The Big Vote at Target, plus Musk’s blackmail, investors not named Mark, and director trade-ups

PROXY COUNTDOWN SCRIPT

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This is Proxy Countdown. Welcome to the big show for the week of June 3, 2024  I’m Matt Moscardi. On today’s countdown:

1. A good director trade at McKesson in our trade wire

2. Blackmailing shareholders is the new game in our Proxy Cage Match

3. Half of public market investors still hate the public in public markets in our Vote Results

4. And on the Big Vote, the wokest retailer - or not - Target.

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Trade Wire - BUY/SELL

Top Stories:

1. At the top - a big resignation - Satya Nadella informed Starbucks Corporation that he is resigning from the Board of Directors (the “Board”) effective immediately. Effective May 30, 2024, the size of the Board was reduced by one.

1. From one mild mannered South Asian male CEO who filled the shoes of oversized founders to another, Satya had this to say in his resignation letter: “I have the utmost confidence in Laxman and our senior leadership team. Their unwavering commitment and strategic acumen assure me that Starbucks is in capable hands, poised for a future filled with innovation and success.”  

2. No details on who will fill the role, but this is the perfect opportunity for a trade - there’s a 12% influence hole to fill that represented basically the totality of tech experience on the board - what if they traded for Nav Sooch of Silicon Valley Laboratories?  A smaller name player, a founder, deep engineering and computer tech background, experience in IoT chips which Starbucks might actually find useful, and no history of labor issues to speak of?  Call us Starbucks, this was a quick search, we can use the data and find you someone just right.

2. On May 31, 2024, the Board of Directors (“Board”) of McKesson Corporation (“Corporation”) elected Deborah Dunsire, M.D. as a director of the Corporation and appointed her to the Board’s Compensation and Talent Committee and Finance Committee, effective June 3, 2024.

1. Dunsire replaces Linda Mantia and Susan R. Salka who will not be standing for re-election at the Corporation’s 2024 annual meeting

2. Dunsire also fills a massive gap in the healthcare company board - medical background - as she’s an MD with multiple board experiences, and should enter the board with some influence given her committee placement

3. Last, Autodesk announces the results of the Audit Committee investigation. The company's management determined that there will be no restatement or adjustment of any audited or unaudited, filed or previously announced, GAAP or non-GAAP financial statements as a result - but the outcome may be confusing in light of the fact that they seem to have side-moted, the lateral version of demoted, the CFO as a result.

1. On May 31, 2024, Deborah Clifford transitioned from her previous position as the Company’s Executive Vice President and Chief Financial Officer to Chief Strategy Officer of the Company, effective as of May 31, 2024.

2. On May 31, 2024, the Company appointed Elizabeth Rafael as Interim Chief Financial Officer, effective as of May 31, 2024. Ms. Rafael will continue to serve as a member of the Board of Directors of the Company.

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PROXY CAGE MATCH

1. No proxy cage match updates per se this week, with the exception of the ongoing drama at Tesla

1. Even as Elon Musk is asking to get re-paid his billions, using blackmail as a tool claiming he’ll take his AI and robots elsewhere if no one will approve the piggy bank, reports are he’s already doing that anyway.

2. Reports out of CNBC show Musk diverted AI chip purchases from NVidia - in short supply and high demand - to Twitter out of Tesla’s order, setting Tesla back months of development

3. But he IS offering 15 lucky shareholders who vote YES on his pay the chance to tour a Tesla plant with him, so those 15 people will surely be indifferent to the shareholder funded slush fund for Elon they helped create?

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VOTE RESULTS TABLE 

Moving over to our vote results table, just a few big updates: 

1. Investors still back Mark - Meta Platforms - while it was expected for everything to fail, it was still about a 50/50 non-Mark vote whether to keep the dual class structure

1. 15% NO Say on Pay

2. 10 SHPs failed

1. SHP Dual Class Structure 26% YES

2. SHP Disclosure of Voting Results Based on Class of Shares 17% YES

2. A say on pay loss at Docusign, and a protest vote for the only classified board member on the compensation committee Pete Solvik, but no protest with Maggie Wilderotter, the board chair

1. Pete Solvik 43% NO

2. Say on Pay 55% NO

3. Also, strong support for a SHP filed by As You Sow Report on Effectiveness of the Company’s Diversity, Equity, and Inclusion Efforts  36% YES

3. Finally, a lot of director votes above 99% in support, including David Rowland at Dollar General with 99.5%, four members of Royal Caribbean at 99.7%, and Jo-ann dePass Oslovsky at Quanta Services who got a staggering 99.8% in favor.  

1. To editorialize, if you get 99.8% in favor, no matter how good you are, someone isn’t doing due diligence - Oslovsky in our data bats a miserable 247 on TSR during her tenure at Canadian National Railway, with high controversies and terrible carbon - but everyone agrees she should sit on this board.

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THE BIG VOTE

TARGET

AGM Date: June 12, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

1. Ownership

1. Vanguard: 10%

2. State Street 8%

3. BlackRock: 7%

4. Capital World Investors 6%

2. Performance outliers:

1. Overall: .466

1. Grace Puma Whiteford .721

2. EBITDA .416

1. Grace Puma Whiteford .836

2. Christine A. Leahy .197

3. George S. Barrett .167

3. TSR .492

1. n/a

4. Carbon .669

1. n/a

5. Controversies .329

1. Grace Puma Whiteford .884

2. Christine A. Leahy .840

1. Board stuff

1. Committees

1. Audit & Risk (a)

2. Compensation & Human Capital Management (c)

3. Governance & Sustainability (n)

4. Infrastructure & Finance

2. Skills (Non-Executive DIrectors)

1. Economics and Accounting 13%

2. Mechanical 7%

3. Medicine and Dentistry 7%

4. Fine Arts 8%

5. Administrative 5%

3. Diversity Gaps

1. Female Power Gap %/%

1. Industry average female influence = -17%

4. Insider influence: %

1. Industry average 91%

5. Other

1. “The Board believes that gender and minority representation is a key element in achieving the broad range of perspectives that the Board seeks among its members.”

Matt notes:

Woke or not woke?

• History

• 2010: Prior CEO Gregg Steinhafel caught heat from LGBTQ activists and celebrities for supporting anti-gay marriage politicians through donations - they lost Lady Gaga deal, refused to voice opposition to Minnesota ballot measure banning gay marriage 

• After years of boycotts and pressure, Target begins donating to LGBTQ causes, and in May 2012 sells its first Pride tee shirt - and the anti-gay backlash begins

• By 2016, Target publicly opposed the trans bathroom ban in North Carolina

• Pride sales - Pride paid until it didn’t?

• Pre pride: quarterly sales for 2Q from 2010-2012 averaged 23.5% of trailing 12 mo revenue

• Pride: quarterly sales from 2013-2022 averaged 24.1% of trailing 12 mo revenue

• Post pride: 2023 2Q sales were 22.9% of trailing 12 mo revenue - only lower 2q was 2016

• Politics

• Goods Unite Us: Executives gave 61% of political donations to GOP - company overall was exactly 50/50

• Board boards: Leahy and Lozano (LID) only directors on other boards that were Dem leaning (Disney, CDW, BofA, Apple) - all other directors other boards leaned GOP.

• Board connections: Virtually ALL director second degree connections on boards of companies that are GOP leaning - this network is largely GOP, including ties to Chevron, Deere, Xcel Energy, Northrup Grumman… it’s basically GOP on GOP crime to call them woke 

• Business model

• Allegations of child labor in private label supply chain, and no audits

• Discrimination and wage disputes, no union

• Use of prison labor in food products

• Exposure to anti-woke

• Store footprint is 66% with some or high anti-ESG/anti-woke legislation - including 8% of stores (9% of square footage) in Texas and 7% in Florida - but sneaky small ones, like 1% in Oklahoma, the most aggressive anti-woke legislator in our data

Performance

• Woke didn’t break Target - inflation, shrink, and inventory excess did - massive drop for 1Q22

• Gay backlash June of 2023 pushed down further, but all anti-gay losses recouped, major losses not

Your problem at Target isn’t WOKE, it’s GROUPTHINK

Proposal 1: Election of 12 Directors

Annual Elections for ALL directors? YES

CONTINUING DIRECTORS:

1. David P. Abney 68 m 2021 a 2%

1. Former Chairman & CEO, United Parcel Service,

2. Current public boards: Freeport-McMoRan Inc.; Northrop Grumman Corporation

1. Within past five years: Macy’s, Inc.; United Parcel Service, Inc.

2. Other past boards: Allied Waste Industries, Inc.; Johnson Controls International plc

3. Votes Against Last AGM: 2% 2023

1. Douglas M. Baker, Jr. 65 m 2013 cn 11%

1. Founding Partner, E2SG Partners, LP; Former Chairman & CEO, Ecolab Inc.

2. Current public boards: Merck & Co., Inc.

1. Within past five years:Ecolab Inc.

2. Other past boards: U.S. Bancorp

3.  Votes Against Last AGM: 4% 2023

1. George S. Barrett 69 m 2018 cN 10%

1. Founder, The Overtone Group, L.L.C.; Former Chairman & CEO, Cardinal Health, Inc.

2. Current public boards: n/a

1. Within past five years: Montes Archimedes; Acquisition Corp.

2. Other past boards: Cardinal Health, Inc.; Eaton Corporation plc

3. Votes Against Last AGM: 4% 2023

1. Gail K. Boudreaux 63 f 2021 a 6%

1. President & CEO, Elevance Health, Inc.

2. Current public boards: Elevance Health, Inc.

1. Within past five years: Zimmer Biomet Holdings, Inc.

2. Other past boards: Genzyme Corporation; Novavax, Inc.; Xcel Energy, Inc.

3. Votes Against Last AGM: 1% 2023

1. Brian C. Cornell 65 m 2014 25%

1. Chair & CEO, Target Corporation

2. Current public boards: Yum! Brands, Inc.

1. Within past five years: n/a

2. Other past boards: The Home Depot, Inc.; OfficeMax Inc.; Polaris Industries Inc.

3. Votes Against Last AGM: 5% 2023

1. Robert L. Edwards 68 m 2015 a 3%

1. Former President & CEO, Safeway Inc.

2. Current public boards: n/a

1. Within past five years: n/a

2. Other past boards: Blackhawk Network Holdings, Inc.; Flextronics International Ltd.; KKR Financial Holdings LLC; Safeway Inc.; Spansion Inc.

3. Votes Against Last AGM: 2% 2023

1. Donald R. Knauss 73 m 2015 c 7%

1. Former Chairman & CEO, The Clorox Company

2. Current public boards: Kellanova (fka Kellogg Company); McKesson Corporation

1. Within past five years: n/a

2. Other past boards:The Clorox Company; URS Corporation

3. Votes Against Last AGM: 3% 2023

1. Christine A. Leahy 59 f 2021 cn 7%

1. Chair, President & CEO, CDW Corporation

2. Current public boards: CDW Corporation

1. Within past five years: n/a

2. Other past boards: n/a

3. Votes Against Last AGM: 3% 2023

1. Monica C. Lozano 67 f 2016 Cn 15%

1. Lead Independent Director, Target Corporation; Former Chair & CEO, ImpreMedia, LLC

2. Current public boards:Apple Inc.; Bank of America Corporation

1. Within past five years: n/a

2. Other past boards:The Walt Disney Company; Tenet Healthcare Corporation

3. Votes Against Last AGM: 4% 2023

1. Grace Puma (Whiteford) 61 f 2022 a 2%

1. Former EVP, COO, PepsiCo, Inc.

2. Current public boards: Organon & Co.

1. Within past five years: Williams-Sonoma, Inc.

2. Other past boards: n/a

3. Votes Against Last AGM: 1%

1. Derica W. Rice 59 m 2007-2018/2020- a 4%

1. Former EVP, CVS Health Corporation; Former President, CVS Caremark

2. Current public boards: Bristol-Myers Squibb Company; The Carlyle Group Inc.; The Walt Disney Company

1. Within past five years: n/a

2. Other past boards: Target (2007-2018)

3. Votes Against Last AGM: 3% 2023

1. Dmitri L. Stockton 60 m 2018 A 7%

1. Former SVP & Special Advisor to the Chairman, General Electric Company

2. Current public boards: Deere & Company; Ryder System, Inc.; WestRock Company

1. Within past five years: Stanley Black & Decker, Inc.

2. Other past boards: Synchrony Financial

3. Votes Against Last AGM: 3% 2023

Matt:

Defining groupthink risk:

1. Do you look the same?

1. Diversity, gender, age

2. Do you know the same things?

1. Political, education, knowledge map

3. Do you know the same people?

1. Connections

Does Target’s board look the same?

• Short answer: No.

• 33% women with 31% influence - near parity

• 33% diverse with 28% influence - slight power gap, but in bands of reason

• Age spread

• LOW standard deviation - everyone’s similarly aged

• Negative kurtosis - high peak, high similarity and clustering

Does Target’s board know the same stuff?

• Short answer: No.

• Donald Knauss and Derica Rice both went to Indiana University Bloomington

• Christine Leahy and George Barrett both went to Brown

• See above - most GOP donors, with a couple outliers

• Knowledge

• 33% of directors have economics background knowledge - that’s the only real consolidation

• 17% mechanical, 17% medicine

• Missing base knowledge: sales?  Transportation (shipping/supply chain logistics)?

• Tenure spread

• Clustered tenures, no real outliers

Does Target’s board know the same people?

• Here’s the biggest flag - 92% of Target’s board is connected inside two degrees on other boards, 100% through all experiences

• Only Grace Puma doesn’t connect via another board - but she worked at Pepsi along with both CEO Cornell AND Donald Knauss

• Cornell connected to 58% of the board himself:

• Worked at Safeway (Bob Edwards was CEO of Safeway)

• Worked at Pepsi (Knauss, Puma)

• Home Depot board

• 2nd degree to Abney through Macy’s

• 2nd degree to Barrett through Eaton Corporation

• Polaris board

• 2nd degree to Baker through US Bank

• YUM board

• 2nd degree to Lozano through BAC

• Lozano is the 2nd degree superstar - 67% of the board connects to the “LID”

• Abney

• Stockton

• Knauss

• Leahy

• Rice

• Baker

• Cornell

• Knauss

What you get for your groupthink?

• One of the absolute worst EBITDA performance teams in our data - zero directores bat over .250, the 25th percentile, in the last 7 years across all their boards

• Exactly average TSR

Recommendations:

• Vote AGAINST Douglas Baker - 11 years on the board, ex Lead Independent Director

• Vote AGAINST Derica Rice - close ties to Lozano, long multi-tenure, highly interconnected, plus

• His current 7 year cap value added across every board he’s been on is -$4.2bn - companies where he’s on the board have net lost $4.2bn overall

Proposal 2: Auditor

1.  Ernst & Young 4% NO 2023

Proposal 3: Say on Pay

1. 6% NO in 2023

1. 8% NO in 2022

2. Changes include:

3. Pay

Matt:

There are three directors - Baker, Edwards, and Knauss - who have more shares than two of the NEOs (Christina Hennington and Don Liu)

Cornell gets paid 200% of STIP (15% of CEO pay) if he HITS his goal - there’s the possibility of 0% pay, but it’s near zero since 33% of STIP is based on moving “team scorecard” that includes whatever they want to emphasize

Cornell can get zero PSUs (46% of CEO pay)  if Target somehow ranks below the 18th percentile in adjusted sales growth, EPS growth, and ROIC

Cornell gets 75% payout of PBRSUs (31% of pay) if Target is in the bottom - like the 0th percentile - of peers on TSR

$19m summary comp is almost quaint compared to the other companies we analyze - and the pay ratio is STILL 719 to 1

Proposal 4: SHP to adopt a policy for an independent board chair

1. The Accountability Board

2. 32% YES in 2023

Matt:

Always yes - there is no other organizational structure in a regular human’s working life in which they get to act as their own boss and accountability barring owning the company outright.  In these cases, shareholders own the company.  Brian Cornell should not convene and run the meeting as his own boss.

Also, the idea of “robust independent leadership” is comedy on its face given how everyone in the room knows each other, and how Brian Cornell knows half the board just through other boards and work experience.

Proposal 5: SHP requesting animal pain management reporting

1. The Humane Society of the United States

Matt:

I actually don’t care about this proposal content nearly as much as what it’s emblematic of - The Human Society points out that Target under Brian Cornell published a report about animal welfare in which they had goals - asking suppliers to implement alternative procedures to limit animal pain where possible.  Target has not issued a single report detailing what has happened since - I don’t know that this is hugely material as an issue, but what IS material is if a company SAYS they’ll do a thing, they prove they did the thing (or not).  The material issue is follow through.  Vote YES if for no other reason than to say to management they can’t make empty promises just because they’re unaudited.

Proposal 6: SHP to establish wage policies

1. The Shareholder Commons, on behalf of Legal & General Investment Management America

Proposal 7: SHP requesting a political contributions congruency analysis

1. Tara Health Foundation

Proposal 8: SHP requesting a report on Target's partnerships with, charitable contributions to, and other support for certain organizations

1. National Center for Public Policy Research

DAMION:

That’s the Proxy Countdown for the week of May 27, 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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