Transcript
This is proxy countdown. Welcome to the Big Show for the week of February. 19th 2024 alongside my tag team partner, Matt mascardi. I'm Damien rawlas on today's countdown. Two new. Playthings for Mark Zuckerberg on The Meta board. The Southeast Asian CEO Revolution continues at PTC. The ongoing meme proxy battle at Disney. Finally, some shareholder anger at Norfolk, Southern and on the big boat, a deep dive at Qualcomm that company that you sort of know who they are and kind of know what they saw. Let's go to our trade wire. Matt Mark Zuckerberg has added two new directors to the board at meta. Platforms, John Arnold and hock tan. Both will serve on the audit and risk oversight committee. Hock tan is the long-time CEO at Semiconductor Company broadcom. Hawk is accustomed to serving with dictators as the broadcom boards is controlled by the 69% influence of its chair and co-founder Henry samueli. John Arnold is a hedge fund Guy having become the youngest billionaire in the us at the time in 2007 at the age of 33 sounds like Mark. before starting his first hedge fund, he was known as the king of natural gas for his prolific work at Enron, Where he specialized in trading of natural gas derivatives, he received the largest bonus in Enron History. 8 million dollars just prior to enron's Infamous collapse. His current Foundation. Arnold Ventures. LLC has come under heavy scrutiny recently for issuing. A grant to the Baltimore Police Department to trial aerial surveyance, hardware, and for creating a dystopian Public Safety assessment which gave recently arrested, individuals escort to determine their Flight Risk and potential bail among other controversies in the end map. Medicaid proudly announced that a former successful day trader at Enron Who heavily profited? As the company was collapsing, is sitting on its audit and risk oversight committee, you know. Nothing sells confidence. Like having come from Enron unbelievable sitting on the audit committee. John R really is a copy an image in the made in the image of Mark Zuckerberg. In fact, John Arnold has several articles out defending Mark, Zuckerberg's philanthropic, giving Style, Which is always was always bodes well for his independence in managing hypothetically Mark Zuckerberg as his because you're hiring firing CEO and that board right? Yes. The Southeast Asian CEO Revolution continues this time at PTC where Neil barua succeeds James heppelmann, as the new CEO at the computer software and service is company. Appleman is not sticking around. However, as the boy he's not even saying as the board chair and is taking his 34% of board boardroom influence with him. So it's really is Neil beruas company over there at PTC. And lastly, Two large cap, companies announced CEO transitions Padre, McDonald will succeed, Michael macmullin, a CEO of Agilent Technologies in May and Robert, Michael will succeed. Richard Gonzalez at AbbVie in July. So, from a to a mick, And from a Rob, to a rick Matt, this is the nature of Fortune. 500 companies in America. At least they're not all named John. That would have been even better. Let's get to our proxy cage matches. The barrage of proxy contest. Filings keeps coming at Disney of know. Black black Wells has filed headshots of its three nominees, featuring a scowling, Craig hatkoff. The filing says this of Craig, quote, you couldn't sketch a better Disney leader in a writers room. Mmm. They also took a shot at Nelson. Peltz Nelson, Peltz of Tryon fund also battling Disney, and approxi contest saying that quote begging for board seats, is not a strategy and they accompany that with a very strange picture. Looks like it was made by AI of an old man on one knee praying to a mouse in a pinstripe suit and that Mouse is not Mickey Mouse, it's just a mouse and a pinstripe suit. The hashtags for Blackwell's campaign are hash our hashtag the future of Disney and Disney deserves the best. I looked at the filing history, since January 1st of 2023. When effectively, we started this round of activism, there have been over 90 proxy, five liberal per day, 90, because every time they tweet something, Disney actually has to capture the tweet and put it in a filing and it's all there. And it really makes it look like, boys arguing with one another at a playground. Speaking of which try and fund has filed, a large photo of disgruntled nominee. Jay rasulo, the former CFO, a Disney mind. You see a photo is quoted as saying that something's broken in the creation of creative content. That's a quote. And I got to read. I'm sorry I got to read this whole quote because it's just really encapsulates. The folks in this of this campaign, the other thing that Jay Bruce Willis said, is I think from the very start back in the 30s. When Walt created, the first feature animated film, it started the Disney flywheel. In fact, while invented, the Disney flywheel that you could take something that please people in a movie theater, make it into consumer products. Ultimately put it into Disneyland as rides. And attractions, animation is so key to the Walt Disney Company. So key to the success in the running of the flywheel that to imagine that the Walt Disney Company has lost its iconic status and animation. Today is almost unbelievable. And personally, it really affects me because this is how we created success. When I was at the company. That's all. It's it's not the most elegant quote I've ever heard it's worth saying though that rasulo got his ba in econ and then when on to get his Master's in econ and then worked at Chase Bank and Marriott and their financial department. So I'm not sure that he's a writer or a creative process kind of person. So, I don't know what the bar here is. I think that this is about the level that we can expect from Jay, Versace sulo, right? It's trying also announced that it is asking voters to specifically vote out two Disney directors. Maria Elena Lago miseno, and Michael Froman. I think that's the first time that they've actually targeted. The directors of Disney moving on according to several reports has been a banner week for billionaire. Investor Carl Icahn Carl. Not only managed to procure two board seats at JetBlue. And two board seats in American Electric Power. But he also celebrated his 88th birthday, Ark house management has launched a proxy fight at department store, Macy's nominating nine directors, to the company's board. Macy's had previously rejected an unsolicited bid from Ark. House to take the retailer private for 21 dollars per share. And lastly, A group of investors led by Anne Cura Holdings. Said, it had proposed replacing Norfolk Southern's top management, including its CEO, and CEO, and nominated eight directors, to the railroad operators board. The investor Group which holds a large Equity stake in the company aims to replace CEO Alan Shaw with former upsc 00, Jim Barber. And to replace coo. Paul Duncan with Jamie Boychuk Boychuk, previously, departed, rail companies, CSX, for quote, for reasons, unexplained and quote, after serving as Executive Vice President operations, for only six years, and according to his LinkedIn profile, has been retired self-employed since August 2023, that retired self-employed. I'm pretty sure was incora probably reached out to him said we want to nominate you for a board seat. You need to retire or be self-employed for that to happen. That's my guess. That's not for board seat. That's for CEO at, sorry CEO. That's yeah. Moving over to our vote results table all directors received between 11 and 18% vote against the re-election at Central Garden and Pet company. Hi under normal circumstances. But 82% of voting power at the company is held by company. Founder, William Brown and institutional voters. Meaning that basically every other shareholder voted to remove the board. At Ingles Market, both class a director's were rejected, that's Ernest Ferguson and John load and voted out. Class. B director is, however, were re-elected because Class, B. Voting power is dominated by company founder Robert English, And at large cap companies. PTC was notable because While most resolutions pass with ease, it was actually the vote to confirm auditor price Waterhouse Coopers that received the most pushback just over 10% of vote said no. To PWC. We rarely see this matte a pushback against the auditor. I mean, it's there are some cases in which, when the Auditors been the auditor for like, a hundred years, you would expect to see some pushback. But it doesn't happen that often know. And finally, at Fair Isaac say, on pay nearly fails as 42% of Voters said, no, however, BlackRock Vanguard and insiders control 25% of the vote. So again, it looks like Sam pay basically fail that bear, Isaac at issue, CEO. William Lansing received a special performance base retention and Leadership continuity award valued at nearly 37 million dollars. On top of his normal Equity value at another 28 million dollars. Not to mention a 25,000 dollar spousal travel perk. Um, I, when do I get a special performance-based retention leadership? Continuity award. I want that you don't. Let's move over to the big vote today. Matt, our focus is on Qualcomm. They're meeting is coming up. Beginning of March, I believe, March 5th, you know. This, I don't have a lot to say about Qualcomm. I'm looking forward to your analysis on this vote. I mean, this is a, this is a pretty average large cap company as I go. Ownership is, you know, Vanguard controls 10% of shares. Black Rock, controls 8%. Overall, the board is very average, they're hitting 462, according to our metrics, the only thing that was striking to me and looking at this board was that they have of course, have their skills Matrix, but at a company like Qualcomm Uh, one of the most important skills I would think is information security. And actually, this is a underrepresented skill set on this board. Only four directors, have skills and information security, the only other category with so few directors was climate and environmental skill set, but surprising nobody. Yeah. When you're talking about skills, you there's skills and then there's I've worked at a place where that thing is doing something totally. Different is their assessment of skills, right? So here's what I did. Go ahead get right into it. I think you're opening. You describe Qualcomm a company, you sort of know, but you and you kind of know what they say. Don't really care in my head, I think they, I think they sell chips, not potato chips, but maybe computer chips. And I think because of my sports knowledge, I think they're in California because I think they named us maybe a football stadium after themselves. I do. They are in San Diego. That is correct. And you're You're right about both the potato chips and the computer chip. Okay good. Now, their major competitors. Here are Intel broadcom in video, sort of an adjacent competitor. They do all mobile iot chips, basically like your dishwasher, your car, your phone. Anything that has a Bluetooth chip in it or a Wi-Fi chip in it. Those are all Qualcomm chips for the most part. They're fabulous chips. Meaning they're not fabricated. Using water, they're they don't need. They need a different inputs to build. What the story of Qualcomm basically is they are boring the year today is they're up 6% versus 4% for the S&P. They're barely beating it to on the back of nvidia's news of earnings in the past week. They Nvidia is up 15% and everybody's on the AI. Boom Qualcomm. Meanwhile up, one and a half for 2%, right? Like this is not a company. That is writing the chip wave of the the AI wave. In fact analysts are considering Qualcomm overvalued as a consensus View at a 21 price earnings which is like average price to earnings which means everyone thinks that this is a boring commodity play. Let's talk about boring because let's talk about the board then. Yeah. So is the board does the board reflect that the board, totally reflects that it's an aristocratic board. 92% of the influence on the board is from CEOs or exceed, just a bunch of CEOs, 50% of the Border connected. So it's a bunch of CEOs who know each other sit on a board together. They're all as you said middle of the pack performers, there's no one with any particular influence, you know, consolidation. They're even politically similar, they have community board similarities. This is the one of the more boring boards. In fact, I would say that their, their conservative, in terms of, they take less debt, they pay less in dividends. They do give average pay to their CEO, average pay to their employees. They are, they're no Superstars. There's no rookies. They didn't even change from last year. This is the most the top performer about 600 overall. That's like As average as you can get and the market could care less about them. Almost all all these directors wherever they go are Old Guard Tech or totally unrelated, which is what I want to get into because I mean, I think this this board the future bet thesis on this board like the why you would buy Qualcomm and think you're going to make some money on the stock. You have to be asking yourself, is this a commodity company where they just make mobile chips? That get slightly more energy efficient and maybe go faster and margins are always low. You're pumping out as many chips as you can. Or is this like a baby AI a mobile AI chipmaker where AI is going to get increasingly powered on phones? Like you're going to be walking around with a personal assistant on your phone or wearing your Vision Pro when processing tremendous amounts of information in very tiny chips that you need that Energy Efficiency, are they part of a mobile AI Revolution is that's like the central question to me. Yeah it's funny. You say that because you know it might take away is looking at the board and everything you're saying Uh, my sense is that, who are these people like, like, how was this board position for the? I one thing that stood out to me, Matt and my notes is, at 25% of the board, which is not insignificant are basically, from come from the military, they have ties in the military and then you have, you know, random people like the CEO from Sony Pictures, the CEO of Mandalay you have someone from Cardinal Health from Ford. Like, who are the someone's, this former CEO a Girl Scouts of America. I mean, why, why them why Qualcomm, how are they, how is this board position to help them in the future? Well, here's the, here's what I did for this board in particular because I wanted to know like his his Qualcomm. So the board's role is to basically be guard rails on growth for the most part, right? Except that some companies you will use the board as strategic for growth rather than just guard rails on growth this. Board seems to offer neither thing. So I compared it to other boards nvidia's board. Six of the 14 board members at Nvidia are venture capital or have Venture Capital backgrounds, six two of the 14th Labs Engineers. They're like you know like these are super smart like a future of the world academics and then you've got another couple marketers, couple Tech a lawyer, a healthcare device. But this is a growth Focus board at Nvidia. They're basically looking at like venture capital and academics and Engineers, right? Intel to venture capitalists two academics. Three medical devices that's more growth-oriented. Yeah even broadcom, you have two venture capital or activist investors who are pushing for growth This board has not only know, one really in Venture Capital at all. And I was gonna say from my notes. I don't think, I don't remember seeing any academics. There are no academic, whereas somebody who's working in a jet propulsion laboratory. Currently, like where somebody from MIT who's like working on the future of mobile AI. Right? Like where are those people on this board? This company should want them. Yeah, you know, we talked about all the time, this this hidden nature of boards representing their regions, right? We talked a lot of Midwestern boards. This way in Chicago area that definitely represent the Chicago business community in many ways this board does the same thing, it's it's not in Silicon Valley, it's in San Diego, San Diego, is representation reputation, is basically what you described at the beginning map, which is boring, kind of conservative and a very strong military presence. Yes, which does it, which, which, I guess should not surprise you. When you see the 25% of the board comes from the military. It's, it's very strange. It's a very, it's a board that's apropos for San Diego, but maybe nothing else well and and that's what gets into the people themselves, right? Like, there are people on here that made sense 10 or 15 years ago like and livermore's on this board. She's the longest tenured executive and one of the most connected people in Silicon Valley and terms of boards she's been on. She's one of the most bored people in our database and she's been at HP forever but 10 or 15 years ago, HP was relevant, right? It's not, it's not in this AI game, it's not in a chip game. It's a totally sort of different business model. Then you've got people like Mark Fields, who was the CEO at Ford motor and the interim CEO. It hurts rent a car. Like, how does that person end up on the board? Except that I know Paul complex. Tips and cars. So, maybe the thinking is, you know what, add somebody who's got some sellers, that they've sold or, you know, yeah, the car market. But but you also have Greg Johnson who's background includes marketing at Advanced Auto Parts. Best Buy Gillette. Kodak SC Johnson. Kraft Foods you've got Irene. Rosenfeld from Mandalay you mentioned mandelay her. Entire background is in snack foods, a general Foods. Kraft Foods and Mondale. Yeah, well why she actually got I've never seen this before. She got a bachelor's in psychology a master's in business and a PhD in marketing, a PhD in marketing. Why is she on this? Like, what a company that marketing? I run a sorry here. Yeah, I was gonna say I run, I got a company that we always kind of forget what they do, you have no idea what they do. In fact, when you go through the skills to the backgrounds of All of these directors about half of them came from marketing marketing and or Finance adjacent. Kind of roles which means they're almost no Engineers, except for the CEO on this board. And one director, a Sylvia Acevedo, who was at NASA's jet propulsion lab, but now is the CEO of the Girl Scouts, right? Like, so you've got one person who was an engineer and then the CEO. So at least you have two Engineers, although one of them is the company, right? So that, that means, when he shows up, when Cristiano shows up, and he's talking to, you know, the board, Is he only talking to the one other engineer in the room? Is that the way that works? This is a very strange board except that, it's old Tech, mostly finance and marketing. And no one who's thinking about the future outside of, maybe the CEO himself. They're highly interconnected people with no sort of future and they don't even compare to their immediate competitors. Like there's not a comparison. Yeah, I'll let me add one other thing. What's odd to is that it's not like this board was created in, you know the late 90s and early 2000s. The the shortest tenure that I'm seeing a quick glance. I'm saying the law, I'm sorry, the longest tenure I'm seeing Quick Glance is from 2015. Yeah. Right. So which is unusual in itself for an American company of this size. So they actually have had the opportunity. They've refreshed this board quite considerably, they have had the opportunity to bring in kind of a More modern day version of this company but they refused to do so well when you refresh the board and you and still somehow 50% of the Border connected to one another through other boards, it means you're just refreshing from the same pool of people. You could have the same 10 year 15 year old people, you might as well just have them because you're just refreshing it with their friends. Well that's why I will say that why it's so important to take a deeper dive on these boards because the woman who runs the nomination committee is and Livermore who really is that kind of old-fashioned directly that comes up in so many of our shows. And you're right. She's kind of been every company and kind of just knows a bunch of people and and is not really focused on what Qualcomm does but is focused on creating a very strong Network. So if you go to the recommendation part, wait I'm gonna just start. If we're gonna talk about like what the future of this company is I think you want. This is like a potential activist Target in the making. Because this is a board that is constructed entirely for itself and for like, limiting any risk-taking and being boring, making chips that actually could power future technology in our palms, that would be useful, could be a viable competitor in the marketplace for mobile AI. So I think what you want out of this board is to begin the refreshment process to move it towards a boring company, that no one knows what it does to a growth company. That's doing like, AI Focus chips in the palm of your hand, not that I want that in the palm of my hand but that I that I think is the play here, right? Which gets us to the actual vote? I think there are effectively too strong nose out of the field. One is Mark Fields, who is the next CEO at Ford at Ford and interim CEO at To rent a car. He has a bachelor's in econ and an MBA. He was in marketing in sales and he spent his life in cars. You don't need a car representative on the board of your chipmaker. You need to replace a Mark Fields with an academic or, or somebody who's more growth-oriented, who's future a future, technologists of some kind and the second one would be Irene Rosenfeld. Yeah, she's the ex CEO of Mandalay. You don't need someone with a PhD in marketing. Yeah, I think she's there. She's a chair of the compensation committee. She is there to assure that the CEOs pays up at that high level compared to peers. I think that's really her role in that board. I think between those two directors. In particular, make no sense on this board, if your positioning for growth and I think next year, you actually can focus on Greg Johnson, who has some background in cybersecurity, but on the marketing side of cybersecurity and you it's time for and Livermore to leave, right? Not that her, ten years long in this board, but she is likely be giving her deep connections and giving her long tenure in an old version of Technology. It's likely that her influence on this board is actually a net negative, if you want to position yourself for future growth, So I think overall this year, I think it's two nose and to Mark field and Irene Rosenfeld. And next year, you're looking at Greg Johnson and Livermore and then you should be positioned if you replace them with the right kind of academic VC, growth-oriented you should be positioned for the future. Let me add to that considered all so, Tony Vincent Cara, who's the longest tenure director, who is CEO at Sony Pictures and sits on the board of Madison Square Garden sports? That's true. Yeah, seems like a little bit of dead weight. All right. Great. That's the I love. This is our first big boat company that you made a activist call here, right? Yeah. Activist alert. They like looking at a sound wise, looking at the team, it's possible to actually identify sort of poorly performing team and then say how did the company perform and looking at the fact that this is pure guard rails on a company, that should be a growth company. That makes no sense at all. And that's exactly what activists do. moving on with the resolution, you know, there's True to its nature, Matt? Nobody really even knows what what Qualcomm is, or what they do, and who they're bored is, they don't even have any shareholder proposals. I it's rare for a company of this magnitude in size to have zero, shareables. But that is very, seems very Qualcomm. I don't really have a lot to say about sayon pay 90 for percent support last year, I will say this because I know you love this one. Finally, I we did find, we have a company where if you hit below the 21st 25th percentile and relative TSR result, it results in no shares earned. So they actually they actually do. Do that one. Right? I don't have much to say on, hey, for the CEO either. I actually think there should be say on direct your pay here. This is a hugely overpaid board. The average directors paid 400k a year all for the pleasure of getting hurts Rent. A Car advice and HP printer. Just that's banana pay for a board. That is outclassed by every single one of its competitors Mark McLaughlin who's has eight years tenure on this board or nine years tenure made 540,000 dollars for each of the last two years. And he's the all for what he he's the vice chair up hello Alto which is actually at its lowest price since it ipo'd. I don't know what kind of advice you're getting for nearly a half a million dollar per director but there's no way that you know, directors say on Pace should pass if they ever had that vote. Otherwise the CEO pay there's not much to see. I do like no shares that you get actually punished below the 25th percentage. Yeah, I also did make a note about director competition as well as that. What's the note to me is that this is a board that is paying in aggregate about 300,000 dollars so they can match director gifts. I mean, I'm not, I'm all for charitable contributions. But why, why why, why why does Cheryl Holder have to be matching? The gifts of its directors? I and its directors are getting a half. A million is crazy. I know, I know, moving on. Before we wrap up this show, They also have a vote on a long-term incentive plan. I think we can skip that. That was 11% know last year. I don't know if you have anything to break those out, often. I say I'm paying Sam L tip. Hey, I don't feel like. Yeah, it's, it's rare. But some companies do put that that up to vote. Seems like every year you and you'll always notice that there's always a little bit more pushback against the long term incentive plan than there is a Good Sam pay. For some reason. Finally call, Cam is doing two votes that you're going to see more and more regularly at these big companies. These are both management proposals, both proposals that they are supporting that. The board is supporting one that you have talked about a lot in the past, is this x cooperation of officers, right? This is a big vote. We're seeing this routinely, I don't know if you have. Yeah, do you have a go ahead? What's your point of view in? Look, I think the, why would any shareholder voluntarily make it easier for a director to be negligent? Out in their duties. I don't since 2022. These proposals have been rolling in since it became, you know, a possible in Delaware, to do this. But these are these directors already have dno insurance, that indemnifies them against basically, everything and investors. Vote them out at a 0.2% rate on average globally. And they get an aggregate of 7 to 14 years of 10 year and millions in compensation over that period for 12 meetings a year and now we're going to exculpate them like give them a little bit. Extra less risk. They don't have any risk. You should maximize your risk to them individually as a shareholder because they are responsible to you. This is a definite. No, you know, I have the same comment for this one as I did for the next one. Which I'm about to talk about what is basically. The, I put the same know, basically asking sure holders to vote against their best interest just like in proposal six and I'm seeing a lot more of these votes this year. And this is A bylaw amendment to require claims under the Securities act to be brought in federal court. It's basically, this is, this is part of a federal Forum, Provisions in a nutshell. It's basically coercing shareholders to let the company try class action suits, not in Delaware, not in States, but take them directly to the federal court, which is, which is again, against the best interests of shareholders. Yeah, well, imagine if Tesla's clawback happened in a federal court and said Delaware, right. I actually every time I see these, the Excel patient and these bylaw amendments that sort of limit liability by moving it to a different Court. The first thing I think is what their what are they hiding? Why do you need Xcel patient. And this case in this same the same like proxy. You want to exclude the directors and change the bylaws to make it harder to bring a class action against them in the state. Why would You need that this year? Is there something? We don't know? I mean, I don't know anything like, but it makes me suspicious and I say no to everything that that limits that liability. All right, that's it, that's, that's the big vote for Qualcomm. Matt, suggesting the board a good Target for activists activity, which I like. And then Matt also saying vote, no against both management resolutions that are basically stripping shareholders of their ability to provide oversight at the company. That's it. That's the proxy countdown for the week of February. 19th 2024, join us next week. When we jump back into the alternative democracy pool Forever on the lookout for yes, shareholder sharks floating Band-Aids, of course, and Wayward directors.