PROXY COUNTDOWN by Free Float Media, Inc.

September 20, 2024 The Big Vote at FedEx (the Fred Smith show), plus 23andMe is now just me, and shakeups at Nike

PROXY COUNTDOWN SCRIPT

This is Proxy Countdown. Welcome to the big show for the week of September 16, 2024 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:

New Air Jordans at Nike

23andMe reduced to Me

Activist Investor Elliot Management is still not happy with Southwest Airlines

A Pay Committee mutiny at Open Text

And on the Big Vote, Matt lashes out at dinosaur delivery company FedEx

Trade Wire - BUY/SELL

Top Stories:

Nike CEO John Donahoe, who has been Nike’s CEO since 2020, will retire from his position on October 13, and be replaced immediately by company veteran Elliott Hill, who worked at Nike for 32 years before retiring in 2020

Two of the people behind the change are, of course, Nike co-founder Phil Knight and current Chair Mark Parker.

Knight said that he: “couldn’t be more excited to welcome Elliott back to the team” and that “We’ve got a lot of work to do but I’m looking forward to seeing Nike back on its pace.”

Now I point this out to help demonstrate the importance of our influence percentages at freefloatanalytics.com. Co-founder Phil Knight is not even on the Nike board anymore. But his son Travis Knight is, and that’s why we gave him 54% of the board influence, because his father continues to pull strings. Also, the Chair, Mark Parker, has 10% influence, even more than retiring CEO John Donahoe. So as you can see, this was a precarious leadership position for the lame duck CEO, one our influence percentages were already hinting at.

Elliot Hill will receive $3M in equity and $4M in cash to rejoin Nike while Donahoe will be allowed to “resign,” meaning he will receive the full value of all his remaining equity awards.

All of 23andMe’s independent directors resigned from its board this week: Roelof Botha, Patrick Chung, Sandra Hernández, Neal Mohan, Valerie Montgomery Rice, Richard Scheller, and Peter Taylor.

The resignations follow drawn-out negotiations with 23andMe CEO and co-founder Anne Wojcicki, who wants to take the company private.

In a letter addressed to the CEO and now only director, the seven directors said they had yet to receive a “a fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders” from the CEO after months of efforts.

In response the CEO said in an SEC filing: “I am surprised and disappointed… We will immediately begin identifying independent directors to join the board.”

But that’s sort of the problem in the first place: 23andme is not a “we” but a “she” and I guess now it’s merely a “me”:

The directors also argued that, while they still believed in 23andMe’s mission, their departures were for the best due to Wojcicki’s “concentrated voting power” and a “clear” difference of opinion on the company’s future.

Anne controls 50% of the voting power due to her ownership of 59% of Class B shares which magically grant her the right to 10 votes per share. The foreshadowing was in the company’s ticker symbol: ME

There are also several egregious bonuses to report on:

At Sarepta Therapeutics, newly appointed director Deirdre Connelly starts with an initial equity grant worth $712,500. She will also receive annual pay of $60,000, meaning that they are handing her 12 years of salary before she has even said anything worthwhile

Lattice Semiconductor announced the appointment of Ford Tamer as CEO and will receive $30M in sign-on awards on top of a $10M target equity award in 2025

And at Mattel, the Compensation Committee approved a one-time retention award to CEO Ynon Kreiz valued at $15M

There is a boomerang director at Synchrony Financial: Daniel Colao rejoins the board after serving in 2014 and 2015.

And at Warner Bros. Discovery the board is emulating the magic-making of Hollywood. Daniel Sanchez is joining the board as an "independent director" despite the fact that he is the nephew of fellow director John C. Malone, who has been on the board since 2008, chairs the Nomination Committee, and was CEO of Discovery Holding Company when it merged with Discovery. Despite all that, the filing states that “No arrangements exist between Mr. Sanchez or any other person pursuant to which he was selected as a director.”

PROXY CAGE MATCH

Activist investor Politan Capital won the two board seats it was seeking at medical technology company Masimo, defeating founder and CEO Joe Kiani and another director, Chris Chavez, at the shareholder vote.

Darlene Solomon and Bill Jellison will join Politan investment chief Quentin Koffey and former Johnson & Johnson executive Michelle Brennan, who obtained board seats in a prior proxy fight last year.

This is exactly why dual class share structures where the Founder or CEO control the company voting power despite holding less than half of company shares continue to be outrageous: At Masimo, Joe Kiani controlled only 9% of the company vote through a share structure where one share equals one vote.

At Southwest Airlines, where we reported last week that 6 directors have resigned, 4 new directors will be added, and Executive Chair and former CEO Gary Kelly will resign in 2025, activist investor Elliot Management wants the Chair to leave earlier than planned and still wants CEO Bob Jordan to step down.

Nelson Peltz’s activist hedge fund Trian Partners is among the shareholders reportedly calling for a shake-up at pest control firm Rentokil after a severe drop in its share price. They reportedly want US head Brad Paulsen and CFO Stuart Ingall-Tombs to turn in their bathroom keys.

Activist investor Engine Capital has a roughly 4% stake in freelance marketplace Upwork and is pushing for a shakeup to the company's board. In a letter to Upwork's board, Engine questioned whether Upwork's board has been adequately overseeing management. Specific problems cited by Engine include:

The fact that there have been three CFOs in four years

The lengthy tenures of Chair Thomas Layton and director

"The numerous business relationships between various directors, which diminish their independence"

And that none of Upwork's directors have any apparent experience in the staffing industry

Upwork is one of the rare boards in our database that shows full female control: 59% of influence is held CEO Hayden Brown and 3 other female directors.

VOTE RESULTS TABLE

First the losers:

At Agilysys, 32% of shareholders said NO Michael Kaufman

At Roivant Sciences, 32% said NO to Ilan Oren and 24% said NO James Momtazee

And at AAR Corp, 27% of shareholders don’t want to see Michael Boyce again. At least not in the boardroom of AAR Corp.

And the winners?

99.8% of shareholders sent virtual kisses to Emily Heath at Gen Digital

Likewise, 99.8% heart emojis to June Yang at NetApp

While the big winner is Maha S. Ibrahim at Deckers Outdoor, as she received the heartfelt support of 99.9% of voting shareholders

The good news here is that they are all women?

At Nike, it should come as no huge surprise that there is a major leadership change: as there seemed to be a bit of a protest vote at the company’s annual meeting last week: 40% of CLass B voters rejected director John Rogers Jr., 17% rejected Say on Pay, and there was relatively high support (26% YES) for two shareholder proposals: one on Supplemental Pay Equity Disclosure and another on Environmental Targets

And finally, let’s end on a nice annual meeting mystery: At Open Text Corporation, 75% of shareholders said a big NO to Say on Pay. So what’s the mystery?

The company did not properly file its proxy statement with the SEC. I had to find it in .pdf form after an extensive google search

Only 2 of the 4 Pay Committee members were originally scheduled to be up for re-election

But then Pay Committee chair Ann Powell mysteriously resigned right before meeting

The only Pay Committee member shareholders voted on was David Fraser, who received 14% against

THE BIG VOTE

FedEx Corporation

AGM Date: September 23, 2024

Documents

2024 Proxy

2023 Proxy

2023 Voting results

2022 Voting results

General Observations

Ownership

Institutional

Vanguard 8%

BlackRock 6%

Dodge & Cox 6%

PRIMECAP 5%

Individual

Frederick Smith 8%

Performance outliers:

Overall: .284

Frederick Smith .198

Amy Beth Lane .575

EBITDA .363

Joshua Cooper Ramo .654

Susan Patricia Griffith .137

TSR .384

Nancy Ann Norton .740

Robert Bradley Martin .245

Carbon .266

Amy Beth Lane .577

Controversies .126

Susan Patricia Griffith .913

Frederick Smith .021

Board stuff

Committees

Audit and Finance (a)

Governance, Safety, and Public Policy (n)

Compensation and Human Resources (c)

Cyber and Technology Oversight (t)

Skills

(Non-Executive DIrectors)

Economics and Accounting (6%)

Mechanical (3%)

Administrative (2%)

(Executive DIrectors)

Transportation (38%)

Mechanical (15%)

Public Safety and Security (10%)

Diversity Gaps

Female Power Gap 36%9/% (-27%)

Industry average female influence = %

Insider influence: %

Industry average %

Other

75 mandatory retirement age

2023 SHPs

A stockholder proposal requesting amendment to clawback policy for unearned pay for each Section 16 officer

John Chevedden

26% FOR

A stockholder proposal requesting a “Just Transition” report

International Brotherhood of Teamsters General Fund

30% FOR

A stockholder proposal requesting paid sick leave disclosure

Sisters of St. Francis of Philadelphia

11% FOR

A stockholder proposal requesting a report on assessing systemic climate risk from retirement plan options

As You Sow

8% FOR

Proposal 1: Election of 14 Directors

Annual Elections for ALL directors? YES

NOMINEES

SILVIA DAVILA 53 f 2023 ct 1% FOR

Regional President, Latin America of Danone S.A; served in a variety of marketing and brand roles at Mars, Inc., Procter & Gamble Company, and McDonald's Corporation from 1989 to 2014

Other Public Company Directorships: Betterware de México, S.A.P.I de C.V.

Votes Against Last AGM: n/a

MARVIN R. ELLISON 59 m 2014 an 3% AGAINST

CEO/Chair Lowe’s Companies; former CEO/Chair J.C. Penney

Other Public Company Directorships: Lowe’s Companies, Inc.

He is a former director of J. C. Penney Company, Inc. and H&R Block, Inc.

Votes Against Last AGM: 4%

STEPHEN E. GORMAN 69 m 2022 tn 1% FOR

Former CEO Air Methods Corporation; former CEO Borden Dairy Company; former COO Delta Air Lines; former CEO Greyhound Bus

Other Public Company Directorships: Peabody Energy Corporation

He previously served as a director of Greyhound Lines, Inc., Rohn Industries, Inc., Timco Aviation Services, Inc., Pinnacle Airlines Corporation, and ArcBest Corporation

Votes Against Last AGM: 2%

SUSAN PATRICIA GRIFFITH 59 f 2018 cn 2% FOR

CEO The Progressive Corporation

Other Public Company Directorships: The Progressive Corporation

former director of The Children’s Place, Inc.

Votes Against Last AGM: 3%

AMY B. LANE 71 f 2022 ac 2% FOR

former Managing Director at Merrill Lynch & Co and Salomon Brothers

Other Public Company Directorships: NextEra Energy, Inc. and TJX Companies Inc.

served as a director of GNC Holdings, Inc. and as a member of the Board of Trustees of Urban Edge Properties

Votes Against Last AGM: 2%

R. BRAD MARTIN 72 m 2011 A 3% AGAINST

Chairman of RBM Venture Company; former CEO/Chair Riverview Acquisition Corp.

Other Public Company Directorships: Westrock Coffee Company

previously a director of Chesapeake Energy Corporation, First Horizon National Corporation, Caesars Entertainment Corporation, Dillard’s, Inc., Gaylord Entertainment Company, lululemon athletica inc., Ruby Tuesday, Inc., and Riverview Acquisition Corp.

Votes Against Last AGM: 5%

NANCY A. NORTON 59 f 2022 T 1% FOR

Vice Admiral Norton is the retired Director of the Defense Information Systems Agency (DISA), a U.S. Department of Defense combat support agency, and commander, Joint Force Headquarters Department of Defense Information Network

Other Public Company Directorships: Leidos Holdings, Inc.

Votes Against Last AGM: 2%

FREDERICK P. PERPALL 49 m 2021 an 2% FOR

CEO The Beck Group

Other Public Company Directorships: Starwood Property Trust, Inc.

previously served as a director of Triumph Bancorp, Inc.

Votes Against Last AGM: 3%

JOSHUA COOPER RAMO 55 m 2011 at 0% AGAINST

CEO/Chair Sornay, LLC; former co-CEO Kissinger Associates

Other Public Company Directorships: None

former director of Starbucks Corporation

Votes Against Last AGM: 4%

SUSAN C. SCHWAB 69 f 2009 ct 3% AGAINST

Former U.S. Trade Representative and former Director–General of the U.S. and Foreign Commercial Service (Assistant Secretary of Commerce)

Other Public Company Directorships: Caterpillar Inc. and Marriott International, Inc.

Board Chair of the National Foreign Trade Council; former director of The Boeing Company

Votes Against Last AGM: 5%

FREDERICK W. SMITH 80 m 1971 64% FOR

FedEx founder; Executive Chair; former CEO

Other Public Company Directorships: None

Votes Against Last AGM: 6%

DAVID P. STEINER 64 m 2019 N 4%AGAINST

Former CEO Waste Management, Inc.

Other Public Company Directorships: Vulcan Materials Company

previously a director of TE Connectivity Ltd. and Waste Management, Inc.

Votes Against Last AGM: 8%

RAJESH SUBRAMANIAM 58 m 2020 9% AGAINST

CEO FedEx

Other Public Company Directorships: The Procter & Gamble Company

former director of First Horizon National Corporation

Votes Against Last AGM: 3%

PAUL S. WALSH 69 m 1996 C 4% AGAINST

Executive Chair McLaren Group Limited,

Other Public Company Directorships: McDonald’s Corporation and Vintage Wine Estates, Inc. (delisted in July 2024)

previously a director of Avanti Communications Group PLC, Centrica plc, Compass Group PLC, Diageo plc, HSBC Holdings plc, Ontex Group NV, Pace Holdings Corp., RM2 International S.A., TPG Pace Holdings Corp., Unilever PLC, and Bespoke Capital Acquisition Corp.

Votes Against Last AGM: 7%

Matt:

I know we’ve covered Meta and other dual class companies, but this company is NOT dual class but it IS founder led by Fred Smith who is the largest single shareholder with 8.4% of the shares. So going in, here was my underlying thesis: is it worth keeping a strong performing founder around in perpetuity in exchange for influence over the board?

Let’s talk about the board - there seems to be three core groups on the board:

Lobbyists

Susan Schwab - ambassador, trade

Josh Ramo - Kissinger (political consultant, lobby adjacent)

Nancy Norton - Dept of Defense

Fred Smith’s Favorite Toys

Paul Walsh - whisky and sports cars, 1996

Stephen Gorman - planes (air medical evac), 2022

Josh Ramo - TV, media, 2011

Brad Martin - Tennessee state rep, Fedex in Memphis, TN, 2011

The “Diversity” Crowd

Silvia Davila (new)

Susan Griffith

Amy Lane

Fred Perpall

Fred Smith the founder has a strong habit of looking out for Fred Smith the shareholders - the company spent the last few years streamlining and cutting in order to pay massive dividends and buybacks, which is the only way Fred Smith makes money if he doesn’t sell shares (his dividend check runs around $108m per year)

FedEx bought back 2bn in 2023, 1bn expected in 2024, paid 1.3bn in dividends in 2023, likely same in 2024

Smith’s politics also dictate - few SP500 companies donate almost exclusively to one party, but FedEx is one - nearly entirely GOP for decades reflecting Smith himself.

FedEx and Smith lobbied hard for tax cuts under Trump, and the NYT covered how they paid $1.5bn in 2017 down to zero in 2018 - and spent the money largely on dividends and buybacks, for whom Smith is the largest beneficiary.

NYT report

Fred Smith fake stepped down in 2020 and replaced himself with Rajesh Subramaniam, a FedEx lifer who fits the profile of SE Asian Male Founder Replacement Theory (Nadella, Pichai, Narasiman from Starbucks). The thing that makes Rajesh different is he is highly individually connected to the existing board, as well:

Rajesh also incredibly well known to existing board - connected inside 2 degrees to Ellison, Walsh, Schwab

They have a policy that covers interlocks with executives - but not each other (Interlocking Directorships. An executive officer of FedEx served on the board of directors of a company that employed the director or employed an immediate family member as an executive officer, and over five years have passed since either such relationship ended.)

The policy doesn’t include second degree connections clearly

So you have an aggressive founder with a history of strong performance that greases shareholders and no one would think of getting rid of him EXCEPT that there is no real replacement for the 80 year old at this point and shareholders have a board full of his friends and toys - so what do you do?

IF YOU’RE GOING TO ACCEPT THE TRADEOFF, THEN DO NOT SURROUND THE STRONG FOUNDER WITH FRIENDS

Keep Smith all day - but he doesn’t need his friends and toys

Smith will have power no matter what, you don’t need directors tenured since Clinton’s second term to keep him happy

The new lackey CEO is equally if not more directly connected to the other board members - and it isn’t a rule that CEOs MUST be on their boards, particularly when the CEO is likely just deferential to the founder

So vote AGAINST the connected, longest tenured directors and FOR all the Diversity

Notes on knowledge:

Eerily similar knowledge map to direct public competitors:

Proposal 2: Say on Pay

10% NO in 2023

CEO Pay Ratio: :1

$ median

CEO $M total for 2024

Boring; same old shit

Matt:

Does the CEO need to get paid when the founder is there? Serious question - should the CEO just be considered another “NEO” and not the CEO? Isn’t it NEO pay, not CEO pay?

Proposal 3: Auditor

Nobody cares: Ernst & Young

Proposal 4: Management

Approval of an amendment to the Third Amended and Restated Certificate of Incorporation of FedEx Corporation to limit liability of certain officers as permitted by law.

AGAINST - Why do directors need MORE exculpation? Investors, do yourselves a favor and retain some rights

Proposal 5: Management

Approval of an amendment to the Third Restated Certificate of Incorporation of Federal Express Corporation to remove the “pass-through voting” provision that requires the approval of FedEx Corporation's stockholders in addition to the approval of FedEx Corporation, as sole stockholder, in order for Federal Express Corporation to take certain actions.

Proposal 6: SHP regarding a Just Transition report

Shareholders request the Board of Directors prepare a report disclosing how FedEx Corp., is addressing the impact of its climate change strategy on relevant stakeholders, including but not limited to its employees, workers in its supply chain, and communities in which it operates, consistent with the “Just Transition” guidelines of the International Labor Organization and indicators of the World Benchmarking Alliance

International Brotherhood of Teamsters General Fund

This needs a touch of translation - teamsters want to know how the climate change efforts (or lack thereof) will affect employees (among other stakeholders). FedEx responded that they do great on climate change, but said nothing about the just transition.

I’m on the fence - I feel like we need to kill shareholder proposals that don’t add to shareholder rights and just vote out directors from now on, but the feasibility of that is low given how BLK and Vanguard control the market (or, in this case, Fred Smith)...

Proposal 7: SHP regarding shareholder input on bylaw amendments

Shareholders request the Board of Directors amend the Company Governing Documents to provide for shareholders to vote on Board of Directors amendments to the bylaws that currently do not require a shareholder vote. Amendments to the bylaws may still take effect upon approval by the Board of Directors, and will remain in effect even if not approved by shareholders. A shareholder vote shall occur at the next regular or special meeting of shareholders after the Board of Directors approves the amendment.

John Chevedden

Proposal 8: SHP regarding climate lobbying alignment with company’s carbon neutral goals

United Church Funds

Shareholders recommend that FedEx’s Board of Directors analyze and report to shareholders annually (at reasonable cost, omitting confidential/proprietary information) on whether and how it is aligning its lobbying and policy influence activities and positions, both direct and indirect (through trade associations, coalitions, alliances, and other organizations) with its public commitment to achieve carbon neutral operations globally--including the climate policy activities and positions analyzed, the criteria used to assess alignment, and the involvement of stakeholders, if any, in the analytical process.

This is 1000% FOR - I touched on FedEx lobbying and donations, they are heavy donors to climate change denialist conservatives. In search of tax breaks, they are happy to sacrifice climate change (but tout their climate progress)

DAMION:

That’s the Proxy Countdown for the week of September 16, 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.

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