Transcript
This is proxy countdown. Welcome to the Big Show for the week of February 26th, 2024 alongside my tag team partner. Matt McCarty. I'm Damian Robles on today's countdown. A clue that Warren Buffett is finally stepping down at Berkshire. An ultra retires and gets promoted on the same day. A Norfolk Southern director, becomes a doctor and a safety expert overnight. Much Ado About Nothing much at the Apple vote, and on the big vote hologic, the Victorious, secret of medical devices, start on our trade wire after less than two years of boards service just seemed. So Hernandez is stepping down from the board at Ultra group in connection with his quote, unquote, retirement. That's the word that the company they used Hernandez will provide strategic advisory services to ultra for a period of five years and Ultra will pay him an annual consulting fee of 300,000 dollars. I've never seen that one. I would retire every day. Atmospheric scientist, Dr. Susan Avery is stepping down from the board at Exxon Mobil. Is anyone shocked by that? Good news for anybody? Okay, and here's the clue about Warren Buffett. Greg Abel is stepping down from the board at the Kraft. Heinz company. Does this mean that Warren is finally ready to pass the crown to Greg at Berkshire? It could be, it could be a clue that he needs more time. You're gonna say you were right, either way, so tapestry has found two random, dudes to help it sell products to women, Cisco CEO, Kevin Horicon and Bristol Myers squid, CFO David, Elkins United Airlines has appointed, Ross Brewer to its board. She was recently CEO at Walgreens after being CEO at Starbucks, and in a bit of foreshadowing. Let's end on Carl Icahn, just weeks after Carl, Icahn secured two seats, on the board of American Electric Power. American Electric Power. Excuse me. He promptly fired, CEO, Julie's slope. 10 year, lasted less than 14 months, she will be replaced on an intern basis. By Benjamin Falk, the third. He's a former CEO, chair of Xcel Energy. He's already on the board of American Electric. And he will receive a golden Halo package worth roughly 8 million dollars. And if he still in that intern board seat on August 26th, he gets another 1 million dollars. That's what's going on at a Carl Icahn controlled company. Again, that's four shadowing to our poor on. Jolla logic. Okay keep that in mind. I got it. Let's move on. Let's move on to the proxy. Cage matches were a Disney stays hot. Black little black walls. This week, Blackwell's wants AI. It's relentlessly attacking Nelson Peltz. And it's posting a bunch of AI generated photos and memes. This is over 125 filings this year alone just from this proxy war. Moving over to Norfolk. Southern, this is a good one Norfolk Southern versus Ankara where Ankara wants to replace the CEO c o o and basically the entire board. Okay, this week Norfolk released a preliminary proxy statement where highlighted safety improvements one of the ways. I highlighted this is by reporting that it has quote Increased safety. Committee meeting Cadence to enhance oversight of Key Safety initiatives. That just sorry for the laughter more. Was that met a couple more times but here's what's most noteworthy. It Norfolk Southern is reporting and updated. It's a self-reported skills. Matrix. It's updated from last year, most notably the skill called environmental and safety. From 2023 has been renamed to safety. So, before it was a thorough understanding of safety environmental issues and now, It is a deep understanding of safety process, including the transportation of industrial space or board or executive responsibility for oversight of safety metrc compliance. Okay, so here's the incredible part. The new safety committee. Chair is a man named Chris Jones, Matt. He did not have a check mark next to his name for the environmental and safety skill in 2023. But now he suddenly has a check mark next to his name for safety in 2024, and it gets worse. While his bio includes no mention of the word safety in 2023 and it referred to him as Mr. Jones Flash Forward to today, in 2024, his bio now, suddenly refers to him as Dr. Jones seven times they call him Dr. Jones with no reference to his educational background. Nothing. We don't know why he's a doctor and Matt, it mentions the word safety in his bio 15 times and including eight times in the first three sentences, which is basically 2.7 safeties percent in. So, this is just an incredible turnaround for, for, I don't know what I call Dr. Jones. I don't never seen anything like this. No, I don't know how to feel. I was watching that the skills Matrix in and of itself, because on the show, we've talked about skills matrices in the past, whether these are just gaslights, right? Like, we just or fraud, this could be fraud. I mean, it feels like frog to me, but like at best, it's a Gaslight at At worst, it's fraud, but Norfolk Southern is the Gregory Anton of gaslighting. This is a master class in rearranging, the chairs on train 32n. That derailed in Ohio, this is really unbelievable levels of Make-Believe and fiction with no explanation and they don't have to and yet and Cora is got a slate up because of this. I mean, it has to be largely because this is just a joke. You know, I thought that the new check mark in the school's metrics was enough. I mean, I thought, you know, that kind of that. But when I saw the amount of the amount of times that you use the word safety and the fact that a mister became a doctor, I was next level. Moving over to our vote results table. The vote is in at Apple. Shareholders are happy. I suppose all directors received the support of at least 94% of the vote. Yeah. Except that was a Swear right? Director votes are basically now, stay on TSR because Apple we covered up on the show. We talked about the future of Apple is going to be Ai and and augmented reality and not a single board. Member is capable of sort of Designing guardrails around that. But TSR Trump's everything. Yesterday's TSR basically, Trump's the future of the company based on these votes. I'm moving over to say on pay. It Apple. Shareholders are slightly more disgruntled, 8% said, no, but that's not really that notable. And finally regarding shareholder proposals, there were three anti-wolf proposals at Apple. This year, all three failed miserably to know one surprise all under 2%. So let's move over to the two Schiller proposals. Actually did well, our June is capital Arjuna capitals, proposal asking for a report on racial and gender pay gaps, receive the support of 31% of Voters in an AFL CEO. CIO proposal asking for a report on the use of AI receive the support of 36% of Voters. So when we adjust the vote to eliminate, the management friendly shares of Vanguard, BlackRock and Warren Buffett. The data actually shows that 48% of Apple voters supported Arjuna capitals, proposal and 56% are clear, majority voted to approve a report on the use of AI. It's the confusing hypocrisy of 50%, 56 percent of non-black non-war buffet investors are worried about AI. None of those investors think to replace board members with board members who skills include managing AI, responsibly that doesn't make any sense. Actually the suggestion is that investors have no way to evaluate the skills and Talent on these boards. And dare you, they can evaluate the proposals and this show. Yeah, this shows the only way higher us as consultants, use our data, listen to our shows. And lastly, at Raymond, James Financial, while all directors were re-elected with ease, 17% of the vote said, no, on Sam Peg again to your appointment. They they do find some areas to get upset. About, but they never very rarely do they target that? I just proxy advisors that everyone's using. If you're using ISS and glass lowest, they're not evaluating directors. Except in special situations, or by sort of wrote algae, obvious situation. I mean, the only there's no other way to just to, to explain why you'd have votes against pay. But not against the directors, who set pay or votes four report on AI, but not votes for directors, or board refreshment with directors, who have ai experience, it makes no sense. Let's move over to the big vote. The big both this week is hologic. The Massachusetts based medical devices company for medical services for women. The vote is coming up on March, 7th 2024, a few General observations. This is very much a company controlled by its CEO and chair. Stephen McMillan, Stephen McMillan came in to the company because of Carla icon. Carl Icahn acquired 13% of her logic shares and in 2013, I believe and he found he added two directors and he added Stephen McMillan, which was no worthy at the time because Stephen McMillan had just been fired at Stryker another company in the medical field. He originally resigned for family reasons but then it turned out that he was basically let go because he had a relationship with with Jennifer cock. Who worked as a flight attendant on Striker's, corporate jet Fleet, and which interesting here, Matt, is that it was actually we talk about influence all the time. We talk about these family connections and connections. It was actually, it was reported by The Wall Street Journal. I believe it was actually the granddaughter of the company's founder, Rhonda Striker, who was the biggest individual shareholder of the time, who was most upset that the CEO was having an affair with an employee? Also, I will, at the time, Steven McMillan's, wife, Amy McMillan was a director at a catering company that made 500,000 dollars and services from Striker at the same. So all this was going on at Stryker, which is part of the reason why he was let go. So it's going to be no surprise that what's happening at hologic, knowing who Carl Icahn to run the company. The main takeaways I have here is that first of all, This is we always look at the performance of these companies. According to army tricks, this is a logic actually performs quite well overall hitting 731. But I will say this is the first company that I've seen and of all the companies that we've covered were one director. Underperforms in every category and that's Amy, Wendell she is the outlier in performance, in every single category that we cover and the other takeaway before I hand it over to you, Matt, to give us your assessment of the board is that this is a just a heavily connected and intertwined for it's just it overlaps in so many ways. Starting with CEO, Stephen McMillan, he spent 11 years at Johnson & Johnson with another director ludvig handsome. He's connected to two Executives through Striker. He's connected to another director Charles dockendorf through Boston Scientific, the lead independent directors been there for two decades and her stepson works at the company and Amy Wendell who I just mentioned, who is an underperformer, she's connected to everybody. She's connected to general counsel, John Griffin because they sit together on this. Board called poor Cristo. She's connected to Charles dockendorf through Covidien and Taiko. And she's also connected to Ludwig Hansen through Baxter. She's also connected to the chair of the pay committee. Scott, Gareth, you're back, sir, blah, blah, blah, blah. I know I'm drowning on but this board is just heavily intertwined. I think that's happened. The story, I'm gonna back up slightly and just give some like stats on the company itself. So the business model for for a whole logic is it's a women's health device company, they do breast cancer mammogram devices, Gynecology skeletal body composition, or skeletal density, body composition. And their biggest most recent sort of release was a was a implant called biozorb which you actually implant into a breast and Mark a place where you have to remove tissue later. They, they've actually in their R&D spending over the last three years from 4.9% in of Revenue and 202. To 7.3 and 2023. Their major competitors are all these other health device companies, you know, we covered back in here, but backed in intuitive surgery, their stock, one of the biggest stories. I think, if you're an investor, if you're just looking at these kind of numbers their stock is underperformed. Year-to-date, their actually over the last year today. One year, two year. And five year they're underperforming the SB 500 sometimes by substantial amounts and the last year they lost 4.6% where S&P was up 31%. So there are there's a clear case here for underperformance. So you already are probably upset at this company and maybe at its board analysts seem to think they're a bit mixed. Third of them. Say it's a buy, our strong, buy a third say, it's just a Buy in 26%. Say hold, they all agree, it's over value. It's an overvalued stock. Does that much saying it's a buy suggest that the price is under its under prices? I mean, right now, they're saying it's overvalued because it's a, it's trading at a 35 p. E, I will say this. Yeah, before you move on is that this is clearly another instance where Carl Icahn was coming in, for short term gain, he got 13% of shares, he put in a CEO Here in focused him purely on, not only reforming the company, but to focus purely on sales in the short term and in fact, his pay metrics reflected that. Carl Icahn, the stock price went up and Carl Icahn completely, abandon the company. So it's no surprise that the company that the stock has basically been flat since then because when Carl Icahn takes over these companies, he's really in it for himself or for I guess people who are in it for short-term kind of Casino things, right? Well there's more to that story the afternoon but let's go back to the icamp piece and then we'll kind of hit more of the stats. This is actually a case, studying, how Carl I can actually destroy the company. This is if you want to know how activists don't work then, read the history of hologic. In 2012, as you mentioned, McMillan, is forced out of the CEO or CEO role at Stryker in the interim before. He joins whole logic. He actually joins the startup that basically makes bug. Prey. And that startup is shut down by the EPA. Now, it's worth mentioning here that MacMillan has no medical background. He is an econ, major and MBA. He's a sales background, he's a sales guy, he's a Salesman, he's a sales guy. He does it very, very well. Okay, and it gets fired for a listed Affairs. So so this isn't somebody who's creating stuff, this is somebody who's selling stuff and he's not bad at that job, but I can't take this stake in a whole logic in 2013 at the end of 2013 and instills, two people from, I can't enter. This is on the board, the CEO. And basically asks for the entire executive team to be recycled, and so over the next year to two years that executive team turns over. And in the First full year, a post I can revenue is up, like they are increasing their sales. They, they actually replace all of these Executives. The executive team was about 50% Medical Goal. Bioengineering electrical engineering replaced almost entirely with sales almost entirely with sales as you would if you're incentivizing your Executives to get their bonuses from sales and and if you want a short-term shock stock price gain, right? So you can get rid of your shares, I mean, that's, that's what you would do, right? Which is what exactly what happens. We see that the largest markup, the largest expense increase is in sales and marketing, which has a 9% increase over the time, I can owns it where everything else is relatively flat or steady and I can't exits in 2016 March of 2016. He says, quote hologic is the quintessential example of activism at its best. We commenced even Milan for a job. Well done, he says that because it was 100.5% return versus the s&p's 19.7% return. I can got his money. There Is No Death, yeah. Should have told other shareholders to sell too on that day. Well, not only did I can't get his money, but McMillan got his money in his last three years at Stryker McMillan's, total reported a crew to reported income was 19.1 million million in his ican years. A whole logic, his reported income was 46.6 million more than double. And this is a man who was fired from his job for having effectively an affair and pissing off, not only the board but the founders granddaughter at the company where he was. Yeah, you know, part of the reporting mother Wall Street Journal is not not just the affair that led to him being fired but but his communication with the board was it was to put it lightly, put it nicely. I should say was inconsistent, meaning that he was bullshiting, pretty regularly with the boards. So, you know this, this is not just the affair that let him go. I mean, basically, he had a bad relationship with board members, he lied. So, you know, so here's what I can did. He came in? he turns over the board, he turns over the executive team and he replaces, What was a Medical device company with people from all backgrounds for women. In fact, before I can joined the named executive officers were a PhD, a PhD and electrical engineer electrical engineer, and an MBA, okay? Makes sense. Yeah. And after he leaves, he exits, it was a PhD and five Marketing Executives, five marketing MBA or lawyers, right? Like the whole team is all costs but the, which is great for, again, great for short term. Exactly cost of that this is still to this day. The reason why this is pertinent a marketing at all costs team. In fact the current NEOS there are more College before year college football players. There's three of them then people with marketing background and people with marketing backgrounds and phds there's only one named executive officer with the PHD and it's a woman and she was acquired, she wasn't hired and promoted. From within, she was part of an acquisition, and that's how she got her position. In fact, the most egregious of these on the executive team and we're not even talking about the board to me, is Eric Anderson who played four years at Iowa State football that he put that in his bio. While quote, unquote, getting a marketing degree because Iowa state is a massive program. If you are a football fan, yeah, this heading a marketing degree. There is no degree getting it. These colleges right? Like you barely have time to do anything except play football. He started at a whole logic in 2014 as a regional salesman and is now division president for breast and skeletal Health. Yeah, because you know, how he, how he got to hologic. He knew CEO, Stephen McMillan from Striker, that's correct. He started his career, right? Like, at Stryker. And this is where the whole thing falls apart, when you put your team together this way. You don't have Innovation anymore. These aren't people who are designed like with the customer in mind, they are designed to sell and sell anything. It doesn't matter. What that thing is. In fact McMillan's, latest strategy since I can laugh, he's done two major things, two major pushes, it was launched the Women's Health index and sponsor, the women's tennis Association, like the marketing strategy. Put my name, like a whole logic name on stuff of like, design for women and he did this second thing which is to buy a company called sinosure. The company Sino share focuses on Medical Aesthetics. They basically took a company in whole logic that made medical devices to help women going through, and their health needs. Basic Women's Health, like mammograms, skeletal bone density for osteoporosis, and he tried to Pivot it to micro needling, facial dermatitis, and something called vaginal rejuvenation in, which cosmetic type of surgery in which you are doing procedures to quote, on quote, and I'm not making this up, tighten the vagina and makes sexual pleasure better. Now, I'm not saying those aren't Women's Health needs, but doesn't that sound exactly? Like a man's version of what a woman's health need is versus finding breast cancer early, or developing new devices to track women's health issues. That could be pertinent. Over the long term across multiple people. When you consider that, it's a company that we're less than 40% of total employees are women, where, where there's very little female influence on the board and we're only three of 12 management are women, including and I never seen this before, one of the, actually the women listed as management at this company. And again, there aren't many is a woman named Monica Aguirre who is called the chief of staff and I looked it up, really. She's she's the, she's the chief executive assistant executive assistant, she's the assistant to the CEO. And I don't, and I've never seen this before, but but I mean, there are, there is a scarcity of women. Well, if you comfortable scarce, you are dipping into the executive assistant pool and calling them named executive officers, or leadership on your website. That means you don't have any women in leadership know how that looks. So, in 2017 McMillan, and the board pays 1.65 billion for sinosure to Pivot into sort of In a what a male view of female Aesthetics. And I'm not again, I'm not saying that these aren't procedures that people should or could have done. But I'm saying, you, you're pivoting. The company with this purchase 1.65 billion is not nothing, in 2018, cynosure actually. The one of their products is cited by the FDA as a risk McMillan in that year, pays himself 42 million dollars, the most, in any single year that he ever gets paid. The pay committee that year is Crawford and Hansen, all of whom are still on the board and no one who stepping down this year. The whole pay committee is exactly the same for the most part by 2019 because of the FDA saving them as a risk because they can't synergize these two companies. McMillan and the Board sell cynosure for 205 million dollars. He lost 1.4 billion dollars in two years trying the pivot the company into something it had no business doing because there was no innovation at the company they have no Engineers know, phds know doctors they don't have women at the company for Christ sake. They don't have anything. Yeah, so this is the background of a company where 52% of the board members are connected to one another just through other boards. Forget non-profits, it's nearly 100% when you consider non-profits and other things, there are middle of the CEO is effectively a monarch, their 100% of the influence is CEOs and and connected individuals. And the they have no other similarities except that they love paying their CEOs and they all know him. Yeah, I was gonna say, I mean, let's not forget the background here. Carl Icahn essentially takes over the company and, and put in his people starting with Stephen, McMillan and was given the mandate to remake the company in your image basically. So it's no surprise. That this is what whole logic turned into. So that gets us to board recommendations. Let's talk about what to do. Let's do it, because I think all you're looking to do here, there's two approaches, you need to d, i can this company, which I can left in 2016. It's still the exact company, he left the culture. Eight years later, never changed to a company that builds medical devices. It stayed a company that does marketing and sales led by a man whose only vision is to sell more stuff. Whatever it happens to be to women, this honestly is a 100%, a target for a potential activist because it's clear that there's potential. Maybe a stakeholder activist, maybe we don't need any more shareholder activists if that activist was focused on uni, canning this this culture and Refocusing on the science of women's health. That's where the value is, right? Because the over the long term, absolutely. This board does not actually have any history with Women's Health. There is not a single person who comes from Women's Health on this board. You're talking about econ, major with non-profit, backgrounds applied, econ, literature you have a gym teacher Hansen was a gym teacher before he joined this board, which is, yes, he's had a career working in, you know, medical field, but is background and he got a certificate in being a gym teacher. And this is a S&P 500 companies, this is a massive company. In fact, I'll say that the last two directors nominated this board were two women. Both nominated in 2023 at one is a managing director at a executive Search and Leadership forum. And the other is a CEO of Mothers Against Drunk Driving, and sits on the board of Penny, Mac mortgage. So, to your point, I don't Know where they're finding these people, but they have nothing to do with medical devices made for women. So, I think there's two approaches to consider that a board. Like this one is a full activist aggressive approach and that approach you would vote. Basically everyone off this board, except for the two new directors, Stewart, and Mahatma or Chamois. There are two newer directors, both women on the board, both people of color who just joined, regardless of their sort of affiliation. They might have with McMillan if you wanted to go full activists. This is a board that you you'd step in and you'd say, this whole board should need to be replaced, because you need to replace the executive management team you need McMillan. The goal here is McMillan, shouldn't be there. And you shouldn't have the heads of every single division. None of them have any degree. They're not doctors, they don't know, devices, they're not Engineers. All of them are marketing execs who played in the Like college football or in the NFL that is an absurdity on its face. The second approach is a phased approach because I think this board, it's hard to go out and vote against an entire board. If you're an investor and you don't want to take an activist stake, but you can vote out at a bare minimum in year. One Crawford, it's dimolas who are the two longest tenured directors, Crawford's been on this board. She's the lead independent and I'm using air quotes here, directors, how can you be independent on a board that you've set on for 17 years? Not to mention that the company, as I mentioned, the story employees her stepson. Yes, this is not an independent director on it, like you, this is an easy vote against because that's not Independence and stimulus has been there since 2013, right? So, we're talking about 11 years for stimulus, these are two longest. Tenure directors. They were intimately involved in the I can take over of this board. They oversaw The, the changing culture, they oversaw the sinosure purchased and failure. If there's anybody, you're going to hold account on the wall, on the board for. Now, what is a long track record track record of mediocrity? Then you can start there in year two, you want to vote out, Wendell and Garrett, who are the next longest tenure directors, and all some of the most connected and then in year, three Dock and dwarf enhancing, what about remainder of the McMillan? What about voting McMillan out? Voting McMillan out, seems like she want the board you want. I want to come in and replace them, they need to replace him, right? Yeah. Okay. In fact and then there's a set of replacement skills. You should have which is focused on MD's, phds for at least two of the directors. You need engineering and consider a government or military use for this because his tremendous potential military contracts in vet hospitals that can use this. But there's no one on this board. Who's even close to that? Okay, let's move on to the sambo. Hello, Jake to your point earlier, where we often see a lot of shareholder discontentment is not for some reason, not targeted at directors, probably because they don't have, they don't understand or want to, or know how to evaluate director performance. But so, sometimes you see that negative energy directed at Sam pay. And that's what's happening here. Hello Logic. The last three years, there's been at least 21% of the vote against Say on pay, it has to be 100% against. I mean, it's in the vote isn't even for 2023 pay at this point. Because if you're voting on a one-year basis, you don't have a view of this company and the people on it. The MacMillan has assembled one of the worst executive teams by skills and needs. They've made horrible Acquisitions. And he's paid himself generously as part of that. In fact, the pay committee is consistently people who he knows who he's worked with for decades consistent. Let me And let me tell you what happened, when this is the case, because my cursory analysis of pay at whole logic shows. Each and every year, arbitrary raises for all NEOS salaries. Just go up every year targets, long-term Equity, grants, go up. And again, it's all arbitrary. But you're in and Euro. They just get raises for showing up. Anything else on the logic or you want to wrap up this show? I mean, I I think this is one of, honestly, the dive that we did on this company was felt and this is, this is not analytical, but it felt like one of the grosser companies. Like, if you wanted an example of how activism basically focuses on the short term, but trumpets itself is the long term, how you can change a culture, very, very quickly at a company. And it results in the, their newest product bios orb is being investigated by the FDA, right? Like the, they haven't innovated it all and they're out there talking about themselves in the most positive way about being focused on women's health. To me, the mismatch in reality and the conversation. It one of the most egregious I've seen at any company. So I think you vote again, my instinct is you vote against everything whether you phase it Just say no, just say, no to a whole logic. That's the proxy content for the week of February 26th 2024. Join us next week, when we jump back into the alternative democracy pool. Forever on the lookout for shareholders, sharks floating Band-Aids and Wayward directors.