Transcript
This is proxy countdown. Welcome to the Big Show for the week of March, 4th 2024 alongside my tag team partner. Matt muscari. Oh I'm Damian. Rawlas on today's countdown, several leadership changes at JB Hunt, including a new made-up board roll. And activist investor win at ventas. A proxy contest Fizzles at Starbucks and heats up at Disney, a shareholder win at Jack, In The Box in a near win at deer and on the big vote. Matt bumps into a company. He doesn't hey Analog Devices. True. It's uncomfortable for me. Get to our top stories in the trade wire, Ventus lead director. James Shelton to stepping down Shelton held the second most influence on the Ventus board at 13%. Meaning that CEO and chair, Deborah cafaro's power is due to grow. However, activist investor land and buildings Investment Management. Reached a corporation agreement with Ventus where two Of its three board nominees will be added to the board. They are Theodore bigman. Formerly at Morgan Stanley investment management and Joe Rodriguez Jr. Former Chief investment officer at Invesco, real estate. In an unusual board. Leadership Arrangement, hold on to your hats for this one JB Hunt Transport Services appointed, Current executive chair Kirk Thompson and current director and former chair. Wayne Garrison to serve, as honorary founding directors. What are that for? I've never really found directors. As honorary founding directors, they will provide advice and counsel to the board and management and will upon invitation by the board. Be expected to attend board and committee meeting. They will receive access to all information and materials provided to the board. But they will not be entitled to vote on or consent to any board Matter's. This is not a good idea. That they will be employees of the company, but the company did not announce the compensation Arrangements all so CEO. John Roberts, the third will become the new executive board chair and Shelley Simpson. That's right. A woman will become CEO in July, Matt. Shelly started as an hourly customer service representative in 1994, right story? Right there. Good. However, she is going to be sitting a room with the person she used to report to, and two honorary founding directors who don't have a vote, but just sit there and tell you what to do. And see all the information even worse will be majority shareholder. John L hunt who controls 17% of shares. She's also actively involved with the company. So she has a lot of this role. There's not exactly a CEO role here. This is not great. And finally, in Celebrity CEO news, AT&T added former Yahoo CEO Marissa Mayer to its board. moving over to our proxy cage matches, a group of labor union said on Tuesday, That it was ending its proxy fight at Starbucks after the two sides. Agreed last week to work toward a foundational framework on collective bargaining. So the Strategic organizing Center. They said this in a press release, we feel that now is a time to acknowledge the progress that has been made into allow the company. Its workers to focus on moving forward. So Matt, the soc has withdrawn its three board nominees. Look, I said this on our other podcast business pants and a much more aggressive way, but I think optimism is not a reason to withdraw unless they've gotten some sort of, you know, assurance that the, the the labor negotiations are going to go certain way. It makes no sense to pull down the Slate, even if they lost the Slate, you've allowed investors to see what it could look like with a The guardrail slate about Labor. I'm not sure pulling them down the right call but, you know, if they're optimistic, I mean, I guess that that counts for something. I know this. I know this man and the Art of Labor negotiations, when Howard Schultz is angry, it means you might be winning because their founder and former CEO. 10 times Howard Schultz, seems to be hot and bothered by all this. So I think that strategic organizing Center, maybe has a reason to feel out the Mystic. I suppose that's true. He did. Howard Schultz did pen a letter and was another letter out the defining, what? Soul finds soul of Starbucks, which has nothing to do with this matter, but that's great. At the Disney proxy Cage Match Tree in Trion, I always mispronounce it released, 133 page, white paper. That included the following things, Matt. A first of all, they said the term restore the magic 12 times. They said fail or failure 35 times, but more importantly, they said the word board 304 times and director 99 times because of this. Ah, this is their quote from that white paper, we believe the root cause of Disney's underperformance is poor oversight from the board. They also said industry disruption does not absolve Disney's board for poor performance is the board's job to look over the horizon. They also said the board succession failures have created a leadership void. And they said that Disney's board has overseen poor shareholder report. Returns Disney has significantly underperformed the S&P 500 during every directors 10 year. So, Matt here is an activist investor that that knows that the board matters at the people on the board matter. I think two things are true. First of all that helps his absolutely right to call out the board. In in this case of which Igor is a part, but this board there are members on it who approved, Chapin coming in, who approved Iber being the executive chair, who then immediately, switched back to Igor and boomeranged back in. There are elements of what health is saying that are absolutely right, but to call it a 133 page, white paper. About why try and should basically get their directors Nelson pellets. And Jay rasulo is a little disingenuous given that of the 133 pages. I think the there's 30-ish pages that are devoted to the the strategy going forward for Disney of which 10 of those pages are Nelson. Peltz is great. I'm not exactly sure that that is the rest of it is all about. All of Disney's failings, I get that the board is faild and I agree. And that emphasis should be placed on board here. But they're also needs to be some other side of this coin, which is an idea from new board members how to actually turn this around that aren't just be Netflix. Here's the head scratcher to me is that the white paper calls out. The close relationship Bob Iger has with with chair, Mark Parker and and then GMC CEO Mary Barra. They also suggest that the chair Mark Parker is too thin because they call it that his chairmanship of both Nike and Disney is unprecedented. And yet they are not targeting. Mark, Parker to be voted out, they are targeting Michael Froman who nobody knows and Maria Elena. So I don't some of it doesn't add up to me but I again I appreciate the focus on the board. I mean the only Theory I had on why those two was the nominating committee. They're both on the nominating committee and so is Amy Chang and Mark Parker well, Parker is the chair of the board. Amy Chang, actually sat on Procter & Gamble's board with Nelson Peltz which means she's less likely to be targeted by him. So it was the two people. He didn't know sitting on the nominating committee who chose to bring back Iker I guess, but that's all speculation. Moving over to our vote results table, Jack in the Box, a shareholder proposal. From the accountability board. Requesting greenhouse gas emissions, disclosures it passed. It actually passed 55% of Voters supported this proposal and 55% is quite remarkable considering that 42% of Jack. In the box is held by institutional shareholders, I think, actually, all of the emissions disclosure Proposals are likely to pass this year going forward. If for no other reason than the SCC just passed, final disclosure rules about emissions, which are going to be on filings. Anyway, so now all the passages that you see should not be counted as victories so much as an admission, if they aren't pulled down and admission, they have to do it, no matter what, and a deer that we covered here in the big boat, there's not much to report all directors received more than 90% support, which is in line with your recommendations, Matt, both, anti-walk share of the proposals fails, miserably about 1% support. While a proposal requesting shareholder, ratification of golden parachutes, manage 38% support. But when adjusted for institutional ownership, this means that 56% of the vote supported this resolution at deer, that Gap is actually meaningful, right? The, the fact that the passive owners are voting with management largely. No matter what means that we're abdicating the desires of the majority of shareholders to a few passive owners. Let's move over to the big vote this week. We are covering Analog Devices, Massachusetts, own Analog Devices. Their annual meeting is coming up next week, March 13th. I want to give a few takeaways before handing over to you. And I know you have a lot to say Uh, according to our performance measurements, this company is heading 786 in earnings. Now remember that an average is around 500 786. I don't marked too sure I've ever seen in the company. A board, it's bad. So lie and yes, on the other hand for total shareholder return, they're hitting only 461. So there is some disconnect between what this company is actually achieving and how the, you know, stock market sees the company. I will also point out that there was an incredibly annoying board leadership boondoggle. I'm calling it on this board. Okay? You have Vincent Rose who is CEO and chair. He's been CEO since 2013. You do have a new lead, directer Steve and Jennings but you have the formerly director James Champion who's been on the board for over 20 years, 13 of, which of those were. He was leading directors. He still in the board and you have founder, former CEO and chair race stata, who's been on the board since 1965. That is a lot of, like, former and current and maybe board leadership. It's just, it's just seems unnecessary to me. And finally, I wanted to point out the one little we've been focusing a lot on the skill sets of these companies and this one I found to be really interesting or maybe just peculiar only three of the board members Matt at. Analog Devices have cybersecurity information systems expertise, which is quite low. All the other skills that self-reported right self-reported and all the other skills. You know, it's like 11 out of 12, but everyone's got the skills and everything, right? This one's quite low. One of those people is 81 year old James Champion, former independently director. It was probably not going to stay on the board very long. But here's here's why I pointed this out. That the company made a point of the fact that in December 2023, the audit committee amended its charger to say that is now taking over oversight of cybersecurity, the cyber security program, sounds good, and and the proxy statement made several references to high on important. This issue is to this company. However, none of the directors who had this skill set in Cyprus, security are on the audit committee. So again we're good, we're seeing it, just these company. After company, we are seeing very strange, disconnects between either, which skills are even represented in the first place of these companies, or what the people are doing with these skills. I, I I'm gonna Scream about every week because I think it's just it's past time that boards catch up to these issues. I mean, it's worth backing up with this company to know what they actually do, right? They basically build sensors and circuit boards. I mean, they're sort of the commodity inside where Nvidia might be an AMD and Intel or building the chip, the power that powers the sort of, you know, circuit board the brain of the circuit board. The someone's got a do the boards and they are the what's interesting to me is how much they are The barrier between the physical world and the digital world. They are the sensors that take in all the information into that brain. As that brain is increasingly AI, Those sensors are increasingly hackable, or will likely be targeted attacks, right? So they're right to focus on cybersecurity and we're right to ask the question, do they have that skill? But there are wrong with sort of like their early iterations of it, and the fact that, you know, you mentioned the board leadership boondoggle. You were talking about people who have been there for 20 years handing leadership to each other. I mean, that's not a great series, but I'll say this and I don't say this often. I actually don't have a problem with the construction of this board, okay? And almost any way, what what we're seeing as a progression here, is this year, there are two directors who are stepping down. They are actually not being replaced. They look like they added directors last year, not this year, but they did add two directors at the end of 2023. Now, one of the directors that that is stepping down had been there for 20 years and and they are replacing them with young girl, newer directors. Now this is one of the oldest influence way to boards in the entire semiconductor industry, the influence way and this is largely because of champion and stata the influence weighted age by that. We mean we look at the influence each board member has and if you multiply it by their age you basically can see what's the decision making age of the board. Well, I like this is 71 years old. Where where the average board age is 65, meaning the decisions are being largely made by older more influential long-standing. You're also talking about founder race data who's 89 years old? Correct. Well, Champy's 81. So we're not you know? And yeah, here's where I'm going to disagree with you though. I and I think you're right that that there is a natural border refreshment going on and I think James Championship. I think you should be going this year, but maybe it'll be coming soon if I, if I were to recommend anything to shareholders, it would be to vote against James Champion. But, but here's the problem I'm having is that the two directors they brought on in 2023. One is an economist that's super director. Peter Henry, he's all sort of direct here at Citi group of Nike. This guy is a superstar, he's an economist and the other guy is Stephen Jennings who comes from Deloitte. I don't I just it doesn't add up to me. I don't know. But you think you actually Who was there before, right? Actually, when you look at the skills of the actual board itself, they are almost equal weighted. Now engineers Which is what you want on a company like this and Consultants lawyer, socon finding other types. They're good, they're good at steering, a very heavy ship. I get that like they're good at keeping it afloat and keeping things going, and, and I, and it from every all the, the fundamentals I've seen in the share price, I've seen you, they would suggest that the company is doing quite well. Like, they, that this board is, is well suited to keep that company going the right direction. But what scares me is what you talked about. The beginning that you're talking about the bridge, the device that links are all of our smart devices and I, you know, what scares me is that I I'm hoping they're spending a lot on research and development and I'm hoping that they're going to start to add some some younger cyber security Whipper Snappers because that's that is one thing that generally scares me not only as a sure holder but just as a normal person you know in the last few years they've spent a decent amount on our indeed between 12 and 17% of Revenue on R&D which Is a decent amount that what that's something you might expect from an engineering firm, but the bigger issue is, in the short term is a little bit different to me. Because the cybersecurity issue, I think you're dealing with over time, especially as Those sensors become more and more instrumental to link AI to the outside world, right? As when Elon Musk is talking about a fleet of robots that are like, living in all of our homes. The only way, those robots touch and feel and understand is largely using devices by an Analog Devices that produce touch, and feel and sound and even future devices like smell in and things like that into the AI brain. That other people are developing that said, this is a company. The biggest Gap that I noticed actually in the skills and in the share price. This is a company that mints money. They're earnings, are they routinely or hitting 40%? You know, operating margins. They have plenty of cash reflects in the board performance, right? 786 the board's hitting and earnings some of the super strong earnings. They actually pay really strong dividends as a dividend payer, which is very old school. You're not like dividends usually get superseded Now by BuyBacks. They offer some BuyBacks but some dividends but the stock is underperformed the S&P and almost every time period you can think of this is a narrative that we talked about over and over and over on our shows, which is that the market rewards crazy. They reward, you know, young Founders who who control 80% of the voting power and who say horrible things and do horrible things and grow up break next speeds. But they don't, unfortunately, support these companies that have been there doing it well forever. Like these are great, long-term Investments, and yet the market tends to ignore them, unfortunately. Analytes seemed to think it's an overvalued stock, despite the fact that they rank 87, that would be out of out of the US large caps out of 533 us, large cap companies, they ranked 87th, as a team for profitability generated that, that to me suggests, that they're actually doing a good job of what they should be doing manufacturing. Solid products, selling them at a profit. That's what does doing? Yeah, it doesn't surprise me that the egg head analysts from Princeton or angry at the MIT Engineers, as always been a battle there. But that's the Gap that the Gap here is actually the earnings TSR Gap, is suggests that all the engineering skill and all the sort of guard, raily Consulting, lawyerly Finance, bro. Skill what you're missing is sex appeal. This company has no sex appeal. It's great for a long-term investor who was looking for a company that was likely to throw off cash flow and build a solid. Product that will have continued use cases as we move into an AI future. I guess the question is, does any company need sex appeal? You're saying it, like it's a negative know I'm saying like the the you know while Nvidia is busy you know making a chip and trading at a 90 ex price to earnings and its CEO wears snazzy, leather jackets, and he wears leather jackets. He's they're selling a future that this company is not selling. This company is last earnings call. They talked about how they were really excited to work with Honeywell on, helping them decrease, the energy load of their one of their plants. I mean that that's nothing sexy about that. Matt you just describing to me why Biden is losing in the polls to Trump is the exact same reason. I was addicted to crazy and what but, you know, there's a level of sex appeal that you can add, just adding marketing skills, or sales skills to the board. And I'm not saying we already to your I can level, we're getting, we're getting there. Yeah. I'm not saying I can level, you know, marketing skills, like a whole logic last week where you flip the entire board, do short term marketing, make their stock bump, get out and then there we don't need that here. What you need is a little bit of it. You need to start talking about what The Narrative of this company is going into the future better than you currently are because the risks still exist. You have a board that is likely positioned for risks. Namely censor failure. If a sensor fails and it's an autonomous vehicle that that results in death just have that you need, like this is a company that currently has no controversies. According to msci research that hasn't in the last three years. They don't have big issues partially because the board is an excellent set of guard cells to these issues. Yeah. Except as these devices become a bigger part of our infrastructure, you know, You're right to point out that this is an important thing because there's you know this is going to become a more and more important topic as we go forward, right? Because we're only starting to see these smart devices, get a grip on, you know our population, but it's gonna keep growing. Yeah. I don't know what I just said there but we do know that the like if Analog Devices represents the sort of Gateway between the physical and the digital, that the failure of that Gateway. Could have implications I start to rely on AI, right? Come on to your recommendations. Come on. So look, here are my recommendations. My reckon stations on this board are pretty simple. The entire management team are. And I mean entire with the exception of three people are Engineers. Okay, so that's the opposite of Boeing the engine, the non-engineers are the chief counsel who's a lawyer, the CFO who they just added background and economy. Finance and the head of HR who has a master's degree in HR, right? Let me guess. Yeah, let me guess the two of those, I'm going to get the head of legal in the head of HR women. That is correct. Yes, the chief customer officer is also a woman, but she's also an engineer. So, you know, like we're even your salesperson is an engineer. And as we said, the board skills suggest that this is a lot of engineering, a lot of academic backgrounds. These are very, very smart accomplished people. Yeah. In Cambridge from an MIT graph two MIT grads. Yeah, go ahead this year. My recommendation, is you vote against no one? I actually think you vote for everybody on this board. I think, Champions gonna age out next year. Next year, you vote against Champions, you know, My Philosophy, I think every year you should focus on one director, not not even look. It doesn't even have to be someone's underperforming or you hate chip but just to Target one person just to make room for someone. New something new. Whether it's someone diverse. Whether it's a different skill, set, whatever it is. I'm okay with that. Yeah, I just think that would be Champion that what you want to do is engage with Analog Devices board. This year and asked them what their plan is to replace Champion next year, who they're targeting the kind of skills that they're looking for and then Ed Frank the following year? Because what you need, I think is some marketing strategy or design, or sales. You need a little bit of that sex appeal. You need to start to move the needle on the way people perceive you. Because if you're that Gateway between the physical and the digital, that's a super important. Super interesting thing, you can be here the eyes of every drone. You're the eyes of autonomous vehicles. That's important and interesting. Especially since they just signed a contract to work with BMW, on ethernet enabled cars, which is a whole other thing where they are creating the centralized brain inside of cars with BMW. So, and this is real stuff into your point on Ed Frank, and why you don't need an ad, Frank is that you already have a Susie? We both are IEEE fellows. You don't need to IE you don't, you don't really need it. Yeah, so My, my feeling this year is you voting against no one? This is all four vote on the board and then with the goal of engaging for 2025 and 2026, Champy's got to age out that is gonna age out on his own. Like I I don't know that you need to vote him out but he doesn't even show either and his way out of the board. Yeah. Ed Frank needs to be gone in 2026 and you need to, you know, and still some new blood around that Marketing sales stuff and sort of future Tech, okay? So, shockingly, Matt is saying vote for everybody and don't care about your investment at Analog Devices. But I'm not gonna lie. I did a year, just on companies, I did days of research and I would buy the stock moving on to say on pay, where I know where this is a bit of a head scratcher for you, Matt. So here's the story on Sam pay at Analog Devices in 2022. The company gave a just an unusually massive golden. Hello Equity package to Executive, Vice President, Gregory Bryant valued at 24 million dollars, which meant that that year, he made 10 million dollars more than the CEO made. So shareholders, I think were rightfully kind of pissed about that golden hello package, so they voted so roughly 20, something percent of them voted against say on pay in 2022. And what happened I think was that they engage with the board and the board basically said we don't care we didn't we're not going to really change anything, We're not gonna we're we just don't we're not really interested in your point of view. So I think what happened is that again in 2023, those same shareholders voted against Sam pace. So you saw that 2023 percent of shareholder voted against pay and looked at devices. Despite Matt all the positive things you're saying. And despite the fact that when we analyze their pay package, well Well, yes, it is outrageous relative to the world, they have, I mean, they have a 527 to one CEO, pay ratio it's horrible, but for its industry for the S&P 500 for America, it's actually the whole thing is relatively normal, so that's my takeaway from why there are still shareholders angry about pay at Analog Devices. And there's some interesting ways to cut this pay package that I didn't know about until we talked about in pre-production, which are, you know, like if you're looking at how much cash basically Roche brought home, he brings home, a lot of sort of immediate cash relative to his pay or or sort of invested options that are that that aren't linked to Performance, right? And the proxy advisors don't like that. But yeah, look at but when you look at Ross next to like hock tan at broadcom Who Made Who got a stock option package where 161 million dollars first year, which is absurd. They like it because it's linked to stock in a different way. Okay. Again, we don't have direct insight into this, but I still think that there's a lingering anger about the golden. Hello package in 2022. I think that's what I'm not. I I don't think it's about possible. I'm just saying that when I look at the data, it didn't strike me that the CEO was dramatically overpaid. Just go against this. Is what's frustrating always about pay is that he is she research field and rating is providers. They haven't figured out a way to articulate, what any of this means, right? The the the investors himself, who vote on this, they don't articulate very well, why they're voting yes here. No there. So and that the compensation discussion analysis sections are often 40 pages long. So it's difficult to understand the positives and the negatives. So Again you left with kind of a head scratcher like it that this is the problem with pay executive pay in America is very much what you're saying which is I don't get it right? That's all I will tell you what they do that. All companies are doing is that they secretly Increase base salary and Equity award grants every year the CEOs base salary just magically went from 1.1 million to 1.2 million this year and his Equity Grant magically went from 15 million to 20 million this year. But why we never know why it's just it just get their increases. So so anyway, my what is your takeaway about pay? Would you vote? Yes, or no. On Page look, I would vote. Yes for the time being just like Analog Devices. Well, if you're gonna vote for all the members of the pay committee, then you should vote for the pay. I mean, I I actually think to be consistent on the other end. If I'm gonna vote for the directors, I'm going to vote for the bear who are choosing it, so I'm fine to pay this year. So Matt so far saying nothing about Analog Devices. Let's wrap up on one shareholder proposal. That's from John asking for a simple majority vote. How about that one, when you support that? I mean, almost anything, John Chevette and says, I'm gonna vote for all right, I think that, I think he's always right. That's It, that's the proxy countdown for the week of March 4th 2024. Join us next week, we jump back into the alternative democracy pool Forever on the lookout for shareholder. Sharks floating Band-Aids and Wayward directors.