The annual proxy for this financial services company had the following proposals:
- Proforma votes on directors, appointment of auditors, and “say-on-pay” advisory vote
- Board proposal to amend the Long-Term Incentive Compensation Plan
- Shareholder proposals on employee-incentive risk assessment and gender equity
Magni voted as follows:
- For all 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. Given recent news about Wells Fargo, changes clearly need to be made. Only two of the directors have long tenure on the board, so Magni did not see a need, for now, to make changes to the board.
-Auditors – There appear to be no controversies with the financial statements of the company.
-“Say-on-pay” – The proxy materials discussed a shareholder engagement effort with compensation being one of the topics. The peer group for compensation benchmarking was identified, though the criteria for inclusion in the peer group was vague. While flawed, enough of the basic process for good governance is in place to justify a vote for the proposal.
- For the board proposal on the equity plan as the plan is aligned with shareholder interests, the amendments are minor in nature, and having key people within the company focused on value creation is a good governance practice.
- Against the shareholder proposals.
-Proposal on Incentive-Based Compensation and Risks of Material Losses. The shareholder most likely submitted this proposal in response to the scandal involving employees opening accounts fraudulently based on bad compensation incentives. Clearly these, and probably other issues, need to be fixed by the company. Placing shareholders in the role of reviewing compensation plans is not likely to be effective. The required changes need to occur at the culture and systems level. Such changes can only be accomplished by management. The shareholders of this company should give the board a year to select a new CEO. If the board does a good job and selects a new CEO with a proven track record of significant cultural change at a large company, then hopefully Wells Fargo will be on a path of success. If not, the entire board should be turned over.
-Proposal on gender equity. Gender equity is an important issue. That said, there are two reasons for voting against the proposal. The first is the use of generic and inaccurate information in the shareholder’s supporting statement, along with the proposal requiring the company to report a misleading metric for gender equity. The second is the company’s prior and current efforts to address gender inclusion. The company has made good progress and should be encouraged to continue with its current efforts.