The Big Vote at General Mills, plus Starbucks poaches a burrito and Intel is pre-activist concerned

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of August 5, 2024. I'm Matt Moscardi. On today’s countdown:

1. CFOs stay HOT

2. Starbucks poached a burrito

3. Southwest gets a special meeting

4. Women and black men are finally winning less

5. Our first Big Vote of the season at Big Cereal, General Mills

TRADE WIRE

Just the highlights

First, some executive trades:

1. The big news was at Starbucks as Brian Niccol took the reins from Laxmin Narasimhan, announced on August 13 effective September 9th.  

1. Mellody Hobson, a board all star, was DEMOTED to lead independent director as Niccol secured himself both more money and power than Laxmin as part of the deal.

1. Niccol notified Chipotle Mexican Grill, Inc. (“Chipotle”) of his decision to leave Chipotle on August 13, 2024.

2. Chipotle’s Board of Directors has appointed Scott Boatwright, COO, 51, as Interim Chief Executive Officer, effective immediately. Boatwright spent 18 years with Arby’s Restaurant Group.

3. Jack Hartung was brought out of pre-retirement in the shuffle - he announced his retirement from Chipotle in 2025, but agreed to remain with Chipotle indefinitely as President, Strategy, Finance & Supply Chain to ensure a smooth transition. Indefinitely!

4. At Chipotle’s board, Scott Maw took Mellody Hobson’s job, going from Chipotle’s Lead Independent Director to Chair of the Board

1. Poach one CEO and the race is on to secure the rest - on August 22, 2024, the Compensation, People and Culture Committee of Chipotle’s Board of Directors (the “Committee”) granted retention awards to its continuing named executive officers and other executives in the form of restricted stock units.

2. The retention awards have a grant date value of $8,000,000 for Messrs. Boatwright and Hartung, and $7,000,000 for Messrs. Garner and Brandt. The retention awards have a grant date value of $3,000,000 for Mr. Rymer and $1,500,000 for Ms. McConnell. 

1. The awards vest if they get fired by a new executive hire! 

2. Apple Inc. (“Apple”) announced that Chief Financial Officer Luca Maestri is OUT.  Since no one can quit on or near the date they actually quit, Maestri’s leave data is January 1, 2025.  As part of a planned succession, Kevan Parekh, Apple’s Vice President of Financial Planning and Analysis, will become Chief Financial Officer and join the executive team.

3. Without saying the quiet part out loud, Tyson Foods appointed Curt Calaway as the Company’s Chief Financial Officer. Mr. Calaway, 50, most recently served as the Company’s interim Chief Financial Officer since June 2024

1. He was “interim” because young nepo Tyson was busy being a drunky bed sleeper

4. On August 19, 2024, Lip-Bu Tan informed the board of directors (the “Board”) of Intel Corporation (the “Company”) that he was resigning from the Board, effective immediately. Tan said:. “I am grateful for the opportunity to serve on the Intel Board of Directors. This is a personal decision based on a need to reprioritize various commitments and I remain supportive of the company and its important work,” he said. 

1. He didn’t say: Intel board member Lip-Bu Tan resigns after alleged disagreements over management of company - he was ignored when he suggested getting rid of bloat, a symptom of having only 8% influence and no friends?

5. Finally, WW Grainger has a new Chief of Human Resources after Matthew Fortin left after less than a year with no reason given

1. Perhaps he lacked human resources

There were a bevy of early pre-proxy season board announcements, as well, but let’s jump to our Proxy Cage matches… 

PROXY CAGE MATCHES

1. Southwest Airlines' fight with activist investor Elliott just reached a new level

1. Elliott now owns enough of the airline to trigger a special shareholder meeting (10%, actual shares, not economic) - but they thread the needle and didn’t trigger the poison pill (11.5%) that would dilute them

2. Expect the special meeting to focus mostly on the fact the board is old and still adheres to a philosophy employed in 1994 by airlines

2. Intel is facing significant challenges after a disappointing Q2 performance, missing both top and bottom-line estimates, and issuing weak Q3 guidance. According to reports, Intel has hired advisors from Morgan Stanley and possibly other firms to prepare for potential battles with activist investors.

1. You don’t usually read a headline that says “Company Expects Activists” when there are no active activists, but I suppose when one of your board members quits because you’re a bloated Titanic of a company, you run some risk they talk?

3. It has NOT been a great few years for Richard Goyder, the chair of Qantas Airlines who glass cliffed his responsibility to a new female CEO at Qantas after bilking customers and now is the target of climate activist after a weak carbon strategy was put forth at his company, Woodside, an oil and gas company

1. Market Forces, the climate activist, is agitating for board renewal by targeting superannuation funds.

4. Finally, activist investor Ancora Holdings, fresh off its Norfolk Southern win, is urging Forward Air to launch a strategic review and consider a sale, and it warned that a board challenge might follow if investors' calls for action are ignored

Let’s move over to our Vote Results table…

VOTE RESULTS TABLE 

Just a couple of votes worth noting here… 

Large (leagues 3&4)

1. Dynatrace

1. Jill Ward 32% against

2. Kirsten Wolberg 27% against

3. Dynatrace is classified, so the vote was actually a vote against EVERYONE THAT COULD BE ELECTED this year

1. Both Ward and Wolberg were on the nominating committee, to boot

2. Microchip

1. 17% YES: Presbyterian Mission SHP: Shareholders request that the Board of Directors commission an independent third-party report, at reasonable expense and excluding proprietary information, on Microchip Technology Corporation's (Microchip) due diligence process to determine whether its customers' use of its products contribute or are linked to violations of international humanitarian law (IHL). In August 2022 the Royal United Services Institute (RUSI) and Ukrainian government reported that Microchip's products were among the most prevalent of the 208 dual-use components recovered from 26 Russian weapons systems.

1. Yikes - used in bombs and can’t get more than 17% support for a report?

3. Ralph Lauren

1. Class A director Darren Walker rejected: 53% against

1. They voted out the black guy at a controlled company?  Really?

4. Marathon Oil

1. At a special meeting on the merger with ConocoPhillips, Say on Pay rejected: 58% against

THE BIG VOTE

GENERAL MILLS

AGM Date: September 24, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Institutional

1. Vanguard 11%

2. BlackRock 10%

3. State Street 6%

2. Performance outliers:

1. Overall: .551

2. EBITDA .539

1. Maria G. Henry .807

2. Jo Ann C. Jenkins .315

3. TSR .498

4. Carbon .559

1. Elizabeth Cahill Lempres .807

2. Maria G. Henry .209

5. Controversies .610

1. C. Kim Goodwin .256

1. Board stuff

1. Committees

1. Audit (a)

2. Corporate Governance (n)

3. Compensation (c)

4. Finance (f)

5. Public Responsibility (p)

2. Skills

1. (Non-Executive DIrectors)

1. Economics and Accounting (19%)

2. Mechanical (18%)

3. Medicine and Dentistry (7%)

4. Transportation (5%)

5. Psychology (4%)

6. Production and Processing (4%)

7. Public Safety and Security (4%)

8. Biology (3%)

9. Food Production (1%)

3. Diversity Gaps

1. Female Power Gap %/% (-10%)

Market Notes: 

• Minnesota based - midwestern mafia company

• 5Y underperform S&P 41% to 76%

• 1Y underperform S&P 12% to 24%

• 3M outperform S&P 10% to 3%

The business model is the last mile delivery system for the corn industrial complex - it’s a snack/cereal company (51% of sales), the core differentiator is marketing for most of their products - which means a high potential for greenwashing

• Top rated by MSCI

• 41% of General Mills global volume met the company’s criteria as Nutrition-Forward Foods.

• “Nutrition-Forward” means either has 8 grams of a whole grain, half a serving equivalent of low or no fat dairy, or half a serving equivalent of fruit or nuts OR meets federal regulations for “implied nutrient content claims” in 21 code of federal regulations 101.65

• Brands include:

• Annie’s, Betty Crocker, Bisquick, Bugles, Cherios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Fiber One, Green Giant, Kix, Haagen-Dazs, Lucky Charms, Muir Glen, Progresso, Trix, Wheaties

But is this really a sustainable growth company?  Selling corn-based products in perpetuity?

• Growth, TSR = sell more vs. Ozempic, health/vegan movement?

Proposal 1: Election of 12 Directors

Annual Elections for ALL directors? YES

NOMINEES

1. Benno O. Dorer 60 m 2024 an 8%

1. Former Chair/CEO The Clorox Company

2. Other Public Directorships

1. VF CORPORATION (2017-2024)

1. Former interim CEO and Lead Director

2. ORIGIN MATERIALS (2021-2023)

3. Votes Against Last AGM: n/a

1. C. Kim Goodwin 65 f 2022 cf 11%

1. Former MD for the Asset Management Division of  Credit Suisse Group

2. Other Public Directorships

1. TJX COMPANIES, INC.

2. POPULAR, INC.

3. Votes Against Last AGM: 2%

1. Jeffrey L. Harmening 57 m 2017 21%

1. CEO/Chair

2. Other Public Directorships

1. THE TORO COMPANY

3. Votes Against Last AGM: 10%

1. Maria G. Henry 58 f 2016 fp 3%

1. Independent Lead Director

2. Former CFO Kimberly-Clark; former CFO Hillshire Brands/Sara Lee

3. Other Public Directorships

1. NIKE, INC.

2. NEXTERA ENERGY, INC.

4. Votes Against Last AGM: 3%

1. Jo Ann Jenkins 66 f 2020 np 6%

1. CEO AARP; government service

2. Other Public Directorships

1. AVNET, INC.

3. Votes Against Last AGM: 1%

1. Elizabeth C. Lempres 63 f 2019 aC 7%

1. Former Senior Partner McKinsey

2. Other Public Directorships

1. TRAEGER, INC.

2. AXALTA COATING SYSTEM LTD. (2017–2022)

3. Votes Against Last AGM: 3%

1. John G. Morikis 61 m 2024 af 4%

1. Exec Chair and former CEO Sherwin-Williams

2. Other Public Directorships

1. SHERWIN-WILLIAMS

2. FORTUNE BRANDS INNOVATIONS (2012-2024)

3. Votes Against Last AGM: n/a

1. Diane L. Neal 68 f 2018 fp 0%

1. Former CEO Sur La Table; former CEO Bath & Body Works

2. Other Public Directorships

1. FOSSIL GROUP, INC. (2012–2022)

3. Votes Against Last AGM: 1%

1. Steve Odland 65 m 2004 fp 7%

1. CEO The Conference Board; former CEO Office Depot; former CEO AutoZone; former Lead Director

2. Other Public Directorships: None

3. Votes Against Last AGM: 4%

1. Maria A. Sastre 69 f 2018 9%

1. Former COO Signature Flight Support

2. Other Public Directorships cN

1. O’REILLY AUTOMOTIVE, INC.

2. KALERA PLC (2021–2023)

3. Votes Against Last AGM: 3%

1.  Eric D. Sprunk 60 m 2015 An 5%

1. Former COO Nike

2. Other Public Directorships

1. BOMBARDIER INC.

2. NORDSTROM, INC.

3. UNIVERSAL MUSIC GROUP N.V.

3. Votes Against Last AGM: 2%

1. Jorge A. Uribe 67 m 2016  cP 6%

1. Former Global Productivity and Organization Transformation Officer at The Procter & Gamble Company,

2. Other Public Directorships

1. INGREDION INCORPORATED

2. GRUPO ARGOS AS

3. Votes Against Last AGM: 2%

Matt:

Connections:

• Kerry Clark has 7 discrete connections to current and past directors on his way out the door

• Odland, Uribe, Mary Henry, Kim Goodwin have 2 each

• Odland and Sastre both on conference board (CEO and trustee)

• Company has 44 connects in last 15 years - feeders are Wells Fargo (6), FedEx (6), Citi (5); not exactly the pantheon of well run companies?

• FedEx is voting member at Conference Board - 15% of all historical board connections run through conference board voting members

Buying the Conference Board… 

• CEO:max board member share ratio is 32% (Odland has 32% of the CEO shareholdings), which is above the median for the SP500 (30% for widely held companies), so Odland is slightly above average

• Conference Board is a conduit to board members

• Odland and head of nominating (governance) committee are both Conference Board trustees

• Odland had connects to at least two other board members from General Mills past

What are the implications of…

• Buying a small club of directors (local to midwest, Conference Board), who are overseeing…

• A last mile delivery system for corn production in the US which is inevitably directly linked to nutrition issues and disruptable by Ozempic?

Who’s the pivot on the board?

• As of April: The regenerative agriculture goal is part of the company’s project to reach net zero carbon emissions by 2050 and decrease its carbon footprint by 30% by 2030. The company has decreased its emissions 7% on a 2020 baseline, it said in the report

• Per MSCI: Top marks for product carbon footprint, including targets for scope 3, programs for carbon at all facilities, fleet included, and a top quartile score

• “Bell Institute” - around for a long time, it’s their nutrition division they use to market themselves as… nutrition

• Partner with schools for breakfast and offer “25% less sugar Trix” for instance

Here’s a fun knowledge gap - only two directors with food production background (as in - they actually did the producing or studied agriculture), one of whom is the CEO (the other is Mary Henry).  Most directors have some outside experience with production processes, generally as an exec (COO) at other retail/food companies, but when it comes to the ag it’s pretty much all CEO.

Director notes:

• Dorer (new) econ background, marketing P&G, product management (Ohio)

• Goodwin (2022) asset management, equities, black woman (twofer)

• Harmening (CEO, 2017) marketing, econ, MBA - at GM since 1994 when he got his MBA (lifer) (MN)

• Henry (2016) CFO, finance/strategy, Jack Welch GE era, woman (

• Jenkins (2020) once upon a time US Dep of Ag, now AARP, gov rep, black woman (twofer)

• Lempres (2019) engineering from IBM and GE before McKinsey for 30+ years, woman

• Morikis (new) Sherwin-Williams lifer, business/psych and MBA (Ohio)

• Neal (2018) retail, merchandising, ops, local (ex Target) (MN)

• Odland (2004!!!) conference board, board lifer?, merchandising, business degrees

• Sastre (2018) non profit, cruises/airlines prior, latina woman (twofer), accounting/finance

• Sprunk (2015) retail (Nike), accounting

• Uribe (2016), P&G, marketing, “transformation”, latino dude

Overlaps - 

A lot of retail (6 directors per our knowledge map), a lot of finance/econ (4 directors with 26% influence)

Final take:

• Club board, 54% of influence held by connected directors (more if we include outside board interlocks), CEO with sole knowledge of core industry (directors have experience on the margins), one 20 year tenured director, lagging TSR and a marketing focus to increase sales in the face of possible health shift related to Ozempic - need to plan for future with less sugar cereal (16% of sales) and pointless snacks (36% of sales) and more core sustenance

• Less retail board, more science and agriculture and logistics

VOTES

• AGAINST Odland (20 years is enough, target replacement is someone directly in Ag or Ag sciences)

• AGAINST Sastre (duplicative skills in accounting, retail transportation isn’t need vs. actual logistics transportation, history in industries with overwhelming environmental and forward thinking weaknesses, connected to Odland)

Proposal 2: Say on Pay

1. 8% NO in 2023

2. CEO Pay Ratio: 228:1

1. $16M total for Jeffrey Harmening

3. For no good reason:

1. Base salary up to $1.35M from $1,25M and longterm target up to $10.05M from $8.71M 

4. Annual bonus: Organic Net Sales Growth (50%); Adjusted Operating Profit Growth (50%)

5. Long-term: Organic Net Sales Growth (50%) and Cumulative Operating Cash Flow (50%) with Relative TSR modifier (yes, if less than 25th percentile the award modifier is only -25%);

6. Pretty boring plan overall

Matt:

Questions from campus (Chantal questions):

• CEO pay ratio:

• General mills says: “The ratio of our CEO’s total compensation to the median employee’s total compensation was 228 to 1.” Is this normal? Compared to other Fortune 500 companies? To the average business?

Median

185.7558

90th

462.5036

10th

69.67216

GIS Percentile

62%

• It seems like the shareholder proposals were pretty much dismissed by the Board of Directors in the AGM. In your opinion was their reasoning for blocking the proposals reasonable? Has there been an instance where shareholder proposals actually get passed?

Do they get passed?  YES, but rarely - 803 shareholder proposals were filed for the largest 250 companies in the US in the last two years, and of those, only 21 got more than 50% of the vote for an abysmal 2.6% passage rate, and all of them were pure governance (special meetings, super majority voting rules, etc).  The highest vote getting environmental proposal got 46% at PACCAR to disclose climate lobbying.

As to the dismissal - virtually all the proposals are always dismissed, usually by saying one of two things: 1.) we already do that, or 2.) it’s not relevant to shareholders.  The pre-proxy fight for a proposal (proposals are submitted and the companies usually fight to exclude them) is almost always using the “ordinary business” rule - shareholders are not allowed generally to ask a company to do something that micromanages ordinary business operations (ie, “we demand you use more electricity from solar”), so proposals are usually framed around disclosure (ie, “we demand you report on the sources of your electricity to determine whether you have a risk of increased costs that hurt shareholders”).

Proposal 3: Auditor

1. Nobody cares

2. KPMG has served as the company’s independent auditor since 1928

Proposal 4: SHP Disclosure of Regenerative Agriculture Practices Within Supply Chain

1. As You Sow on behalf of Warren Wilson College

Matt: I actually DO want more disclosure about regenerative ag, as it’s a scientific endeavor (not a policy endeavor) that you can measure with things like soil health (water absorption rates and chemical composition, for example) - but a CORE part of it is pesticide use, which General Mills says they can’t push or they “alienate” farmers?  I think the proposal is actually narrowly focused on pesticides, but the real ask here is much wider - especially since the long term business case if they can’t “alienate” farmers is to get vertical.  I’m voting FOR it.   

Proposal 5: SHP Plastic Packaging

1. Green Century Capital Management, Inc. on behalf of Green Century Equity Fund

Part of the problem with sustainable packaging is I’m not sure it’s real?  Green Century is definitely right that if General Mills wants consumers to drop their packages back at the store, it’s a non starter - but fundamentally recycling is an economic designation, not a materials designation.  As in MANY things can be recycled but aren’t because it’s a net economic loss (which ignores the environmental loss - or “premium cost”).  But this won’t pass because General Mills has a lot of disclosure around this annually already… so vote FOR, but don’t expect much.

DAMION:

That’s the Proxy Countdown for the week of September 2, 2024. Join us next time 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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