Transcript
This is proxy countdown. Welcome to the Big Show for the week of September 2nd 2024. I'm Matt McCarty on today's countdown. Cfo's. Stay hot. Starbucks poached to Burrito. Southwest gets a special meeting women, and black, men are finally winning less and on our first big vote of the Season that big cereal General Mills. Start with our trade wire, just some highlights. From the executive trades, big news was at Starbucks as Brian nickel took the reins from laxman their semen. It was announced on, August 13th, effective September 9th. Mellody Hobson, who's aboard All-Star? According to our data was demoted to lead independent director, as Nichols, secured himself both more money and power than laxman as part of the deal. Nickel notified Chipotle his ex-employer of his decision to leave as their CEO on August 13th. The same day. Starbucks announced he would join Starbuck's Chipotle's board of directors appointed. Scott Boatwright who was the CEO as interim, CEO effective immediately a boat, right? Spent 18 years prior to that with Arby's Jack Hartung at Chipotle was actually brought out of pre-retirement as part of the shuffle. He announced his retirement from Chipotle effective as of 2025, but agreed to remain with Chipotle quote, indefinitely, as president of strategy finance and supply chain. Whatever, that is to ensure a smooth transition, indefinitely and indefinite job poor guy. Never gonna get to retire at Chipotle's board. Scott ma actually took mellody Hobson's job. Going from Chipotle's lead, independent director to chair of the board. So poach one, CEO and the race is on to secure the rest. Now you've got a new chair at Chipotle and on August 22nd, the compensation people and culture committee at Chipotle's board. Granted retention Awards to the rest of the NEOS and some other Executives in the form of restricted stock units. The retention Awards, have Grant date values of 8 million for boat, right? And hard tongue. So, both are getting the exact same thing. Despite one being the interim CEO, seven million for Garner and Brant, and a retention Award of three million, for Reimer and 1.5 million for Ms, McConnell the awards vest. If they get fired by a new executive brought into Chipotle, meanwhile, Starbucks happily paid Brian Nicholson to take over from laxman and they paid him significantly more. We actually covered that in a business pants earlier this week in other news. Apple announced CFO Luka, Main Street is out since no one can quit on the date? They actually quit Maize trees. Leave date is January 1st of 2025, as part of plans, succession, Kevin Parker, Apple's vice, president of financial planning, and Analysis will become CFO, and join the executive team. Without saying the quiet part out loud Tyson Foods appointed. Kurt Callaway as the Company CFO Callaway most recently served as companies interim CFO since June of this year he was interim CEO because young nepo baby. John R. Tyson was busy, being a drunky bed sleeper and was cast out of the company on August 19th liputan. Informed the board of directors of Intel, he was resigning effective. Immediately, tan said quote, I am grateful for the opportunity to have served 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. What he didn't say. Was summed up in this headline, Intel board member lip, boutan resigned after alleged disagreements, over management of the company. In fact, he was ignored for suggesting that they get rid of a significant amount of middle management and suggesting that the company was bloated and was having a hard time turning around I guess. It's a symptom of only having 8% influence on the board and no friends according to our data. Finally WW Grainger has a new chief of Human Resources after Matthew Fortin left after less than a year with no reason. Given the announcement actually says nothing, just that he left. That he's not there anymore. Maybe he lacked human resources. There are a bevy of other early pre proxy season board announcements. And and when I say announcements, I mean appointments, and when I say appointments, I mean the board chose their friends to join boards, but we're gonna get into them as we go through proxy season for now. Let's jump to our proxy cage matches First up at the proxy cage matches. Southwest Airlines fight with activist investor, Elliott just reached a new level Elliott. Now, owns enough of the airline to trigger a special shareholder meeting, which is 10% of the shares. And those are shares, that's not economic exposure, that's shares. But they thread the needle and didn't trigger the poison pill, which was at 11.5% of the shares, that would have diluted them from having any power to call the meeting in the first place. I expect the special meeting to focus mostly on the fact that the board is old and they still adhere to a philosophy employed in 1994. They basically have not pivoted from the original philosophy and have underperformed for the most part and never actually recovered from their giant holiday debacle of two years ago now. Intel is actually facing potential activists, they missed both top and bottom line estimates in Q2 and they issued really weak Q3 guidance and they hired advisors from Morgan Stanley. To prepare for potential battles with activist investors. You don't usually read a headline that says company expects activists and they're hiring advisors to prepare against them. But at this point, there are no current activists there. Dan Lopez took an activist stake in 2020 or a significant stake in 2020 but I suppose this is linked to lip Boot tan who just quit and one of your board members quits saying this company is bloated and run badly. You run some risk that they may talk to somebody. I suppose. So it looks like a preventative measure is being taken against activists here. No word yet what that will be except Morgan Stanley is involved. In other news, it is not been a great few years for Richard goiter. Who was the chair of Qantas Airlines he at Qantas, he glass cliffed his responsibility to a new female CEO after bilking customers that CEO actually went out and apologized for quote everything and that's real. She went out and said she was sorry for everything. The company had done and its history. So talk about a glass Cliff. He is also the chair at Woodside petroleum, which is an oil and gas company Market forces. A climate activist is agitating for board renewal there by targeting superannuation funds. After Woodside put out a incredibly weak carbon strategy. So goiter, not the favorite anymore in Australia, apparently. We're going to reach out to some of our Australian friends to see if there's anything more there, but finally activist investor and coral Holdings fresh off. Its Norfolk. Southern wind 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 actions are ignored Let's move over to our vote results table. Just a couple of votes worth noting here, dynatrace both Jill Ward and Kristen Wahlberg got relatively significant votes against Ward. Got 32% against in Wahlberg, got 27% against It's interesting because dynatrace is a classified board, so the vote was actually against everyone. Any investor could vote again this year. Award and Wahlberg were all. So on the nominating committee to boot. No indication. Why? Exactly, they were targeted microchip, actually had a 17% for vote for shareholder proposal, put up by the Presbyterian Mission. The Proposal requested, a independent third party report on whether or how to determine whether its customers use of products, actually linked to violations of international humanitarian law, in August of 2022, Royal United Services Institute, and the Ukrainian government reported that microchips products were among the most prevalent in the 208. Dual-use components recovered from 26. Russian Weapons Systems. Yes, microchips microchips are used in Russian weapons. And still couldn't get more than 17% report support for just a report on. Actually, what weapons and how they're being sold. In other news, Ralph Lauren class a director. Darren Walker was rejected 53% against they did vote out the black guy at the control company. Its Unfortunate Marathon Oil. Also at a special meeting on the merger with Conoco Phillips say on pay was rejected 58% against. You don't see that that often, but that is an advisory vote anyway. So no word on whether that will affect actual say pay. All right, enough for that. Let's get to the big vote. This week's big vote is at General Mills. The AGM is scheduled for September 24th. If you don't know who General Mills are there a they're basically a Midwestern Mafia company. They're minnesota-based they are the last mile delivery system for the corn industrial complex it's a snack cereal company 51% of their sales are in snacks and cereal which means most of what they do is marketing of snacks and cereal. The terms of market performance, five year TSR they underperform. The S&P 500 41% to 76% one year underperformance versus the S&P 12% to 24%. Three months they outperformed the S&P 10% to 3% but it's not a company that's been sending home Stella returns relative to the market. They are a top rated Company by ESG for ESG performance, ESG metrics. According to msci, Apparently pivoting 41% of General, Mills Global volume met their their own criteria as nutrition forward Foods. Now, that's important. This is their own criteria nutrition. Forward means it has eight grams of whole grains, a half a serving of lower no-fat, dairy or a half, a serving of fruit or nuts accordingly in anything. So, you buy a snack bar, it says, one half serving fruit or equivalent and they call it nutrition forward, or if it meets Federal right regulations in the United States, for quote, implied nutrient, content claims meaning, they say they have a nutrient, they actually have a nutrient or if they say equivalent of a strawberry that implied content claims of Federal Regulation, I'm not sure that qualifies as nutrition forward nutrition forward Strikes me as actually maybe healthy less refined and that's not necessarily what they're saying, that's not what they're saying with their 41% of global volume. Their brands include things, like Annie's mac and cheese Betty, Crocker Bisquick, bugles Cheerios, checks, Cinnamon Toast, Crunch Cocoa Puffs, which recently came under Fire for their. They found heightened lead content in Cocoa Puffs Cookie Crisp, cereal Fiber One Green Giant, Jolly Green Giant kicks. Hogan's Lucky Charms. Tricks weedies. These are all cereals that, you know, if you're in the United States but really the question, the core question I had coming into this analysis of the board and how to tackle this AGM, Their tsr's, lagged. So not many people are happy, particularly with General Mills. but the way to increase, the TSR has been sell more, and that's coming up against the, what is a obvious headwind of ozempic and the and health and vegan movements, in general, the greater inflation costs, On top of the fact that people don't want necessarily snack food all day. So, that is the backdrop here. So let's get to the board. This board. You're buying a club, you're actually buying the conference board. Now, if you don't know what the conference board is, it's like the Business Roundtable and a lot of ways, they're a tremendous amount of Connections. In fact, our data shows that they're 44 Connections in the last 10, to 15 years of board members, just on other boards. The major feeders go between for board members on General, mills' boards in the last 10 to 15 years are Wells, Fargo, FedEx and City. This is not exactly a Pantheon of well-run companies. FedEx is actually voting member at the conference board. And so are several. Other companies, 15% of all the board Connections in our database, run through the conference for boards, voting members, the conference board is run by manipay. Steve oddland, who is on this board. He's on the board of General Mills. Odland is not the most connected member through other boards that goes to Carrie Clark who's no longer who just who just left the board this year. He had seven connections to current and past directors, but oddland director Reba. Mary Henry Kim Godwin. They have two each oddland and sastre. Who is the head of the nominating committee? They're both on the conference board currently as a CEO and Trustee of the conference board. So what you're getting at out of General Mills is not food food AG professionals necessarily. It's not scientists, it's not food Engineers, you're not getting Logistics and transportation professionals. Because effectively what they're doing is they're taking, you know, things from one side of the agriculture ecosystem and delivering it to stores. You're not getting that you're getting people who sit on the conference board, our members of the conference board or know each other In fact, the the conference board is effectively sitting as the nominating committee oddland himself has been on this board for 20 years. So you're getting a small Club of directors because the directors, who aren't on the conference board are actually mostly local to the Midwest. This is another Midwest Mafia company. It's located in Minnesota, but they've had directors from Target. They've had directors from who are based in Ohio, like Procter & Gamble Sherwin-Williams, you are effectively getting either locals or the conference board. That's not a group of necessarily nutrition forward, thinkers. Now, I'm not saying. They have no skills there. But let's get to their skills. They have put forward as one of their goals as effectively their pivot regenerative agriculture is a big part of the company's project to meet Net Zero carbon emissions by 2050 and it's a big part of what their focus on carbon footprint but also nutrition. Uh, in fact, msci gives them top marks for product carbon footprint. Meaning because they are doing things like including scope, 3 targets and they have carbon programs at all of their facilities including their fleets. They're getting top scorers from other, you know, ESG data providers, they have the Bell Institute which is effectively what they named their internal nutrition division. They named it the Bell Institute to give it, I guess, some gravitas. And as one of the wins from the belt Institute, they're including things like partnering with schools for breakfast. By offering tricks, cereal cups that have 25% less sugar I'm not sure that that's really a selling point. Considering tricks is basically like a bowl of diabetes but 25% less sugar. Tricks is coming out of their nutrition Institute. The Bell Institute, But at the board level. The skills on the board include very little to zero food skills. In fact, our, our knowledge map data suggests that food production represents just 1% of overall influence on the board. And only one director really has food production background and that is the CEO himself. We all we saw the same exact dynamic on fold at Disney, where prior to the Nelson pellets activist stance? Disney's board largely lacked, commensurate, media experience to Bob. Iger, Bob Iger was the media experience, and when he left the board, there was almost none Bob chapek had Parks experience, but not actually Direct Media experience. But that is a way. If you are an executive you can consolidate power because if you're sitting in the room and somebody says, well what are we doing about our nutrition forward strategy? What's our, you know, only the CEO can really answer because they're the only one with food production experience and we see this in the shareholder proposal this year. One of the shareholder proposals is about regenerative agriculture. And, and the response is effectively, well, we, the Farmers can't do it. The Farmers. Can't do what you're asking him to do. Who's going to challenge that? Is it the guy who, you know, worked at Nike, is it the woman who worked in asset management or maybe the their new director, Markus who came from Sherman Williams and has a business psychology background. There's no one on the board that can actually challenge that. And that's a problem, right? You have Consolidated power with the CEO when it comes to core industry knowledge. but when you come, when it comes to other knowledge, even in knowledge about things that if you're talking about a cereal snack company, Pivoting towards a greater nutrition, you know, regenerative agriculture future low carbon. Less corn, more nutrients? That's the future. If you, if your thesis on the world is that either is or has to be the future? This board does not have that as a background. What we see in actuality for this board is in terms of skills. 19% of the influence comes from economics and accounting. 18% comes from mechanical mechanical usually involves working at companies where there's some process that is marketing or It's like, it's a form of an administrative right production and processing, only four percent food production. Like I said, 1% Transportation 5% of the influence on the board. There is almost none of that. In fact, the transportation exposure that's on the board. Doesn't even come from Logistics. That matter to General Mills. It comes in the form of sastre, Mary sastre, who is the, who is the head of the nominating committee? Whose background is in Cruise companies in airline's. And she worked in the accounting and finance capacity at those at those companies. The head of the AARP is on this board and now, I'm not sure what that means. Now, except that she was at one point in government, at the US Department of Agriculture Jenkins. She's Once Upon a Time on the US Department at agriculture, a senior in that department. But it's not really relevant given that she's now the head of the ARP and has been there for a while that you were once upon a time at the Department of Agriculture. So, here's my final take. About laboring it too much. This is a club Board 54% of the influence comes from connected directors, more. If we include outside board, interlocks a CEO with sole knowledge of the core industry, directors have experienced on the margins but nothing direct. They effectively treat this as sell sell, not as pivot towards nutrition for the future. One director has 20 year 10 year and that director is the head of a major feeder system for this board at the conference board, which is a thought leadership, you know, sort of business roundtable's style committee. They have lagging TSR a marketing Focus increase sales in the in the face of a possible Health shift and ozempic. They're not planning for a future with less sugary, cereals and pointless snacks. So I am suggesting this needs to be less of a retail board and more science and AG board and Logistics. So my vote recommendation for the board is vote against Steve Adlon. 20 years is enough Target. Replacement should be someone with ag or AG science experience, some sort of AG background, but being on the General Mills board for 20 years and filling it with basically people that, you know, is not going to do it for the future and vote against Mary sastre. They're duplicative skills on accounting on the board already. You don't need those Retail. Transportation isn't what you need. You need Logistics and actual Transportation. Not you know, cruises and Airlines. A history and industries that have an overwhelming failure in environmental and forward thinking and Airlines and and cruises. And she is connected directly to Adlon given that she sits on the conference board trustee. She's one of the trustees of the conference board. So effectively what you're doing is breaking up the club So those are my board recommendations. Let's move over to proposals. There's a say on paper proposal, 8% know in 2023, 16 million total for CEO. Jeff harmening. Here's one thing I got, we actually got a question from college campus, our intern Chantal, who's back at College? Sent in a question about, she looked at this company and she had questioned about the CEO pay ratio. Here's what she says. She says, the she points out that General Mills says, the ratio of our CEOs. Tom total compensation to medium employees, told the competition was 2:28 to 1. She wanted to know. Is that normal compared to other Fortune, 500 companies to an average business, is that normal? So here's what I did, I did some digging for you. Sean Paul The median. CEO pay ratio for the msci, USA, which is effectively USB 500, give or take, was 186 to 1. So this is slightly above the median. The average is more like 250 to 1, the 90th, percentiles 462 to 1. The 10th percentile was about 70 to 1. So is this normal? Yes, General Mills is in the 60 second percentile. This is totally normal. I mean, I don't know if you want your CEO to get that much relative to your, you know, average employee or your median employee, but it is totally normal at this point compared to Fortune, 500 companies and not average businesses, but definitely Fortune 500 companies. so the answer that question is yes, it's normal and which case when you look at the salary of Harmony They're underperforming, the S&P 500. If you just took this on a pure TSR basis, you should probably vote against pay. Given that they are. Underperforming. The S&P 500, but that's usually not the way it works. So what you're likely to see is he's getting about average. He's probably going to get paid and these are advisory votes. Anyway, my recommendation is, you vote against pay. I would recommend voting against pay, and almost every circumstance anyway, but so take that with a grain of salt, but that's would be my recommendation. Chantal actually had a second question as we get into other proposals, there's the auditor proposal which KPMG has been the auditor. Since 1928. There's mixed arguments about how long is too long to be an auditor of a company but nobody cares just going to pass and it's it's going to be a blip but there are two shareholder proposals here. One disclosure of regenerative agriculture practices within the supply chain. That's as you sell on behalf of Warren Wilson College and a second about Plastic packaging from Green Century capital and Chantal had a second question, which was it seems like the Cheryl 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 Cheryl to proposals actually get passed I'll take the second one first. Do they get past? Yes, they do. But incredibly rarely, according to proxy monitor 8803 shared shareholder. Proposals were filed for the largest 250 companies in the US. In the last two years of those only 21 got more than 50% of the vote. That's a 2.6% passage rate and those were all pure governance. Special meetings, supermajority voting rules, which usually require even more votes to pass in the first place. So, even when they pass the 50% rate, they don't actually pass. In fact, the highest voting vote getting environmental proposal in the last two years was a 46%. Yes, vote at paccar to disclose climate lobbying. These very rarely pass, but they do. And as to dismissal virtually, all of the proposals are usually dismissed by the board by saying, one of two things. Either, number one, we already do that. Or number two, it's not relevant to shareholders at this point. In fact, both of the answers to these shareholder proposals, by General Mills are that Often the prep proxy fight for proposal, which is a proposal gets submitted to the companies before, it makes it to the proxy and the companies usually fight to exclude them. It's always around the ordinary business rule, which basically says this happens in the ordinary course of business shareholders. Can't micromanage us and the difference in sort of the proposals, are we demand you use more electricity from solar? That's micromanaging. But if you say, oh, we demand a report on the sources of your electricity, to determine what risks you have of increased costs, that could hurt shareholders, that might make it through. So usually there's a framing here. You can't demand a specific thing but you can demand a broader thing that you frame is risk, which is exactly what we see here. The disclosure and regenerative AG practices from as you sow, proposal focuses on whether or not they want to report that deals with how farmers down the supply chain are limiting, pesticide use. And in this case, I actually agree. I want more disclosure around regenerative AG. It's a scientific Endeavor. It's not a policy thing. You can measure it. The things like soil Health like water absorption rates, chemical composition of soil. But in a core part of that is pesticide use but General Mills says, they can't push for that because it's complex expensive which they always say and they also say it would alienate farmers in their supply chain as in. They won't, they, they would be less likely to focus on regenerative AG if they ask for data around regenerative AG. I actually think that's pretty ridiculous. If you can't ask your supplier to look at how much pesticide they use, then, what good is it being General Mills? I mean, if you can't do that, then the pivot might be. You need to get vertical. You need to own the Farms, go and buy the farms, and then do it. So I'm voting for the first shareholder proposal on regenerative, agricultural practices. The second shareholder proposal. I'm voting for all so but it's an ask for a report around sustainable Packaging. I'm not sure sustainable packaging is a real thing. Green century is, right. That General Mills is set all sorts of targets around sustainable, packaging they, but they want consumers to actually drop their packages back at the store. In order to make it sustainable or to recycle it but that's a non-starter, no one's going to do that. Fundamentally recycling is an economic designation, it's not a materials designation, most materials can be recycled that aren't because it's an economic loss. So that ignores we're totally ignoring the laws the premium cost to the environment. This won't pass because General Mills has a lot of disclosure around it, and that's what they say. We disclose a lot around this but I would vote for it anyway. So, let's sum up. I'm voting against Steve oddland. I'm voting against Mary sastre. They have duplicative skills and they are feeder system for friends on this board. The Board needs to replace them. With people who have Forward Thinking about nutrition about the the long-term effects of something like ozempic and and we're going into the 21st century of snack food. We don't need to have sugar cereal as our primary delivery system for, for corn and sugar. I'm voting against CEO pay. I'm voting for regenerative agriculture, practices, shareholder proposal, and for the plastic packaging shareholder proposal. that's it, that's a proxy countdown for the week of September 2nd 2024, join us next time when we jump back into the alternative democracy pool Forever on the lookout for shareholder, sharks floating band, aids and wayward,