The Big Vote at Delta Airlines, plus Musk’s vote “leak”, and Eli Lily and Alphabet’s CFO trade

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of June 10, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Alphabet steals a CFO from a pharmaceutical company.

2. Southwest Airlines CEO Bob Jordan is not looking for career advice.

3. WalMart shareholders care more about pigs than employees

4. Tesla shareholders appear to be out of their collective minds

5. And on the Big Vote, an airline company board so dull they named it Delta

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Trade Wire - BUY/SELL

Top Stories:

1. On June 5, 2024, Eli Lilly and Company announced that Anat Ashkenazi resigned as CFO to “pursue another career opportunity outside of the pharmaceutical industry.”

1. On the same day, Alphabet announced the appointment of Anat Ashkenazi as the new CFO of Alphabet and Google.

2. Do we think Alphabet is the “other career opportunity outside of the pharmaceutical industry??” Come on, ELi Lilly, just tell us. We have Google. We can Google “Google”

2. NIKE’s longest-tenured director, Alan B. Graf, Jr., who was appointed to the Nike board before Tom Brady won his first Super Bowl, is finally stepping down. What’s most remarkable about Graf is not his tenure of over 20 years, it’s his lowly influence of just 2% on the Nike Board. Travis Knight, son of founder Philip, maintains 54% influence at Nike

3. Large cap boards will have one less Murray and two more Marias:

1. Murray Roos stepping down at Tradeweb Markets

2. Maria Castañón Moats joining at Casey’s General Stores

3. And Maria N. Martinez a new director at Tyson Foods.

4. And lastly, at Carrier Global Corporation, Timothy White, the Company’s President, Refrigeration, will transition into the newly-established role of Chief Product Officer effective July 1, 2024. I just wanted to say “President, Refrigeration.”

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PROXY CAGE MATCH

1. Southwest Airlines CEO Bob Jordan says thanks but no thanks to Elliott Investment Management, which on Monday publicly disclosed a $1.9 billion stake in the airline and demanded new leadership. On Wednesday, Artisan Partners Limited Partnership, Southwest’s ninth-largest shareholder, urged the board to “reconstitute itself and upgrade company leadership.”

1. “I have no plans to resign,” Bob Jordan said. “My 150% focus is on supporting our employees, doing good for our customers and executing the wonderful plan we have to get better.”

2. Elliott said Southwest's board does not include any director with external airline experience. It called for the board's reconstitution with "new, truly independent" directors possessing expertise in airlines, customer experience and technology.

2. And at Tesla, part-time CEO Elon Musk has already declared victory before Tesla’s shareholder meeting this afternoon. Because why wait for the actual meeting to happen and for all of the votes to actually come in and  waste another opportunity to prove that Tesla’s stock is essentially a meme stock that operates outside of the scope of normal fundamentals that the anti-ESG crowd purports to worship.

1. Matt: lest we forget - Bill Ackman lost his mind when this happened at Disney:

1. There have been a few recent articles in the press about @Disney  'winning' its proxy contest with Nelson Peltz based on early election returns that have been leaked to the media.  We don't have an investment in Disney, but I thought it useful to point out the inappropriateness of these leaks to the press.

2. the company and/or its advisors have leaked the early results in order to tip more institutions and other shareholders to vote for the incumbent board, unfairly tipping the scale in the incumbent board's favor. 

3. Institutions who have already voted still have time to change their vote.  It is time that we make an example of Disney here so that this bad practice does not continue to poison shareholder democracy.

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VOTE RESULTS TABLE 

Moving over to our vote results table, I looked at 32 AGMs over the past week.

As usual the vast majority of directors received well over 90% support. Only 8 directors (out of roughly 300) received more than 20% votes withheld:

1. Kelly Battles (24% NO) at Arista Networks;

2. Richard Barton (24% NO) at Netflix;

3. Kenneth J. Bacon (22% NO) and Thomas J. Baltimore, Jr. (22% NO) at Comcast;

4. Richard W. Fisher (21% NO), Paul A. Gould (26% NO), and John C. Malone (29% NO) at Warner Bros. Discovery;

5. And David Kostman (30% NO) at Unity Software

Six of those directors were at Media companies, which appears to be the only industry where shareholders are paying attention??

The week’s big winners are:

1. Costar Group

1. Angelique G. Brunner 99.9% YES

2. Davita

1. Wendy L. Schoppert and Dennis W. Pullin 99.93% YES

There continues to be wide support for pay practices. Only 1 company showed considerable dissent with  more than 20% of voters saying no and that’s at:

1. Warner Bros. Discovery: Say on Pay 47% NO

Moving over to the world of Shareholder proposals. Let’s start with the victories. Both were calling for the adoption of a shareholder right to call a special shareholder meeting:

1.  70% said YES at Ansys;

2. And 52% said YES at Warner Bros. Discovery

Next up are the almost victories:

1. 49% said YES to a SHP calling for an independent Board chair requirement at Corpay;

2. While two votes at Netflix nearly passed:

1. SHP Report on Netflix’s Use of Artificial Intelligence 43% YES

2. SHP Special Shareholder Meeting Improvement 46% YES

And finally, here are my favorite oddities:

1. A SHP requesting a Report on Use of AI at Warner Bros. Discovery received 24% support

1. This one was brought by every good bureaucrat in New York CIty:

1. The New York City Employees’ Retirement System

2. the New York City Police Pension Fund

3. the New York City Teachers’ Retirement System

4. the New York City Fire Pension Fund

5. the New York City Board of Education Retirement System

6. And the New York City everything bagel toasted lightly with cream cheese guild

2. At Walmart, this is how shareholders rank some of society’s most pressing issues:

1. 13% support the publication of targets for transitioning from gestation crates in pork supply chain

1. You know I love anything with pigs involved

2. While a racial equity audit received the support of 15% of voters

3. 19% said Yes to a review of workplace safety and violence 19% YES

4. But a SHP on living wages for WalMart workers came in at a lowly 4% YES

3. And At Netflix, a very logical and simple request from The New York City Carpenters Pension Fund asking basically for directors to resign if they get more NO votes than YES votes received the support of only 16% of shareholders. 

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THE BIG VOTE

Delta

AGM Date: June 20, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Vanguard: 11%

2. BlackRock: 7%

2. Performance outliers:

1. Overall: .359

1. Christopher A. Hazleton .118

2. Edward Herman Bastian.189

2. EBITDA .466

1. Christopher A. Hazleton .152

3. TSR .413

1. Christopher A. Hazleton .237

4. Carbon .285

1. Christopher A. Hazleton .058

2. Michael P. Huerta .061

3. Edward Herman Bastian .063

1. Matt: Delta sued in 2023 in class action regarding carbon neutrality claims

5. Controversies .250

1. Leslie D. Hale .756

2. Christopher A. Hazleton .033

3. Edward Herman Bastian .038

4. Vasant M. Prabhu .046

5. David Scott Taylor .069

1. Board stuff

1. Committees

1. Audit (a)

2. Corporate Governance (n)

3. Finance

4. Personnel & Compensation (c)

5. Safety & Security (s)

2. Skills (Non-Executive DIrectors)

1. Economics and Accounting 21%

2. Mechanical 17%

3. Computers and Electronics 7%

4. Production and Processing 6%

5. Food Production 6%

6. Sales and Marketing 5%

3. Diversity Gaps

1. Female Power Gap 25%/26% (+1%)

1. Industry average female influence = %

4. Insider influence: %

1. Industry average %

5. Other

1. 2 new directors

1. Maria Black

2. Willie CW Chiang

2. 2 retiring directors

1. Jeanne Jackson 9%

2. William (Bill) Easter III 8%

3. Retirement age of 72 for outside directors

Matt:

If you’re an owner, Delta is basically the only US airline, and even global, you’re pretty happy?  This is the winningest loser?

• 2Y - only one that beats the S&P (AAL, Jetblue, Southwest, Spirit, Lufthansa, etc)

• 5Y - loses to S&P, but better than all other airlines?

Delta fits the profile of “someone has to win” in sports - like the Serie C in the Italian league… professional adjacent?

Some industry notes:

• Airlines are a crappy industry - low performance basically across the board, persistent boom/bust cycles that end in consolidation and bankruptcy - they’re like media in that billionaires seem to love the idea of them (buy a plane!), but running it is a nightmare and even the customers hate them all

• US airline bailouts coming to a crawling end - Treasury selling warrants at auction starting last week, with most strike prices under current trading prices for most airlines

• Reuters thinks t

• Southwest-ification of airlines today?

• Gary Kelly, who is still leading Southwest, was CFO in the 90s when the company was outperforming every other airline, was the first to hedge jet fuel prices

• Becomes a trading platform more than an airline - Southwest customer service dips over decades, ticketing innovations stop, but they create simulators and apps that project the price of jet fuel so they can place trades

• By 2022, Southwest had $1bn in hedges - it was basically profitable because of fuel hedges - and everyone had copied them

• But the cost was the gamification of airlines - and the rise of finance/trading/commodity players on boards

• Today every airline’s board knowledge base is finance - CFOs populate airline boards and virtually every board has an oil & gas person on it, including Delta who added Bill Easter in 2012 and is replacing him with Willie Chiang this year

• Debt: 81% of market cap vs. 54% Southwest, 600% for American, 100% for Jetblue, 18000% for Spirit, 100% for United

So as a backdrop, Delta is winning in an industry that basically has no winners - and Ed Bastian is getting PAID for it.  

So what’s the vote pregame theory here?

• Do you change the winningest of a losing industry?  What’s the pivot in the next decade for an industry everyone hates that’s constantly under duress?

• You either ride winners or fear future losses - and the future losses are probably exogenous: climate change and labor

Proposal 1: Election of 12 Directors

Annual Elections for ALL directors? YES

CONTINUING DIRECTORS:

1. Edward H. Bastian 66 m 2010  13%/16%

1. CEO Delta (2016-)

2. Public Directorships: Grupo Aeroméxico, S.A.B. de C.V. (2012 - 2022)

3. Affiliations: Member, Board of Trustees of The Woodruff Arts Center

4. Votes Against Last AGM: 3%

1. Maria Black 50 f 2024  /0.4%

1. CEO Automatic Data Processing, Inc. (ADP)

2. Public Directorships: Automatic Data Processing, Inc.

3. Affiliations: Trustee, ADP Foundation; Member, American Heart Association’s CEO Roundtable; Member, Business Roundtable; Member, The Business Council

4. Votes Against Last AGM: n/a

1. Willie CW Chiang 63 m 2024  /0.4%

1. CEO/Chair Plains All American Pipeline, L.P.

2. Public Directorships: Plains All American Pipeline, L.P.; Plains GP Holdings, L.P.

3. Affiliations: Board of Trustees, United Way of Greater Houston; 

4. Board of Trustees, Performing Arts Houston; Member, Energy Advisory Council of the Federal Reserve Bank of Dallas

5. Votes Against Last AGM: n/a

1. Greg Creed 66 m 2022 ac 10%/11%

1. CEO Yum! Brands (2015-2019)

2. Public Directorships: Whirlpool Corporation; Aramark Corporation; Sow Good Inc. (2020 - 2022); Yum! Brands, Inc. (2014 - 2020)

3. Affiliations: Director, Girls Inc. of Orange County

4. Votes Against Last AGM: 3%

1. David G. DeWalt 60 m 2011 Nas 7%/10%

1. CEO NightDragon Security,VC firm focused on cybersecurity, safety, security and privacy.

2. Public Directorships: Five9, Inc.; NightDragon Acquisition Corp. (2017 - 2022); ForgeRock Inc. (2017 - 2022); Forescout Technologies, Inc. (2015 – 2020)

3. Affiliations: Vice Chair, CISA Cybersecurity Advisory Committee; Member, National Security Telecommunications Advisory Committee

4. Votes Against Last AGM: 5%

1. Leslie D. Hale 52 f 2022 s 5%/8%

1. CEO RLJ Lodging Trust (2018-)

2. Public Directorships: RLJ Lodging Trust; Macy’s Inc. (2015 - 2023)

3. Affiliations: Vice Chair, Board of Trustees of Howard University; Immediate Past Chair, Board of Directors of the American Hotel & Lodging Association; Director, Federal Reserve Bank of Richmond (Baltimore Branch)

4. Votes Against Last AGM: less than 1%

1. 42% NO in 2022

1. Christopher A. Hazleton 56 s 2019 a 2%/3%

1. Delta pilot

2. Public Directorships: none

3. Affiliations: Chairman, Board of the Delta Pilots Charitable Fund

4. Votes Against Last AGM: 3%

1. Michael P. Huerta 67 m 2018 San 6%/7%

1. Former Administrator of the Federal Aviation Administration (FAA)

2. Public Directorships: Joby Aviation, Inc.; Verra Mobility Corporation

3. Affiliations: Fellow of the Royal Aeronautical Society

4. Votes Against Last AGM: 4%

1. Vasant M. Prabhu 64 m 2023 s 4%/1%

1. Former CFO/Vice Chair Visa

2. Public Directorships: Kenvue Inc.; Mattel, Inc. (2007-2020)

3. Affiliations: Trustee, The Brookings Institution

4. Votes Against Last AGM: 2%

1. Sergio A. L. Rial 63 m 2014 Cn 7%/9%

1. Chair Vibra Energia SA, a Brazilian energy company; Vice Chair BRF S.A., a global food processing company; former CEO Banco Santander Brasil

2. Public Directorships: BRF S.A.; Vibra Energia SA; Banco Santander (Brasil) S.A. (2018 - 2023); Banco Santander S.A. (2020 - 2023)

3. Affiliations: Global Board Member, The Nature Conservancy

4. Votes Against Last AGM: 5%

1. David S. Taylor 66 m 2019 nc 18%/23%

1. Chair Delta; Former CEO/Chair Procter & Gamble

2. Public Directorships: The Procter & Gamble Company (2015 - 2022)

3. Affiliations: Member, Board of Trustees of Duke University

4. Votes Against Last AGM: 5%

1. Kathy N. Waller 65 f 2015 Anc 12%/11%

1. Former CFO The Coca-Cola Company

2. Public Directorships: Beyond Meat, Inc.; CGI Inc. ; Cadence Bank (2019 - 2024); Monster Beverage Corporation (2015 - 2019) 

3. Affiliations: Member, Board of Trustees of Spelman College; Member, Board of Trustees of University of Rochester; Officer, Governing Board of Woodruff Arts Center

4. Votes Against Last AGM: 6%

Matt:

Masterclass in best practice board mediocrity

• Low connectivity, though not sure how that’s possible?

• Bastian and Waller on Woodruff Arts board together

• Prabhu has a connect to an ex Delta board member

• Leslie Hale has two connects to Taylor, board chair, and one to Creed

• Not much else that’s obvious?

• Decent refreshment, though semi questionable skills add?

• Heavy econ, CFO presence - with a body count in the room of mechanical knowledge (

• Delta has a designated pilot on the board, but worst performer?

• Only 25% women for a large cap is low, but 3 is the bare minimum best practice?

• If you’re an investor, you want the chair to have more power than the CEO - and they fooled our data too, but is that real?

Narrative:

• Greenwashing lawsuit is a problem

• Pledge list: 

• 10% increase in “sustainable” aviation fuel by 2030

• 35% increase in “sustainable” aviation fuel by 2035

• 95% increase in “sustainable” aviation fuel by 2050

• Net zero by 2050

• A lot of pledges - not a lot of board performance

• Of US airlines, Delta board is 2nd for TSR out of 8, and 4th for carbon intensity - but versus the sector, they’re in the bottom 3rd overall

• In fairness, everyone sucks

• Delta is maximizing their fleet

• Of global airlines, one of the oldest fleet ages - but one of the better emissions per passenger kilometer

• Ari explained this to me - they have old planes but they are maximizing their environmental efficiency through route selection and matching, like don’t use big planes for short flights

• Barring buying all new planes to improve carbon at the cost of billions to renovate the fleet and emissions in the generation of new planes, Delta is absolutely maximizing their asset from an environmental standpoint

• But not necessarily focused on maximizing future emissions

• It’s excellent “fleet hedging” of carbon - but no expertise is being added around sustainable aviation fuel, alternative fuels, alternative aviation methods, or other transport logistics to reduce emissions?

• Takeaway:

• We get it - this is a minimum best practice style board - and a recommendation against any director is mostly a nitpick… BUT…

• Average director tenure is 7 years - so the new adds bring you to 2031, but likely a bit longer given neither Willie Chiang or Maria Black will age out

• Black addresses (ostensibly) the labor problem with data from ADP, but not the HR problem per se - this is almost a labor hedge?

• Chiang replaces Easter for the fuel hedge oversight

• But neither - and both will be there - addresses even the first tranche of pledge of using SAF - and neither addresses transport logistics

• While SAF isn’t a NOW problem, the board members you add today WILL have it as a problem - so does Willie Chiang help solve it?

• Neste Oyj is the largest manufacturer of SAF and its board is full of engineers and chemists - Sari Mannonen has a PhD in Biochem and leadership roles in biofuels and alternative fuels

• Recommendation: Vote FOR this board, BUT…

• Absolutely need to start thinking about the next 7-10 years of tenure and who should be on it

• Replace skill targets:

• Less finance

• Leslie Hale’s real estate REIT experience - why?

• Prabhu CFO of Visa, CFO NBC, CFO Starwood, CFO of Safeway - why?

• Rial CEO of Santandar Brazil, big meat manufacturer in Brazil - why?

• Last I checked, airlines don’t actually serve food

• Waller CFO Coca-Cola

• Creed CEO of Yum, Taco Bell 

• Prabhu at Safeway, Rial at Brazilian meat

• Replace with:

• Sustainable fuels, carbon hedges

• Transportation logistics - Bastian is the only one on the board with actual transportation logistics experience, and his background was CFO and controller - NOT logistics - where the hell are the people good at moving objects from A to B??

Proposal 2: Say on Pay

1. 6% NO in 2023

1. 8% NO in 2022

2. CEO Ed Bastian $34.2M

1. One-Time Enhanced Awards to Certain Named Executive Officers

1. CEO Bastian $13.5M

2. President Glen Hauenstein $5.4M

3. EVP-External Affairs Carter $3.8M

3. CEO Pay Ratio: 336 to 1

Proposal 3: Auditor

1.  Ernst & Young 2% NO 2023

Matt:

Getting paid for being the best player on a bad team?  One-time enhanced award for an executive that needs an $11bn bailout just 4 years ago because his company greenlit billions in share buybacks rather than retaining capital for a rainy day?  Long tenured directors the majority of the pay committee (Rial 10 years, Waller who works with Bastian at Woodruff Arts at 9 years, and Creed who’s the new entrant)?

Would Bastian leave for 20m?  Why 34m?  Southwest’s CEO got 9.3m - is Bastian worth 4x Southwest’s CEO?  Scott Kirby, CEO of United, the second largest airline by market cap got 18.5m?

The average summary pay of a CEO running a company with a market cap between 20bn and 50bn in the US (202 companies) was 16m last year - Bastian would be the 8th highest paid CEO in that tranche.  Of the 382 US companies above 20bn, the average pay is 20m, and Bastian would rank 27th.  

How good is he really?

Vote NO on pay here, not that I really understand how it works since Dave Calhoun failed up to a massive pay increase and a post-retirement package worth more than $40m after destroying Boeing… 

Proposal 4: SHP requesting reporting related to third-party political contributions

1. John Chevedden

Proposal 5: SHP requesting the adoption of a non-interference policy

1. As You Sow, on behalf of LongView LargeCap 500 Index Fund

2023 SHPs

1. shareholder ratification of termination pay/John Chevedden 60% YES

2. freedom of association and collective bargaining policy/As You Sow 32% YES

DAMION:

That’s the Proxy Countdown for the week of June 10, 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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