Transcript
Hello. Hey. Oh, live. From the State Street Dilbert Pavilion. Oh they didn't. Oh didn't know, they didn't get a rename that it's the ESG. Industry's only weakly work date, a podcast, featuring BS man. Matt mcgarden me and today's Eggs, sausage gooeyness called March 1st 2023. The alternative democracy. A bunch of board sabermetrics, data, and a word from our sponsor. Hey, falls back as gauge. Our show today is being sponsored by ESG your ESG Data Solutions provided that they are our yes, you did a solution but we're trying to help themselves. So I mean, but I'm saying if you like the date on the show, yeah, buy it from us. But also they have some of the data that we're using like, underlying data, comes from somewhere. Right? Maybe I should talk, shouldn't I say yeah, maybe you'd be better. If I said our ESG data they are they're our trying to project something on the world. It's like a Jesus see thing? Like he's no I don't like that. It's gauges for everyone. That's gauge died for your sins. I think. Please don't know. I don't know. Not clear about that. Ready. Yeah, let's what are we doing? We're doing alternative tomorrow. This will get you better. Actually this is a propriate music for this. Yeah, it is. And once for once, that's where these musical artist. Okay, so it is proxy season I guess. It's the early proxy, every Wednesday. We're gonna devote some space to this. So for all you super high level, ESG nerds out there. This is really the show for you. This is not because your co-workers don't like you, they don't talk to you. That is true. So pretend like we are your co-workers at do like you and we'll talk to you and we're just gonna talk about stuff that, you know, we see as analysts and we're soon to have a regular guest in this spot. A man named Douglas So yeah, there's some debate about other parts of his actual call, Douglas, or Doug. Doug from Jersey from sound governance. Isn't that what it's called? Sound governance. Soundboard. Soundboard. CM already ruining everything. Yeah, you're supposed to do our show prep, actually Doug. What about sound governance? I like that sound governance. Kind of weird. Deep dive analysis of all companies. We picked Lennar Corporation. oh, is it? Lennar lender Lennar, nobody knows and just because I love avocados and my son told me the other day that it's his favorite food. That exists Cal, what a bunch of yuppies. You are my favorite food in Maine is avocado, 89 cents at Target. You have to be a yuppie to buy Avocado. Now know you live in, avocado gets to you that's basically just so you are the carbon I'm only entitled to pine tree bark and lobster. Is that it? Yes, correct. Okay. That's you just won the lottery of terrible food, my son's traveled, Not really good. Tell him to go where avocados grow and live there. So let's start with calavo Growers man. Okay, let's do that. This is a weird one was waiting for this and I'm not, okay. We're talking about the alternative democracy because your normal democracy is maddening and makes you really sad. So, here's a different way to exercise your vote and maybe make a difference and have a maddening. Very sad experience. Yeah. Collabo. Growers is a weird one for many reasons, but I'm gonna, I don't know what you have to say about this company. I'm gonna limit my analysis to this, just one very interesting fact. And that is that forgot for one year, the current CEO Brian, Cocker Coker, who cares? Brian, Cocker. It was actually CEO man and not on the board, which is quite unusual. I know that is an amazing amazing thing. How often do you see a CEO in America? Don't see that very often, but I will say this about calavo is that they have a, they have a board level ESG oversight. They have a corporate governance nomination in ESG committee, the lot of You know. Corporate governance friendly things in their proxy statement like we believe in the separation of CEO and chair so that the CEO can take care of every day duties. And this chair can take care of oversight duties, right? That sounds kind of what reasonable a belief system of governance. Well, that's, you know, what I have in my notes that strive and future president Vivek, ramaswamy will vote against everyone here, because it is one of their strange methodologies. That, if there's any kind of ESG going out the company, they automatically vote against here that is correct. Yeah, that for methodology, vote down the es get that. Does it get really how inisip it doesn't get? You know, the funny part about e&s and G is there's the g in it which is what we're talking about with most of these things with the board and a collabo, every single thing in there says their ESG and governance committee considered this director like independent I'll say this to you. Strive. I know you're listening. We've been reaching out a lot and you keep ignoring us just in Donner. Her is the head of corporate governance. A strive Asset Management. So, That's so that's that in itself is woke. That's a key tenant of ESG so you should fire yourself. Justin. That is correct gee. And by the way, you've done, no actual corporate governance analysis because your methodologies are screwy at best that's all I'm gonna say. Yeah I mean they're very sugary now, they don't even dispute that. Let me get to my main point here. So because because the CEO was not on the board, for the past year, we actually have the opportunity to look at our data, our influencer data. All right, we have board level. Analyze this company. What they should look like without a pesky CEO there and Matt you know what happened to magically It it magically becomes a relatively Democratic Board of balance influence, so that everyone sort of Falls in around 10% except for, you know, understandably, the chair and the lead directors. So really what you have is a board of equals gathered together to share their expertise, to make decisions about the oversight of a company, which is the point in the first. This is so, first of all, let me just say thank you. Yeah. That I passionate about this, let me just say this, this is the border. Collabo is like like a natural field experiment for like virus studies. Like when you finally one of those like communities on an island that have never seen the outside world and you drop in a virus and you see what happens. You have Chipotle just gotten nervous because he's listening to this about avocado's and viruses. Yeah. Well this board is like what happens when you don't drop in the virus? They're incredibly happy. Yeah, they do really good job. Probably. Turns out it works really. Really well in fact, here's my notes. Um, this is, I have two notes for this board. One is a democracy alert, and you mentioned how Democratic they are, they are super democratically. In fact, no board member sits on any other boards or has any second or third degree connections to each other. These are people who are connected only by the fact that there's no is they are incredibly expert at the things they do. Okay. So maybe it's pretty much it. Maybe this is what happens when you rely on things. Like ESG to help govern your principles strive is that you actually you gather experts who help you, it turns out there. Okay, well keep going. Here's what I know this, okay. Have you ever can you think of a single board that you've done this? How long 20 years? No hear you. Can you 25? Can you think of a single board that when they announced an interim CEO? And they they had to because they didn't have the CEO yet, they made the chair. The interim CEO. They also simultaneously announced a lead independent director to offset the chair. Who knows? Yeah. No, yeah, no. They know they're doing. Have you ever seen that before? Like that that's never happened. They said we need to mitigate your power. Yeah. Even though, even though it's short-term power, we're still gonna put the right process in place. my second note, This is an avocado grower. Yeah, right, I guess second note is an expert experience alert because this board has so many experts on it that I didn't know. Avocado Growers, even needed. Okay, like what? Here's a list of experts on the collabo board. Yeah, a risk management expert but not just a regular risk management expert in agribusiness, okay? That was you a UBS and equity research on food specializing like Risk Management, agribusiness a governance lawyer right? Maybe that's part of the reason why they're actually well governed a CFO who's it Financial expert but not a CFO, like at like, Duke's auto shop, otherwise, six different companies, several of whom are parents traded. Yeah, Somebody who's an expert in power tools and food products. And marketing. That sounds good. All the same time. You need power tools when you're growing up and marketing because well, no, you don't avocados kind of sell themselves, don't they? At this point kind of but um, a Content expert. Okay, sure. Someone from the LA Times and who worked at doing content for a farm, right? Right. This sounds very good to me. Yeah. Oh a ranch and property experts. A Rancher, of course, like someone who's interested in ranching and then get this, this is an avocado grower i t and Cloud expert, right? Which we as we say, it's super important, especially 2023, right? And then you, you know who they added to their board know And actual farmer. Oh, farmer of someone who this is not officially too woke for sure. Can we just say this is the most expertise? Incredible. Yeah. All right, that's to them. I mean, who did, who would have thought we would have stumbled on this and the only methodology we had for selecting, these companies was going to the SEC and looking who has Proxy statements. Yeah, that's what I. This is a more classic situation. Lennar Corporation. I mean, let me just say this that everything is centered on. This one fact, Stuart Miller, he's the current executive chair. Former CEO msci says that he controls 35% of the company's voting power, which is significant but we actually have a greater level of granular detail here. And that is that actually, Stuart Miller controls, 64% of board influence Bingo. This is yeah there. And here's here's how this this really matters. This company has two cos each with only each with only 7% influence This is Stuart. Miller's company, end of stories. So anything you're worried about this is a dictatorship, right? Yeah. This is how we qualify this dictatorship. Yeah. This is no doubt. Yeah, dictatorship. So everything here is kind of pointless. After you discovered this fact, and it's like a military coup, was really what it is, and to show you why this is important. Is that last year say on pay, Again, this guy, Stuart Miller. He had 35% of the vote last year. 37% of Voters voted against say-on-pay. Right? Of course, that, which is a very large, majority of your name is not Stuart Miller. So, again, what's the point of this company? I don't really get the point of companies. I mean, why would they do? They vote against pay because it was egregious a private. This is a private company. Here's what I found, quickly looking at pay. First of all, here's a problem with a co-ceo structure is that they each make 30 million dollars, right? So if you had, if you had a collabo grower board there and realize that this is a heinous practice, you can save yourself an immediate 30 million dollars. That's a quick 30 million in your pocket. Yeah, you just yeah, that's nice. First of all, I found this good this nice little nugget if Lennar underperforms 75% of its peers. The top three executors still gonna get about 40 million dollars. Wait, they say that in the actual rocks. That was. A percent and still get paid. Can we just make that the annual bonus is essentially guaranteed Matt, there are three levels of payout ready. There's nothing below these three levels. It's good. Very good and excellent. Wow, attached to them so you can't you come in being good. At Lennar, you're born on good base, I guess. Wow. Yeah, so there you go. That is a, that's the best Compensation Plan. I think I've ever heard, I will say this, that there was one actual Shareholder, vote the shareholder vote propose for this year that is from John shevid. Am I saying his name right? Shaveta who should be a friend of our show but never calls us but we're aligned spiritually here. I mean I think John Chavez like 87 years and doesn't listen to podcasts. He has he doesn't Spirit equal voting rights for each share vote which would solve the Stuart Miller problem he wants to. Yeah, the corporation. Boo before I handed off to you. Matt to talk about what you found about this company. Here, I love this snarky quote from the board This is in response to to this shareholder. Wanting you know, equal right to equal voting rights. The board says, the only material difference Between our two classes of common stock is that the class a common stock has one vote per share, while the class B, common stock has 10 votes per share. That's it, the only material difference. So what are we even looking at here, even talking about here? What are we talking about? What material difference? I am the first draft of that response while the rest of their response does kind of read that way but all right, here's what I found. Here's your board, saber metrics notes, Sports zebra metrics notes. You can only get only boards here which I find endlessly fascinating, we have it right here. Tell you mentioned, you mentioned influence consolidation? If there was an alert that said Stuart Miller executive chair at 64% of the influence, there is no point talking about anybody else on this board for the most part, okay? But we also got a boomerang executive alert, which was the co CEOs, have 18% of the executive chairs influence now, right, right. They have they have 7% each, which means when you have that big of a power Gap with the with the CEOs and these are Coco CEOs at this point. The chances, if something goes wrong that they just bring Stuart Miller back is near 100%. He's the Vince McMahon of property development, 60 million dollar savings by the way, Yeah. You could say a lot of shareholder money just getting rid of the co-ceos and making that guy. But I found this nugget and this was brought to us by the data Queen herself. There's a misleading proxy language alert. Yeah going here good. All right, here's the language from the proxy, the compensation committee interlocks and inside our participation Says, None of the directors, who served on the compensation committee during fiscal 2022, was or ever has been an officer or employee of the company. Now, that is strictly true. All right, the reason why it's misleading is because three of the four compensation members Are connected to other board members, okay, specifically Stuart Miller and the Cocos sure really McClure. Yes. Terri McClure, who's the chair of the compensation committee? Is connected to both COC CEO. because the co-ceo sit on a company called 5 point Holdings, which Leonard did all of the development for basically it's a Leonard spinoff for being a Leonard, spinoff On 5-point Holdings. Board is a woman named Kathleen Brown, who also sits on sempra energy with Alan Beckman who sits on the board of floor with Terry. So there is a direct connection through two phone calls between Terry. Stewart, Miller and the co-ceos. So the chair of the compensation committee Has a connection. Okay, Matt already. But I'm here to remind you that none of that matters because the collective influence of the four-person paid committee is 14% And Stuart Miller controls. 64% of all board. So I so who cares? I think Leonard actually. I'm getting a an alert that they're submitting a their giving us statement about what we just said. Everyone at home know that's Stuart Miller. It's not Leonard. What finally? Yeah, finally, I have a green wash alert for you. Go ahead and it's a specific kind of a green washer. It's a governance, Washington. My favorite Jeff sonnenfeld is on the board of Leonard Jeff. Sonnenfeld is a friend of the show. He's a professor at Yale. He is a leadership expert and governance expert. He's been doing it for 40 years. The government expert or he's both, he's Governors and Leadership expert. Yeah. That's he's a little bit of both. I like it so and he's on the board of a company where one guy controls, 64% of the influence, 35% of the vote and Jeff sonnenfeld. The governance expert on a shit. Governance board has approximately 2% of the despite 16 years of tenure 16 write 10 year which is already a governance known. So here here is the corporate governance wash trick for all the companies listening out there, thinking about adding a board member wanted to look good without actually doing anything. Add an expert in governance and board Dynamics, or maybe even diversity and give them less influence than like a parent. Trying to spoon feed broccoli to a toddler that space, how much influence they have, a friend of the show. You are listening or someone who knows him is listening get Jeff to come on show and talk about this is on the show before because let's bring them back. At least talk about this. I do kind of want to know what you think about this Jeff. I know you. Yeah you definitely listening. You're team is listening. Let's listen. And now we got to go over to Paul. Yeah. Let's I want to I want to hear from Paul Hodgson, the great Paul Hodgson from s gauge here to talk about IPOs IPOs. All right, let's play it for you, ready? Hello there. Paul Hodgson with skh statistic of the week here. Now, it's not often that I can come to the microphone and start to tell you about governance improvements and companies. So it's really nice to be able to do that this morning. So, what we're looking at here, are some statistics about share class structures in traditional IPO companies since 2019. So, that's excluding the SPAC, the special purpose acquisition companies that have been flooding, the market lately. So these are traditional IPOs, and we're looking at companies that go public with a dual class shares. So where the shares of the founders typically or at least the management and the original owners have a higher number of votes, a lot to them than the publicly traded shares. There's a lot of companies out there already like that alphabet meta, etc, etc. So what we see actually is an increase in the number of companies being Going public rather with one share, one vote. So we had 75% of all IPOs in 2019 and in fact in 2020 and 2021 going to the market with the one share, one vote structure but that's increased to 85% in 2022. Interestingly there are a lot fewer IPOs in 2022 than in any of the other three years. 2021 was a bit of a banner year for IPOs with 435 companies going public in the S&P. Sorry, the Russell 3000. We've also seen a decline in the number of companies going dual class IPO without time base, Sunset Provisions. Now, time base Sunset, Provisions is a structure by which the unequal voting structure disappears after a settling of time. So we've seen that come down from 20% in 2019 down to 40% in 2022. Now, while there's also been a decrease, well, there was last year anyway, in the number of companies that went to Market with With time-based sunset Provisions, as opposed to without we've seen a decline in that number. There was a sort of General increase from 2019 to 2021 from 5% to 6% to 9% in 2021. And I think it's probably more to do with the fewer companies going public in 2022. That we've gone down to 1%, which basically one company last year, went to Market with time-based sunset Provisions. Now time-based on supervisions are all very well sometimes. They're not particularly effective, you know, if they only happen when the founder dies, for example, which is not a particularly helped to the public shareholders. But if in fact what we see over the four years is actually time-based Sunset Provisions that have real teeth being introduced in 2019. The vast majority of them were 10 years. So the only church will disappear after 10 years, 63% with only 25% off to 70 years. But that proportion has shifted downwards to only 33% having unequal voting structures for 10 years and 46% in seven years. And we've seen a steady increase in the number of companies with time-based sunset Provisions. So that the unequal voting structure expires after five years. We've seen the steady increase since 2019 to 2022. As it was only one company that had time-based Sunset Provisions in 2022. That's 100% in in that year that had them expired to five years. So, I think this is actually relatively encouraging. So it's nice to be able to come to the microphone this morning and tell you that story. So this is Paul Hodgson with escaped statistic of the week. Signing off. Bye-bye. First of all, go for, can I ask you a question? Would you have considered Adam Newman's plan to upon his death hand. All of his shares to his wife, a sunset provision. Is that a sunset provision? I mean. No, right. And no, but it wasn't it more than that? It was not just shares. It was Giving her some kind of executive role too. I think yeah she would basically she became queen or something. I don't remember how that worked all. So second question is Why is everybody desperately desperately? Afraid of one share. One vote. What is that? Because they like power, they don't want to be. They like they don't want they don't want like farmers and ranchers and corporate governance experts coming in and telling them what to do. Like it seems to have worked for the avocados. It's all I'm saying, they're delicious work, pretty much pretty well. We like the avocadoes and they're doing just fine. That's all we got for today. It's a woe Wednesday, alternative to democracy update with support saber metric alerts, Plus Words from our sponsor skh. Thank you as gauge. We'll be back tomorrow with the game show of some kind of something someday until then, goodbye.