INVESTORS DON’T CARE ABOUT “TOO-HIGH CEO PAY” – At least as long as they themselves are in the black – witness the strong support the move to have shareholders ratify Elon Musk’s massive award of options racked up after a Delaware judge ruled it was wrongly awarded by directors basically “controlled” by him. Not much of a shock, as Elon’s huge base of “fan boys” weighed in as expected, with a majority of institutional investors signing on too, despite ISS and Glass Lewis recommendations to vote NO. The vote is non-binding, and the case will still continue in Delaware, at least for now, but we are betting that Elon will have his way in the end. Note too that this season, support for executive pay in general - which continued to far outpace the rate of “average-worker pay” - reverted to mostly sky-high approval rates.
INVESTORS SHOULD CARE – BIG-TIME – ABOUT COMPANIES THAT MOVE TO DITCH DELAWARE AND REINCORPORATE IN STATES WITH MORE LENIENT RULES – AND LESS-DEVELOPED COURTS – AND PRECEDENTS…. BUT OBVIOUSLY, AND SHAMEFULLY, THEY DO NOT!
We simply can’t see how any fiduciary could possibly vote to rubber-stamp Tesla’s move to Texas. Aside from the far more lenient regulatory environment where investor protections vs. board prerogatives are concerned, “Stock Markets hate uncertainty,” as well they should, and as at least one smart observer pointed out. So far, the mini-trend to run for “rough-and-ready frontier justice” in states like Texas, Utah, Nevada and Colorado does not seem likely to gain a lot of steam. But ERISA Fiduciaries – mind your duties to place investors FIRST – or surely someone WILL by filing suit on this.
INVESTORS DON’T CARE ABOUT EXCESSIVE DIRECTOR COMP EITHER – AS “DOUBLE-BINDING BYLAW PROPOSALS” TO MANDATE “SAYS” ON DIRECTOR PAY FAL.L COMPLETELY FLAT:
This season, Michael Levin, editor of The Activist Investor, and prompted by the pay-flap at Tesla, proposed a binding bylaw proposal that would give shareholders a binding Say on Director Pay. It sure sounded like a very sensible good-governance measure to us. As far as we know, Corporate Directors are the only people an America who can set their own pay.
Long-time activist John Chevedden submitted it to thirteen of his portfolio companies for the 2024 proxy season. Eight of them sought no-action relief from the SEC and all received it; based in part on a claim (a crazy one to us) that the provision excluding directors from voting their own shares on their own compensation was a violation of Delaware law (!!) but also concluding (with no logical reason that we can imagine) that this was unwarranted “micromanagement.” Five companies included it in the proxy statement, where the average vote in favor was a mere 2% of the shares voting.
Levin had contacted many institutional investors, reached out to ISS and Glass Lewis – and to the SEC staff itself - but got nothing back of any substance - so a total flop…for now, But see the next bullet-point: We still think that (a) this proposal makes very good-governance sense and (b) can potentially “grow legs.”
SERIOUS CONCERNS ABOUT THE INDEPENDENCE OF SO-CALLED “INDEPENDENT DIRECTORS” AROSE – OR SHOULD HAVE ARISEN THIS SEASON IN OUR BOOK.
Tesla’s long-serving and massively compensated Board Chair lobbied extensively and in- person for Elon’s comp with every major investor – and lots of smaller ones too – dramatically underscoring the lack of true independence the judge had ruled against.
Exxon’s fight letters against the Vote-No campaign aimed at its own “Independent Chair” depicted him as if he was the “Executive Director” and a “key player” behind all of their recent successes.
What ever happened to the old maxim of “noses in but fingers out” for outside directors? We see this issue – plus the idea that after too many years on the board, “independent directors” are so “invested” – both mentally and financially - that they are no longer “independent” at all - as being major “sleeper issues” to watch.
ISSUERS NEED TO STOP WHINING ABOUT THE SUPPOSED INFLUENCE OF PROXY ADVISORS ISS AND GLASS LEWIS ON VOTING OUTCOMES – in light of Musk’s big vote on pay despite advice to vote no from both firms and Nelson Peltz’s big loss at Disney, despite advice from both advisors to vote for him.
THE TWO BIGGEST AND MOST DISTURBING TRENDS WE NOTED?
(1) - THE CONTINUING DROP-OFF IN RETAIL-INVESTOR VOTING - Underscored by the Disney vote, where, after more than $70 million was spent to win the proxy fight, the quorum dropped to 68.8% vs. 76.55%% last year – a drop of 124,712,724 mostly retail votes – a roughly 10% drop-off vs. 2023…
(2) – TRULY ASTOUNDING “ENDEMIC SLOPPINESS” that marred so many AGMs this season. (See below for details.)
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