PROXY COUNTDOWN SCRIPT

This is Proxy Countdown. Welcome to the big show for the week of October 21, 2024  alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

The glass cliff crumbles at CVS

Walt Disney keeps trying to replace Bob Iger

Accelerated retirements at Southwest Airlines

An angry shareholder mob at Klarna

And on the Big Vote, Lam Research’s high-priced board  

Trade Wire - BUY/SELL

Top Stories:

CEO Karen Lynch is out at CVS Health Corporation and has been replaced by David Joyner. Also, independent board Chair Roger Farah has been promoted to Executive Chair.

FFA: Karen Lynch (16%) vs. Roger Farah (16%)

Out in Australia, WiseTech founder Richard White has resigned as CEO and director. But this is what the board says when you are the company’s biggest shareholder and controls 44% of board influence: “The board has agreed, following Mr White’s request, that he will stand down as a director and as chief executive with immediate effect, take a short period of leave … When Mr White returns from leave, he will commence a new full-time, long-term consulting role, focused on product and business development.” For this role, on a 10-year term with the title “Founder and Founding CEO”, White will be paid $1m a year.

Mr. White has faced claims from multiple women that he bought them houses and invested in their businesses in exchange for sex. The lurid allegations get worse from there, including reports of violence, intimidation, and retaliation. 

WiseTech board chair Richard Dammery, who announced an independent inquiry, said “recent weeks have been challenging and uncertain ones for our people”. Despite the fact that in 2019, former board member Christine Holman resigned from the board and accused White of “sustained intimidation and bullying”. 

While the board expressed ongoing confidence in the company’s leadership, shareholder pressure ultimately forced the board’s hand following the Founder and Founding CEO’s extremely public dispute with a former lover in federal court

Despite the turmoil and allegations, Roy van Keulen, analyst at Morningstar, said "Given our assessment of WiseTech as a product-led company, we consider White's continued involvement in this area of the business to be a positive outcome for shareholders."

According to an 8-k filing, The Walt Disney Company announced that board chair Mark Parker will resign on January 2, 2025. Then, if you were smart enough to click and open the exhibit 99.1 attached to the 8-k filing you would have learned former Morgan Stanley CEO, and it’s current executive chair, James Gorman will become Disney’s new board chair. Disney also announced that it would name longtime CEO Bob Iger’s replacement in early 2026 and that Gorman would be in charge of that process.

In big money news:

Molina Healthcare is giving CFO Mark Keim a special one-time stock award worth roughly $17M jus for being Mark; and

Amit Zavery is ServiceNow’s new Chief Product Officer and Chief Operating Officer and will receive $3M in cash and $29M in stock. The generous award is to make up for the burden of his new corporate headquarters being located 11 miles from his old corporate headquarters.

In a blow to our very own Matt Moscardi, his favorite greenwashy director, Greg Goff at Exxon Mobil is stepping down.

Bela Bajaria  has joined the board of The Coca-Cola Company.  Bela is the Chief Content Officer at Netflix. While this is potentially a head-scratching addition, it ignores the reality that both Coca-Cola and Netflix are two of the world’s most powerful drug companies, reinforcing the notion that many large cap companies are mis-classified.

H.B. Fuller board chair Lee Mitau is resigning. FIrst he will step down as Chair on January 21, 2025 and as a director on January 23, 2025. It makes you wonder what the hell will be going on on January 22.

And finally, in a move that will shock investors across the globe, JPMorgan Chase has appointed a director named Brad Smith.

PROXY CAGE MATCH

The big news is out of Southwest Airlines, where the company has seemingly ended its feud with activist investor Elliott Management. In a deal to avert a proxy fight, CEO Bob Jordan will keep his job, Executive Chair and former CEO Gary Kelly will push up his retirement, and Elliott will name six directors to the board.

According to the filing, Kelly will retire precisely at 11:59 p.m. Central Time on November 1, 2024.

As was previously announced, six other directors will be stepping down at 11:59 p.m. Central Time on November 1, 2024: David W. Biegler, J. Veronica Biggins, Roy Blunt, William H. Cunningham, Thomas W. Gilligan, and Jill A. Soltau–none of whom seemed to have experience befitting the board of a major airline carrier.

The company states that “None of the departures from the Board described herein are due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices” even though we know that is precisely why they are stepping down.

The six new directors are: Pierre Breber (former Chevron CFO), David Cush (former CEO Virgin America), Sarah Feinberg (former Administrator at the Federal Railroad Administration, Chief of Staff to the U.S. Secretary of Transportation and Interim President and CEO of the New York City Transit Authority), Dave Grissen (former Group President of Marriott International), Gregg Saretsky (former CEO of WestJet) and Patricia Watson (Chief Information and Technology Officer at NCR Atleos).

Activist investor Jana Partners has bought a 5% stake in  Lamb Weston, criticizing the potato-products supplier of “self-inflicted mis-steps.” Which either means that the fries are soggy or the directors are burnt.

Activist JCP Investment Management has taken a 2% stake in the Cheesecake Factory and is urging the restaurant operator to spin off three of its smaller brands into a separate public company. Raise your hand if you’ve heard of any of these places: North Italia, an Italian casual-dining concept; Flower Child, a health-focused fast-casual chain; and Culinary Dropout, a gastropub known for its pretzel bites and fried chicken.

The board at Cheesecake Factory is dominated by Chair and CEO David Overton, who co-founded the company with his parents in 1978. It’s also dominated by the pasta carbonara with chicken, which clocks in at 2210 calories and 147 grams of fat.

And speaking of unhealthy, Activist investors JCP Management and Jumana Capital have respectively taken 7.9% and 3.7% stakes in the Colorado-based casual-dining restaurant chain Red Robin Gourmet Burgers. According to reports, the investors are asking for extra pickles. 

VOTE RESULTS TABLE 

Moving over to our vote results table, The winner of the week is Drury (Dru) Armstrong at  Paycor HCM: 99.94% supported her election to the companies board. Or maybe they just support her nickname?

At Seagate Technology, 35% of shareholders said NO to director Mark Adams. 

Mark was nominated by the Board to fill the vacancy resulting from a retiring director and previously served as a director for the Company from 2017 to 2022

And finally, at Swedish company Klarna, 87% of shareholders voted to Remove Mikael Walther From Board. No reason was given by the company for Walther’s removal. Bloomberg reported he had questioned governance decisions at the company, including a bonus scheme that he said could hand Klarna co-founder and Chief Executive Sebastian Siemiatkowski as much as $35 billion in the next years. THat’s a pretty good reason.

THE BIG VOTE

LAM RESEARCH

AGM Date: November 5, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

Ownership

Institutional

Vanguard 9%

BlackRock 9%

Individual

n/a

Performance outliers: (vs. industry)

Overall: .635 (.603)

Michael Cannon .445

EBITDA .621 (.463)

n/a

TSR .559 (.467)

n/a

Carbon .513 (.481)

Michael Cannon .215

Controversies .815 (.896)

Michael Cannon .471

Board stuff

Committees

Audit (a)

Compensation and human resources (c)

Nominating and governance (n)

Innovation and technology (t)

Skills

(Non-Executive Directors)

Computers and Electronics (19%)

Communications and Media (11%)

Physics (9%)

Engineering and Technology (9%)

Economics and Accounting (7%)

(Executive DIrectors)

Physics (8%)

Diversity Gaps

Female Power Gap 27%/19% (-7%)

Industry average female influence = %

Insider influence: %

Industry average %

Other

Matt:

Non US sales 93% of sales

29% of employees are R&D

Manufactures fab equipment - they’re the supplier to chipmakers, primarily in Asia

Three clients make up just under 20% of revenue, the biggest is Taiwan Semiconductor

Taiwan Semi just had an issue where one of their chips ended up hidden in a Huawei device that wasn’t accounted for by US imports

Proposal 1: Election of  Directors

Annual Elections for ALL 14 directors? YES

NOMINEES

Sohail U. Ahmed 66 m 2019 at 2%

SVP Intel

Votes Against Last AGM: less than 1%

Timothy M. Archer 57 m 2018 17%

CEO since 2018; previously at Novellus

Other Current Public Boards

Johnson Controls

Votes Against Last AGM: less than 1%

 Eric K. Brandt 62 m 2010 Cn 16%

Former CFO Broadcom; former CEO Avanir Pharmaceuticals; former CFO Allergan

Other Current Public Boards in last five years:

Option Care Health, Inc.

Gen Digital Inc.

The Macerich Company

Dentsply Sirona Inc. (former)

Altaba Inc. (former)

Votes Against Last AGM: 12%

Ita M. Brennan 57 f 2024 n/a%

Former CFO Arista Networks

Other Current Public Boards in last five years:

Planet Labs PBC

Cadence Design Systems, Inc.

LogMeIn, Inc. (former)

Votes Against Last AGM: n/a

 Michael R. Cannon 71 m 2011 aN 12%

General Partner of MRC & LBC Partners, LLC, a private management consulting company 

Other Current Public Boards in last five years:

Seagate Technology Holdings plc

Dialog Semiconductor Plc (former)

Votes Against Last AGM: 11%

John M. Dineen 61 m 2023 a 3%

Operating Advisor at Clayton, Dubilier & Rice LLC, a private equity investment firm; former GE exec

Other Current Public Boards in last five years:

Cognizant Technology

Solutions Corporation

Syneos Health, Inc. (former)

Merrimack Pharmaceuticals, Inc. (former)

Votes Against Last AGM: less than 1%

 Mark Fields 63 m 2024 n/a%

Senior Advisor at TPG Capital LP, a global alternative asset firm; former CEO Ford (2014-2017)

Other Current Public Boards in last five years:

Hertz Global Holdings, Inc.

QUALCOMM Incorporated

TPG Pace Beneficial II Corp. (former)

TPG Pace Solutions Corp. (former)

Votes Against Last AGM: n/a

Ho Kyu Kang 62 m 2023 T 2%

Professor in the Department of Systems Semiconductor Engineering at Yonsei University; former EVP and Head of Research at the Semiconductor R&D Center of Samsung Electronics

Votes Against Last AGM: less than 1%

Bethany J. Mayer 62 f 2019 ant 10%

Executive Advisor of Siris Capital Group LLC, a private equity firm; former EVP Sempra Energy; former CEO Ixia (a test, visibility, security solutions, network testing tools and virtual network security solutions provider for applications across physical and virtual networks)

Other Current Public Boards in last five years:

Astera Labs, Inc.

Box, Inc.

Hewlett Packard Enterprise Company

Marvell Technology Group Ltd. (former)

Sempra (former)

Votes Against Last AGM: 10%

Jyoti K. Mehra f 48 2021 c 3%

EVP Human Resources of Gilead Sciences

Votes Against Last AGM: less than 1%

Abhijit Y. Talwalkar 60 m 2011 cnt 19%

 Chairman; former CEO LSI Corporation

 Other Current Public Boards

Advanced Micro Devices,

iRhythm Technologies,

TE Connectivity

Votes Against Last AGM: 16%

Matt:

Are you sitting down for this insanity?  The CEO is NOT THE CHAIR

Our data shows the CEO has less influence than the chair, as it should be

First year it’s been this way

Chair Talwalkar has been there for 7 full years prior to the CEO taking a seat on the board, oversaw the acquisition of Novellus that brought the CEO in

Member of all committees except audit

Overall, this board is incredibly balanced

It fits the industry comp (Applied Research) for knowledge types

Less econ, more engineering, but all within the band of reason

90% of directors have core competency in the business and no tricky bios

They are all effectively fancy manufacturers or manufacturer adjacent

The worst performers are just mediocre

They have some long tenured members mixed with n00bs

So what would you pay for a board that sat on a company that has grown exponentially, plateaued recently and is facing some headwinds, but is full of top performers in general?

Director pay

Went from ⅔ stock in 2012 to 50/50 in 2024, and $225k ave total in 2012 to more than $400k in 2024

This includes equity at grant date value, NOT take home

Could help explain the plateauing - everyone is wealthy and fat now, they’re taking chips OFF the table, not putting them on - particularly the long tenured directors

The CASH ONLY portion of pay went up more than 200% in those 12 years - that’s basically a 19% raise every year for 12 years

I did a deep dive into the highest paid board member, chair Abhijt Talwalkar

There is no disclosure of stock value at vest date, you have to get it from individual form 4s and it’s near impossible to see the actual buy/sells, so we have no idea how much directors actually get paid - so I took Talwalkar’s disclosed total shares every year, which vest annually anyway, and assumed if the stock number went down he sold at the end of year price, if it went up he’s still sitting on it

I estimate between sales and current value of stock, Talwalkar took home $4.1m from sales and $11.8m in current value - so he got $15.8m in stock from 2011 to 2024

Add in cash they paid him, and he took home at least $6.1 and has $11.8m in stock, so he got a total of $17.9m in 13 years

That’s an annual pay of $1,377,519 vs. the disclosed $522,619 in 2024, the highest year

Let’s put that number in perspective - I got the meeting count for every year for the board and committees for every years

There were 246 total meetings that Talwalkar attended in 13 years - an average 19 per year, one about every 3 weeks

Full board meetings we estimate be 6 hours, then 2 hours per meeting for each other meeting - that would be about 924 hours in 13 years of meeting time

If we’re REALLY generous an assume Talwalkar did 3 hours of prep for full board meetings and 2 hours for committee meetings, that would 1,524 total hours, or 117 hours per year (3 full weeks at 40 hour weeks)

As chair of the board, let’s assume there’s an extra 50% - 2,286 hours, or 

So $1,377,519 per year for 175 hours is $7,833/hour - or the equivalent of $24.4m if it were a full time job (ie, an executive working 60hrs/week)

Talwalkar is getting the per meeting equivalent as hiring a celebrity speaker

Actual celebrities making as much for appearance fees:

Emmitt Smith

Killer Mike

Mario Lopez

Ben Carson

Eric Trump

Maye Musk

Joseph Stiglitz

The entire band Alabama Shakes

So if we extrapolate to the entire board

The “FTE” board is making between $20m per person, so you’re paying for $120ish million of power in the room

Considering director keep their jobs at a 96% rate, and investors have told us they don’t care about them - IS THIS WORTH IT?

Votes

Against Talwalkar - no single director, much less one at a company that has plateaued and declined in revenue over the last three years, should get more than $500k summary comp for a year - and he’s been there for 13 years, longer than the CEO and has more influence.  Talwalkar, Brandt, and Mayer are also the connected board members - and Brandt and Talwalkar have been around longest

Against Brandt - for the same reasons.  Does the comp committee also set the director pay?

Proposal 2: Say on Pay

5% NO in 2023

CEO Pay Ratio: 361:1

$83,462 median

CEO Timothy Archer $30M total for 2024

Up from $18M in 2023

Proposal 3: Auditor

Nobody cares: Ernst & Young 5% NO 2023

Matt:

Proposal 4: SHP regarding 

DAMION:

That’s the Proxy Countdown for the week of October 21, 2024. Join us next week when we jump back into the Alternative Democracy pool... forever on the lookout for shareholder sharks, floating bandaids, and wayward directors.