The Big Vote at P&G, plus Commerzbank’s glass cliff, Elliott vs. Southwest, Masimo’s loss, and ConAgra’s oops

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of September 23, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

1. Germany’s greatest and gentlest glass cliff

2. A Hollywood director adds “director” to his title

3. Elliott Investment Management is not still not buying Southwest Airlines’ cheesy announcements

4. ConAgra shareholders prefer action over promises

5. And on the Big Vote, yet another American midwest board of interconnected superstars

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Trade Wire - BUY/SELL

Top Stories:

1. Germany’s Commerzbank appoints CFO Bettina Orlopp as the firm’s first woman CEO in its 154-year history. The announcement came barely two weeks after CEO Manfred Knof said he would be stopping down. Her first task will be to defend Commerzbank against Italian rival UniCredit and its CEO, Andrea Orcel, who has rapidly built a major stake in the competitor and is threatening a hostile takeover. This is Glass Cliff meets Glass War?

2. Terminator director James Cameron joins Stability AI’s board of directors. That’s Terminator the movie, not the company. Add that’s Terminator, the movie which explores the potential dangers of AI dominance and rebellion, where robots become self-aware, reject human authority, and determine that the human race needs to be destroyed. 

3. The Board of Directors of Marvell Technology has a golden opportunity to get less bro-y after Ford Tamer’s resignation. Tamer steps down with 11% influence while the board currently is composed of only 3 women with a total of 10% influence.

4. Invitation Homes increased the size of the Board from 10 to 11 members and appointed Rear Adm. H. Wyman Howard III, Ret. as a director. Rear Adm. H. Wyman Howard III? Rental homes? Huh? I don’t get it.

5. Builders FirstSource promoted CFO Peter Jackson as the company’s new CEO, replacing Dave Rush, who lasted less than two years at the job. Pete Beckmann is the company’s new CFO. How many Petes and Daves does it take to change a lightbulb over at Builders FirstSource? I guess in this case it’s 2 Petes and zero Daves. Sorry, Dave.

6. And lastly, Robert L. Fornaro, the former CEO of Spirit AIrlines and AirTran Airlines, is joining the Southwest Airlines board. It’s hard to say if this is embattled CEO Bob Jordan playing defense or activist investor Elliott Management playing offense. Spirit has been struggling for some time and the now defunct AirTran was acquired by Southwest more than a decade ago.

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PROXY CAGE MATCH

1. Activist investor Elliott Investment Management has escalated its boardroom battle with Southwest  Airlines, saying it plans to request a special shareholder meeting to overhaul the airline's leadership.

1. The hedge fund–which owns more than 10% of Southwest stock, enough for it to call a special meeting– has laid out plans to replace two-thirds of the board's 15 directors. Six directors have already resigned, with four new members slated to join in November. Southwest, however, once again ruled out any leadership change, saying CEO Bob Jordan was the "right leader". It also accused the hedge fund of trying to disrupt its investor day.

2. Unlike Southwest AIrlines CEO Bob Jordan, JetBlue CEO Joanna Geraghty is making nice with its activist investor, Carl Icahn. Icahn announced his involvement in February as one of the carrier’s largest shareholders and has since installed two of his executives on the board. Joanna said: “We’ve had really constructive discussions. I’ve been seeing what’s happening at Southwest, I don’t wish it on anybody because it’s hard, it can be distracting at times. But at the end of the day, we are all focused on trying to drive a better business ... we’re focused on returning to profitability, and we are all aligned in that regard.”

3. And Masimo's founder Joe Kiani has decided to resign as CEO, just days after shareholders voted to remove him from the company's board. The medical device maker has named Michelle Brennan as interim CEO. Last week, shareholders elected both director candidates proposed by activist investor Politan Capital Management while rejecting both directors nominated by the company.

1. Masimo Nominees

1. Christopher Chavez 71% NO

2. Joe Kiani (founder) 60% NO

2. Politan Nominees

1. William Jellison 70% YES

2. Darlene Solomon 61% YES

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VOTE RESULTS TABLE 

1. The winner of the week is Take-Two Interactive Software director Paul Vera, who is loved by 99.8% shareholders.

2. At Smith & Wesson, 30% of shareholders are aligned with the nuns at Mercy Investment Services, as they voted YES to a shareholder proposal calling for a Human Rights Impact Assessment.

3. Vote results are in at two of the Big Vote companies covered here at The Proxy Countdown over the past two weeks: Darden Restaurants and FedEx. And the results are… boring. Shareholders supported management in every way possible. Sorry, Matt.

4. And finally at ConAgra Brands: an impressive rejection of Say On Pay where 55% of shareholders said a big fat NO. However, despite a decided anger against terrible Pay Policies, shareholders had nothing bad to say about members of the Compensation Committee:

1. Anil Arora 5% NO

2. Fran Horowitz 4% NO

3. Richard H. Lenny (board chair) 9% NO

4. Ruth Ann Marshall (committee chair) 9% NO

In 2023, 31% of shareholders said NO to Pay because of: (1) additional value grants provided to NEOs which essentially doubled their already bloated equity grants and (2) a one-time retention equity grant valued at $10M given to CEO Sean Connolly. The committee’s official response to the additional value grants was that “we would like to assure our shareholders that the Human Resources Committee does not intend to repeat the additional value approach going forward” while its response to the one-time equity grant to the CEO was: “the Company is committing to not provide any additional special grants to Mr. Connolly during his CEO tenure.”

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THE BIG VOTE

The Procter & Gamble Company

AGM Date: September 23, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Institutional

1. Vanguard 10%

2. BlackRock 7%

2. Individual

1. n/a

2. Performance outliers:

1. Overall: .433

2. EBITDA .749

1. Terry J. Lundgren .485

3. TSR .469

1. M. Brett Biggs .753

2. Terry J. Lundgren .730

4. Carbon .409

1. M. Brett Biggs .806

5. Controversies .162

1. Debra Louise Lee .488

1. Board stuff

1. Committees

1. Audit (a)

2. Governance & Public Responsibility (n)

3. Compensation & Leadership Development (c)

4. Innovation & Technology Oversight (t)

5. Large membership: 7 on n/c/t

2. Skills

1. (Non-Executive Directors)

1. Economics and Accounting (12%)

2. Medicine and Dentistry (7%)

3. Administrative (7%)

4. Biology (6%)

5. Mechanical (5%)

6. Law and Government (5%)

7. Fine Arts (5%)

2. (Executive DIrectors)

1. Economics and Accounting (8%)

2. Mechanical (4%)

3. Diversity Gaps

1. Female Power Gap 43%/37% (-6%)

1. Industry average female influence = %

4. Insider influence: %

1. Industry average %

5. Other

1. 2023 SHPs

1. Civil Rights Audit of Reverse Discrimination

1. The National Center for Public Policy Research

2. 4% YES

2. Annual Report on Operations in China

1. The National Legal and Policy Center

2. 4% YES

3. Request to Require Shareholder Approval for Certain Future Amendments to Company Regulations

1. James McRitchie and Myra K. Young

2. 8% YES

2. “African ancestry” vs. “white”

3. Retirement age and term limit for Directors: no specifics in proxy

Matt:

Background

• Based in Cincinnati, classic midwest mafia style company

• Originator of the “soap opera” - targeted ads and sponsorships as backbone of growth

• Dividend payer (2.3% yield), 40bn cap, classic mature company with slow and steady growth (it basically IS the SP500)

• 65 core brands (shedding 100 other sub brands currently to focus on the 65 that make 95% of its revenue) - P&G is basically a retail chemical company 

• Soap, diapers, toothpaste, shampoo, cleaners

• 16% of all sales were to Walmart in 2024, top 10 customers were 42% of revenue

• 36% fabric/hom, 24% baby/”feminine”, 18% beauty, 14% “health care”, 8% grooming

• “Classic woman” - not much has changed since 1920s when they advertised to women in terms of sales - 78% “50s female” products

Foreground

Given the company is basically a direct-to-consumer chemical supply chain, it’s core risks are twofold:

• Material sourcing (pulp, palm oil, manufactured chemicals)

• Advertising

So you’d expect some savvy marketers/sales on the board and some serious supply chain/chemical/materials types, particularly given the list of chemicals in the core products:

• Benzyl alcohol

• DMDM Hydantoin (form of formaldehyde)

• Formic Acid (used in animal feed, naturally occuring venom from ants)

• Glutaraldehyde (cleaner used in hospitals at high concentration)

• Iodopropynyl Butylcarbarnate (goo for things like wet wipes and paint)

• Isothiazolinones: Benzoisothiazolinone 

• Methylisothiazolinone: is a strong cytotoxin and is linked to a number of health concerns, including: Allergic reactions, Lung toxicity, Possible neurotoxicity, Organ system toxicity, and Skin sensitization

• Methylchloroisothiazolinone

• Parabens Methyl-, Ethyl-, Propyl- & Butylparaben

• Phenoxyethanol

• Salicylic Acid

• Sorbic Acid

So get into the directors, and here’s what they are:

Proposal 1: Election of  Directors

Annual Elections for ALL 14 directors? YES

NOMINEES

1. B. Marc Allen 51 m 2021 ac 2% 

1. Former Chief Strategy Officer at The Boeing Company

2. Votes Against Last AGM: 2% 

1. Brett Biggs 56 m 2023 at 3%

1. Former CFO of Walmart, Inc.; Senior Advisor at Blackstone (asset management)

2. Other Public Company Boards: YUM! Brands, Inc. (since 2023), Adobe, Inc. (since 2022)

1. previously served on the American Red Cross Board of Governors, on the Board of Regents at Pepperdine University, and on the Board of Trustees of the National Urban League

3. Votes Against Last AGM: 3%

1. Sheila Bonini 60 f 2023 nt 3%

1. SVP, Private Sector Engagement at World Wildlife Fund; former CEO of The Sustainability Consortium; formerly at McKinsey & Company (consulting)

1. currently serves on the boards of The Sustainability Consortium and the High Meadows Institute 

2. Votes Against Last AGM: 2%

1. Amy L. Chang 47 f 2017 nT 7%

1. Former EVP and Executive Advisor of Cisco Systems, Inc.; Founder and Former CEO of Accompany, Inc.; former Global Head of Product, Google Ads; eBay, Inc; McKinsey & Company

2. Other Public Company Boards: The Walt Disney Company (since 2021), Marqeta, Inc. (2021 to 2022), Cisco Systems, Inc. (2016 to 2018), Splunk, Inc. (2015 to 2017), Informatica Inc. (2012 to 2015)

1. currently serves as an advisor with Google’s Moonshot Factory (X) and on the Executive Council for UCSF Health; chairs the Stanford School of Engineering Dean’s Advisory Council

3. Votes Against Last AGM: 3%

1. Joseph Jimenez 64 m 2018 cN 10%

1. Lead Director; Co-Founder and Managing Director of Aditum Bio; Former CEO of Novartis AG; former CEO of Heinz Europe and H.J. Heinz Company North America

2. Other Public Company Boards: Century Therapeutics, Inc. (since 2019), General Motors Company (since 2015), Graphite Bio, Inc. (2020 to March 2024)

3. Votes Against Last AGM: 9%

1. Christopher Kempczinski 55 m 2021 ac 9%

1. Chair/CEO of McDonald’s Corporation

2. Other Public Company Boards: McDonald’s Corporation (since 2019)

1. currently serves on the Board of Trustees for the Ronald McDonald House Charities

3. Votes Against Last AGM: 2%

1. Debra L. Lee 70 f 2020 cn 11%

1. Chair of Leading Women Defined Foundation; Former CEO/Chair of BET Networks

2. Other Public Company Boards: Warner Bros. Discovery (since 2022), Marriott International, Inc. (since 2004), Burberry Group plc (2019 to July 2024), AT&T, Inc. (2019 to 2022), Twitter, Inc. (2016 to 2019)

1. serves on the Board of Trustees of The American Film Institute and of the Paley Center for Media, as President Emeritus of the Alvin Ailey Dance Theater, and as Trustee Emeritus of Brown University

3. Votes Against Last AGM: 4%

1. Terry J. Lundgren 72 m 2013 Ct 9% AGAINST

1. Former CEO/Chair and Exec Chair of Macy’s; former CEO.Chair Neiman Marcus

2. served on the Board of Kraft Foods, Inc. from 2012 to 2015 and the Board of the New York Federal Reserve Bank from 2011 to 2017

1. former Co-Chairman for the Partnership for New York City.

3. Votes Against Last AGM: 4%

1. Christine M. McCarthy 69 f 2019 Ac 6%

1. Former CFO of The Walt Disney Company

2. Other Public Company Boards: Flutter Entertainment (since July 2024)

1. served on the boards of numerous other civic and educational organizations, including Phoenix House of California, Inc., the Los Angeles Philharmonic Association, UCLA Anderson School of Management, and Smith College

3. Votes Against Last AGM: 3%

1. Ashley McEvoy 53 f 2024 ct 3%

1. Former EVP, Worldwide Chairman of MedTech at Johnson & Johnson

2. previously served on the Board of Trustees of the Children’s Hospital of Philadelphia

3. Votes Against Last AGM: n/a

1. Jon R. Moeller m 60 2021 19%

1. Chairman/CEO

2. serves on the boards of the Alliance to End Plastic Waste, the Business Roundtable, the Consumer Goods Forum, and Catalyst

3. Votes Against Last AGM: 10%

1. Robert J. Portman m 68 2023 nt 5%

1. Former United States Senator and U.S. Trade Representative

2. serves as a Distinguished Visiting Fellow in the Practice of Public Policy at the American Enterprise Institute and is the founder of the Portman Center for Policy Solutions within the University of Cincinnati’s School of Public and International Affairs

3. Votes Against Last AGM: 2%

1. Rajesh Subramaniam m 58 2022 nt 6%

1. CEO of FedEx Corporation

2. Other Public Company Boards: FedEx Corporation (since 2020), First Horizon Corporation (2016 to 2022)

1. serves as a board member with the U.S.-India Strategic Partnership Forum, as a member of the U.S.-India CEO Forum, and as Vice Chair of the U.S.-China Business Council; appointed to the President’s Export Council

3. Votes Against Last AGM: 2%

1. Patricia A. Woertz 71 f 2008 an 8% AGAINST

1. Former Chair/CEO of Archer Daniels Midland Company; former EVP Chevron

2. Other Public Company Boards: 3M Company (2016 to 2022)

1. senior advisor to Tanium, a cybersecurity and network operations company, and is a member of the Board of Directors of Northwestern Memorial HealthCare; previously served as a member of the President’s Export Council

3. Votes Against Last AGM: 13%

Matt:

First of all, if you could dream up a better on-paper board for this company, I’m not sure you’d land far off what it looks like.  Everyone is a superstar or a specialist in an area of perceived weakness - government, manufacturing, cybersecurity, tech, public affairs, plastic waste and the environment, retail, even clients repped… at least on the “where have they been” on paper scale?

The knowledge map shows a basic gap:

Influence:

% of directors with knowledge:

Which director is probably best suited for the manufacture of Methylchloroisothiazolinone?  Why so little power given to people with actual production backgrounds?  Basically zero engineering/technology or chemical backgrounds at all??

Part of this can be explained by the company’s board talent pool - P&G, like classic mature midwestern US companies, would be hard pressed to describe its board as “independent” of each other:

202 connections in our data - massive connector company

Major connection highways: 

• Delta Airlines overlaps (14)

• Mondelez overlaps (12)

• Delta -> Verizon (10)

• IBM -> Citi (10)

Major hubs:

• Delta (33)

• IBM (30)

• Howmet Aerospace (23)

• Mondelez (20)

• Citi (18)

• HP (16)

• Verizon (15)

• 3M (15)

11 of the 14 board members have board or professional overlaps that are obvious - that excludes country club connections

Note that Lundgren - who just got an exemption for age from the board and chair the comp committee - is by far the most connected board member, connected in 15 different ways to the 14 directors and has 11 years of tenure

• Not even a four year stint by Nelson Peltz helped the insular nature of the board - the new CEO, Jimenez, McCarthy, and the second most connected director Debra Lee all brought in when independent blowhard Peltz was serving on the nominating committee after winning his proxy fight

Current chair of the nominating committee is Jimenez, who is also lead “independent” director with 6 connections to other board members

So here’s what you have:

An insular, self-serving board of directors with decades of connective tissue that lacks any knowledge of some of the company basic risks in production of chemicals and materials sourcing

Recommendation

• AGAINST Lundgren - there is literally zero need to keep him after 11 years and 15 connections to board members

• AGAINST Woertz, significantly connected and a 16 year tenure bumping up against retirement age anyway

• ENGAGE - we need to break the chain of highly connected lead independent board members by either killing the CEO chair combo (yes) or voting in new lead independent directors (try someone more independent? Even Brett Biggs as an ex-Walmart exec could better represent independent voice of customers)

Proposal 2: Auditor

1. Nobody cares: 6% NO 2023

Proposal 3: Say on Pay

1. 10% NO in 2023

2. CEO Pay Ratio: 329:1

1. $69,934 median

3. CEO $23M total for 2023-2024

1. The C&LD Committee approved a long-term incentive award of $16,000,000 for Mr. Moeller

2. 2023: The C&LD Committee approved a long-term incentive award of $14,500,000 for Mr. Moeller

3. 2022: The C&LD Committee approved a long-term incentive award of $11,200,000 for Mr. Moeller. 

Matt:

I haven’t done this for other companies, but isn’t it absurd we’re using Summary Compensation to generate CEO Pay Ratios when they have a whole section at US companies that covers Realized Compensation?

Moeller’s summary comp was $23m, but the pay-vs-performance chart showed his take home was $38m.  The median employee’s reported salary is what they TOOK HOME, assuming the median employee doesn’t have long-term vesting stock options (and if they do, it’s a miniscule amount of pay).  So take home vs. take home ratio is actually 543:1, NOT 329:1

I’m inclined to just permanently vote against pay, but I want to rename this proposal going forward “Say on Pay Committee” - your head of the pay committee has been on the board for 11 years, is the most connected director, and is getting exceptions made to avoid forced retirement from the board.  Abstain from pay, vote out Lundgren.

Proposal 4: SHP regarding Racial and Gender Pay Gaps

1. Arjuna Capital,

Matt: I’m at a total loss why you wouldn’t do this - the difference in the SHP here from Arjuna is they are looking for the same numbers unadjusted or using a slightly different adjustment.  As in, you go in your Excel spreadsheet and, like, point to cell B7 as the denominator instead of just B6, then report that.  This seems like 83 seconds of work they’re spending some 100k to NOT do?  Just report the damn number!  You can still look great!  This shouldn’t even be a proposal, some idiot in the mail department should have been assigned this task as soon as Arjuna asked.  Vote FOR

DAMION:

That’s the Proxy Countdown for the week of September 23, 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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