Transcript
This is proxy countdown. Welcome to the Big Show for the week of December 11th, alongside my tag team partner. Matt muscari. I'm Damien Wallace on today's countdown, we have four big questions is Netflix listening to its shareholders Did a French director at Krispy, Kreme resign in protest. Will it hurt a CEO's feeling if you lower his pay. And on the big vote should Visa shareholders continue to rubber stamp their board of directors or is it time to start paying attention? Let's get right to the trade wire, Matt in our biggest company. In the US here, we look at the biggest ones, new director's at, Johnson and Johnson, they appointed. Best Buy director, Eugene, Woods to its board. Analog Devices appointed Nike and City Group director, Peter Henry. Look, I'm not sure actually on this one, that bringing in a director who's batting 318 who sits on Nike and City following a lesson, Stellar stint at the now dead GE is exactly bringing in the position player for the future. It actually. And I hate to say this tastes and smells a little like low risk, diversity play for a board that for some reason. Cannot find a single black person to put on the board. How about asking the 89 year old founder? At some point? It's 2023. He founded the company. 1965 to investors still have to like scratches back. At Exelon, Brian said she is a new appointed director. Brian was Deputy Global Vice chair at Ernst & Young. Current Exelon director, Anthony Anderson was a vice chair. Also at Ernst & Young. So, new director Brian will have someone to talk to during awkward breaks. this is, A Chicago alert, local alert and an ey. Alum alert Excellence most influential directors, Tony Anderson, who's as you said is an ey Alum. And excellent in Chicago base and they have two x. Insiders sitting on the boards seeded years. The Jetty is this is he's based in Chicago, too. This is not the best dad, I don't think. And the final ad is at Gartner, they have reappointed Karen Dyer to the board. Now, Karen has been on the board since 2007, but she left for exactly six months because I guess she has something better to do at VMware before it was acquired by broadcom in that time at Gartner shared price. Went from 339 to 446 dollars. Yes that's true. The day she left it was 339 dollars. Went up to 446 despite serving for 16 years on Gartner's board. Karen Dyer has held only 4% of bored influence and holds. Zero leadership positions. I'm pretty sure we got to call that the dijkstra effect. Going forward, a couple of resignations. We have Alexis black Bureau stepping down, at digital Realty. Trusts she's leaving that leaves the board with only two women and a striker. The dean of the Harvard Business School that's Street. Can guitar has stepped down. So they lost the important player, their Striker. That's, that's yeah, that's tough. There's a new CFO at chewy. David reader, he will receive a golden Halo award worth 17 million dollars, just to join chewy and Matt. He is eligible for quote, unlimited paid time off subject to the needs of the company. I've never seen that before. Yeah. Can you imagine working in the chewy Warehouse in reading that your new CFO has unlimited paid time off subject to needs of the company? The company needs to see a full. I don't, that's the need after a brutal say, on pay loss at Netflix's annual meeting in June, where only 29% of shareholders supported executive pay Netflix is finally announced some paid changes. Highlights include the fact that Executives will no longer be able to allocate their compensation between cash and stock options is a perk that I've seen nowhere before ever. Yeah. Rare massive stock option Awards will be eliminated as Executives. Will now receive only restricted stock and performance stock last year. Reed Hastings received 50 million dollars in options and Coast CEO. Ted serenos received 30 million dollars in stock options, so is the party over at Netflix, you Think the shareholders will be satisfied next June, who knows? I mean the parties over for Ted sarandos like who managed to only squeak out a few years of Mega pay read Hastings, got away with one, I would say here and before we get on to our proxy cage matches, there's a few tidbits from smaller companies that we need to highlight at evertek. CEO Morgan. Schussler, Junior received a six million dollar special Equity, Grant why? Just because no reason why. Oh good. And yeah, Krispy Kreme, here's the good one. French director. Lubomira Roche, resigned, three days before the donut company opened its first store in Paris. That's right. I'll let you draw your own conclusions. Matt should resign three days before they open their first location in Paris. Is that like is this if you Donuts like this is something right? This has to be something. It has better or something. Yeah. Better. Because you don't I was even able to figure this out is a miracle. And lastly we have a boomerang CEO at ring, central founder, former CEO and executive chair, Vladimir munis who controls 79% of board influence, boomerangs back to replace Tariq. robotic, who held the only 9% of Borderlands there, but Tariq walks away with a 10 million dollar gold in Parachute. What, at, what point do investors wake up and say, having the founder. Sit in a chair role is not the best idea to inspire your new CEO. It doesn't work. It doesn't work. I gotta tell you, first shareholders, all the board, everyone. Just do away with the golden Halos and golden parachutes. Yeah. Anything with the word golden in, it should probably be excommunicated. Yeah. All right. Let's get on to our proxy cage matches. Paulo Alto networks is fighting back against ISS and glass Lewis with a supplemental deck. That's right. They posted a pretty little power for it. Angry like a PowerPoint. Here's why the angry. Glass, Lewis has recommended against two of four, directors up for election. ISS and glass lures are both against Sam. Pay this year and ISS is recommending a vote against the company's Equity incentive plan. According to the deck, this is what Paulo Alto had to say. Since the company filed, its proxy statement glass Lewis and ISS have issued formulaic device on how shareholders might assess these proposals. So I guess formulaic advice is their way of saying that we're special and these shouldn't apply to us. What do you make of that? Formulaic advice. Look I Alta has a bit of a point in as much as it. Could you think of a more Hippocratic Hippocratic stance, then our hypocritical stance than ISS and glass Lewis. When those pundits come claiming, they have a hard line against something like related party transactions, which is what their case is here. They're saying we have a hard line against these transactions, right? That's what they said, you're talking about Lorraine two Hill, who is Chief marketing officer at Google? She has related party, transactions, Apollo with Google. That's one of the directors that glass Lewis wants out. Yes, and aparna Bawa. Yeah, here gets weird. Unfortunately, we don't have access to Glass Lewis's, recommendations up bajwa. Also in last year's proxy statement had related parade transactions, due to her role at Zoom. This year, I don't see the related party transactions. Palo Alto networks is saying that they want to vote out a partner bajwa because their ultimate disapproval of our pay practices in the long term performance and retention award we granted or so, because she sits on the compensation committee, they're saying that's why they're targeting a parano bar wash. She's the only member of the competition competition compensation. Can be up for both this year, so I don't know, I don't know. Now we're just floating out the person who had nothing to do with it. Not compare John Chi who they were okay with last year. But look here. The reality here is that we covered Auto Zone's related party, transactions last week, it's a parochial S&P. 500 board, full fist pumping buddies. They're buying goods from each other. Where is ISS and glass Lewis there saying, we have a hard line against that there and the fact that this is an absurd comp plan. Compare, John key is Not on ISS. England. Glass Lewis is radar from last year. Two Hill is Paulo. The second place performers, she's one of the top performers on the entire board TSR and, and overall batting 6:30 on TSR and 680 overall. And while Bob was a middle player, I mean, we're not voting meritocracy at all. Key is still there. He's the worst player on the group. I know he's not up for election this year, but this does seem like Palo Alto has somewhat of a point like we're not voting out the chair, we're not voting at the people that matter. We're just voting at whoever's expedient. Frankly, I don't understand why glass Lewis and ISS don't make these recommendations public. I would like to see really what they said because I am a bit confused these related party transactions, as I said were listed in the 2022 proxy but they're not in the current 2023 proxies. So does that suggest that these transactions don't exist anymore? I mean according to Palo Alto networks but here's where I will say, let's talk about say on pay Paulo Alto very humorously defended its pay package to CEO nikesh Arora by bear with me. Matt this is this is really what they said by claiming that since he grew a custom to his 100 million dollar. 100 million dollar of annual Equity Equity, that essentially, it would be rude to give him only 50 million dollars going forward. So they say that. This is why they determined that a meaningful Equity award would be necessary to ensure that such award retains and engages Mr. Or so that meaningful Equity award to make up for this is 144 million dollar, special retention award on top. If it's already 38 million dollars in Pay 4 million dollars of, which goes to personal security costs and for his use of the private jet. So that's a big That they use the word, those are my words, but the company did make the argument that because he was used to a certain level of equity payout that they had to make up for the fact that that was diminished. But so, the only thing I could think of is, did he have like, a 80 million dollar mortgage payment that he had to pay every year? I I've never seen this type, but again, this was not in the proxy statement. This is a supplemental deck released by Palo Alto Network. So I'm guessing only, we read that supplemental deck, most yours. Yeah. But Lewis maybe yeah. So that that's what's going on over there. Apollo Alto networks, at crown castle a struggle with activists Elliott Investment Management has led to the departure of CEO Jay Brown who will step down at the beginning of January Elliott claims that this is a step in the right direction, but that more changes are needed. So I'm guessing maybe they're going to Target some board directors. And finally, L3 Harris Technologies has entered into a cooperation agreement with one of its largest shareholders de Shaw, and has appointed two new directors to the board. That's former gelled. When CEO Kirk hashagen and former Raytheon. CEO Bill Swanson, Matt both Swanson and has. She can served on the board of next error energy where current L3 Harris, director, Lewis. Hey, the third used to be CEO. So again, wow, they're welcomed in to a happy friendly group there. That's a big hug in society got going on. Let's go over to our fabulous, vote results table. Matt, the vote is in, at Microsoft, the company we've talked about a lot in the past, an annual meeting. We've talked a lot about directors, received an average support of 90 8 percentage. That's average the shareholders are very happy with the directors there, Sam pay received 94% support All nine shareholder proposals were defeated including three from the anti-walk anti-esg crowd which received average support of a whopping 1% of shareholders one percent. Yeah, proposal. From Echo asking for a report on data operations and human rights hotspots fare, the best with 34% support from shareholders. Matt Echo is run by a lesbian And its board includes only one man. So I guess this is yet. Another thing for the anti-walk anti-escape non Bud, Light beer, they're not gonna cry fake, not Bud, Light beer, cheers. They're going to they're gonna queue the conspiracy theories and lawsuits. That alleged collusion, the fact is the gender bass compensation proposal was one of the most heinous proposals ever written at Microsoft. But now they have a blueprint. 26 States Attorney General penned a letter to proxy advisors issue glass Lewis alleging they are discriminating against proposals. That deal with issues that they care about, like, d banking of a religious groups. I actually think there's another letter on the horizon. This one at issue in glass Lewis, for ignoring things, like, we hate trans people as a shareholder proposal that it's inevitable that you, when you see a 1% report on gender based compensation benefits that targets. People versus a 34% data operations, in human rights, led by a shareholder. That is a lesbian run organization. They're just gonna cry collusion and discrimination at Cisco Systems directors received average support of 96%, despite 26% of shareholders rejecting say on pay. So once again, shareholders are still not clear what the compensation committee does. I don't know. They don't, I don't get this disconnect, there's a charter, it's available, you can read it, but no one else directors at Vail Resorts received, average support of 97% average at Stride, a shareholder proposal from the service employees. International Union asking for a report on lobbying receive support from 49.5% of stride shareholders. So that's an almost Matt, we'll see if stride does the right thing here. Remember that recently AT&T created a political Congruence report despite receiving support from only 44% of shareholders. So let's see what stride does here. I think they should do this xenotech bioscience's. That's a fake name, right? Say on pay filled miserably 68% said, no, this is despite the fact that CEO Jeffrey. Eisenberg. Only received 633,000 in compensation last year, which is an extremely low number for these companies. Jeffrey Eisenberg all was hated by shareholders as 46% want him out. I'm guessing they are mostly angry at the company share price which was 208 dollars, five years ago. But his currently under for dollars despite all the anger, the rest of the board received 94% average support, despite the fact that eight of nine directors have served since at least 2019 and averaged poor tenure is over six years. So, again, I don't understand what's going on. What are we doing? I don't know what are we doing? A safety shot. Yes, there's a company called Safety shot ha, alela received 66% votes against his election. And wait for it, he was removed the next day. Wow, pack your bags. And finally, at syntax Technologies compensation committee chair. Jeff White was voted out with 58% of shareholders saying, no, but he will remain on the board because of the company's plurality vote standard, which means he technically only needed. One vote to get real one vote. Yeah, that's what's opening up happening at our vote results table. Matt is now time for the big vote. Our company in Focus today are featured company is Visa visas annual meeting is coming up in January. Let me give you a few General observations before I handed over to you. First of all ownership at Visa is pretty diffused, the main Cheryl shoulders. Here are Vanguard and Black Guard. Black Rock each holding a little under 10% of the vote. The big story over Visa is a big leadership transition. Former CEO and current executive chair. Alfred Kelly is stepping down at the meeting. That means that 21% aboard influences up for grabs. Lead director, John Lundgren will transition to become the independent board chair. And there's also a new CEO, Chris saw, so that's what's going on over there. Visa Like I got three points and then some picks. Okay, so let's get right to it. Let's go to our first proposal, which of course, is the election of the entire board over at Visa. Go ahead, Matt. So Visa might be the poster child for the country. Club board out of 550 largest publicly traded us corporations Visa ranks in the top 12%. For the number of directors who know each other from other boards. This is a board that 58% of them are connected, within two phone calls. And yeah, there are some big hitter's on this board. The former CEO brocade Lloyd, Kearney the current CEO of Pepsi, Ramen LaGuardia, Um, the current CEO of Stanley Black & Decker, John Lundgren, the former CEO Campbell Soup, and he's Morrison the CEO of imperva Pam Murphy, and the CEO of Clorox, Linda Rendell. So you're right this is a highly powerful board. Yeah, go ahead and you didn't even mention Terry stole a list who's on the Microsoft board. So she like they're they're connected all over the place. In fact, the most connected team member you mentioned is Denise Morrison. She's connected to a quarter of the board by herself. She actually sits on four separate boards that have direct ties back to Visa. So Morrison is in the in the driving seat of under knowing everybody in the room. So Point number one this is a country club board Point number two It's All Aboard. Run company not an inside or run company. This is one of very few companies where 83% of the board are current or X CEOs, including Morrison, who is the chair of the comp committee. We have a CEO gets paid by another CEO. Insiders only control 34% of the board. Influence 34% is absurdly low in it, for us company, compared to 75% of the influence, controlled by these connected directors, this is very clearly, the country club running the company not the company running itself or which I will say, gives a lot of power to shareholders. So instead of rubber stamping, these directors every year that could have some actual influence on, what's going on the shareholders, have power to do something here. Including you can tell how the board thinks of itself by the fact that it pays itself. Incredibly well Visa is in the top 10% of board comp in the United States. The average director gets 367,000 dollars a year and escalating pay for Sharon committee roles every single year. They've they've increased the retainer for sitting on a committee so they've incentivized continually everyone gets on a committee and everybody gets increased pay. In fact Lundgren, who's the rising chair? Now with all these transitions happening, he made a team High 480,000 dollars in 2023 that was for going to 19 total meetings four meetings in the nominating committee seven of audit and eight board wide meetings. That's 25,000 dollars per meeting of awarded pay. The realized pay is higher given Equity grants so the board. Yeah likes itself very much. Let's not forget that. This is a man that they call Independent. He makes a half a million dollars and you expect your husband, believe he is independent from this company, a half a million dollars. And here's what you get for that level of Independence, a country club board who basically is running the company. Investors are getting a boringly average return for their country club elections. The team as a group, that's 463 overall where 500 is an average team, right? So we're slightly below, average 634 for Ibotta. Average before 26 for TSR, which is below average. We're basically looking at a board where 34% of the members, we consider to be all stars, these are Heavy Hitters. They actually perform pretty well, but when we put them together, when they have no accountability and they're all connected. We're not seeing the output of All Stars, think of it, like a super team that basically can't make it to the finals. That's effectively what you're seeing out of the Visa board. Which brings me to the picks. Yeah, what do you got? You know, rubber so everybody like shareholders or you could actually gonna Target some direct know because we're gonna do some real analysis about the people involved. McNerney MC, Ernie McNerney, the rising CEO. He is a puppet CEO with Al Kelly, who was the former CEO sitting in the executive chair seat Kelly had more influence than the current CEO had and it actually looks unlikely to change even as Kelly steps out because Lundgren is taking over the chair role. And CEO and Cheryl roles will remain separate Lundgren is one of the most connected people influential members of the board. He's the second highest influence on the board. Overall, he's gonna take the crown and he's gonna run this company effectively from the board. My pick number one vote against Lundgren. Wow, for an actual Outsider, I know you want to make him the chair, but he's not the chair of this company, if he's not being. Independent and holding the other directors, accountable, he's effectively an Insider. Number two is vote against Morrison. She's the most connected director on the board. You would get rid of the entire Brain Trust of connected fist. Bumping Country Club just with those two like eliminating group thing kind of a homeless immediately. That's my second. Pick here is look at the performance metrics the lowest performer on TSR overall. On this board is Linda Rendell the CEO of Clorox. Right now need I remind you Clorox. Just add one of the largest data breaches that shut down its Ops for months. And Rental lists risk and e-commerce as core skills in her skills. Matrix vote against Randall, give her the time to focus on Clorox at a higher performer into the mix. I think that makes sense. And finally, my final pick here, Francisco Javier, Fernandez, Carol bajul, he sat on the board since Visa ipo'd with the wind down of litigation in class, B, and C shares, which you're going to get to in a second. This is the time where a 16 year, 10 years, long enough vote against, Fernandez. Let's get out Lundgren Morrison, rental Fernandez and make room for actual Independence, no more group, think and no long tenure directors. Who basically are guaranteed, 300,000 dollars a year to show up, you know, doesn't 20 times to meetings. So in summary proposal won election of directors, we are saying vote against Lundgren Morrison, rental and Fernandez, yes. Proposal to say on pay shareholders supported this 90% voted. Yes, last year. um, I will add a few A few tidbits here, Matt and connection with the CEO transition, the company seemed to hand out. Equity Awards special Equity Awards to at least four named executive officers. I'm not sure why they did that just shut them up because there were unhappy that they weren't promoted. I don't really know why the promotion, I don't know. Yeah, I you would think a 2023 were Beyond these special one time Awards like this. Here's a here's something that I like I said that's sarcastically for CEO, Ryan mcinerney. If the three-year total shareholder return versus the S&P 500 is at the 25th percentile or below. Okay. That means that basically they could underperform the entire Market The modifying metric on his Equity is only at 75%, which means he still gets 75% of its Equity award. Even if he underperforms the entire S&P, 500 Equity award entire S&P. 500, can you imagine a basketball player that performed in the bottom quartile of all basketball players? They make the league average? They don't get Equity Awards and cash on top of it? That is absurd. That's an absurd number. Oh, so add the new CFO Chrissa, who came over from Electronic Arts. He's getting golden. Hello, 11 million dollars of equity. He's also getting about four million dollars in cash 2 million of which is basically to say sorry to Electronic Arts where he served as a CFO for only 50 months. So they're kind of paying back some of the money he lost because he lost he left. Electronic Arts, feels like a real trade, like a traded actual player. So what do you think about Sam pay over there at a Visa? So I'm going to vote Yes on it mostly because if you're voting No, on Morrison. If you're voting out Denise Morrison, she's the chair comp here. It's solves part of this sort of insular board Naval gazing comp problem and maybe you could put in somebody who's actually independent to that role. Uh let's skip to proposal for, that's to approve and adopt the class B exchange offer certificate amendments, Matt. I don't even know where to begin here. This is a, I don't know how your average shareholder can even digest proposals. Like this is unbelievably dense and obtuse, but I know you have an analysis here. So, go ahead. Look, it's a really simple thing, right? Like, these Shares are not power. Consolidating shares for the Insiders. These are actually shareholder insulating shares. Visa was, was found to be monopolistic. They had an Anti-Trust action prior to their IPO and as a result, they still wanted to IPO. So they issued these shares that were effectively a bank account for payouts, that they were going to have to make to counterparties. The simple answer, here is simplifying the different share classes that they have is good. They're getting themselves out from a litigation where they overcharge everyone in the universe. That's fine. I vote for this. All right, and final, let's Jump Ahead to a shareholder proposal from John. Chavez in asking for the board to adopt a policy to seek shareholder ratification of certain termination pay Arrangements what he say, Matt. He's basically trying to limit golden parachutes. That's all he's trying to do and his proposal, but the fact is if John Chavez wants it, vote for it. There's nobody who thinks more about shareholder rights then that guy he's a corporate governance, gadfly vote for it. Yeah, and John I agree with you John, but can you add in Golden hellos to that too? Yes, can we get rid of all gold and lows and golden parachutes? That's it, we're Golden's in it, get rid of it, that's it for Visa, that's it for the show, that's the proxy countdown for the week of December 11th. 2023, 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 directors.