The annual proxy for this manufacturing company had the following proposals:
- Proforma votes on directors, appointment of auditors, and “say-on-pay” advisory vote
- Board proposals on exclusive forum for lawsuits and incentive compensation plan
- Shareholder proposal on ideological disclosure
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.
-Auditors – There appear to be no controversies with the financial statements of the company.
-“Say-on-pay” – The proxy materials disclosed a shareholder engagement program, including the level of activity and the inclusion of executive compensation as a discussion topic. While the peer group criteria were vague, the peer group was listed and the benchmarking of the company against the peer group was thorough.
- For and against board proposals.
-Against exclusive forum – The company intends to make Delaware the exclusive forum for corporate lawsuits. There are exceptions, such as lawsuits involving federal courts. While such a change could provide the company advantages in some litigation, the power may be used to enable the board and/or senior executives to act in a manner inconsistent with company interests. The material in the proxy did not disclose the proportion of major companies with such a provision, nor did it disclose any risk considerations related to potential abuse of the change by board members and/or executives. There is some literature expressing concern about the topic. In summary, the materials in the proxy were not compelling.
-For incentive compensation plan – Long-term incentive plans are a good tool for aligning management of a company with shareholder interests.
- Against shareholder proposal on disclosure of director ideological perspectives. The board should have the latitude to select the criteria most useful in an effective board. The shareholders can then decide whether the criteria are good or not. For many companies, political considerations are not in the interests of the company. Forcing such information to be disclosed when the board does not consider the criteria relevant would create the risk that the company will be part of our current divisive political climate. This risk has negative consequences for company valuation.