systems, Hewlett Packard Enterprise, The Procter & Gamble Company and Lyft, Inc.
Votes Against Last AGM: 8%
Ex MSFT
Our analysis:
This is not a company that pivots. This is grandpa’s cheap, bulk goods warehouse. They don’t have plans to reduce energy costs at the 79% of warehouse properties they own that represent the single largest asset on their balance sheet - property. This is a company that mints cash by selling 400 lbs jars of pickles to inflation-strapped consumers, then takes that cash and raises dividends 13% year over year and approves a 4bn share buyback plan. They sell gas at cheap prices that consumers don’t recognize they subsidize through their subscription plan - so they more or less pay for exclusivity to join the club, then the entry fee covers most of the cost reductions. It’s also a company run by Richard Galanti, the CFO, not the CEO who doesn’t even show up for the earnings calls. Galanti is basically an old angry dude constantly saying everyone should slow down.
No wonder Munger loved it. It’s like a members-only inflation proof stock.
So this is what you should expect as Costco’s view of the future, from the March earnings call:
Scott Mushkin: And just curious, and maybe this is a silly question, what happens with that gas business, especially in California, with the push to EVs?
Richard Galanti: It's a long road ahead. We only have 11 carwashes. So we have plenty of room for carwashes 30 years from now. But at the end of the day, we think it's a very long road. It's not happening in the next few years. And the fact that we're still taking such market share relative to U.S. gas gallons in general is a positive. So I think it's a question that we can defer for 5 or 10 years, frankly.
The reason they are deferring the question a decade about solar, EVs, and everything else that probably matters for the future? A board comprised of four lifers:
Hamilton “Tony” James, 34 year tenure
Richard Galanti, CFO, 28 year tenure
Munger (dead), 26 year tenure
Sue Decker, 18 year tenure
Jeff Raikes, 14 year tenure
Craig Jelinek, CEO stepping down, 13 year tenure
Total Old Skool Influence: 52%
Our stats fail us here - we have the highest influence person as Mary Wilderotter given that she’s connected to 36% of the board - but the Galanti/James combo is likely the decision making power structure.
We do know:
Community concentration: 91% of directors
Connected: 45%
Board type: Democratic (but likely entirely deferential to management)
Position players: 79% rotation players
Overboarded: Wilderooter and Denman (6 and 5 total, 4 and 3 active)
Tendencies: pay dividends .827 (really high), pay ceo .336 (high paying), debt .479 (average), median salary .467 (average)
Free Float game time picks:
First of all, Hamilton James being nicknamed “Tony” is like nicknaming King Charles “‘Lil Chuckie” - James is pure royalty - Choate, Harvard, investment banking, Blackstone prez, trustee of everything in NYC, worth ~3bn. I know the board likes to keep OG, but 38 years for a NON FOUNDER? C’mon. Vote against James.
Seattle royalty rules here - current board is 46% Seattle-based, HEAVY Democratic donorship (Sally Jewell was at Interior for Obama, Tony James was major Obama donor and offered Commerce Secretary role) with no less than three insiders on the board. Money mint or no, break up the guaranteed votes: vote against Jelinek, let the man retire and keep Galanti (who runs the show anyway) and Vachris, the new CEO, on the board.
Proposal 2: Auditor
KPMG
Nobody cares
Proposal 3: Say on Pay
95% yes in 2022
The Compensation Discussion and Analysis section barely exists!
About 5 pages! At Wal-Mart, Costco’s first listed peer, the discussion runs over 30 pages.
Whatever the formula is, average pay over the last 3 years for Craig Jelinek has been about $12M. For WalMart CEO Doug McMillon it’s been $25M.
At WalMart all named executive officers received corporate jet benefits. At Costco, they got $120 for an executive membership card
And this is a board with a tendency to pay its executives well - but Jelinek has 258m worth of shares that vest on his retirement, I’m not sure he’s hurting. Vote for.
Proposal 4: SHP
National Center for Public Policy Research
Fiduciary Carbon-Emission Relevance Report
“Making the world's poor poorer to advance the policy preferences of some misinformed wealthy climate activists is the height of social injustice as well as being a terrible business strategy.”
Matt:
One of the best circular arguments of all time by the NCPPR: Claims about the need for decarbonization at all, but especially by some activist-generated date certain, are based on a long series of assumptions that are either counterfactual or insufficiently examined. For decades, for instance, claims have been made that action must be taken before some date, or it will be too late.3 If those claims were right, it's too late for decarbonization to matter now, so we should be building up economic resources to deal with climate change. If they were wrong, then the odds are high that current claims are also wrong.
The board admits we already lost our battle against climate change in its response! “The Board and the Company also have noted that the Plan, and others like it, will not now prevent the impacts of global warming, which every day are more evident. The world is now instead in a state of attempting to mitigate and adapt to these impacts. That reality, however, means that efforts should be enhanced – not abandoned.”
Vote against.
DAMION:
That’s the Proxy Countdown for the week of December 18, 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.
