Transcript
This is proxy countdown. Welcome to the Big Show for the week of March, 18th 2024 alongside my tag team partner. Matt moscati, I'm Damian Robles on today's countdown. Another out of control golden. Hello reward for an American CEO. Their retirement of one of the most infamous fake independent directors. This one a McDonald's. Voting recommendations from ISS and glass Lewis at the Disney proxy cage match. A shareholder win at Analog Devices and on the big boat. Spice company that pretends, it's still the year, 16.02 and Amsterdam. Let's get to the top stories. Here's a weird one. I haven't seen before after Duke Energy. Announced that Harry Sedaris has been appointed as president. The company also decided to announce that current CEO and chair Lynn good. Who was been CEO since 2013 will quote continue? On and after April 1st 2024, a CEO and chair of the board. That's confusing. Yeah, it sounds like maybe she should be looking for other jobs. Yeah, unless they just saying, like look hairy is just don't get refused Harry Harry's, just he's here for Lynn. That's who's here for a leadership change International Paper company will see Andrew Silvernail becomes CEO and May Along with a golden. Hello package worth, just over 20 million dollars including 200,000 dollars in cash to ready for this one, Matt. 200,000 dollars in cash to support relocation expenses. Not covered under the company's current relocation policy. What is he relocating? Up and another 50,000 dollars in cash for legal fees incurred receiving. This massive golden hello package but he's already asking for more money on the, I guess the companies already Antiquated relocation policies, so that's all just give him the money and say, spend it on whatever, why? I don't understand this constant trend of you give them extra money but you identify all the things. The extra money are for like legal expenses. Incurred for the golden. Hello, right? Like what? Well, how about the practice alone in America of giving them 20 million dollars before? They've even done a thing that they haven't even done a single day of good work. They're gonna get their customary probably average 15 million dollars in pay. Any way, what are what are we awarding these people for? And yeah. And finally, a corporate governance Legend is retiring at McDonald's, Matt. Board chair, Enrique. Rick Hernandez Jr. Who has been on the board since the Clinton Administration is finally stepping down. Despite that many years, Matt, he's always referred to as independent. He's referred to currently as the independent board chair Hernandez was infamously booted from the Wells Fargo board in 2018 as part of the Scandal, where Wells Fargo set, overly aggressive sales targets that resulted in abusive practices towards consumers for over a decade. Remember the government pushed for a corporate governance changes because of that Scandal and Rick Hernandez was one of the people who left because of it Hernandez. Also who he inherited a security services company from his dad. Was engaged in multiple side dealings at Wells Fargo resulting in nearly 25 million dollars in deals over a decade. Still was an independent director, somehow he ironically sat on their corporate responsibility committee as well as chairing defined and risk committees. Yeah, yeah. Uh, this means that a consolidation of power from McDonald's, CEO Chris, kempczinski who will absurdly become the chair as well as being the CEO. I don't think enough people point out how absurd that Arrangement is that they, in America, they let the CEO be the chair of the body that is provides oversight for the company's management, absolutely absurd. And Matt, you like this one fellow Chicago business, Mafia director and former Abbot CEO miles, white will assume will assume the role of lead independent director at McDonald's. Despite having the second longest tenure, he's been there since 2009. All right, I want to come back to the lead independent director Joe later, but I didn't say it was a joke. I mean, but Rick Hernandez had 18% of the influence on the McDonald's board. That's a lot. He was a powerful dude on that board and famously, Rick Hernandez. 75% connected to other McDonald's board members and he's also sitting on Chevrons board where he's 92% connected as in everyone on the Chevron board, Rick Hernandez has had dealings with on other boards. Some way they're, the friends of friends are directly friends. This guy is he is the penultimate. I've Been Everywhere, I don't know why he still has a job directors. He's the evil like board director, he's a Chevron McDonald's Wells. Fargo. He he inherited his company from his dad shareholders, routinely voted against him everywhere because he was, you know, he's a long time. Let's dial that back because he still never got voted out. But true, he does have the dubious distinction in free flow analytics. Data of being one of just a handful people in the entire world who bats zero on controversies, he literally is the worst director in the world for the controversies that happen at companies, where he's on the board, I will say that in 2018, when he left the world's Fargo board, he did 47% of Cheryl's voted to get rid of him. So, but it took the government to step in to have that. It's nice that they couldn't even muster a majority. Let's get back to our Disney proxy cage. Match, we seem to talk about that every week, this one at. Yeah. Well, Disney. Reuters is reporting today. That ISS is backing Nelson Peltz. In that proxy cage match because Nelson, quote could be additive to the succession process and now that's analysis that you got to pay 200,000 dollars. A year to get ISS also said, shareholders should abstain from voting for Jay. Rasulo all three blocks candidates and current Disney director. Maria Elena Lago Messina. So there are agreeing with Nelson, about one of his choices to Target at Disney, but they're not, but they're, they're supporting Nelson, pelts, but they're not supporting the man that Nelson Peltz thinks will also help the board and Jerry sulo. So kind of a mixed message there. Nelson. Had some of his director friends, send a letter. To the Disney board? Yes, ma'am. A letter that started off with dear Disney directors. And this letter said that Nelson basically is a swell guy. This extremely diverse list of 13. Directors included. Three directors from Heinz, three directors from Mandalay two directors from Legg Mason two from Janice Henderson, two from Wendy's and even a woman he found a woman supportive. Yeah. Wow yeah. Can I just say though this completes the ISS duopoly of proxy fights this year at Starbucks and Disney. Now, in which at Starbucks, they said the Starbucks board appears thoughtful and the Disney putting Nelson belts on the board because it could be added. If could that's the analysis that we're doing, that's how we select directors. Now could be appears maybe and they also had this to say, this is a quote, Disney put out comments on ISS recommendation, and they ISS actually noted that because 80% of trans Disney Shares are borrowed from Ike Perlmutter that they noted, that this is Pearl. Mudders. Involvement is likely to be a quote unfortunate. Distraction. And that he could quote cast a baleful shadow over the board. It's not forgot that pulmonary as a is on record for many years of fighting with current CEO Bob Iger. So I don't understand is this is recommendation on. What is this recommendation? We just empowered the guy who basically has personal animus against the CEO for fun, right? Yeah. It was no track record in media and without it and with a poor track record overall at the companies where he served as director and he's borrowing the shares. And on the upside though, we get to see issu words like baleful. It's like a Robert Frost poem on Monday glass, Lewis recommended shareholders, reelect, all 12 of the companies directors. So they're they're saying no to all the decent candidates try and am Blackwell's. Here's a quote from that recommendation. Given what we believe is already a credible plan underway for Disney. We struggled to see many of trying and tensions as representing a likely night gain. For investors. That one's a bit more sober that once feels like a real recommendation, all though I would have looked at Blackwell, I don't know why. No one is considering Blackwell's nominees like why they actually nominated an executive from a media company? That doesn't hate Bob Iger. I think you'll find that ISS and glass Lewis rarely support dissident slates, but but still like that Blackwell's. If you look at the individuals that they nominated, at least one of them shell, right? Has media. Just like that, that, that, that actually should count for something here. There's a, there's a viable candidate that isn't Nelson Peltz that could be added to the board and not a could be additive way in an actual additive way. Blackwell's continued. Its fight in one filing. It said Nelson. Pelts Pelt billed, Wendy's almost 600,000 dollars for security related services. and said that Disney deserves board members, who are not scared of hamburgers sitting in the boardroom, I do like that Nelson. He is, I support, Blackwell's sense of humor throughout this whole process. They included in that an AI generated picture of a old white man in a suit who looks like Nelson Peltz shaking hands with a Cheesy the big cheeseburger handing him cash. Yeah, the cheeseburger. And the cheeseburgers wearing gloves? It looks like. I don't know. What's up the cheeseburgers hands? Did they mean to say hamburglars? But that might be, that might actually be copyright. I don't know, let's move over. Move over to our boat results table. We have several votes in at large cap companies. Let's start with Starbucks. After the Strategic organizing Center gave up its proxy fight, all directors and Sam pay received more than 90% of the vote. However, when we adjust for the ESG skeptic vote which means Vanguard Block rock and Howard Schultz Chair, mellody Hobson, nominating committee chair Jurgen new strop and say on pay managed to support of only two. Thirds of the vote When You Subtract when you're just that vote. Also, all three shareholder proposals fails miserably, especially the two anti-woke ones pretending to care about systemic discrimination and human rights. I think what you'll find this year, Matt is that the anti-wolf votes are having the unfortunate effect of dragging down the, the earnest shareholder proposals, there are actually the plants will gains the plant-based. Milk pricing shareholder proposal shouldn't have won anyway so it's hard to just discern Analog Devices. 20% of all voters rejected to say on pay. A number that slips that down to 51% support when we adjust for ESG, Skeptics and Vanguard and BlackRock. Also a shareholder proposal brought by John chevin, requesting a simple majority vote. Passed overwhelmingly with 89% support despite the board recommending against the boat. So a win, their Analog Devices at Agilent Technologies more than 20%. Sure holders want board chair. Khoon hooi gone. He has been on the board for over two decades. And finally there's plenty of discontent to report at hike, go Corporation 30, 8% voted. No On nominating committee chair Mark hildenbrandt where the board has only two female directors, representing a mere 3% of total board influence. And 26% were against Sam. Pay were the three Mendelssohn family board members and Executives each received about 15 million dollars in pay. Well, also receiving 250,000 dollars in direct your fees of practice. Not typically fall that I've had companies, that's a great deal, see that? We don't see that America double pay, that's your job. Yeah. And that's a high vote against Sam. Pay considering 17% of voting power is held by the Mendes and family. So, that's it for the vote table, that brings us to the big vote. This week, we are covering spices company McCormick McCormick & Company, whose annual vote is happening next week, March 27th 2024, let me highlight a few things that I'm sure Matt will cover one is an unusual voting structure consisting of voting and non-voting shares. I know, Matt, you're going to spend some time on this one but it's a strange case where the voting shares all seem to be allocated. Mostly with the named executive officers. In the board members, I have not really seen a structure like this before. Um, as an example, 12% of these voting Shares are held by chair Lawrence Curtis. Again like it's just a situation that we don't often see as far as the board is concerned as a considerable female power Gap, they represent 33% of the board but only 18% of influence in the same goes for overall diversity. When you include race and gender, they represent 50% of the board but only 26% of influence. And finally, I'll say that when we're talking about influence, this is a board where three people control a majority of the influence. That's executive chair. Larry Curtis CEO, Brendan Foley and Lead director, Michael Mangan controlling 55% of influence. So yeah, this is a trifecta board. This is an oligarchy board and and I think it's worth saying that we Debated in pre-production, how we need to cover. These kind of dual-class, these weird structures where investors largely don't have a vote. There's a couple of institutional investors who own the voting shares, but most of it is actually either through the employee 401K, which is managed by Wells Fargo. But I think there are some shares that are held here and there and that otherwise are held by management and there's not much float to that. It's like, it's the voting Shares are very closely held. Whereas a non-voting Shares are what everyone has, which means you have no vote. And this is almost exactly the spice trade is existed arguably since like, 1500 BC. So, you know too, well, that's add incorporation, Corporation. First IPO was a spice company, it was the dutchies, India Trading Company, and, you know, too, in Amsterdam. Yeah, the structure of that company was almost identical to this. Hey, that's, they say, they say, Santa's, the Dutch are very good at business. So yeah. Hats off to the Dutch and, and side note here. Like so, they had participants Watchers non-voting, shares and members, who are voting shares, and you could speculate, or you could, you could actually had influence. But this was the first IPO at VOC became the first activist investor at the same company and the birth of the corporate governance CSR movement. But really, the story of this company to me is not about the shares know, your vote isn't really going to matter. In our debate has been. How do you talk about companies where your vote, doesn't matter that much? What, like we talked about that to be fair from the, from a retail Investor's perspective, your vote probably doesn't matter at most companies. Not not just including the Mark Zuckerberg, controlled meta platforms. But as we say over and over and over the, when you consider, The power of the ESG, skeptic vote places like BlackRock and Vanguard your vote really doesn't have much effect anywhere. Matt not just at McCormick & Company. True. But if you even if you wanted to get angry at the ESG, skeptic vote for voting in every director. You can't hear, right? Like that. They don't. They don't actually have shares that matter here here, bizarrely the directors themselves seem to have the, the say, on who gets elected to the board. Exactly, which is why courtesy is has so much power because he was the CEO. He accrued a bunch of shares by being the CEO and now he owns 12% of the vote by himself but the real. Yeah let me add it up before you move on CEO. Brendan Foley controls 3% of the vote CFO. Michael Smith has three percent of the vote and there are others. So it's not just courteous. I mean, this is a really strange voting structure. Yeah, it goes right down. It's like it executive team and the directors are controlling the directors of the company. Yeah, it's also not clear how this system operates because I opened up like the last you know, eight proxy statements and evolving Curtis and he seems to gain about one to two percent of voting power every year. Like there must there's some method that when which they just keep Going out more and more power to him. Yeah they only the only give the executives, the voting share options so you can't buy them on the market, they're like shelf registration, their options like and they give them just to the executives, which is an interesting structure because it doesn't sensitize the executives to stay longer and do. Well, the stock that there are two traded stocks, you can see the voting shares in the non-voting shares, and there is a difference in price. In fact, averages 09 percent more value on a daily trade basis. For the last five years for the voting stock is in the voting stock has a little bit more value. So there is some alignment but it's weird. Yeah, get out of the weeds. So I want to hear your evaluation of the board here. Well, here's where the board part comes down. Come, come becomes clearer for me because you talked about how this is a trifecta board, it's the executive chair of the CEO and the lead independent director. Now, the lead independent director has been there. For more than a decade. Right, the lead independent director is not very good, right? He's been there 2007. So now we are it got me curious because the way I want to talk about this board is actually a much bigger problem which is the lead into the joke that is lead independent directors and you already mentioned one up top where we're talking about directors who have been there for a decade and a half in our considered independent. It turns out in our data. That there are 284 us, large cap companies, out of 600 us large cap companies where they have a CEO chair combo, a Founder on the board or an executive chair, effectively, a controlling executive, you know, up a very powerful control in executive and a lead independent director to offset that because corporate governance best practice is if you have a CEO chair combo, put in a lead independent director, right? But that's 47% of us. Large cap boards, who have that structure. They have a lead independent directors. So about half of large caps, but at those companies that have a lead independent director, 60% of the lead. Independent directors have been there for 10 or more years. Write a majority of them are not Independent by UK. Standards often having served alongside the very same CEO in fact that's the other thing. I ran exactly a 29% of them about 30% of them, the same executive and the same lead, independent director have overlapping, 10 years of 10 years or more. I'll tell you this is one of my pet peeves with corporate governance in general. Is that we talk about this all the time is that a lot of progress was made 20. Let's say 20 years ago, with a lot of great corporate governance initiatives, including having a lead independent on their board and including starting to pay attention to adding more women to the board but nothing has happened since right. Which is why I think our data is so important because what companies have taken advantage of these practices a by putting women on the board and giving them the no actual power. They have no influence. They're not, they're not in leadership roles and B by having lead, independent directors to name Only which are really there more often than not to serve to consolidate the power of CEO, which is the absolute worst case scenario and why American boards are. So messed up in the first place and it gets worse because and McCormick's case, right to make it about McCormick, the lead independent director Mangan. He's been there for 17 years, he's prior work was at a power tool company. There's actually literally no relevant skill overlap between their lead, independent director and what happens. So what does that mean? That means just like it Disney where you have no other media Executives on the board. So Igor is the only one, who knows what the company actually does. Like, how to run Disney, you have it. The same thing here, where the lead independent director, who supposed to represent shareholders, to the extent, there are any Actually has no idea how to run a spice company or a food company or supply chain, you know, difficult their company. Like, this one could make the case map that people need tools as much as well, as they need spices. That's true. So maybe there is an overlap, but the data here is actually, spice is a tool for the mouth for the diet, for the palette. I didn't put that in our skills Matrix, but there is a like this is evidence actually, when I dug into it, that the check, the box at Allied independent director. If you have a CEO chair, combo does not work. It doesn't work at the majority of companies that do it because they've found a way to consolidate power, even with the lead independent director. In fact, I created a hot list that shows the number of companies where both the executive in charge and the lead independent director are highly connected to the other directors on the Aboard and they have significant influence. So, imagine a scenario where you join a board because you met like the, the director at the Gap. At a Gala somewhere, you get to the board and you find out the CEO who's calling the meeting, because they're the chair. Also worked with the lead independent director on this board, for more than 10 years. And they know all the other board members, what kind of board does that, who does that represent? Case in point, we just talked about at the top of the show, Chris Kaminski, becoming chair, exactly Donald CEO. And who does he appoint as the lead? Independent director miles white, the most well-known, Chicago area CEOs, been on the board for over 15 years. Yeah, so, here's my recommendation to the extent that you could vote because you have voting chairs, right? If you are McCormick employee at the 401K you should write to your 401k administrator, which I believe is Wells Fargo and you should tell them. This vote has to be Vote against the lead, independent director. Mike Mangan, you aren't independent. You don't represent the employee interests, you only represent management interests. That's the way that works like that. That's there's McCormick is a case study in a broader problem about leading Independence that isn't real, but McCormick should be, if you could vote, that's who you would vote out. That's my only recommendation for the doctors on this board again. It goes back to something that I mentioned, you know, a bit earlier is that there's there's not enough as happened with this original set of corporate governance initiatives, right? I mean I think it's time For for sure investors, just take the next step with some of this like, stop, stop, rubber stamping, everything that you know, if they have a lead director, good is buying, they have three women on the board. Like just dig in a little bit deeper, it's really, we need to start paying more attention to these things. I don't quite understand. The like desperate need for a binary where it's like CEO chair. Oh must have lead, independent director and that's where I think that was a good. I think it was a good start. I mean I can apply the changes 20 30 years ago, 30 or 20, 20 30 years, it's the same thing with they they fought for years to get this incredible amount of compensation disclosure, right? Including an enhanced compensation table and hence disclosure of all the parts of the short-term and long-term plan. And yet, nothing has nothing has happened. Shareholders are not, they're not voting against it anymore. A pay keeps going up routinely year after year. I mean, we had we have to start doing something with these gains that we got 20 years ago and investors keep voting against when they do vote against pay, they just vote against pay and maybe the head of the pay committee, but not the directors who set the primary. It's almost like we've been met, we've all of us in the ESG industry. All of us in corporate governance. Have just been emailing it in since 2 since the Pioneers 20 years ago you know the bombs and elements ever since they fought for these changes nothing has really happened since it's disappointing, I will say on the upside in this company, just to wrap out the directors, I really actually liked one of them. I think the majority of these directors are actually fine, they're Well. Suited positive. What do you like? But it's nice to be positive. Everyone once in a while, Michael Conway is exactly the kind of director who on paper you want to keep. In fact, I would suggest that if you're engaging at all, you ask why he's not sharing a committee. This is a guy who went through the Starbucks Corporation. Are basically every piece of the Starbucks Corporation in the and in the past, you know, decade and he knows the business of spices supply chain issues, diversity, all of the issues that are going to that are relevant at a place like McCormick. He's the kind of guy that knows them at least on paper, right? That's that we can see. So there are good things about these board members but we need to get rid of this. It's not a real lead independent director. We need to actually start analyzing the people. Yeah. And it points out. One of the problems I mentioned this at the start of talking about McCormick. Was that Michael Connelly? One of the diverse board members black man has no leadership positions. None you're you're pointing out his incredible credentials and you're right. He is both domestically and internationally held like many executive positions at Starbucks, clearly a guy who's well suited for everything, he sits on the nomination committee. That's it, that's it. That's real leadership positions. So yeah, okay, so your recommendation is a vote against the lead director, Michael Mangan, which I said, which what is sending a message to do? What to find a new lead. Indirect lucky director in this situation. First of all, let's let's drop the pretense that that person's independent and drop the pretense that they're leading anything, right? Like, this is a company where the voting Shares are owned by everybody else anyway. And second of all, you're voting out a very long tenure director, who supposed to represent shareholders and doesn't. And third of all, you're sending a message that lead Independence should mean something. And from this point on we're going to look at companies who have lead independent directors and ask are they actually independent as individuals relative to the other board members? Not some, check the Box. 25 years ago methodology, do you want to weigh in here on Sam pay? Or do you want to look I think say on pay is irrelevant at this company. This is an Performing company. The stock is not done. Well, the fact that everyone gets paid and a lot of options and continues to vote themselves. Into directorships is a problem, but I don't think you're going to solve it until you have it voting shares, I would vote against pay until the company. Doesn't, you know, in the last five years, the company has returned, 5% TSR and and meanwhile the rest of the S&P is that like 109%? So, this is a well underperforming company. I don't know who you're paying for, what? So I'd vote against it. Two takeaways in sand panel. And we'll wrap up here. First of all, this is a company where the executive chair routinely makes the most money by a lot. So really, this is, this is one of the instances where I think the executive chair really is in control, and our influencer data, the only place we can get it is here. Reflects that courtesy is influences double that of the CEO Foley. So, and then I'll take my hat off to McCormick because when Foley became CEO and in September, they actually did not give him any special promotional Equity. Grants they give up. They didn't line his pockets with anything. That's, that's a start. That's the proxy countdown for the week of March, 18th 2024, join us next week, when we jump back into the alternative democracy pool Forever on the lookout for shareholder, sharks floating Band-Aids and Wayward directors.