Let’s lead off on a high note, with some of the best meetings your editor attended – and where there were some nice innovations worth passing along:
Verizon, Inc. takes first prize in our book, for the wonderfully new and efficient way they handled the “shareholder question period.” Wonderfully respectful, we thought, of the attendees’ valuable time and attention: They set up signs around the edges of the room for five or six topics that investors would likely be interested in – like new products, consumer questions, HR & IR stations – and the Chairman stepped down from the podium to take questions directly, from any and all comers, at the front of the room. A nice hot breakfast for shareholders also opened up in an adjoining area – which almost everyone much preferred vs. having to listen to the usual and often argumentative array of questions that are rarely high on their own questions list. But every attendee had every opportunity to be heard, or merely to say, “Thanks, and nice job” - as many did.
UnitedHealth Group - which had four or five institutional- investor reps in attendance - was a very close first-runner- up – for the way the chair of the Governance and Nominating Committee answered an activist investor’s question about Board “refreshment efforts.” (It’s a mighty rare thing for institutional investors to attend a shareholder meeting these days, much less to constitute a majority of the audience – unless they are very unhappy about something, which these definitely were not. We thought the turnout was very much due to the downtown Boston location, which was a lot more convenient place for the likes of Fidelity, Vanguard and Walden Asset Management to check out the management team up close and personal than is Minnetonka, MN.) But in any event, we ourselves were astonished – which doesn’t happen very often at shareholder meetings – and totally impressed – by the clarity, cogency and detail of the Governance Committee Chair’s seemingly impromptu response: Clearly (and we really don’t think she was tipped off to the question) a lot of effort WAS being devoted to this subject at UnitedHealth. And wow, did she ace it! Turns out that among other things, UnitedHealth actually has a panel of outside advisors from a wide number of disciplines, who try to identify important business, technological, scientific, ‘social’ and other strategic issues – and to look for director candidates that will keep them ahead of the curve. “Does any other company have a program like this?” the investor asked… “Not to our knowledge” they said… But stay tuned for more companies to tune into this, we feel sure. And please remember that you read both our top two tidbits here FIRST, if, as we suspect, you did…
Here are a few other nifty things we saw in proxy documents this season:
BEST EXECUTIVE COMPENSATION DISCLOSURE AND DISCUSSION: Exxon Mobil, hands down. They produced a 12 page glossy “Overview” that they asked shareholders to review “Before you cast your vote on Management Resolution Item 3 – Advisory Vote to Approve Executive Compensation”…along with the “more detailed information” in the CD&A section, comp-tables and narrative in the proxy statement. Colored bar-charts and graphs made their stand-out performance vs. their top four peers – and vs. thepetroleum industry overall – quick andeasy toappreciate… like Safety Performance, the lead-off item, where Exxon beats its industry peers consistently, and by a wide margin, and which they see as a KEY performance metric…and yet again on item 2 – Return on Average Capital Employed – and Free Cash Flow (a strong number-2) – and your editor’s favorite metric, Total Cash Distribution Yield where the “Dividends per share [were] up 10 percent per year over the past ten years” and Exxon “Distributed 46 cents of every dollar generated from operating cash flow and asset sales…from 2010 to 2014.” Their charts and plain English explanations of arcane and usually indecipherable executive comp-speak – like Realized and Unrealized Pay, Equity Incentive Programs, Vesting Periods, and The Exxon Mobil Program vs, Formula-Based Pay are all must reviewing – both for content and for presentation.
BEST – AND CHEAPEST MEETING-EMBARRASMENT PROTECTION: Exxon Mobil again, for its short section in the proxy statement on People with Disabilities: “We can provide reasonable assistance to help you participate in the meeting if you tell us about your disability and your plans to attend. Please call or write the Secretary at least two weeks before the meeting at the telephone number, address or fax number listed under Contact Information on page 3” Cost of time, ink and paper? Near zero. Value, vs. having someone ask about this from the floor, as at least two people did at meetings this year…making your company look clueless – and cold hearted? Priceless!
BEST VOTE-NOW MESSAGE: Lockheed Martin, which placed a very eye-catching, full-color photo of their Chairman & CEO, Marillyn A. Hewson on page-one of the Notice of Meeting, with a message that resonated with us; The first such message that ever did, thanks to the personal touch – and maybe because Lockheed has been one of our most rewarding investments: “As a stockholder, your vote is important to our continued success. Please vote your shares today” – which we took special pains to do.
ANOTHER GREAT USE OF THE “PERSONAL TOUCH” in that dry old proxy statement: United Parcel Service had neat little photos of each and every Committee Chairperson - using the UPS “shield” to frame them attractively - at the head of each Committee description in the proxy statement. It made you want to look, and read on. Best of all, it made you feel that “Real people are actually in charge here!”
BEST USE OF TECHNOLOGY TO GET ONE’S POINTS ACROSS: Trian, in its fight to elect four directors at DuPont, for posting videotaped interviews with each candidate on www.DuPontCanBeGreat.com What a way to showcase the candidates, their very impressive qualifications, their compellingly stated reasons for signing up to run – and their ideas as to how DuPont can become great(er). None won, for reasons we try to decode above…but what a grand run they made. And if DuPont’s stock-price, which fell when the Trian results were announced, does not become a lot greater over the next few months, look for them to come back again – with guns blazing, we bet…
NOW FOR THE WORST MEETING OUTCOME OF THE SEASON:
First prize surely goes to T. Rowe Price, who filed to exercise their appraisal rights in the course of the Dell buyout of shareholders – and who, with some 30 million shares in various funds was Dell’s third largest shareholder - and became the lead plaintiff in the appraisal case. But Oh! Woe! Despite their statements that they had voted NO against the going- private deal, it turned out that their voting agent, ISS – who rightly needs to share the first-prize honors here for ‘worst’ - voted YES, when it changed its own recommendation. So T. Rowe, and its attorneys, got booted from the case, since one must vote no (or in some states simply not voting is OK) in order to exercise appraisal rights – or to benefit from any added payments that may be awarded to dissenters. Dell moved quickly in Delaware Chancery Court to disqualify them from the class of claimants altogether. We are betting that the court will cut them no slack - even though the yes vote was a mistake – and not made by them. Ultimately, if there IS a higher appraisal, and an award, T. Rowe Price does have another remedy, of course - to sue ISS for the dough.
FINALLY, THE WEIRDEST EVENTS WE SAW THIS SEASON, THANKS TO OUR TEAM OF INSPECTORS OF ELECTION, WHO SERVED AT 500+ MEETINGS:
Remember our 1st Quarter warnings about so-called “Floor Proposals”? Here’s a little horror story straight from the proxy-war front, to get your attention: One of our Inspector of Election clients, a small and ‘financially troubled’ bank, got four proposals from a shareholder who did not meet the deadline in the company’s Notice Provision, so they did not appear in the proxy statement. But – weird fact 1 – the company’s bylaws also provided that with 30 – 60 day’s ‘notice’ – shareholders could present proposals from the floor. But – weird fact 2 – the wannabe proponent did not provide proper proof that he met the required share ownership criteria. Nonetheless – weird fact 3 – somewhere along the line, the bank said they’d let the shareholder introduce his proposals at the meeting anyway. Our Inspector reminded them that unless there was an actual tabulation of the votes that ran to the proxy committee on “all other business” (which there was not) we would have no number to enter on behalf of street-name voters. But – weird fact 4 – the client’s outside lawyer insisted that in their state of incorporation, and as also stated in the proxy statement, the company’s proxy committee was entitled to vote as they wished on “all other business.” Since it seemed to the Inspector that the company votes would prevail under any scenarios – and since the company could still disallow votes for the proposals due to the proof-of-ownership issue – which, clearly, the proponent failed to meet – there was no need for concern just yet. But then – weird and troubling fact 5 – the proponent showed up with over a dozen supporters, all of them looking to vote. But no big surprise to the Inspector, all but a small handful of the wannabe voters held their shares in street name…and had no Legal Proxies in hand. So, even if one counted only the votes of people who voted in the room on this “other business” - as the company considered doing so as not to rub their defeat in the noses of the dissidents - the company prevailed by an overwhelming majority. But as we’ve warned before – we HAVE seen instance where dissidents had enough votes to carry the day on proposals raised “from the floor.” So readers…please note this important takeaway too: It does not cost a single penny extra to tabulate the street votes on “all other business to come before the meeting.” And while yes, increasingly, many institutional investors will NOT check the box to give management a ‘blank check’ here, most times management WILL prevail on proposals that have not been submitted to ALL shareholders.
And how’s this for another hairy-scary meeting moment: Shortly before their meeting was set to convene, a well-known company we’ll allow to remain anonymous – and which had a shareholder-sponsored proposal on the agenda that they did NOT want to see pass – had 12,817,985 shares FOR the proposal and 12,643,343 shares against. And OH! More woe! The Chairman (whose minions obviously did not read our 1st Quarter tips on being sure that all the key officer and director votes got voted in time) suddenly realized that he had not voted his own shares…some 200,000+ shares that were held at a broker…And, oops again, naturally, he had no Legal Proxy in hand that would have enabled him to vote his shares then and there. But a happy ending here too, thanks to a smart and savvy Inspector of Election, who was willing to allow time for him to get his broker on the phone, and get the required paperwork issued. And thanks to some very fast scrambling by the Broadridge staff too – the final count ended up as 12,817,985 For and 12,890,145 Against.
Three valuable ‘practice points’ to note here: First, we believe that it is always appropriate for an Inspector of Election to allow a “reasonable amount” of time for voters who ask to make last-minute vote changes, and/or to assure they have a “fair and reasonable chance” to get their votes into the final tally as desired. We had several such instances this season – many of which involved tardy institutional voters, with big and determinative positions – including two that involved last minute changes of mind that changed the outcome. Second, it’s always smart to keep close tabs on large ‘un- voted positions’ where the votes may have gotten “lost in the shuffle” thanks to the bad habit so many big institutions have of waiting ‘til the very last moment to vote. And third – do review our article on “Getting Out the Often Decisive Officer and Director Votes.”
LASTLY, JUST SO YOU CAN SAY, ‘THANK GOD IT WASN’T ON MY WATCH’ - AN EMBARRASSING REPORTING FLUB, by Intel: According to a press release from The Holy Land Principles, Inc., correcting their initial press release about their shareholder proposal, “A top Intel official twice emphasized to us that we would not be able to resubmit our Resolution next year because we had obtained only 2.6% of the vote. But our expert attorney refuted that, declaring that ‘I have just checked, and Intel’s numbers, as reported to the SEC show that the Holy Land Principles received just over 3.2% of the vote (as calculated for resubmission purposes, disregarding abstentions.’”) Mistakes happen, as we all know, but this was a surprising ‘rookie-like error’ - on a fairly sensitive matter - by the usually meticulous Intel - which gave proponent Fr. Sean McManus an extra turn at bat in press-release-land.
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