Transcript
This is proxy countdown. Welcome to the Big Show for the week of June 3rd 2024. I met mascardi on today's countdown, a good director trade at McKesson in our trade wire. Blackmailing shareholders is the new game in our proxy cage match. Half of public market investors. Still hate the public in public markets in our vote results table. And on the big vote, the focus retailer or not named Target. Let's start with our trade wire. At the top, a big resignation Satya Nadella informed Starbucks Corporation. He is resigning from the board of directors effective immediately that was effective as of May 30th. 2024, the size of the board was reduced by one 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. There are unwavering commitment and strategic Acumen assured. Me, that Starbucks is incapable hands poised for a future filled with Innovation and success. An innovation is the key. There there's no details on who will fill the role or if the role will be filled, but this is the perfect opportunity for a trade. There's a 12% influence, hold to fill that represented. Basically the totality of tech experience on the Starbuck's board. So we did something, we looked at our knowledge map of all the directors currently active. And we wondered out loud. What if they traded? What if Starbucks traded for nav suit of Silicon Valley? Laboratories is a smaller named player. He's a Founder, deep engineering and computer tech background experience and Internet of Things chips. Where Starbucks might actually have a use for them. No history of Labor issues. I'm just saying Starbucks. This is a quick search on our part but this is a great opportunity for investors to think of this as filling a knowledge Gap. In an influencer Gap. We did a quick search Starbucks. Feel free to call us. We can use the data and find you someone just right? Also in the trade wire On May 31st the board of directors at McKesson elected Deborah. Dunsire as a director of the corporation, she was also appointed to the compensation and talent committee and the finance committee effective, June 3rd, basically, this week, dunsire replaces, Linda, mantilla and Susan salka who will not be standing for re-election at the annual meeting this year. Dunsire also fills a massive Gap in the Healthcare Company board for medical experience. She's an MD with multiple board experience's and should enter the board of some influence giving her committee placement. This is a great trade up by McKesson, according to the data, so good for them. Finally, in our trade wire auto desk announced, the results of the audit committee investigation into their, their their accounting practices companies management. Determined, there will be no restatement or adjust. Event of any audited or unaudited filed or not filed Gap or non gaap financial statements as a result of their investigation, but the outcomes a little bit confusing in light of the fact that they seem to have side modded, which is the lateral version of demoted the CFO as part of the investigation on May 31st. Deborah Clifford transition from her position as CFO to Chief strategy, officer of the company. And at the same time, Elizabeth Rafael has been named interim CFO. Raphael actually joins the company from the board and will continue to serve as a member of the board. That's it in our trade, Wireless. Let's look at our proxy cage match. There are no proxy cage. Match updates per se this week, with the exception of the ongoing drama Tesla, even as Elon Musk is asking to get repaid, his billions of dollars using black males a tool Saying, he will take his Ai and robots elsewhere, if no one will approve of the piggy. Bank reports are already out suggesting, he's doing that now whether or not he got paid, there's report out of CNBC this week showing that musk diverted AI chip purchases from Nvidia that were purchased by Tesla to Twitter setting, Tesla back months because the chips are in such short supply and high demand. These are internal documents that showed that musk is diverting. The chip purchases from the publicly backed Tesla to his private Twitter. He is though 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 in different to the fact that they no longer have chips at Tesla to build those AI robot. cars, because elon's using the slush fund to pay for other things, Onto the vote results. Table investors still backing mark. Meta platforms, while I was expected for everything to fail, there, it was still a 50/50 non Mark Zuckerberg vote whether to keep a dual-class structure. It looks like a dual-class, the shareholder proposal looking to remove dual class got a 26%. Yes, which roughly given that Mark owns about, 52% of the vote. Comes to a 50/50, for shareholders meaning, even shareholders not named Mark are still split on the idea. Whether a shareholder named Mark should have all of the power of the company. They're skewing a public market for basically a fake public or private Market. 15% of investors said, no to saying I'm pay and another shareholder proposal disclose looking for disclosure voting results. Based on class of shares, only got 17%, yes, which was high giving that Mark Owens, 52 percent of the vote. There was a say on pay loss at DocuSign and a protest vote for the only classified board member there. Who is on the compensation, committee Pete solvik but no protest vote for board chair. Maggie wilderotter, Pete, Sullivan got a 43% no oil say on pay was 55% no also a DocuSign strong support for shareholder proposal filed by. As you sow, looking for a report on the effectiveness of the company's diversity, equity and inclusion efforts that got 36%. Yes. Finally, a lot of director votes this week above 99% in support, including David Rowland, at Dollar General with 99.5%, there were four members of Royal Caribbean who got 99.7% and Joanne to pass. As law as love ski at quanta Services, got a staggering 99.8% in favor. What makes that staggering is if you were to get 99.8% in favor, you would expect that person to be exceptional at everything they do but according to free flow, analytics.com data as love ski bats, a miserable 247 on TSR during her tenure at Canadian National Railway with high controversies and terrible carbon. So obviously all investors agree that she should be on this board, despite that 99.8% 99.8 percent. Can you think of 99.8% of anyone who agree on anything he can't even get them. Any people to agree. The Earth is round forget that this person should be qualified. So, staggering vote numbers there. That's it for our vote results table. Let's get right to it. Let's go right to the big vote. Big vote is at Target AGM is scheduled for June 12th 2024. Just some top of you know some background here. Vanguard owns about 10% State Street owns about 8% black rocks 7% Capital World investors 6% of the float here which means you're looking at roughly 30, ish percent, 31 percent of ownership, Consolidated with four, massive largely passive owners. There are, there are some interesting non outliers. Actually, it looks like most of the board performs in line with each other, in all ways, TSR is pretty much average overall, they the earnings is actually interesting because almost everyone underperforms on earning and controversies almost everyone underperforms as well. With the exception of two of the directors, Grace Puma Whiteford, and Christine Who outperformed on both controversies and earnings. Just some general stuff from a skill. Standpoint mostly looks like accounting skills on this board but there's a pretty wide mix of skills on the board. There is a negative 17% average, female influencer, Gap, gender gender power Gap here that targeted actually has relatively under control. Their power Gap is only about 5% but let's get right to it because I think. Now, this year when we're talking about Target, the number one question that we're thinking about is how bad we know how bad the boycotts the anti will boycotts are but we want to ask question is Target well at all. Are they woke or not woke. So we did a little bit of a deep dive on that before we get to sort of our theory of how to vote on this company. So here's the history. 2010, the prior CEO Gregg, steinhafel caught a lot of heat from lgbtq activists and celebrities for supporting anti-gay marriage, politicians through both individual donations and donations through Target, including a governorship with which lost, but they refused to voice opposition to Minnesota. Ballots Minnesota, is where Target is based, Banning gay marriage and after years, of boycotts, and pressure Target, actually began donating to lgbtq causes. And in May 2012, they sell their first Pride t-shirt in stores and this. Precipitates. The first of the anti-gay backlash. there was backlash in 2012 from conservative, who were upset because Target was Basically anti-gay marriage and now selling a pride t-shirt. So there was backlash, even then But by 2016 targeted Target was publicly opposing the trans bathroom. Ban in North Carolina. We looked into Pride sales whether or not it paid to sell Pride merchandise and in the fact is quarterly sales in the second quarter from 2010 to 2012. They average about 23.5% of trailing 12 month Revenue. Quarterly sales during sort of the, the peak of Pride sales for, for Target 2013, to 2022 averaged 24.1% of trailing 12-month Revenue. So there's clearly a boost in the second quarter that could or could not be attributed to their pride merchandise. But there's a correlation there afterwards, post, Prides sort of the post anti woke backlash. The what we've seen 22.9% of trailing 12 month Revenue. In fact the only lower quarter in Target's history or in the last 14 years, 15 years has been the second quarter of 2616. So there was a notable drop in sales in the second quarter likely as a result of the backlash the anti what is effectively an anti-gay backlash at Target. But the politics when you look at the politics, we use Goods, unite us data. Shout out to Goods unite us. They're awesome. 61% of political donations from Executives actually went to conservative candidates anyway the company overall was a 50/50 donor almost exactly to both conservatives and liberals in Congress. And when we look at the actual directors and all the boards that they sit, only two of the directors, were sat on boards that were democratically leaning entirely. That's Christine Lee. He and Monica is on. Who is the lead in independent director, sitting on the boards of Disney CDW Bank of America. Apple, those are the only two directors on a 12-person board who had a distinct Democratic political lean. All the other directors, leaned conservative. in fact, when we looked at the connections of the other directors, meaning Director, sit on another boards. What about the people? They're connected to through those other boards? Virtually all. And I mean, all second degree, connections to the Target board were conservative leaning in terms of their donations. That networking includes Chevron deer Xcel Energy Northrop Grumman, it's basically. A purely conservative donor machine. So the anti-walk backlash to Target is almost comical on its face. Given how much Target donates? Through the people and through the company packs and the company's Network, the other companies that based on boards who are associated with them, how much they give to conservatives in Congress and conservative causes there is a large Network that is leveraging like conservative causes so a little bit of sort of anti-woke on Antoine potentially Happening Here. The business model also supports it. Targeted has been involved in a number of controversies including child labor controversies in its supply chain discrimination wage disputes. There's no unions unions at Target, prison, labor and food products. Everything that you sort of expect particularly around labor from a company. That is donating to a largely anti-labor conservative movement in this country. And the if you're looking for the Sis of where the anti-woke sort of backlash might have come from. It's really actually a poor sales decision, not it very clearly in the data. It looks like the board and the executives are motivated by what's going to sell and where not by political discourse. This was a poor sales decision because we looked at the store footprint and we actually matched the stores and the store square footage. A long states with anti-esg or anti-woke legislation and you can, they're all sorts of trackers out there. We actually look through and look for states that are targeting ESG. Basically, Banning ESG in some way or another and we graded, the states and said here, these are high anti-esg States and there's some moderate anti-esg States and then there's states with no legislation just based on how much legislation they put on the docket, how far it's gotten whether or not it's passed or whether it's even law. And what we found with Target is it is almost exactly a third, a third, a third and which 31% of targets stores and 31% of their square footage are in high anti-wolf, legislation States 35%. There's some anti-esg anti-wolf legislation and 33%. There is none. There's Nothing on the table. It's been vetoed or dead but nothing is pending there's nothing coming out the sneaky ones here. They're you know, there's 8% of their store 9% of the square footage in Texas 7% in Florida, but some of the small ones that stood out 1% is in Oklahoma, which according the data is the most aggressive anti-esg legislator in the data. So where does this get us to? What is the problem at Target? Is it a sales problem? Is it there to woke? Problem is this is a woke boycott that's hurting them while woke clearly didn't break Target inflation and shrink and inventory excess did. In fact there was a massive drop in the first quarter of 22 and the gay backlash of 23. Pushed it down further. This isn't a story of Target is to woke. It's not a story of woke bands. What this is a story of and appears to be a story of on its face is potential groupthink so let's get into that. Let's get into the board members. We're going to Define groupthink for the purposes of what we're doing here. As Basically we're answering three questions. Does everyone on the board? Look the same diversity, gender age. Does everyone on the board? Know the same things they're politically aligned? They have similar education. They all have the same knowledge or skills and maybe most importantly, do they all know the same people. Do they all come from the same social networks or, or corporate Networks? the short answers for Target is, They are one of the most connected boards in our data. We tend what we tend to see with these large US retailers Midwestern based companies is a tremendous amount of connections between them The question does targets board know the same people. 92% of targets board is connected inside two degrees on other boards, and 100% of the board through its job experiences resume. Only Grace, Puma does not connect to any other board member via another board. But she worked at Pepsi where CEO, Brian Cornell and Donald Nelson. Both worked Cornell himself is connected to 58% of the board alone so the CEO through both working at Safeway working at Pepsi, he was on the Home Depot board, the Polaris board, the Yum board in his past. He is connected to more than half of the target board by himself. He's been there since 2014. Okay. Historically, he knows a number of the board members through second degree connections as well. And he's not even the most connected on the board. The most connected on the board is lead independent director Monica Lozano. She's a second degree Superstar. 67% of the board connects to her including Abney Stockton, now's Lehigh, rice Baker and Cornell himself. Cornell himself is connected to lizano through other boards. So we are looking at one of the most socially connected boards, Actually I would say in line with sort of the The Fortune 50 of the midwestern companies, the Chicago Mafia, if you listen to the show, you know, Abbott Labs in Chicago Mafia. This is an extension of that in some ways. But as to the other questions, do they all look the same? Do they know the same things? When we look at the knowledge data, our knowledge Maps. The short answer is no, they don't actually know the same stuff. Donald Nelson, Derica rice, both went to Indiana University, Bloomington and Kristine, Leahy, and George. Barrett both went to Brown. Those are your educational background overlaps. They have, otherwise, they have 33% of the directors. Have economics backgrounds of some kind, that's the only real consolidation here. And that's not that abnormal. The vast majority of them have other expertise other knowledge. Bases. What's missing is sales as a background and maybe arguably shipping and supply chain Logistics Logistics. This is a, this is an issue that you'll see it. A lot of retailers, you know, supply chain matters, and you want somebody on the board that might have some experience with that directly as their primary role. We don't see that here but otherwise We don't see much in the way of knowledge. Consolidation, and shout out to Brown like, it's my alma mater. So I'm I'm inherently conflicted here. The tenure is relatively spread out, there's no real outliers. They're clustered. And other than them being largely GOP donors, which, which is problematic. There's nothing that stands out massively. In fact, arguably the fact that they're all sort of conservative donors for the most part would stand out. That would be the thing that you say. Oh, they might ideologically come from the same background, but we have seen no other real evidence of that. And when it comes to whether or not they look the same, the answer is also know. This is a board with 33% women who have 31% of the influence that's near parody. That's a very small Gap. Give that we know the industry average is around negative 17% Gap, 33% diverse board with 28% influence. This is a slight power Gap, but it's in the bands of region. There are largely of the same ages But I take away here is these are people who know each other. They are in the same Social Circles, but they are otherwise don't have a lot of background except that they all sit on boards together. They all kind of work together. Uh, they're definitely not woke, there's nothing about this that seems woke or seems like, you know, particularly egregious unless you unless you'd say it's not a good idea for everyone to know each other and select from, you know, one sort of community of potential board members. So here's my recommendations for the board. My recommendation is you vote against Douglas Baker. He's the one of the longest tenured members on the board he's been there for 11 years and Target does have a 10-year cap that they've set by their bylaws of 20 years. He's the ex lead independent director. I'm not sure why you need an ex lead. Independent director, you don't need to lead independent directors on your board and he knows a lot of people on the sport. He's he's relatively well connected on this board and I would vote against dereka rice. Derek rice actually is close ties to Monica, lizano he is multi-tenanted. plus, he has one of the worst on this board, but also in our data, his seven-year cap value, add, which is On every board you've been on how much market cap. Have you added to that board relative to your influence on that board? He's one of few directors at these major boards who has a negative cap value, add our data suggests that he is added negative 4.2 billion dollars to the market caps of the companies where he sat. So our recommendations here are pretty simple vote against Doug Baker vote, against Derek or rice. Otherwise, you're voting for everybody, but you need to set yourself up. I think. And we talk about this all the time for next year's vote because I think the goal is to break up some of the closeness, the coziness of the sport. It's a little bit laughable that we're considering monocle lizzo an independent director. I think you want to sort of steadily move your way to abort that is Full of new faces and including closing some of the knowledge gaps around supply chain Logistics transportation and some maybe some basic sales knowledge on the sport and arguably some technology but those are over the course of years. Next, I want to talk about say on pay and we'll keep this one quick. Look I think 19 million is the summary comp for Brian Cornell. It's almost quaint compared to other companies. We analyzed the pay ratio though is still 719 to 1 and I did note that there are three directors Baker, Edwards and Nas, who actually have more shares than two of the NEOS do. And the NEOS are not new. They've been there for multiple years. That's interesting to me, that is a first of all target to their credit has policies about share ownership of their directors. But it is interesting to me when the directors have more of a vested interest than the actual Executives do. So I am going to say vote. Yes and it's a tentative yes, mostly because 719 to one as a as a as a pay ratio is incredibly high but not out of line with what you see at most retailers. And I think the way you actually close this Gap and I like this directors own, this many shares for the most part, the way you close that 719 to one Gap is through one of the shareholder proposals and we'll get to it one second. Um, the first shareholder proposal. That's, that's up for a vote is actually independent board chair. I'm gonna always yes on this. There is no other organizational structure in a regular humans working life in which you get to act as your own boss and your own accountability barring if owning the company outright, I don't think any investor should ever be opposed to an independent board chair. Brian Cornell should not convene and run the meeting as his own boss that. Just on its face is laughable and the idea because Target suggests you vote against this shareholder proposal but the idea part of the reasoning is they have robust independent leadership. That's actually comedy on its face giving how Monica is Ono. As I said nose, 67 is connected to through two or less degrees. 67% of this board. Cornell himself knows more than half the board. There's no Independence when you know everyone in the room. That's not that's not the definition of independent, so you vote? Yes. On proposal for independent board chair. And you also are going to vote? Yes. On the shareholder. Commons filed. A proposal 6 to establish wage policies. This is guidance around. Living wage. If you want to close that pay ratio from 719 to 1 to something more reasonable. One method that you can do that is actually by targeting a living wage for the employees at Target. So I'm saying vote. Yes. On proposal six. And then finally, I'm going to say, vote, Yes, on proposal 5, which is Humane Society. Requesting animal pain management reporting. Now, the content of this proposal matters less to me than what it's emblematic of the human. The Humane Society points out that under, Brian Cornell, Target publisher, report, about animal welfare in 2016. They, they suggested that they were going to ask suppliers to implement alternative procedures to limit, animal pain, where possible but Target hasn't since issuing, that issued a single report dealing, what detailing with what's happened, they haven't said anything about whether they've hit the goals, they've set out, even if they were sort of loose goals, I don't know if animal pain management at Target is a hugely material issue. Frankly, what I know is that it's really material if a company says, they'll do a thing. And then they never say anything about it again. Proving that they did it or not, they'd be better off. Not promising to do something. The material issue here is follow through. Can you trust management to say a thing and do a thing? And this could be a piece of evidence that they don't do with anything or they didn't care about it, which case, as a shareholder shouldn't you want to know that they say stuff that they don't actually care about? So that was just a marketing Ploy. I think that that's important to know whether or not you care about animal pain management reporting. So I say you vote. Yes. If for no other reason the management can't just go out and make empty promises just because they're on audited. You want to you should get checked those and figure out whether or not they matter to you. Otherwise you're voting no on the rest of the older proposals. So to round it out against Douglas Baker, you don't need to lead independent directors, particularly when they're not actually independent against Derek or rice, he has been there for a long time and he's one of the weaker performers on the sport and he's highly interconnected. You say it yourself up to D lead, independent director this board because you're going to separate independent. Uh, you have an independent board chair. I think through that shareholder, proposal, and then consistency, and what they say, vote, Yes on proposal 5 and vote. Yes, on proposal 6 establishing wage policies, rather than voting against pay. That's a proxy countdown for the week of June 3rd, join us next week when we jump back into the alternative democracy pool for everyone on the lookout for shareholder sharks floating Band-Aids and Wayward directors.