Transcript
This is proxy countdown. Welcome to the Big Show for the week of February 5th. 2024 alongside my tag team partner, Matt McCarty. I'm Damien rolas on today's countdown significant board leadership changes. At 3 large cap companies is the Grim Reaper coming for the O'Reilly Brothers at O'Reilly Automotive. Disney uses an animated duck to tell shareholders how to vote Exxon won't take. No for an answer after suing to get. No for an answer and on the big vote. Matt. Dives into a Midwestern Tractor Company. At our trade wire. In significant leadership changes, a big, shake up at Honeywell a CEO Valle, Caper at board. Chair to his LinkedIn resume as former CEO, and chair Darius, Adam check. And his 29% influence is set to officially depart from the board. Also, William Ayer will become the board's new independently, director replacing Scott Davis. At CF Industries, Christopher bone has been promoted to CEO and added to the board. The board is already dominated by CEO Tony will. And his 25% influence so CF Industries, there is adding adding the CEO further, consolidating, executive power. And a significant hole will need to be filled at Cadence Design Systems as longtime chair and direct your John Chauvin, who was on the board since 1992. When Kirk Cobain was still alive, will be stepping down. And other notable resignations J Burchfield. Who was been a director since the Clinton Administration is stepping down at O'Reilly Automotive. As a retirement policy that limits board aged to 78. This means the clock is ticking on the O'Reilly, Brothers, David and Larry, who are 73 and 76 years old respectively. The O'Reilly Brothers have been directors at O'Reilly Automotive since the Nixon Administration. Hey there Riley, like, most of the auto parts companies seem to make their directors, wear matching outfits in the Bios, except for the latest edition. And the only person of color are currently on the board, Fred Whitfield who wore his own suit. The real question actually is whoever replaces J Burchfield. Forced to wear a baby blue Ottawa, worker shirt or not. Ray young resigned from the Hormel Foods board. Here's a quote from that filing having meaningfully contributed to the board during his tenure. It's nice. The former Vice chair at archers Daniels. Midland Ray is a heavy hitter with 14% of influence at Hormel and 19% of influence, International Paper overall. However he is hitting just 296 a low performing directors there. Thank you for your meaningful contribution and notable director adds Mondelez. International is adding Hellion CEO Brian McNamara Gilead Sciences is adding Ted's love who already serves on both the boards of Siegen and royalty farmer. And Barbies Mattel, two new directors have been added to the board. Julius Janikowski who already serves at Sonos and MasterCard. and Dawn, Astra who sits on the board of Paramount Global and lastly, in our trade wire, In an unusual move at a large cap company. Microchip. Technology is reducing salaries. For its CEO NEOS and the board members by 20% to match other expense reduction actions at the company. I don't remember ever seeing director's reducing their own pay. While it doesn't represent a significant reduction, it's about, you know, 19,000 for board members and roughly 100,000 for CEO Ganesh Murthy, it's worth noting that since most pay elements of these occurred to base hourly, it should reduce and further reductions for the CEO. So is that a reduction in options? Granted, or the options going to remain the same just cheaper because the price of the stock has been dropping. All good questions. Let's move over to our proxy cage matches. At the Walt Disney Company. Who is currently engaged in a three-way steel cage match between Tryon and Blackwell? They released an animated video. Featuring Professor Ludwig von Drake to tell, Disney shareholders. How to vote? This is a gray-haired in balding. Duck and the duck in this video posted by Disney was extremely straightforward saying, quote, remember, it's important. You vote only For Disney's 12 nominees and do not vote for the try and group, or Blackwell's nominees. Tryin' meanwhile has been busy filing. Its proxy concentration contestations one that stood out featured a picture of former CFO and Tryon board nominee. Jay rasulo with a quote saying merely The Disney I know has lost its way. Oh, is everyone involved in this proxy cage match a child. They they released an animated duck giving proxy voting instructions. Meanwhile 65% of the shares are institutionally held and the average retail vote is about 30% of the remaining shares. Meaning that this video was geared to what 10% of their shareholders and less, they are meant to encourage institutions to watch an animated duck. Give them proxy voting instructions while try and strategy seems to be be Netflix for Revenue but old Disney for all the other stuff at this point my instinct and will do Disney when it gets closer to the AGM. I'm sure. Is vote them all out. Vote out every director, except maybe James Gorman who just got there. So, can't possibly be his fault yet. And in an update to a previous story covered here at the proxy. Countdown activist investor are Juna capital and climate activists follow this have withdrawn their climate resolution from Exxon Mobile's upcoming annual meeting after X on made the unusual move to sue them. After the court stated that it struggles to see what the ongoing case or controversy is in this matter, given the only relief sought from the court, was a declaration that Exxon May exclude defendants proposal from its annual shareholder. Meeting Exxon told a federal judge that the lawsuit should continue. Honestly, this is a terrible look and it's not a terrible look for Exxon. Arjuna, you have a right as the owner of the company to file this proposal. National legal policy, research centers, filing. Proposals all the time that say, incredibly heinous stuff, investors will vote and that is it. And if Exodus doesn't like it, they're bringing you to court when they're just looking to bypass the SEC, the SEC will make this ruling, this determination. You should stand up and say, if I back down as an owner. Now, I am setting a precedent that all you have to do is Sue and be a big Corporation and I will get you to remove any proposal. I don't like just through threat of lawsuit, it will stop people from filing lawsuits that are reasonable to other investors. I think the bad luck here is not on Exxon, they're just being bullies doing what bullies do and they're being ridiculous. Remember this is the engine number one board doing it too. This is on our junah. You need Capital to fight this. No crowdsource it for Christ's sake, but this is something That you absolutely should be fighting for. Moving over to our vote results table. Let's start with one notable vote at a smaller cap company, at polish.com a proxy contest by a single investor with two shares, Gerald Hammond. Failed as Gerald's bid, to be added to the board was rejected by shareholders. Hats off to Mr. Two shares. However, as he did receive the support of 20% of the vote. I love this, I love shares. Good work Gerald, I love it at large cap companies, the only annual meeting last week occurred at Hormel Foods where nothing really notable happened. This year's. Most disliked director, however, is Stephen Lacey who despite receiving the support of 94% of shareholders Still registered 5 million more votes against his reelection, in any other directors, but it's not the only notable thing investors passed ex coal, patient of directors proposal. Meaning directors are now have maximum limited liability from Legally for as fiduciaries, according to Delaware law and more investor voted against Stephen Lacey and Gary baju who's the nominating chair and Lacey is the comp chair then voted against exculpation. So basically what they said was bajaji and Lacey they can ignore parts of their fiduciary duty. That's fine, but we really don't like what the Nam share in the comp chair are doing. And other smaller cap companies say on pay failed at Enzo biochem. Hamid or Fenian was CEO for less than two years and managed to walk away with nearly 1 million dollars in cash. A grant of restricted shares worth 1.5 million in the immediate vesting of almost. 200,000 restricted shares in 700,000 options. While there were 21 million votes against sayon Pei, two, pay committee members somehow managed to receive nine million more votes in their favor. Can I ask you something? This is a real question. I need your opinion here. Is there anything more passive aggressive than a majority vote against pay? But re-electing, the directors that set the pay, never understand it, I mean, it's like Tony Soprano's mom, is the is doing the vote, like, it's so passive aggressive to me, vote against the directors, they're the ones who set the pay. Laziness. That's right, laziness wind at Moog. As a shareholders, a shareholder's determined that say on pay votes should be held only every three years and not annually, which is the custom. and finally, a PSA that we need to immediately ban all staggered Board elections. Shareholder votes at bell, ring Brands Digi, International twist bioscience, and golub capital all showed signs of disgruntled shareholder voters. And yet it is forever stupid that they can't have a say on the entire board, every 12 months. So they're only able to pinpoint their distaste at two directors, every few years, here's a PSA, let's just get rid of both Decker election, I can get behind that, PSA. Yeah. All right, that's, that's it for our new. Let's go over to the big vote. For today, for this week, we are covering the midwestern company. Deer deer and Company, they will be holding their annual vote on February 28th 2024 20 February 28th. So before I hand it over to Matt, who has a lot to say, here, on this board, I want to some general observations from my perspective. First of all, according to our data, this board performs pretty well overall hitting. 594 remember the average is about 500. So You know, pretty good. The lead director is stepping down Charles Holliday, he's leaving the board, that means that Shari Smith. Who was actually been on the board for 13 years, the second longest serving. Director is now the the lead independent director. So this is a joke at itself and the UK she would not be considered independent, but here she'll be the lead independent director. And also, I want to point out to other things. Deer has a retirement policy set at the age of 75. And there are four directors who are over 70 a deer Clayton Jones. Michael yohan's Gregory page, Sheila Talton. So that looks like if they stick to their own policies, that we're going to have quite a bit of turnover in the upcoming years. And finally, I wanted to point out something about the skills, Matrix at manufacturing company Deer. So This is their own reporting. This is not mandated by the SEC or any of your listening exchanges, but they claim that the entire board is, is has a skills or background in being an executive, right. 100% of the board are Executives, but only 36% of the board have skills and Manufacturing, and only 36% show skills in agriculture. And before we even get into the overview that I have, it is worth saying that on these skills Matrix sees, if you didn't listen to our Apple show, we went did a deep dive on them. I just just to get, an eyeball full looked at Sherry Smith, whose now the incoming lead. Directer at 13 years of tenure, independent director. She's tagged as having executive experience here at Deering company, but on Piper Sandler, The Other Board that she's on. She is tagged as not having executive experience, so these skills made sure. These are notoriously fickle and make believe they are unicorns, but let's get into the, let's get to the overall. Number one at Deere company election of 11, directors. Matt let's say you look, it's hard to be angry at these directors, they have outperformed the S&P 500 this year, one year, two year, five year. They pay an annual dividend, it's a cash flow cow. They've got ongoing BuyBacks. They did 7 billion in Buybacks in 2023, investors have a lot to like about this company. It throws off cash, and it's a very consistent company. For the most part, the biggest problems they faced in the last few years, are the right to repair lawsuits which arguably have been going back to 2002 to 2000 even which are farmers. Did not have the right to repair their own broken tractors or, or equipment. Dear would have to come in. It was all proprietary, they sealed everything and they made a very difficult to get anything Done. And there was a strike in 2021 10,000 workers striked. It was actually UAW LED strike that was settled all so late in 2021. But those are you know, the biggest sort of issues that deer has faced deer does say in their annual report and in their proxy in their risks that the right to repair issue is ongoing even though a law was passed at the beginning of 2023, giving Farmers the right to repair their things. This is a high-performing team. You said, you said 594 overall, it's an aristocratic board, Highly Educated, they're all mostly executive or entirely Executives. They actually have the rare combination of nearly all of them. Have high TSR batting averages in high earnings batting averages. Meaning not only are they making the money, but investors are rewarding them for making the money. This is, and this is a cross all the boards that they're on. So these are high-performing board members for the most part, they're all so highly interconnected more than half of the board is connected to one, Other through other boards and two thirds of the board comes from one board Community, meaning their friends of friends of friends, like they roughly know each other. Well I will let me add the two board members Michael yohan's former US, senator of Nebraska and Greg Page, former CEO at Cargill they sit on the same board together right now at court, right? Yes, right. They're both on quartet and the board community that this particular board is from is something that we finally talked about here. It's related to Abbott. Labs is the Midwest Mafia boards. It's mostly Chicago there. A lot of American widget makers and manufacturers and mix of Pharma in there. It's really American board royalty Boeing draws a lot of members from it. It includes I went back to 1998. I went through every proxy from 1998 on and looked at the companys that were represented on the boards. Not the individuals but where they came from. This is Abbott Labs, Cardinal Health. There's been at least one director from Cardinal Health contiguously on the deer board. For 25 years Archer, Daniel Midland snap on ink, multiple directors from Snap-on Maytag, which became Whirlpool Northern Trust SC, Johnson, 3M, which has connections everywhere. Throughout the Midwest. There's a company sharing plow from the late 90s and early Arts. There were three to four directors on the deer board at any time from shearing plows board Merrill, Lynch, B of A this is Northrop Grumman, these are all massive, industrial American companies and relatively board royalty. So this is your backdrop high-performing board members. Professional board members, well connected to one another board members. The network power is amongst the top of the boards that We look at and there they they all come from the same pool of companies effectively. Here's the proxy strategy that one you, and I sat down and pre-production thought about this, because this isn't a vote out an outlier board. This isn't there's a bottom performer, there's some really weird thing happening. There's a lot of compromise, something or other. This is actually more a question, it's more like apple, it's a play for the future. What's your plan for the future? And I wanted to answer one question with my thinking, on this these recommendations, which is is deer in company, an agricultural company or a tech company, okay? That's the backdrop. And when I say agricultural, I mean, analog agricultural. And we know it's a hybrid, right roughly. But where is it going? So their own future plans that they put into their last annual report included from December included, autonomous farming vehicles data collection. So as the tractor goes, over the field, it collects data on moisture, whether the thickness of the plants, the tilt of the land, they want to collect everything alternative powered vehicles, like electric vehicles, or hybrids and even AI farming. Now, everybody has to say AI about everything, but the macro Trend behind this is a move towards vertical farming, as in 10 billion dollars of vertical farming is expected by 2026, 35 billion by 2032 regenerative. Agriculture is a big deal, giving climate change water management is a huge challenge. So you have a company that is effectively off of an analog product, which is dragging something along the Ground ripping out plants. Planting new plants. That needs to Pivot to face a future with less useful land potentially less water, more autonomous farming. So who on this company? Board are the guardrails for that future a future with less water more indoor farming and more automation, right? That is my starting point. Yeah, and this is why I pointed out the company's retirement policy, because you do have four directors, slated, to exit this board. So, there's a real opportunity here for sure, holders to care about the next generation of board members, and you mentioned the skills Matrix, there's only two directors on this board that have experience in both manufacturing and Agriculture. And one of them is the CEO. The other one is Greg Page who, as you said is 72 years old, he's been the board for 11 years and he's coming up against the retirement age. The fact that the retirement policy has four directors, basically in its sight in the next four years is actually an opportunity. For an investor who wants to Pivot to whatever the future of deer and companies going to be on top of that. You have Sherry Smith who's now the lead independent director, who's not close to retirement, but has been there for 13 years. So if you really think about it, five of the 11 directors are potential refreshment targets for the next couple of Cycles. So far if you want to know what deer has thought about the future, you can look at the last three directors, they added 2020 2021 2023. Those directors are Neil Hunn who's from a CEO of Roper Technologies? Yep. The on Roper Technologies board are B of A where Charles Holliday who's just retired. He was at Allied signal Honeywell GE. These are all people like companies where deer has sourced their own directors. This is more of the same in 2020. They had a Tamara Irwin. She's a marketing Zach from Verizon on Verizon's board is someone from metric steam. Also on Roper's board you have Roxanne Austin from the Abbot and Target boards. These are all the same Community Leanne carrot they added in 2021. She is an exec from Boeing who's connected to everybody. We talk about Boeing all the time. She's actually On the board of Raytheon with the X Rockwell Collins CEO, who is Clayton Jones's successor on the Dearborn. So we have, technically, it's heavily connected, they're more of the same. They're not differentiating their new directors according to their own skills Matrix. These three directors they added have Tech experience but none of them have ai automation experience Target growth areas, none of them talk about software, there are all basically Tech like Aerospace Tech which sure uses some of that. But that's not really the core experience. Well, I'll tell you, is that, what you're pointing out was an unfortunate Wrinkle in the American director, appointment cycle, which is that the board appoint. These directors first, right? Yes. And then the shareholders vote on them and as we've pointed out many, many times direct the shareholders just rubber stamp, whatever the boards, decide but also these are not contested elections so you're not giving Choice between someone who might have a background in AI versus someone who has a background in having a lot of friends on the board, right? So this is part of the problem of the American system of Board elections. In fact, one of the things I did for this company in particular was what I like to think of as a true Independence test because they all register, just 11 members of the board 10 of whom register is independent in the CEO is the last one. But I wanted to eliminate directors who are not connected, who are eliminate the directors, who are connected to one another, that are over 10 years, more than 10 years, eliminated directors that don't have skills or have too many skills. Overlaps with other directors and eliminate them where they have educational backgrounds that overlap. Like I don't want 10 people from Stamper, right? And then finally, diversity as a question, right? Like you don't want 100% white men on the board, you want different perspectives, but when you do this sort of true Independence test on the deer, Board. First, you eliminate the CEO, obviously, he can't be truly independent, the tenure Capital eliminates, three directors, the director connections eliminates, three more, independent skills, eliminates. Another one, you have multiple Aerospace directors on the board diversity. Count ends up with when I'm done. I've effectively, I have four that might actually be independent and it's too white, women one, black woman and white guy and the black woman is up against the age cap, right? So so we have a real Independence problem on dear if you're thinking of it from an independent standpoint. So here are my recommendations. Let's get to it. What do you what do you recommend? The vote? Dear February 28th. I'm actually gonna say you vote for all the directors. This will move. Yeah. It's I'm in an unusual movement of Scotty. Yes. But the goal here is to engage in replacing the nominee, nominating committee chair Clayton Jones, He is retiring next year. Ideally, he's going to be on the board for the next year, but by law. Anyway, and you also have Michael johans. He's on the committee as well. He's one more year away from being forced off the board. Anyway, you want to engage with the nominating committee at this point. You want to, you actually want to be if you're an investor in a place where you're using, who's leading the nominating committee, you want the nominating committee, not run by the Cozy. Types, choose them from the true independent directors. The true independent directors are Adam, or Alan Heuberger, right? He is Cascade, he owns. Yep. Cascade owns 8% of the stock shareholder. There are major shareholders, there's no one more independently minded than a major shareholder. Who is going to hold this for long periods of time and needs to think about what is this investment five to ten years? From now, not just right now, right? So I think you actually choose some of the you, you forward your position yourself for the Forward Thinking of nomination by using the true independent directors. Yeah, it's worth. Like I said, it's worth pointing out the three of the four nomination committee members are all in that, over, 70 year old. Club. So you have a real opportunity here for future board refreshment. And I, I like the idea of Engagement, instead of an aggressive attack, you're engaging with the board before we get to that point, right? Yes. It's a conversation. Yes. And it's a conversation in advance of knowing you're going to need to refresh. You want your representatives to be leading the refreshment on this board. And then next year, you have targets next year, Sherry Smith, she's not independent. You need to think about what that means to have a non-independent lead. Independent director, Greg Page, he is a perfect Target to replace with AI or Tech experience, or even an actual farmer of some kind of someone who uses the technology that they create. So, those are my recommendations. It's vote for everyone this year and you engaged to replace the nominating committee members over time. Let's get to the second proposal that will talk about today, which is sale on pay. I don't have a lot to say here. Last year, shareholders supported, this 93% said, yes. They have made some notable improvements over the last year, including discontinuing the use of long-term incentive cash, which is a corporate governance. No, no. You always, long-term patient should always be tied to equity, but they have some some kind of boneheaded moves as well. They're been some base salary increases for NEOS, also the The CEOs targets have been tweaked upwards from 100 and his Target payout from 180% to 200%, which doesn't seem like a lot to shareholders. But when you do the actual math, it means that he's entitled to well, over a million or two million dollars, more in cash a lot because of these very slight adjustments in Target percentages. Otherwise, the only other thing is sends out to me, which I think is important is that there is a TSR total shareholder return modifier. That pays out eighty 75% of Target. Even if the company is at or below the 24th percentile Accord versus its peers, which means there and there's no language in there that states, that even if it's the Dead, the worst, the last company, Underperforming. It's all its entire peer group, executive still received 75% of the targeted pay there in that category. So that's, that's pretty poor. So what what's your takeaway for sale and pay? How would you vote? Look, I it's hard to vote against these kinds of things like because mostly I want to focus on the pay committee and not the pay itself. I think if you're going to vote against pay because you don't like to pay you vote against the pay members of the pay committee, get them out on top of voting against the pay itself. But for point of reference, I can't get over these TSR modifier payouts at or below the 25th percentile. I ran the numbers. And if I look at the 2023 2024 basket, NBA basketball season the 25th, percentile points scored performer is Reggie Bullock from Houston, okay, 25th percentile, okay, 25th percentile. If you never heard of him, that's because he's in the 25th percentile of points scored. That's why you've never heard of him. He makes on his current contract two million dollars. Per year, I actually think we should make the ceiling of any, any CEOs pay. If they're in the 25th percentile, whatever the 25th percentile of a sport gets paid and then we'll see whether or not it, then you still got 2 million bucks. It's still something it's worth pointing out that the average NBA player makes roughly nine million dollars. So that 25th percentile pay means something in the NBA. It does, it means something a lot. And, by the way, just so, you know, Bullock's jet allotment happens to be zero dollars. Not the 145,000 or whatever that may gets here. So what's your? So you despite this you're saying, yes, I'm paid. But if you're just upset at pay vote against the committee members that correct. That's what I'm saying. Yeah. And finally, let's wrap up the show by talking about some shareholder proposals at Deer coming up election February. 28th, I will point out that last year, there was very strong support for termination. Pay proposal by John chevin 41% of shareholders voted in favor. That in fact there is another proposal up by John this year, a shareholder ratification of golden parachutes, which is, you know, very similar. So, I would hope that at this point that shareholders pushed, this one over the top, and that deer also support this because 41% is effectively. Yes, I can't get over my philosophical. Rejection of the idea of a golden parachute in the first place. Like, like, in what other job do you get paid a tremendous amount of money for quitting? Like that doesn't have right. Not Reggie Bullock for the Houston Rockets. Exactly Reggie. Bullock's not getting any money because he quit. He already received a lot of money and, and it's worth pointing out that the CEO at Deer received 207 million dollars last year. She doesn't need a golden pair of shoes. No, I mean like look, I get it for vest vesting, you know, options on. Changing of control or something like that, but let's be real. We don't pay. Can you imagine a situation in, which, I left middle management and msci. I got paid a. Thank you for showing up and quitting like, what nowhere else does this happen. So I I'm always against that. So I'm voting for Chevette anything she hadn't does. For the most part I'm going to vote for that's that's the only shared proposal that makes sense. The other two are back to the anti-walk anti Esq category. These these two entities are now seem to be appearing on every single S&P. 500 annual meeting that's the national legal and policy Center. And the national Center for Public Policy research to hear the same entity, but there are two votes at the deer annual meeting this year, one is a customer and Company sustainability, congruence report. And the other one is a civil rights, non-discrimination and return to Merit, audit. That's my favorite turn. Whatever that means. Right? Because we don't, we still don't have the full methodology. As what, what means, what that means, right? Like I just like, yeah, go ahead. That that Merit was what it was, what it was. So this is a Jim Crow error pre-civil, Rights era, right? That's what? That's my assumption. Well, I know is that I was the same one here that are angry, at D? Yeah, go ahead. I went back 25 years and looked at the board and they all Knew each other, like they all were on boards together, where was the Merit for how they got those positions? But that's not, you can't argue the facts with a national Center for Public Policy research. The first one, the sustainability congruence report I pulled out a quote mostly because I think it's funny. They talk about how dear has been powered by fossil fuels and it has three major industries, agriculture forestry and construction slash Mining. And then says, the company's perception of the science behind climate change and is deeply flawed. In fact, expansion of costly wind and solar energy require massive swaths of land, much of which is converted from agricultural use or necessitate clear cutting of forests. So, they really weirdly. Yeah said In their own thing. You do forestry you need to clear cut forests, in order to do wind and solar, I don't know why dear. Yeah, it's a weird one. It's a it's a pro. They're using them a pro environmental stance to be anti Pro environment. Yes it's anti-prohibition routinely get about 1% of shareholder support. That's right. This is another one. And even by talking about them what about the other one was even what funnier? Because it basically it demands that you generate a report engaging like a civil rights groups and then says but not just civil rights groups that are left-leaning you need right leaning civil rights groups and names. Some that like some of their friends just basically it says do a report after talking to our friends, I just love anything that that's ridiculous. And specific vote notable both of their Wrap up Matt's Matt recommendations on Deere and Company, which is vote for the entire board. But engage engage with dear to get some, some fresh Blood on the board because we have four directors hitting a retirement age policy soon. Vote, Yes on say on pay. But, but if you're leaning towards no vote against composition committee members, and finally vote, Yes, on John shevans share of proposal, but a big fat, no, on the anti woke proposals. That's it. That's the proxy countdown for the week of February. 5th 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.