CEO succession risk, plus Mangless vs. Zevra lessons, and UnitedHealth’s investor confidence
Trade Wire - BUY/SELL
Top Stories:
Let’s start with the golden hellos:
Zscaler’s new CFO, Kevin Rubin, starts with a golden hello equity award of $23M, consisting of restricted stock, performance stock, and options. Not bad for a guy who lasted only 11 months at his last role as CFO at BetterUp
New FactSet Research Systems CEO Sanoke Viswanathan enters with a golden hello package consisting of a $22M option award to be granted in the fall of 2025 and an immediate make-whole award in the form of a $13M cash and $36M equity.
The Compensation Committee at UnitedHealth Group cancelled the performance-based restricted stock units granted to former CEO Andrew Witty, a shrewd financial move considering the committee just gave boomerang CEO Steve Hemsley $60M in options to help clean up a mess that he was instrumental in creating and cultivating.
After only two years on the job, Equifax EVP Todd Horvath steps away with a lump-sum cash severance payment of $2.9 million, representing approximately two years of his annual cash compensation and a prorated portion of his annual incentive award for 2025. While his unvested equity awards were forfeited upon his separation from the Company, he will still receive $3.2M cash as part of his new hire “make whole” equity award which was intended to compensate him for foregoing unvested equity at his prior employer. You literally can’t lose I guess if you’re an executive at a publicly-traded company in the US.
22 days after the company’s annual meeting where shareholders vote on the election of directors, Uber Technologies appointed Nikesh Arora to the Board and then immediately appointed him to serve on the Nominating and Compensation Committees alongside board chair Ron Sugar.
And finally, let’s end with some practice vs. theory:
Here’s a best practice that should be universally adopted: Quantum Corporation CEO James Lerner stepped down and Under the terms of his offer letter, he is required to resign as a director of the Company when he is no longer serving as the Company’s CEO.
Norfolk Southern Claude Mongeau resigned from the Board for personal reasons. The Board will appoint a successor Board Chair at its next scheduled meeting later this month. Notice that “the board will appoint” rather than “the shareholders will elect.” Why don’t we have a separate vote for board chair in the US?
And lastly, proving that long-tenured directors should not be considered independent of the companies at which they serve, Skyworks Solutions appointed Robert Schriesheim, director since 2006, as interim CFO.
<PROXY CAGE MATCH BUMPER>
PROXY CAGE MATCH
Activist investor Daniel Mangless failed in his bid to add two additional contested directors to the board of Zevra Therapeutics. Despite owning just 3% of the Company and having already had three nominees elected to the Board in 2023, Daniel wanted to form a board majority with his nominees Arthur Regan and former Zevra CEO and co-founder Travis Mickle. (we last saw travis Mickle in The Tai Driver so it looks like he turned his career around.)
Proving once again that the performance of directors DOES matter (although it takes an activist investor campaign for the company to admit as much), here’s what Zevra had to say:
“Mr. Mangless’ nominees … have track records of destroying stockholder value in public company leadership roles. During Regan’s tenure as a director at US Wats, US Wats’ stock price fell 63.9%. While Dr. Mickle was CEO of Zevra, its stock price plummeted 97.4%.”
They also assert in a filing that the primary reason to be against Regan is that he has “no life sciences industry experience or knowledge.” Which nearly makes the case to re-assess thousands of US directors who similarly lack industry experience at their respective board seats.
All three leading proxy advisories supported the company’s nominees:
ISS added, “...the board’s concerns about having a former CEO on the board and potential disruption are valid.”
Which nearly makes the case that the majority of former CEOs on boards may be disruptive
Glass Lewis highlighted, “Mr. Regan has limited, dated, and unrelated public board service,”
Ironic considering Regan serves as CEO and founder of Regan & Associates, proxy solicitation/shareholder services firm
Glass Lewis also said that “publication of certain social media activity by Mr. Regan appears to suggest something of a blithe approach to compliance...” while the company criticized Regan for his “erratic nature, as seen in his online posts [which] could cause serious risk to Zevra’s reputation, performance, and momentum.” Are they talking about Elon??
The company also added that “as a proxy solicitor, he was unaware of, or simply ignored, SEC solicitation rules clearly requiring him to file his online soliciting posts.” Again, are we making the case against Elon?
Egan-Jones also questioned the relevant expertise of Mangless’ nominees, stating, “…we do not believe Mr. Regan’s background in proxy solicitation offers meaningful value in the context of Zevra’s boardroom.” Again, opening the door to examine “the relevant expertise of all board nominees.”
In the end, the contested nominees got about 25% support while the Zevra directors got about 74%. Not sure why you’d want to piss off Travis Bickle.
<VOTE RESULTS BUMPER>
VOTE RESULTS TABLE
Here are the highlights from 36 large-cap annual meetings over the past week:
25 total SHPs: but from only 9 companies, meaning 27 meetings had zero SHPs
36% (9) of these came from one company: Meta Platforms
19 of 36: zero shareholder proposals and zero shareholder dissent.
Only 1 win overall:
Say on Pay
Warner Bros. Discovery, Inc. (60% NO)
A combination of financial underperformance and ludicrously annual increases in CEO pay undid David Zaslav’s $52M pay package (up from $39M just two years ago)
7 “moral” victories (over 30%) mostly in Say on Pay:
Say on Pay
DigitalBridge Group, Inc. (33% NO)
DOCUSIGN, INC. (44% NO)
Carlyle Group Inc. (30% NO)
AXON ENTERPRISE, INC. (33% NO)
Arista Networks, Inc. (38% NO)
UNITEDHEALTH GROUP INC (40% NO)
Shareholders ability to call a special meeting
Booking Holdings Inc. (49% YES)
The shareholder disconnects:
UNITEDHEALTH GROUP INC (40% NO on Pay):
Flynn 13% NO; Noseworthy 14% NO
board average 6% NO
Hemsley 7% NO
Carlyle Group Inc. (30% NO on Pay) but lowest director 94% YES
Warner Bros. Discovery, Inc. (60% NO on Pay) but only two directors with low votes: Anthony J. Noto 29% NO; Pay Committee Chair Paul A. Gould 13% NO
The shareholder connects?
Arista Networks: 38% NO on Pay
Yvonne Wassenaar 25% NO; Daniel Scheinman 32% NO; Charles Giancarlo 34% NO
Classified, but Scheinman and Giancarlo on Pay Committee
At least they blamed somebody
AXON ENTERPRISE: 33% NO on Pay & Pay Committee Chair Hadi Partovi 23% NO
DOCUSIGN: 44% NO on Pay & Pay Committee Chair Blake Irving 42% NO
SoFi Technologies: 24% NO on Pay & Board CHair Tom Hutton 23% NO
The directors : 4 over 20%, 3 over 30%; 1 over 40% (about 360 directors: 2% over 20%)
Arista Networks, Inc. (Yvonne Wassenaar 25% NO; Daniel Scheinman 32% NO; Charles Giancarlo 34% NO)
Warner Bros. Discovery, Inc. (Anthony J. Noto 29% NO)
AXON ENTERPRISE, INC. (Hadi Partovi 23% NO)
FTAI Infrastructure Inc. (Judith A. Hannaway 36% NO (classified))
DOCUSIGN, INC. (Blake J. Irving 42% NO (classified))
SoFi Technologies, Inc. (Tom Hutton 23% NO)
The oddities:
The oddities:
Meta Platforms:
MGMT:
25% NO on equity plan
11% NO on Pay
71% want Say on Pay every 3 years
SHP:
Dual Class Capital Structure 26% YES
Disclosure of Voting Results Based on Class of Shares 21% YES
Report on Hate Targeting Marginalized Communities 15% YES
Report on Child Safety Impacts and Actual Harm Reduction to Children 13% YES
Risks of Deepfakes in Online Child Exploitation 6% YES
AI Data Usage Oversight 10% YES
Data Collection and Advertising Practices 11% YES
Proving Matt’s proponent theory:
Merck: tax transparency report 23% YES: Sisters of the Holy Name of Jesus and Mary
JUNIPER NETWORKS: list more candidates than the number of directors to be elected 3% YES: Jing Zhao: “One of the core problems of corporate governance is that American corporate boards are not democratically elected”
DOLLAR GENERAL: employee access to timely, quality healthcare 8% YES; As You Sow
Roblox: reincorporation of the Company from the State of Delaware to the State of Nevada 80% YES
61% of voting power: David Baszucki
Auditor dissent?!
Booking Holdings Inc. (11% NO; Pay 12% NO)
<THE BIG VOTE BUMPER>
THE BIG VOTE PICKS
MATT
Proxy pool this week
104 US companies where we have data, 92 are not Totalitarian (single influencers)
Caterpillar, TJX, Regeneron are largest
Theme of the week: CEO Succession
The succession problem: There's a CEO succession crisis brewing.
From the article:
CEO turnover is up, and it could get harder for some companies to find new leaders
At many companies, there has been a "collapse of the leadership pipeline,"
Poor succession planning, job-hopping, and cuts to middle management could complicate CEO searches
Nearly halfway through 2025, the number of CEO changes for S&P 500 companies is on pace to reach 14.8% for the year, according to data from The Conference Board and ESGAUGE
Among the companies that make up the broad S&P 1500 index, 44% of new CEOs in 2024 were external hires, according to data from the executive search firm Spencer Stuart. It's the largest share of outsiders since the firm began tracking the data in 2000.
Measuring succession risk
So succession is at its highest level in years, the pipeline is weak, and companies are increasingly looking to outside hires - meaning the nomination committee and board has an actual role in picking new CEOs
From Glass Lewis report earlier this year: Overall, S&P 500 companies that went through a CEO change in 2023 reported total CEO compensation averaging approximately $28.4 million for the year, compared to an average of $17.3 million at S&P 500 companies that did not.
That’s $11.1m extra spend for investors to get a new CEO, and it doesn’t exclude golden parachutes on the other end
NOM FAILURE IS EXPENSIVE
Define the risk
How to measure effectiveness of directors on succession?
Captured company risk:
Totalitarian companies are just pure succession risk
For as many that appear to go well (the Buffett 20 year succession process) there are those that go badly (the Howard Schultz and Bob Iger boomerang tours)
Director fail rate:
Directors that have gone through a succession at least once, did their replacement candidate last less than 3 years?
Directors that have gone through succession at least once, did their replacement face one/all of the following controversies in the first three years?
Executive turnover
Accounting investigations/fails
Shareholder dissent / activists
What are we up against this week?
ACTIVE SUCCESSIONS
Fortrea Holdings ($2.7bn)
Corsair Gaming ($1.1bn)
INEVITABLE SUCCESSIONS?
16 of 92 companies have CEOs with >=10 year tenure and are non-Totalitarian
4 of 92 companies have more than 5x the average number of controversies of sector/size peers, two of which have CEOs >10 year tenures
OVERALL…
This week’s vote alone has 21 companies where succession is active or inevitable
Who’s best positioned?
Don’t worry about…
FirstCash Holdings, Inc.
Generac Holdings Inc.
Green Brick Partners, Inc.
HCI Group, Inc.
Each has at least 1 board member who has gone through succession with zero fails - all successions lasted 3+ years, there were no accounting investigations/flags in the first 3 years,
Unknowns…
Universal Health Realty Income Trust
Shift4 Payments, Inc.
Current CEO tenure of 26 years
Grand Canyon Education, Inc.
Current CEO tenure of 16 years
Sabra Health Care REIT, Inc.
Plymouth Industrial REIT, Inc.
5 companies have boards who haven’t gone through a CEO succession at all, two of which aren’t REITs
Targets…
Corpay, Inc.
A $20bn company where 36% of the board has been involved in a CEO transition, and all 36% have failed, at a company with a long tenured (24yr) CEO
CEO Clarke on board of Dayforce with TWO other Corpay directors, where the CEO Ossip became co-CEO then unbecame co-CEO less than two years later
One nom committee member - Rahul Gupta - has a whopping 6 accounting investigations, late filings, or other accounting flags resulting from his last transition
Three of the directors at Corpay who have transition failures have connections between each other through other boards
Vote NO on Gupta and Hagerty, engage on CEO succession plan given Clarke is 69 years old and unlikely to continue in perpetuity
Opendoor Technologies
Company has 8x average controversies of companies in its sector at its size
Adam Bain on the nom committee has been at one failed transition, failed by virtue of excess executive turnover following the transition
Layup engagement target - engage nom committee now even if CEO only in place 2 years how they plan to replace if controversies continue, and how they plan on retaining key execs
Williams-Sonoma
Laura Alber, the CEO, has more than 50% influence on the board and it’s NOT a controlled company - and she’s the only member of the board with prior CEO transition at a public company, AND she failed at it, losing 5 more executives than expected given the CEO flip flopping at Salesforce (though Salesforce is Totalitarian, to be fair)
Such is to say the board at WS has virtually no direct experience with a public CEO transition, and Alber has been sitting in the chair since 2010
Engage - what’s the nom committee plans - with only two directors, Anne Finucane and Scott Dahnke - to replace Alber at some point?
Fortrea
On the dangers of having your CEO as the only member of the board with CEO succession history - Tom Pike, the now gone CEO, had seen two transitions (one of which failed) at Martin Marietta Materials while on their board
Engage: No one on the board has had transition experience - they have an interim CEO and were clearly not prepared for the transition to begin with, they need to retain key executives going forward
Global notes
Active director with the most transitions: James Hance (8), Jim Kilts (8)
Director with the most fails: the Icahn family! Brett Icahn at 4 transitions, ALL failed in one way or another
Jeff Stein at Ambac has one transition, but somehow managed to have three separate shareholder dissent flags (activist, engagement, votes against)
Finally, Roger Moore at Verisign has done 5 transitions, and 4 of them resulted in the CEO staying 3 years or less before leaving
