The Big Vote at McCormick, plus Disney vs. ISS and Glass Lewis, and say goodbye to a longtime underperforming director

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of March 18, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Another out-of-control golden hello reward for an American CEO;

2. The retirement of one of the most infamous fake independent directors at McDonald’s

3. Voting recommendations from ISS and Glass Lewis at the Disney Proxy Cage Match

4. A shareholder win at Analog Devices

5. And on the Big Vote, a Spice company that pretends it’s still the year 1602 in Amsterdam

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Trade Wire - BUY/SELL

Top Stories:

1. After Duke Energy announced that Harry Sideris has been appointed as President, the company also decided to announce that CEO and Chair  Lynn Good, who has been CEO since 2013, “will continue on and after April 1, 2024, as CEO and Chair of the Board.”

2. A leadership change at International Paper Company will see Andrew Silvernail become CEO in May along with a golden hello package worth  just over $21M, including  $200K in cash to support relocation expenses not covered under the Company’s current relocation policy and another $50K in cash for legal fees incurred receiving his massive golden hellp package.

1. Former CEO Mark Sutton isn’t going very far, he will stay as Board Chair.

3. And a corporate governance legend is retiring at McDonald's: board chair Enrique “Rick” Hernandez, Jr., who has been on the board since the Clinton administration, is finally stepping down.

1. Hernandez was infamously booted from the Wells Fargo board in 2018 as part of the  scandal where Wells Fargo set overly aggressive sales targets that resulted in abusive practices towards consumers for over a decade.

2. Hernandez, who inherited a security services company from his dad, was engaged in multiple side dealings at Wells Fargo resulting in nearly $25M in deals over a decade. He ironically sat on their Corporate Responsibility Committee as well as chairing the Finance and RIsk committees.

3. This means a consolidation of power for McDonald’s CEO Chris Kempczinski, who will absurdly become the Chair as well as being CEO.  

4. Fellow Chicago business mafia director and former Abbott CEO Miles White will assume the role of Lead Independent Director. He will also be the director with the second longest tenure, having served since 2009. 

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PROXY CAGE MATCH

Let’s get back to our Disney Proy Cage Match at Walt Disney:

1. Reuters is reporting today that ISS is backing Nelson Peltz because Nelson “could be additive to the succession process.”

1. ISS also said shareholders should abstain from voting for Jay Rasulo, all three Blackwells candidates and current director Maria Elena Lagomasino

2. Nelson also had some of his director friends send a letter to the DIsney board (“Dear Disney DIrectors”) to say Nelson is a swell guy. This extremely diverse list of 13 directors included: 3 directors from Heinz, 3 directors from Mondelēz, 2 directors from Legg Mason, 2 directors from Janus Henderson, 2 directors from Wendy’s, and even a woman.

2. On Monday, Glass Lewis  recommended shareholders reelect all 12 of the company's directors instead of adding any of the dissident candidates. 

1. “…given what we believe is already a credible plan underway for Disney, we struggle to see many of Trian’s intentions as representing a likely net gain for investors.”

3. Blackwells continued its fight:

1. In one filing it said that Nelson Peltz billed Wendy’s almost $600,000 for “security-related services” and said that “Disney deserves Board members who aren’t scared of hamburgers sitting in the boardroom”

2. In another filing it referenced a CNBC report that noted the “remarkable similarities in scope and style” between Trian’s white paper and Elliott Management’s which prompted the line “If Peltz can’t even uniquely state his case for Disney board leadership, what purpose does he serve?”

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VOTE RESULTS TABLE 

Moving over to our vote results table, we have several votes in at large cap companies

1. At Starbucks, after the Strategic Organizing Center gave up its proxy fight, all directors and Say on Pay received more than 90% of the vote.

1. However, when we adjust for the ESG Skeptic vote (minus Vanguard, BlackRock, and Howard Schultz) Chair Mellody Hobson, Nominating Committee Chair Jorgen Knudstrop, and Say on Pay managed the support of only two-thirds of the vote.

2. All three shareholder proposals failed miserably, especially the two anti-woke ones pretending to care about ‘systemic discrimination’ and ‘human rights’

1. Report on Plant-Based Milk Pricing: 5% YES

2. Report on Direct and Systemic Discrimination: 1% YES

3. Report on Human Rights Policies: 1.6% YES

2. At Analog Devices, 28% of all voters rejected Say on Pay; a number that slips to 51% when we adjust for ESG Skeptics Vanguard and BlackRock. Also, a shareholder proposal brought by John Chevedden requesting a simple majority vote passed overwhelmingly with 89% support 

3. At Agilent Technologies, more than 20% of shareholders want board chair Koh Boon Hwee gone; he has been on the board for over two decades.

4. And plenty of discontent to report at HEICO Corporation:

1. 38% voted NO on Nominating Committee Chair Mark H. Hildebrandt, where the board has only two female directors, representing a mere 3% of total board influence

2. And 26% were against Say on Pay where the 3 Mendleson family board members and executives each received about $15M in pay while also receiving $250K in director fees, a practice not typically followed at American companies.

3. Considering 17% of voting power is held by the Mendleson family, HEICO shareholders are not happy campers

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THE BIG VOTE

McCormick & Company

AGM Date: March 27, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Voting and Non-Voting Shares

2. NEOs control 22%

1. Kurzius 12%

2. Foley 3%

3. CFO Michael Smith 3%

4. 13% of voting shares are in the McCormick 401k, with an administrator appointed by CEO

2. Performance outliers:

1. Overall: .684

1. none

2. EBITDA .559

1. William Vernon .369

3. TSR .464

1. Anne Bramman .270

4. Carbon .814

1. none

5. Controversies .925

1. none

1. Board stuff

1. Female Power Gap 33%/18%

1. Industry average female influence = %

2. Diversity Power Gap 25%/13%

1. Industry average diversity influence = %

3. Any diversity 50%/26%

4. Insider influence: 33%

1. Industry average %

5. Influence power (55%): Exec Chair Lawrence E. Kurzius (27%); CEO Brendan M. Foley (14%) ; and Lead DIrector Michael D. Mangan (14%)

Matt notes:

Company stats:

• Major competitors - none?  Maybe foods, but they own 70% of the spice market

• Stock (underperform): 1Y: 0.45% vs. 9.84% SP500,  5Y 4.99% vs. 101.99% SP500

• Valuation: overvalued, HOLD

• PE: 27

• Dividend Aristocrat

• Massive sensitivity to inflation/commodity prices

• No controversies (NONE?)

Board stats:

• Oligarchy - majority influence split between two or more directors (Kurzius, Foley, Mangan)

• Exec Chair + CEO + LID director

• Pedestrian board otherwise

• Not highly connected to one another on other boards

• Super long tenured director stepping down this year (Hrabowski)

Business notes:

• Spice trade hasn’t changed dramatically since 1500 BC, but still worth 6.7bn in 2024 (which is about 70% of the market for spices)

• McCormick not growers, just manufacturers on the other end - supply chain, shipping costs, inflation are their economic risks

• Water, climate change/growing seasons, are biggest real world risks

• Most fascinating thing to me is the share structure here - it hasn’t changed much since the first IPO in history, the Dutch East India Trading Company, that had two share classes - one for “members” (essentially management) and one for “participants” (essentially public float - speculators)

• Participants also got no vote - spurred the first activist position in VoC, also the birth of the corporate governance / CSR movement

• McCormick has “non vote” public shares and low float “voting” shares that are almost entirely held by management and the employees through the 401k (managed by management)

• Which brings me to the LID - why does a company that chooses its own directors with management that gets continually accrued voting power as they stay on need a LID?  Who do they represent?  Is the LID a joke?

The Lead Independent Joke

• There are 284 US large caps out of just over 600 with a strong executive presence (CEO/Chair combo, founder, or executive chair) and a Lead Independent Director on the board - that’s 47% of US large cap boards

• WHO SAID MONARCHY IS DEAD?

• Of those…

• At 59% the LID has 10+ years of tenure

• At 29% BOTH the executive AND the LID have more than 10 years of tenure - as in they worked together for a decade

• So this means at the majority of companies using a Lead Independent Director to comply with ISS or Glass Lewis “best governance practices” are calling a person who’s been on one board for more than 10 years “independent”, which in the UK is NOT considered independent

• Worse, our data shows that at 57% of those companies, the executive and LID combo own greater than 40% of board influence, and a quarter of them own the majority of influence

• We also found that at the worst 10% of them, the LID and executive were the most connected people on the board to the other directors

• So imagine a real life scenario - you join a board after meeting the lead independent director at a gala… when you get to the board, you find out the CEO, who called the meeting as chair, has worked with the LID for 10 years and nearly ALL the other board members ALSO met one or both of them through business or galas or golfing

• Now ask if the LID represents SHAREHOLDER interests or MANAGEMENT interests?

• Check the box exercises don’t work, you need to measure power and connections and context

Diversity as a skill

• Diversity matrix and “enhances diversity of the board” in the skill matrix

• Meanwhile, NOT listed as a skill: supply chain management, climate or related risk, agriculture

Recommendations:

• If you DO have voting shares for some reason - and there are a handful of shares in the hands of funds - there is at least one obvious vote here:

• VOTE AGAINST the Lead “Independent” director Mike Mangan

• You aren’t independent after 17 years, c’mon now

• He worked a power tool company - there’s literally no relevant skill overlap, which is a common way you consolidate power with executives on the board (see Disney)

• Directors I love - Michael Conway is exactly who you want to keep on paper - when you - he needs to chair a committee

Proposal 1: Election of 11 Directors

Annual Elections for ALL directors? YES

Director Slate

1. Anne L. Bramman f 56 2020 3% a

1. Chief Financial & Growth Officer, Circana, Inc. (2023 to Present); Senior Advisor, Boston Consulting Group (January 2023 to June 2023); Chief Financial Officer, Nordstrom, Inc. (2017 to 2022)

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 2%

1. Michael A. Conway m 57 2015 6% n

1. Group President, International and Channel Development (2021 to present), Executive Vice President & President, International Licensed Markets (2020 to 2021), Executive Vice President & President, Canada (2018 to 2020), President, Licensed Stores, U.S. and Latin America (2016 to 2018), Starbucks Corporation

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 6%

1. Brendan M. Foley m 58 2023 14%

1. CEO (September 2023 to present), COO (2022 to 2023), President, Global Consumer, Americas & Asia (2020 to 2022), President, Global Consumer and Americas (2017 to 2020). McCormick & Company, Incorporated

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: na%

1. Lawrence E. Kurzius m 65 2015 27%

1. Executive Chairman (September 2023 to present), Chairman & CEO (2022 to 2023), Chairman, President & CEO (2017 to 2022), McCormick & Company, Incorporated

2. Other Public Company Directorships: Elanco Animal Health Inc.; CooperCompanies Inc.

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 2%

1. Patricia Little f 63 2010 3% n

1. Retired Executive (2019 to present); Senior Vice President and Chief Financial Officer, The Hershey Company (2015 to 2019)

2. Other Public Company Directorships: Ulta Beauty, Inc.

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 5%

1. Michael D. Mangan m 67 2007 14% cn

1. Lead Director; Retired Executive (2010 to present); President, Worldwide Power Tools and Accessories, The Black & Decker Corporation (2008 to 2010)

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: Nutrisystem, Inc.

3. Votes Against Last AGM: 5%

1. Maritza G. Montiel f 72 2015 5% A

1. Retired Executive (2014 to present); Deputy Chief Executive Officer & Vice Chairman, Deloitte LLP (2011 to 2014)

2. Other Public Company Directorships: Royal Caribbean Cruises Ltd.; Comcast Corporation

1. Other Public Company Directorships Held during the Past 5 Years:  AptarGroup, Inc.

3. Votes Against Last AGM: 1%

1. Margaret M.V. Preston f 66 2003 8% c

1. Managing Director, Cohen Klingenstein LLC (2021 to present); Retired Executive (2019 to 2021); Managing Director, Private Wealth Management, TD Bank (2014 to 2019)

2. Other Public Company Directorships: Otis Worldwide Corporation

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: less than 1%

1. Gary M. Rodkin m 71 2017 5% a

1. Retired Executive (2015 to present); Chief Executive Officer, ConAgra Foods, Inc. (2005 to 2015)

2. Other Public Company Directorships: Simon Property Group, Inc.

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 3%

1. Jacques Tapiero m 65 2012 4% c

1. Retired Executive (2014 to present); Director, Esteve – Spain (2016 to present); Senior Vice President, Emerging Markets, Eli Lilly and Company (2009 to 2014)

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: None

3. Votes Against Last AGM: 1%

1. Terry S. Thomas m 54 2024 3% a

1. Chief Growth Officer (September 2023 to present), Flowers Foods, Inc.; Global Chief Customer Officer (Personal Care) (2022 to 2023), Executive Vice President and Chief Customer Officer (2019 to 2022), Senior Vice President, Customer Development (2018 to 2019), Sector Vice President, Customer Development (2013 to 2018), Unilever plc.

2. Other Public Company Directorships: None

1. Other Public Company Directorships Held during the Past 5 Years: Flowers Foods, Inc.

3. Votes Against Last AGM: na%

1. W. Anthony Vernon m 67 2017 11% C

1. Retired Executive (2015 to present); Senior Advisor and Executive Director (2014 to 2015), Kraft Foods Group, Inc.

2. Other Public Company Directorships: Nuvation Bio Inc.; Novocure Limited

1. Other Public Company Directorships Held during the Past 5 Years: Axovant Sciences, Inc.; Intersect ENT, Inc.

3. Votes Against Last AGM: 5%

1. Freeman Hrabowski m 72 13% N

Proposal 2: Auditor

1. 0.4% NO 2023

Proposal 3: Say on Pay

1. 3% NO in 2023

1. 4% NO in 2022

2. Exec Chair earns more than CEO ($13M vs. $5M)

3. Foley CEO as of Sept 2023

1. Mr. Foley did not receive any special promotional equity grants at the time of his promotion

4. Annual bonus

1. 70% - Adjusted EPS Growth

2. 24% - Global McCormick Profit

3. 6% - Global Net Sales

5. LT equity

1. Sales Growth

2. Realive TSR

1. 25th percentile modifier = 0.75

2. Bottom 3 positions modifier = 0.50

DAMION:

That’s the Proxy Countdown for the week of March 18, 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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