Transcript
This is proxy countdown. Welcome to the Big Show for the week of April, 1st 2024 alongside my tag team partner. Matt McCarty. I'm Damien rawlas on today's countdown Boeing CEO. Dave Calhoun continues to quit stuff. Board. Drama at drama maker Warner. Brothers discovery. The Disney proxy war is over. Shareholders sort of getting it right at Jefferies group and on the big boat. Boeing's better looking and better smelling sibling Airbus Get over to our trade wire Dead Man. Walking Boeing CEO. Dave Calhoun is also stepping down from the board of caterpillar. This time, however, we know precisely when he will be leaving, it is at the company's 2024 annual meeting of shareholders. It's just a walk of shame for Dave, Calhoun, 2024 not his year. Those are the only two boards he serves on there. I we don't know that he'll be gone from Boeing's board. We know he'll be stepping down a CEO. We actually don't have all the information but we do know that this is a trade that's been long in the making that Boeing has had the Boeing three on the caterpillar board for years. It was Muhlenberg Calhoun and Schwab. And now, finally, it's the end of the caterpillar three on this board. Warner Brothers. Discovery is losing two directors. Named Steven Myron. And Steven neuhaus. According to the filing. The resignations were not the result of any disagreement with the company or any matter relating to the company's operation policies are practices. But alas Werner Brothers Discovery is burying the lead and not practicing on a storytelling. The Stevens step down after the company, learned about a Justice Department investigation into whether their presence on the board, violated Anti-Trust, law federal law, forbids, most corporate board members to simultaneously serve on the boards of their competitors. The Stevens are both Executives at Advance, which is a private family held business owned by the new house family. Whose Holdings include not only Warner Brothers. Discovery 8% of total Holdings but Charter Communications where they own 12% of shares. Steven Myron. Who is the CEO at Advanced? Is a director at Charter Communications while Stephen neuhaus. Whose family controls Advanced has a family member who also serves on the board of Charter Communications. To wrap up a complicated story. Matt, the Stevens are out at Warner Brothers Discovery because of an investigation by the justice department. I mean, first of all, it seems like, this is something that Warner Brothers should have known what bands, but in the end, it sort of amounts to nothing. We have them pegged at 10% Collective influence, so they're not exactly calling the shots on the Warner Brothers board at this point, except to the new Advanced does control 8% of Warner Brothers Discovery shares. So it is a are influence numbers. Might be under counting the power they might have I shouldn't say. You can edit that part out of the show and United Airlines they have been busy, adding members to its board. With experience in selling drugs. First former Walgreens CEO and Starbucks CEO. Ross Brewer and now Michelle. Fryer. President at makeup brand Clinique, a part of the Estee Lauder company. So United Airlines adding Two Executives and companies that sell drugs. I can't understand the United Airlines board at all, because you've added Ross Brewer. But you already have the sea. You have someone from Nike, you've got someone from Uber All Brands, they love Brands, they love Brands Brands, you have targets, you have IBM. There's not a single person, like, who builds a plane? They're not engineer's. There's someone for Partners in Health. Like what are the skills required to actually operate? An airline seems to be entirely within the purview of Scott Kirby who's the CEO of United on this board. Let's move over to our proxy cage matches, Matt. The it's over the Disney park cage match at Walt. Disney is finally over Disney has founded off activist. Investor Nelson, Peltz for the second time in two years. As a shareholders rejected, his effort to win two seats on its board. Disney claimed a substantial margin of Victory. Although no official results have been released yet. Unofficial results. Show that Disney's board candidates won the backing of 75% of individual shareholders overall Nelson Peltz received the support of 31% of the vote while CEO. Bob Iger received 94% of the vote. Remember, Nelson Peltz already announced that he voted against Bob Iger. So that might have been really the only vote with held against Bob Iger Blackwell's. well, all so failing to receive support for its three nominees had this to say, quote, our primary objective was achieved. Keeping Nelson Pelt out of the Disney boardroom, and quote. We'll we'll dive into these official results on our next episode. It's where I should say here that I've substantial portion of, that vote is a pro Mudders shares as well on the institutional side, right? And so when you see 31% back Nelson, pelts, that includes the shares that pelts borrowed from Pearl mutter. And that's where some of that is coming from. Also Disney put out an 8K. Right. After the AGM that said, these these results are not official. But we believe that the Disney slate one, have you ever seen an 8K that went out that effectively said? This is who we think one well, without certifying, it doesn't surprise me because usually these results come in a, maybe a day or two or three and I think there was so much attention on this contest that I think Disney, what either wanted to Glow, or just want to make it official that it very well, probably has one, right? I, I can't imagine anything changing. So it's like a PR 8K. Maybe what we're talking about? Moving over to our vote results table. There were a lot of notable votes last week, actually in our small cap company is at Jefferies Financial Group. A portion of shareholders, are likely Avid listeners of this show. The proxy countdown. Okay, here we go. 29% of the vote rejected. Say I'm pay. and at the same time, The entire competition committee, also received significant votes against their re-election. Oh, I like that starting with committee chair, Robert Byer, who received 26% against, and the other three committee members Marianne Gilmartin. Michael, O'Kane, and Melissa, Weiler all with 20% against. So, this is a significant rejection of the compensation committee and Sam pay at Jefferies Financial Group. One, primary concern was probably the lopsided pay, granted to CEO Richard Handler and president, Brian Friedman, over the past three years. They have received a combined, 221 million dollars, 60 million dollars of which is an annual bonus, consisting of cash, and merely at the discretion of the board. For the record. Board chair Joseph, Steinberg. Who was been on the board since 1978? Received 97, not 97% support. From shareholders. So it's clearly not his fault. And the executives who received the outsize pay, who are also board members each received 99% of the vote. So a little bit of in the end, maybe maybe they're half fans of our show because it seems a little confusing there at the end. I mean, I'm not sure why Steinberg is the founder of Jeffrey's. I'm not sure why he's like, it's confusing that, isn't it? Confusing doing there? He controls a majority of the influence at Jefferies Financial. It's a really, the blame should be on him. Yeah, you're right. Yeah, and this case it's, it's like they listened to the show and they got, but they didn't get the data. So they voted against the compensation committee, but not the highest influence member. Who is the founder, who's the chair who's been there since 1978? And lastly, a large caps by company McCormick and Company which we covered on this show. I got nothing to say. This is nothing really interesting report here. Cheryl hers are either happy or not paying attention. I'll go with the latter. Moving over to the big boat. This week we have Boeing rival, Airbus Airbus is annual meeting is coming up next week, April 10th 2024. Before I hand it over to Matt because Matt there are 17 agenda items at this company. So you so you have a lot of you have you have a lot of room to prosper and grow, and germinate, but let me start with a few key. Takeaways, first of all, this is a company very much controlled by three EU Nations, France, Spain, and Germany, notably France, and Germany each control 11% of total shares Five directors are up for election in 2024. This is not a board where the entire slate is elected annually and including new director FIU who notably has AI experience. We can talk about that more later. And finally, the last thing I wanted to point out was that be probably because three EU States control this company. Essentially, there is a requirement on this board that a majority of the members must be EU Nationals. And, and the reason why that stood out to me is because I noticed that in their order book by region. 47% of orders, actually come from North America and Asia Pacific. And yet only two directors represented the those regions. So this this may might be one of the things that happens at companies controlled by Nation, governments, right? So those are the things that stuck out to me. And again, those are seven agenda items, Matt. So I don't know where you want to start with this one. Well, I'll start with the company. I look, everybody's talking about bowing right now because of what's going on at Boeing and sort of why we picked Airbus, right? Yeah. And ignoring, basically, what is the only? Other option for a lot of commercial airline purchases in the world. I mean, and it's not exactly, like, you know, you can go into the, you know, the mall, and you don't like that shirt. So you go over the next door and buy a different shirt. These planes, these orders, take five to 10 years to actually process and you can't buy them right now, right? Like so if you don't like what Boeing's done and you you've been buying Boeing, you can't switch to Airbus quickly or easily. So actually in thinking about what's happening with Boeing companies? Now, like Airlines now are making a bet that Boeing is going to pull itself out of this and we're going to continue placing orders or we need to start thinking about placing orders for five to seven years from now with Airbus Which puts Airbus in a position where if they can close this, this is an amazing time for them, right? Like this is a great time for them just to pull away, just separate the cells. The and you can see this in the stock because from the minute, the planes fell out of the sky in 2019. There's been just a Divergence between Boeing shares and Airbus shares and that includes the pandemic. Even during the pandemic, both plane makers, saw their shares drop but Airbus not only recovered quickly because they weren't grounding for Airbus, but they have effectively surged. Since the door plug incident for Boeing as well. They've just seen a reversal in their fortunes and still Most of the board is underperforming on TSR. It's which is hard or average performance, right? You would expect better, I guess I would say the board itself is comprised, mostly of CEOs, 75% of them are current or X CEOs. We classify them as an aristocracy, there's no gender power Gap. To speak of, which actually feels very EU in some ways. But in other ways, we know the power Gap is really large and place that mandate special. Yeah. It's getting a navy and countries I think. Remember you saying, Norway had a, yeah, the research suggests that in the Scandinavian countries where the mandates are the strongest or the highest for female participation on the board. They, we actually see the largest power gaps. Those women are kept out of titles. They're not made chair, they're all. There's all sorts of issues. Not giving as much Equity, but overall we've got a board full of Benchwarmers is really what we have two and these are the people were asking to capitalize. I think what do you mean by Benchwarmers? So Benchwarmers we have classific. From Hall of Famers All-Stars down to starters, rotation players, and Benchwarmers, and then rookies. If you think of it, like you're putting together a basketball team, it's your hall of famers, your All-Stars. They never come off the floor, they come off as little as possible. They play as much as the game, as you possibly can. Get them to play your Benchwarmers, you bring them in only if you absolutely have to because you have juries in front of them and we classify board members using performance metrics as Benchwarmers or Hall of Famers. We basically look at their performance because across all the boards that they're on and we say how strong of a performer are you versus direct your peers and we classify you that way. So this is a board that underperforms its peers, you know in some ways I suppose it doesn't surprise me because of the control of the of the EU States because just a glancing at it, I'm seeing four members from four German members Three French members. You wonder if Are there are some politics involved where the state wants to put directors on who will listen to the state, right? Who will listen to their needs over maybe airbuses needs? You know what I mean? There's a conflict of interest. There's May potentially I know it. There's 100% of conflict of interest and in fact that's key to I think assessing this board in May in the Mandate of putting the board together. They actually it's all spelled out at all times because it's a quote at all times the board of directors needs to have two directors who should also be French defense outside directors, French defense holding company and then two directors who are German defense outside directors. So they actually mandate that you have the interests of the state directly represented on the board. Again, they combined Germany and France represent 22% of Holdings. Yeah. And beyond that, as you said earlier that, This is EU Nationals are mandatory on the board affect, the majority has to be EU Nationals and they include the UK as an EU country even though it's not part of the EU anymore. It's not so useful. Yeah, they they've ignored brexit. But the biggest thing here and you mentioned sort of conflict of interest. In fact, the biggest difference between Boeing and Airbus is in terms of its not just how culturally they get managed, but it's in the gap between their controversies, the bad stuff that's happened between the two companies Boeing has had mechanical failures design failures. Things that are directly under Boeing's control door plugs popping out. They're finding, you know, tools in the floorboards missing bolts. They had the MCAS system, their rushing planes out and they're trying to manipulate The Regulators to let them do all these things. Airbus all of their controversies for the most part are persistent bribery problems, is that right? Airbus is selling their planes across the middle east across sanctioned countries. And Airbus is constantly getting into some of these countries by bribing their way. Bone is accused of basically stealing classified documents from the Pentagon and using that to get military contracts in the US and Airbus is out there bribing their way into other countries, in order to sell their planes. I don't want to disparage the controversy to, as a whole because I think by and large. There's a lot of great stuff in there. But that also could suggest that in these jurisdictions, they actually care about bribery in our spent in her spending a lot more money looking to find companies for for these actions. Whereas maybe it doesn't exist. As much as in the US. I'm just wondering, well, I know, Know that Boeing and Airbus have been in like a he said, she said, legal battles and arguing for decades about Boeing's sort of the way they're manipulating the US government to get the largest, lucrative defense contracts in the world. And the way Airbus is basically bribing their way into selling planes and excluding Boeing. In fact, Boeing keeps saying that because of the French and German State ownership Stakes. There's a conflict of interest in Boeing. Can't win any business in some of the EU because of their, you know, Focus there and the way they're bribing their way in. So but the fact is in the end, Airbus planes aren't falling out of the sky. For the same reasons, Boeing Boeing planes. Are there have been multiple Airbus crashes and they've all exonerated Airbus in the app. The investigations afterwards, they've all been pilot error, they've all been issues with. You know like that one was a pilot who was they said was overconfident and it was like taking risks. Another was a pilot who switched a lever and didn't realize they switched it. It turns out it was all accidental. It was all largely pilot error and it's because they're overworked and a lot of the airlines have you know, issues are falling out of the sky because they Boeing made them like under Dave Calhoun. And look, the, the potential conflict of interest. My also be a boon to corporate governance, so that so when Boeing was having a problems in 2019, I would guess that Shareholders consisting of the states of France, Germany and Spain would not pick a member of that existing board to then lead the company to get it out of the problems. Right. So that doesn't happen, right? Yeah. So it's that sometimes that potential conflict of interest can actually be a good thing in control though all though. So, I'm gonna give you the things I like, and the things I don't like about this board and do it some recommendations. The things I like about this board is when you look at the skills of the board itself, especially when you compare it to Boeing, Airbus has four engineering technical background directors. Three people from Airlines to the airlines industry. Two Telecom, one Oil. One Finance, one law, one military. It's almost the perfect board for an aerospace and defense company. He does one way Engineers high-tech people and they're adding AI. That's their new ad, right? Yeah. My cursory examination of it was that Boeing looked like a lot of good business people. And yes, Airbus looks like a lot of good like thinkers. If Boeing is almost entirely financed or military and the military people are used to secure those Pentagon contracts. So it's like marketing more and sales more than business Bridge. So, so we're talking about that. The skills difference between these two companies couldn't be more dramatic. And I love that for Airbus and it's a problem for Boeing. But that means that leaves us with the bad and this gets to your conflict of interest question. Particularly the one, you wouldn't take someone on the board and make them to see. Oh, what? I do see in the sport is like Boeing. The board is one of the more insular boards that I have seen, okay? And we got asked a question by a portfolio manager. Do you expect to see a lot of overlap? And people who are in the same industry and the answer would be sure you. It's not, you don't expect it. But in airbuses case we're talking about that share of the nominating committee who's up for election, and that's Maria ampara morralito Martinez, and another nominating Committee Member all. So, up for election, Jean-Pierre klama Jew, they have 28 and 21 Loops back to other directors in the comment on the board, just by themselves, right? In fact, seven of the 12 board members Have loops connecting them to other board members. Okay, that is a lot of interconnection just just on other boards between these companies and the common denominators, tend to be that the state ownership and other companies energy, which is a state of partially state-owned Energy company. There are multiple board members on the Airbus board who have been on that board. It also owned by France or and with like Stakes Ibraham is a Spanish one, Kaya Spanish Vodafone France. In fact, what you're seeing is when the government owns Stakes, they it's possible that the government likes certain directors, there are crafts in a way, right? So that's something not to like and that gets us to the recommendation, okay? So again we have technically only Four directors up for re-election and one new director. We mentioned a German woman named FIU Who is the global head of AI at sap? She's yeah. AI expert know which I love the ad. In fact, I'm all for the ad that's a vote for for 100% but I think because of the nature of these staggered boards, they're like classified boards because they have board terms this year, the vote is against the only vote recommendation I have is for everybody except for Amparo Morales. I don't like voting against her because she's an Industrial Engineer, she's done Energy Engineering. She actually has a relevant skill set on the sport but she's the most connected person. She's the head of the nominating committee and it's time to stop. Putting your friends or the friends of the French German or Spanish governments on these boards. There are other people who are Engineers, you can add to this board this year. I think you register like discomfort with the fact that what God bowing into trouble is a board full of friends, making expedient decisions that benefited them David Calhoun. Yeah like makes himself CEO because he was the chair of the board, right? Like that's how that works. I will say that, your, your recommendation to vote against morale is, is on par with what Cheryl's back to the past, in 2021, 13% of shareholders voted against her Re-election, which is a really significant amount. I know, 13 might sound small, but in these jurisdictions of companies like this, 13% is a very loud voice of dissent, and to your point map. She sits on several other boards in Europe, so that the fact that she's highly connected is definitely not a surprise. It's not a surprise. She's also the chair of the committee on this board, which I've never seen a community like this, and this may be your opinion, but it's the, your remuneration nomination and government goes committee. Do you see that certain your certain European comes where there's a combined committee? Doesn't come combined role of the nomination in the pay committees that you see, that's bananas to me. This is the committee that pays itself pays the CEO helps set by laws and nominates itself. Yeah. And you have that much and the chair is the most connected person on the board. I think, actually, this is a good opportunity. She's also the longest tenured person on this board. This is a good opportunity to change the regime. Not because Airbus is not positioned well with skills, but because Airbus has not capitalized from a shareholder perspective on its position and You need to avoid becoming a future Boeing. It's also interesting because when you look at our influence numbers it's also the one of the reasons why she's the second. Most powerful person on this board is because she essentially is the chair of of two important board committees. At least from the perspective of an American Exchange, that's the compensation and the nomination committee, and she's the longest tenured and she's the most connected. And this is why she has more influence than even the chair Renee Overman. So, that's right. Yeah. So again, if, if bored if using the concept of board refreshment is an important part of your strategy, or as an activist, or just an investment in general, she is a really great Target and she's a perfect candidate for sort of replacement here which also gives you the opportunity for next year because not all the directors are up for election this year. But next year, you have the opportunity to Vote against Claudia. Namah who is also highly connected, including directly to the chair of the company through Deutsche telekom and she's one of the worst performers on controversies. She was duplicative skills on the board already and this is an opportunity to bring in another engineer. Start to break the chain of connectivity on the board D. Sort of, you know, by defense bumping this board. You can avoid that future Boeing scenario on which friends are helping each other and not the customers and possibly capitalize on what may be the biggest opportunity Airbus faces in the next 20 years. This is their moment having Ai and love that move. This is their moment to sort of move in to the Boeing space. It's going to take Boeing a decade to clean themselves up. You gotta be not by default sweeping up those those contracts, you need to be proactively positioning yourself, to get them. So, that's my recommendation. Anything else you want to touch on pay here? Before we wrap? Up. Yeah, I have one question on pay. I actually have a question too. On the repurchase. I noticed something. So they have two, there's the say on pay and and we'll start there, which is That this the CEO basically is getting 50/50 cash and then long-term or share equity, which seems skewed, but possibly good because like the the number that the CEO gets is so quaint compared to this for, right? It's a quaint compared to California. Pulled in roughly, the same cash salary as a CEO of Airbus, but then 20 million of equity on top of that. Wherever he's total was 4 million under 4 million euros. Yeah. And he doesn't have like three crashes on his conscience and a company that doesn't work. It's really hard to vote against pay these European companies. Yeah, for the perspective as Americans it's hard for us to think that there's anything wrong with this payback, could you relatively speaking because you see over and over again the the amount of of long-term Equity given to To American CEOs, which which means that they essentially can prosper. If they, if they're responsible for the share price, taking a dive in their tenure, they can all they can prosper from that event, right? I could probably sucking what so. So by having that the share price go down and maybe the rest of the market just goes up, naturally that there might be a bounce back that has nothing to do with them. And they're prospering is to your point that he that Calhoun made five times as much as the Airbus CEOs. Absolutely absurd. So, and he's going to get this possibility that he gets Instant Equity investing of his share's, on his way, out of his company, which gives him another 50 million at low call of low cost options because he the prices tanked under him. Exactly. Um, so I don't ask for pay and the last thing I have here is actually, if you want to send a message to Airbus that you want to position them for the future and not the now to get those Boe. Contracts to keep innovating to be the world's Global leader and Aerospace and defense. I actually think you vote against the renewal of authorization to repurchase 10% of the companies that the buyback. Yeah. Capital Look, I personally prefer dividends and making a long-term investment in the company. But forget my personal belief, in 2023, aerbus spent less than 5% of its revenue on R&D. That's the fourth time since 2008 that they've spent less than 5% on of their revenue on R&D. In fact, Prior to 2013, when they announced their first big buyback program. Airbus spend an average of 6.1% of Revenue in R&D. Once since they started the BuyBacks, the average is dropped to 5% and it's never cracked this 6%, Mark. They had all of their lowest spends on R&D after major BuyBacks. So like they have a big buyback, one year, the next year they have the lowest spend on R&D if you want to tell the company, keep the capital because you have a 10 year. Ability here to R&D your way into the future. You got an AI to dominant flailing. Spend the money on the R&D be smart. Okay, spend the money. Now, on the R&D, don't give us the buyback because we want the gains later. That's my other recommendation to recap. Matt says, vote against share buyback. That is proposal number. 16 vote for remuneration at pay. At Airbus and vote against Impala. Amparo Morelli, who is the compensation and nomination committee chair? That is it, that's the proxy countdown for the week of April, 1st 2024, join us next week or join us our next show. I'm not sure when that will be Matt going on vacation next week when we jump back into the alternative democracy pool Forever on the lookout for shareholder, sharks floating Band-Aids and Wayward directors.