The Big Vote at Meta, or how to deal with dictators, plus updates from Exxon and Tesla

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of May 19, 2024.  I'm Matt Moscardi filling in for Damion Rallis. On today’s countdown:

1. A mysterious CEO departure that respects “individuals privacy”

2. A pension fund isn’t holding back at Exxon

3. Investors ARE holding back at Boeing

4. And on the big Vote, a strategy for dealing with dual class companies like Meta

TRADE WIRE

1. On May 18, 2024, Kenneth S. Wilson ceased to serve as Chief Executive Officer and Director of Jabil Inc. (“Jabil”) following the completion of the previously announced internal investigation related to corporate policies. 

1. A spokesperson for the company says in an email that "In order to respect the privacy and confidentiality of the individuals involved, we will not be speaking about the details of the investigation or the results.".

2. Wilson entered into an Agreement with Jabil that subjects him to

1. (i) two-year noncompete, non-interference and non-solicitation provisions, 

2. (ii) an ongoing obligation to cooperate and make himself reasonably available to Jabil, 

3. (iii) non-disparagement, confidentiality and nondisclosure requirements and 

4. (iv) a requirement to assist Jabil in the event of certain legal proceedings 

3. And for violating those policy where he’ll need to be available for “legal proceedings”, Jabil thought it would be nice if he got…

1. (a) receive a payment of $2,000,000, less applicable taxes and withholdings, payable in eight equal quarterly installments of $250,000 and 

2. (b) retain his long-term incentive awards vesting in 2024, which will vest in accordance with their terms (the “Retained Unvested LTI Awards”)

2. Vanguard Names Former BlackRock Executive as CEO

1. Salim Ramji led BlackRock’s ETF business and left in January

2. We can likely expect here proxy votes to be just like BlackRock now - the open question is if all the executives at passive managers are traded to each other, should we expect “univotes”?

PROXY CAGE MATCHES

1. CalPERS to vote against all 12 Exxon directors, citing lawsuit

2. Tesla chair says life-changing wealth boosts her independence as she blasts judge’s critique of ‘lackadaisical’ oversight of Elon Musk—’That is crap’

VOTE RESULTS TABLE 

Large (leagues 3&4)

1. Boeing

1. David Calhoun 23% NO

2. David Joyce 34% NO

3. Say on Pay 38% NO

2. Absurdly High

1. DraftKings

1. 99.91% YES Paul Liberman

2. 99.91% YES Matthew Kalish

3. 99.90% YES Jocelyn Moore

2. American International Group

1. John C. Inglis 99.6% YES despite hitting .132 TSR

3. Say on Pay over 20% NO

1. 3M FAILED 55%

2. BlackRock 41%

3. The Travelers Companies 40%

4. American International Group 36%

5. Cleveland-Cliffs 26%

6. Enphase Energy 25%

4. Directors over 20% NO

1. Enphase Energy

1. 30% NO Joseph Malchow

2. Alexandria Real Estate Equities

1. 43% NO James P. Cain

2. 30% NO Maria C. Freire, Ph.D.

3. 31% NO Michael A. Woronoff

3. Laboratory Corporation of America

1. 36% NO Kathryn E. Wengel

5. SHP Simple Majority Voting

1. ConocoPhillips PASSED 99% YES

2. Akamai Technologies PASSED 91% YES

6. Oddity

1. Skyworks Solutions: Despite all receiving about 99% SUPPORT from shareholders because needed vote is 80% of shares outstanding, in the case of Proposals 4, 6, and 7, and 90% of shares outstanding, in the case of Proposal 5:

1. Proposal 4: The Company’s stockholders did not approve an amendment to the Company’s Restated Certificate of Incorporation, as amended (the “Charter”), to eliminate the supermajority vote provisions relating to stockholder approval of a merger or consolidation, disposition of all or substantially all of the Company’s assets, or issuance of a substantial amount of the Company’s securities.

2. Proposal 5: The Company’s stockholders did not approve an amendment to the Charter to eliminate the supermajority vote provisions relating to stockholder approval of a business combination with any related person.

3. Proposal 6: The Company’s stockholders did not approve an amendment to the Charter to eliminate the supermajority vote provision relating to stockholder amendment of Charter provisions governing directors.

4. Proposal 7: The Company’s stockholders did not approve an amendment to the Charter to eliminate the supermajority vote provision relating to stockholder amendment of the Charter provision governing action by stockholders.

THE BIG VOTE

Meta Platforms

AGM Date: May xx, 2024

Meta encapsulates a long-standing governance problem - how to deal with a totalitarian board, a dual class dictatorship, a fake public company.  Investors tolerate it largely due to FOMO and fear of losing what they think of key talent in a company founder - so they provide capital access without commensurate rights or are stuck with them for index/market purposes since they are beta investors.

In our minds, this risk assessment is an asymmetric trade, and investors lose it every time:

• Totalitarian companies aren’t about keeping a founder along, they are about keeping a set of people chosen by the founder with the implicit or explicit goal of removing guardrails from management

• The likelihood a founder would actually leave if not granted dual class shares is near zero given the market is functionally totalitarian already

• The average director FOR vote is 96%

• 0.2% of directors are voted out

• The argument for totalitarianism has largely rested on “we need time to underperform so we can growth scale and dominate later”, but that argument doesn’t hold water…

• The average vote in favor of directors in the BOTTOM 10% of earnings or TSR is 95.6% and 96.5% respectively - the TOP 10% of earnings or TSR get 95.9% and 98.1%

• Only ONE director last year was voted out and performed in the bottom 10% on TSR - while two were voted out and performed at the 50th percentile, and 2 in the 70th percentile of EBITDA were voted out

• Management almost entirely chooses their own boards without resistance

• Point in case: despite a decade of compromised boards, investors continually voted FOR Tesla’s directors, including Elon’s brother and best friends, right up until a court voided his pay package - at which point, not only did Tesla use as its argument how investors sided WITH them, but they threatened to grant Elon excess shares and move to Texas to AVOID the courts, not the investors - this is functionally a dictatorship that investors explicitly granted without dual class shares

So first of all, no investors should be OK with dual class given that founders already enjoy FUNCTIONAL totalitarianism - why give them the complete control when they already enjoyed it functionally?

But now we have totalitarian boards - let’s size the problem before we get to an proxy voting recommendation for Meta.

Defining Totalitarian Boards

• Boards where a single person or set of family/founders owns >50% of influence

• Via shareholdings

• Via dual class, family, founder status

Sizing the problem in US large caps

• 610 US large cap boards total

• 145 are Totalitarian - 24% of US large cap companies are basically controlled

• 1,469 directors on Totalitarian boards

• 202 directors on MULTIPLE totalitarian boards - think of these as “shareholder oligarchs”

• Greg Maffei on 6, but mostly family firms

• Roelof Botha on 5, VC driven

Consider that - in 24% of a US large cap investor’s portfolio, they effectively have no rights or influence over choosing their own capital stewards.  But I think there’s a solution, and let’s look at it at Meta.

Directors are still human with incentives, even if on a totalitarian board they are effectively chosen set pieces for the dictator.  But those directors have careers and often sit on other boards.

Our philosophy - with a goal of persuading a dictator to sunset dual class shares or cede more control to shareholders, engage directors not on the companies with dictators on the board, but where there AREN’T.  Meaning use the vote at OTHER boards to influence the makeup of a board like Meta.

• Meta’s board is 11 strong - of which, 7 directors sit on other boards

• Of those that sit on more than one board, 4 are dictators themselves on the other board - Drew Houston at Dropbox, Hock Tan at Broadcom, Marc Andreessen on TWO dictator boards at Coinbase and Samsara, and Tony Xu at Doordash

• This is a huge problem - dictators reinforce dictators, they don’t provide guardrails

• There is an argument to be made that you could cascade this strategy across those companies as well, but we’ll focus for now just on Meta

• That leaves 3 pressure points on Meta

• Tracey Travis at Accenture

• Nancy Killefer at Cardinal Health and Certara (with a 22% PE owner)

• Peggy Alford at Macerich (Microsoft connection - Gates is a mentor to Zuckerberg)

• NOTE - it’s likely NOT a coincidence that this is the THREE WOMEN on the board who didn’t work at Meta (Sandberg still on the board)

Peggy Alford

• Ex Microsoft board, and Gates a mentor to Zuckerberg - meaning there’s likely a direct connection from Gates to Alford on the Meta board

• Meta Director since 2019

• Overall 490 TSR, 490 EBITDA, -$959m cap value added

• Macerich director since 2018, 6% influence

• Macerich also has its own problems - Rick Hernandez, the poster child of board failure at Wells Fargo, Chevron, McDonald’s also on this board, Chicago links to Alford among others

Nancy Killefer

• High influence outside Meta, low EBITDA performer at 183 but 535 TSR

• On board of Cardinal Health since 2015

• Pay chair

Tracey Travis

• The most compromised of the potential targets - Travis sat on Campbell Soup, another dictatorship, with Sara Mathew who sits on Drew Houston’s Dropbox board - it’s a sort of oligarch loop with dictator enablers

• Also has links to Robert Kimmett who was on Lufthansa at one point through the Accenture board

• Lowest TSR performance of the trio at 434, horrible dealing with controversies batting .024, on Accenture since 2017 and Meta since 2020

RECOMMENDATION

• PROTEST VOTE against all directors and FOR all shareholder proposals, including the genius ones by Illinois State Treasurer looking for vote disclosure by share class, the proposal for one share one vote structure, and even the National Legal and Policy Center asking for a report on minimum age for social media of 12

• ENGAGE and VOTE in OTHER ELECTIONS:

• On MAY 30TH - NEXT WEEK - vote AGAINST Peggy Alford - aim for sub 90% approval and start the conversation

• ENGAGE with Nancy Killefer at Cardinal with the threat of a vote against in November of this year at the AGM

• ENGAGE with Tracey Travis, the next Accenture vote is in January 2025