The annual proxy for this healthcare company had the following proposals:
- Proforma votes on directors, the appointment of auditors, and executive compensation
- Votes on shareholder proposals covering lobbying disclosure, financial metrics disclosure, shareholder voting, and simple majority vote
Magni voted as follows:
- For proforma proposals:
-Directors – The board has a majority of independent directors and some have CEO/CFO experience with other companies. The compensation of directors is disclosed with a meaningful portion in equity where the equity has restrictions to align director incentives with long-term value creation. Daniel Starks is a legacy director from the St. Jude acquisition. This is the last year that Magni will support him as a director as Magni would like the board seat to be filled with someone having a more independent perspective.
-Auditors – There appear to be no controversies with the financial statements of the company.
-“Say-on-pay” Advisory Vote – The shareholder engagement and peer group disclosures indicate good governance practices in executive compensation.
- For and against shareholder proposals.
-Against report on lobbying activities – The company already provides good disclosures of lobbying activities. This proposal seeks to lump industry group activities with political activities. There are good reasons for a company to participate in an industry group. Many of those reasons are unrelated to lobbying. Assuming all such industry activity as political is wrong.
-For financial metrics disclosure – Companies sometimes use non-GAAP financial metrics in public reporting and in executive compensation. Sometimes the metrics can help stakeholders understand company performance and/or provide targeted incentives to executives. At the same time, such use can be risky. In the case of GE, the frequent use of non-traditional financial metrics masked deep problems with the company. Abbott is well run, so the risks are lower. At the same time, reconciling non-GAAP financial metrics in a disclosure is a good way to manage the risk from the use of such metrics.
-For shareholder voting – The shareholder statement in support of the proposal was not compelling, though the proposal did specify that non-binding votes were sufficient. The board recommendation against the proposal did make some good points about existing shareholder rights and the need to give the board latitude to act quickly. The board response did not address the proposal being about non-binding votes. When looking at the whole of the board response, the response does not address the proposal. As such, Magni voted in favor of the proposal.
-Against simple majority vote – Magni routinely votes in favor of removing supermajority voting requirements. This proposal is different. Abbott has few supermajority requirements. Those are mainly related to defenses against hostile takeover. The proposal is generic and does not address Abbott’s situation. As such, Magni votes against the proposal, though remains open to a proposal to removing the supermajority in the few areas where such requirements remain.