Transcript
This is proxy countdown. Welcome to the Big Show for the week of August 5th 2024. I'm Matt mascardi on today's countdown. A relocation cost off for new Executives Marathon petroleum's Lady CEO Arbitrage. Shin directorships. Howard Schultz's forever, entitlement and on the big vote. Our first look, our 202425 proxy season review, starting with skills. Let's take a look at the trade wire. Just some highlights here first executive appointments. Logitech better known as everyone's computer mouse announced the acquisition of Matteo and Versa to fill the vacant CFO role and Versa starts on September 1st. In his contract. Includes a buyout 700k salary three-year vesting, 3 million, and PSU, Grant and another team bonus, ranging from 0 to 200% of base salary. They also have a very nice 10,000 per month relocation assistance program and a separate closing cost assistance up to 100,000 dollars and they will pay private school costs. Prepaid as old, location up to 5000 a month. Total relocation cost could hit a Mac's for the new CFO at Logitech of 280,000 dollars. Which is basically a third of his salary. Meanwhile Todd penegor. The ex CEO of Wendy's has been named CEO and board member for Papa. John's International Pentagon will get a 1 million dollar base salary with 150% Target bonus 5 million RSU Grant and a cash transition bonus of 250,000 dollars. I don't know what cash transition is except that there is transitioning some cash from investors to Todd penegor. but more importantly in a pentagon verses and Versa relocation cost off, Pentagon loses despite the fact that he's getting the CEO job, he has 150,000 dollars in relocation expenses, to move from Dublin, Ohio to Atlanta. While an Versa gets as much as 2008000 dollars to go from Michigan to San Francisco. In gender pay Gap news. Marathon petroleum announced in May that Mike Hennigan was stepping down as CEO and into an executive chair position, reflecting his dedicated four years in the position of CEO. They decided to make him executive chair and they announced that Marianne mannan the CFO would replace him. But in a filing this week, the pay details were actually announced hennigan's. Base salary was reduced from 1.75% of that salary. His long-term incentive bonus was reduced from 8.8 million to of down from 13.4 million. Meanwhile to do the same job. Mary Ann mannan who will now be the CEO was awarded a base salary of 1.4 million dollars. 20% less than Hannigan. When he stepped into the executive chair role. Her Target boldness was increased to 165% matching hennigan's, but hennigan's getting the same Target in the executive chair role. Mannan was also given a one-time long-term incentive bonus of 2.9 Million and that's on top of a prior Award of 5 million. So she's getting an 8 million dollar, long-term incentive, that's 11% less than Hennigan in his new chair role and a whopping 41% less than hennigan's, final year of CEO. And so what we can infer here, man, and is barely the CEO effectively. What marathon of petroleum is telling us is that Mike Hennigan will be a hands-off CEO sitting as the executive chair and they're paying to take the heat congratulations on the promotion though. Also, this week Bumble announced Jennifer Morgan will resign from the board. And the board appointed Martin brand to Fillmore Morgan's role. Now brand was a non-voting, Observer on the board before he was designated to this board role. He was put there by Blackstone who owned 62.9% of the voting power. So he wasn't really a non-voting Observer, as much as the guy who owned the company who was watching and making sure the board did what he want without voting on it. Blackstone actually owns obviously more than the founder Whitney Wolfe heard, who has 26% of the company brand will effectively be the dual-class dictator on the board. He's a non-founder controlling stakeholder. Who is observed? The board since the IPO, the move coincides with a move earlier this year, that changed the service of bumble which had allowed women to make the first move in. Dating, it's a dating app and women were allowed to swipe on men that they wanted to date first. Now, men can also make the first move and the company is run by a man, not in a Observer role. But in an actual dual class, I own the company role. So finally men are coming out on top. Also, in our trade wire news, some board appointments and buy appointments. I do not mean appointments Here's a list of appointments. Welltower announced. The addition of Andrew gundle. NetApp announced, June Yang. Next star announced Ellen Johnson, Boston. Scientific announced David. Habin heiberger can view announced two new independent directors. Defi Technologies announced Andrew forsen American Airlines named Howard Unger leader AEO appointed. Stephanie, pugliese. Arianna, Huffington joined William. Sonoma Warby Parker in sports size, from 10, to from 9, to 10 and appointed. Bradley singer. As a new class, one director, and put him on the audit in compensation committees. There are actually more board appointments on a weekly basis than we can count for the most part, which brings us to a little sidebar about the shadow democracy. because, In most cases, about 20% of non-controlled companies are owned by one, two or three passive investors, BlackRock Vanguard State Street Fidelity. Those companies tend to appoint directors who serve for months before and actual annual meeting so, the question here is, Will investors bother asking at all, whether those directors are the ones that should have been there in the first place, because the board is appointing them. They are not elected. These are non-elected board members until the first annual meeting. So, we would posit this, investors need to do a new data point. Pre-election directorship percentage, which indicates how long, a director at a non-controlled company gets to influence aboard before investors get a chance to elect them. You may be wondering why this might be important but let's just take William Sonoma, who this week announced Arianna. Huffington is joining the board. The last one William Sonoma AGM was on May 29th. So, Huffington will get a full 10 months on the board before she gets elected. if Huffington serves, the average director term which is seven years in the United States, That's just average, some longer, some shorter. But let's just say, She makes it through the average. She will serve fully 12% of her total 10 year. Unelected. She also gets paid for that unelected tenure, her Pro rata pay before the next AGM in April, according to williams-sonoma's schedule of payments to their board members will be 67,000 in base salary. This is a pro rata 137,000 in an equity Grant and assuming she's named to one committee which is highly likely another 13,000. Or so plus you'll get some discounts on merchandise which everybody wants. The total is about 217,000 dollars for the 10 months of work, plus a year of influence in a totally unelected position. Given that on average investors, vote 96% for every single director, you may be thinking, well this is basically a shoe investors are going to say Huffington on the board. What we trust the board to choose who they want on the board, this is fine. We're just gonna vote for any way. It's usually not a problem, but here's the thing, it can be Mercury systems announced three new directors, they appointed between June, 23rd and July 2nd of 2023. They appointed three new directors. It's a classified board so management. The board appointed, a quarter of the board in a five-seven 10 day span The AGM is on October of 2023, the end of October, they got a quarter of the year, a third of the board, and a quarter of the year with no oversight. Two of the three new directors were put on the m&a committee. And there was news in February of 2023 that suggested Cobham, a uk-based tech company was actually looking at a possible acquisition of mercury systems who makes defense Electronics. So you can imagine a scenario where a board approves and acquisition offer where the majority of the committee doing the diligence was appointed without an investor election with no effective oversight by investors. Investors may get to vote on whether or not they approve the acquisition after the board does. But the process of doing it can be done by people who are unelected and you could take a second example. Thomas Gainer was added to the Coca-Cola board in 2023. He served 10 full months before he got his first vote from investors, and they've voted 39% against him. Being there in the first place. so, I think my point here is directors are getting appointed on a rate routine basis. It's constantly pops up in the news. But there has to be another way where investors should be demanding in other way. That these directors do not serve fully a tenth to 15%, even 20% of their total 10 years in an unelected role, with influence over. How board makes decisions. Let's move on to our proxy cage matches, some quick updates, starboard escalated. Its ask of Autodesk outlining seven years of Miss Financial targets under current CEO. Andrew and I got an agnostic. Who has 25% influence over the board and a below average track record of earnings betting 394, according to free float data. Here's an excerpt from Starburst letter in June, proving that they listened to proxy countdown because who doesn't quote the board, determined that Miss Clifford. Miss Clifford being the prior CFO of Autodesk, who was in charge. When they had basically an accounting problem, Miss Clifford could know the board determined that Miss Clifford, could no longer continue a CFO, however, auto desk management. Then appointed Miss Clifford to the newly created role of Chief strategy officer This series of decisions, again raises serious questions. If the board, determined the CFO could no longer serve as CFO. Why would a new role be created for that executive? It is almost impossible to believe that. Another company would immediately hire Miss Clifford to be its Chief strategy officer after she was removed from the Autodesk CFO position. So, how is it possible that Autodesk needed to create this new position of Chief strategy officer and needed to appoint Miss Clifford into that position? One would have to ask why this was done as it does not appear to be a sound or solely business related decision. It's a good question, starboard. I like that question because we've been asking it here since it was announced early, our in May Also, an update on Starbucks Starbucks, CEO and founder. Howard Schultz. Actually, now appears to be the sticking point in Elliot management settlement offer with the board. According to a report Schultz is quote forever entitled to attend Starbucks board meetings and less the board quote barred him. Despite the fact that he is no longer on the board or working as an executive at Starbucks. So Starbucks board has made it okay for him to effectively know everything going on inside the board. Despite the fact that he's not there just because he has a significant stake in the company, the Ft reported that schultes, opposes the settlement. Ostensibly because as he says, he's a posed to the CEO that he chose to be his own replacement laxman narasimhan. Damien actually already predicted that. This might be the fourth Boomerang for Schultz. If he comes back, he stepped down after Labor pressure that he attempted to quash. And now it's seems like he's itching to come back one more time to Starbucks and run it again and which case they should just never fire him because apparently he never wants to leave. To move to the vote results. Table Three quick updates here McKesson added Donald now. So the ex CEO of Clorox, he's on the boards of Kellan Nova and Target, he got 10% votes against with Maria Martinez though. There seems to be no pattern given they sit on different committees. There was a 12% vote against pay as well and 16% vote against X. Coal, patient, Excel patient votes. I don't understand why they are ever granted. And this and this case it was 16% against, but everybody ended up passing, and they're all still on the board. All all of the, the shareholder proposals and management pools passed at Electronic Arts, and investors had basically no thoughts on the board member but did vote. 12% against pay. Which is almost nearly approaching an opinion. Even though they voted 12% against the pay, they didn't vote 12% against the board members who set the pay. So there's a clear Gap there. And at Lynn's Joe Kayser got just over 10% against votes with nothing else notable. Kaiser is the chair of the nominating committee but isn't flag for anything particularly egregious. So it's likely Right. Yeah, I'm just spitballing but it's probably just a fad finger know at ISS or Vanguard resulting in the drop. Let's move on to our big vote for a big vote. We're doing our first season preview for 2024, 2025 proxy season. I'm thinking of 2024, 2025 is the year of skills. This is a prediction for you. I predict that skills. Mismatches, go mainstream. We've already seen this a couple times. The activists playbooks typically involved targeting undervalued or value unlocks at stocks at the actual companies, but after you take a stake, the focus moves entirely to the board and management and a core part of Every Act of his deck is the board, lacks the necessary skills to unlock the value or management, right? That's number one, talking point, this board, this management team lacks the necessary skills to unlock this value. It's the reason why you're getting in. There's basically been a space race in our industry for a skills Matrix. A scalable skills Matrix, but the skills matrices that companies put out voluntarily, they are unreliable. And because we have done studies, that show the same directors, have different skills. Different companies, they are totally voluntary, which means we see things like diversity listed as a skill because these are totally unregulated. So you can do whatever you want and they are totally non-standardized, making them very difficult to actually collect the data and create standards around what they say. But investors want to know the makeup of their teams, their elected fiduciaries. They want to know who they are what they know going in. I think this season is a first time. We actually start to see some skill votes especially given the the growth and the disproportionate growth in Tech and AI. So we have generated knowledge Maps but I need to start by saying there's an important difference between knowledge and a skill, but a knowledge knowledge is is is is the base line of what you know, right? It's not I you know, I have a skill and basket weaving but what? You know, is the things that you've studied and learned, right? It's not a hobbyist skills. Can actually be sort of a hobbyist thing and it can be much more ephemeral. I have the skill of leadership. What is that? How do I Define that? I can Define that 30 different ways? Does that mean, I actually have it in every context. I don't knowledge is something that's more absolute. So we generated knowledge Maps because we needed a foundation sort of an absolute Foundation to understand who's in The Boardroom, and what their likely to know, the bare minimum of things. They're likely to know. Here's the analysis that we did to kick off the 2024 25 proxy season. We looked at company overweight. For certain skills. Okay, this is where A particular knowledge type is overweighted in the boardroom relative to Industry averages industry peers. And despite it not being core to the industry as in one of the things that we you would see you would expect to see at all Healthcare. Companies is medical experience in the board. You'd expect to see that or the management team. And if a company has nothing but law experience on its board and it's in healthcare. That's a mismatch that's a company overweight towards one particular set of knowledge. Not another So, let's I'm going to give you three company examples. The first company example, is CS Disco. CS disco is an AI law technology company. They are effectively using Ai and their tech company. That is producing sort of legal documents, opinions things like that they ipo'd in 2021. But after three years, they still have a startup mindset board. They're heavy on VC investors on the board. They added a law professor to the board though. It feels like an afterthought and they have zero, AI Pros on the board. The vast majority of the influence on the Cs disco board is investor Finance, MBA types, not computer, tech AI, or even law. In fact, the company has an adjusted to reality though, though, at this company. It's technically possible to vote out directors. They have an adjusted to the reality that they are publicly traded company. They are in Ai and law technology. And no one on the board or the majority of the influence of the board members is not in AI or law. It is in more Finance oriented oriented types Factor data shows the most common industry knowledge for the application software industry is computers and electronics. But on influence basis, CS disco has a 38% over allocation of influence to econ and finance and a 20% under allocation to computers and electronics. Using this kind of data, you can actually identify companies where there's a mismatch between what you might want on the board in terms of influence and what you have on the board. Here's a second example. Inari. Medical So, medical device company. 51% of the board of influence is economic and finance. And 7% is medical where the industry average is 22% medical and 17% economic meaning, this is a board that is driven by the economics of selling devices not by the actual devices themselves. But this is where it gets interesting and misleading. Because, if you just are reading the bios of these directors, the board is full of medical device company executive. The data actually helps you identify the knowledge, because when you actually look at what these people did at the medical device companies, you have a CFO who's background was in finance, a CEO, who had a background in sales, not in engineering, or technology, an SVP from a life sciences company, whose background is in business development. Someone who says they have 20 years experience in life sciences, but they're an accountant. They basically worked as an accountant at all the companies that they were on a VC in medical devices. Multiple VCS a CEO. Who is the head of commercial sales? In fact, on the NRA Medical Board, there is one doctor on the board who might use the devices. One on the entire board. The rest of it is full of people whose entire career has been belt around selling. Now, if you are supposed to be innovating medical technology and medical devices, Are you going to get the best guidance from a board full of people who are to sell a device after it's been built, or do you need a different skill on that board? In order to guide you particularly give in that medical devices are increasingly moving into AI technology and software applications. The third example, I have here is ziff. Davis, zip Davis actually follows the mold of Disney, Or digital media company with a huge role of digital brands under its umbrella. And the biggest thing that I, we can see in the data is the highest average knowledge type for interactive media, which is the industry there and is fine arts. Basically, it's creative and zip Davis tilt heavily towards law and finances. A quart of its board, a plus 13% tilt towards law and a minus 22% tilt away from Fine Arts. But the data shows us not just what the Tilt is. Overall is a team but who We saw this with Disney prior to Nelson's Intervention, which this was the one upside to having an activist involved. Disney's board was largely devoid of media Talent. Only Igor was the voice of the room who was a media executive. It served to undermine chapek when he was CEO. Chapek was from Parks and finance and his lack of media as a core skill. Actually, undermined his perception in the boardroom and Beyond at ziff. The CEO is the only board member with Direct Media experience, content, media experience, the rest of the board is CFOs ctOS, marketing, advertising and law, but 0 content, media Executives, the result is sort of the influence of knowledge. There's one knowledge type held by management who can say well we know this space and you all don't It becomes a way to consolidate power with management because they're all relying on management to tell them. While you know, the content space, you know, sort of how to create this content and what the content should be, we won't challenge that. What will challenge is distribution models and things that we know about. This is good in some respects but it means there's also no counterbalance. Which brings me to my prediction for the year. Investors will or should put a premium on knowledge in the boardroom. They should not trust the skills Matrix to the extent they ever even. Look at them. It is time to put a premium on knowledge board members themselves. Have told me explicitly that they've been tagged as having certain skills because they're the only ones in the boardroom with that experience at all. But that experience was akin to taking a class in privacy and data security and then saying you're an expert or it's a skill on a second company, they wouldn't even rate their, it wouldn't be considered a skill because everybody is actually an actual expert in that thing. I mean, by that standard, I am basically a professional athlete in some boardrooms simply because I played soccer and High School. You need to marry the absolute. The absolute is of knowledge spaces, which is, what is the minimum requirement to get to be a CFO? For instance, you can't be a lawyer without a minimum requirement of having gone to law school, what are the minimum knowledge requirements? And then marry that with sort of relative skills when you see the skills Matrix being able to say, okay, well this person says there in AI, you know, AI is a skill of theirs but they're knowledge base is entirely in law and econ. That gives you an idea of where mismatches can be. Where someone may have acquired a skill over time, but not necessarily have it be a course set of knowledge. And that becomes useful because investors are now asking for things, like cybersecurity, they're asking for things, they want to know how a board is positioning a company or what kind of strategies a company has around AI. Because everyone's talking about AI hype or not, everyone's talking about it. And we don't even know who in The Boardroom has that as a base knowledge. So, the gap between management knowledge and direct your knowledge, and the absolute knowledge takes to basically make some of these decisions. We think that's going to be core for this year. So that's the first season preview for 2020 for 2025 proxy season. That's it. That's a lot for one person. It's just me this week. There's No Damian. It's just me. That's the proxy countdown for the week of August 5th. 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.