Founder boards, plus Zaslav’s payday, and the death of shareholder proposals

Trade Wire - BUY/SELL

Top Stories:

1. The money

1. In response to angry shareholders:

1. Two weeks after 60% of Warner Bros. Discovery shareholders rejected CEO David Zaslav’s $52M pay plan, the Compensation Committee restructured his plan using Hollywood’s latest CGI, special effects, and most seasoned stunt doubles: his new plan reduces his annual pay targets significantly–from $37M to $17M if he hits 100% of his targets–but the devil is in the details as he is eligible for $37M if he reaches 200% of his targets and is getting a massive option grant of 21 million shares at an extremely low strike price of around $10 per share, giving him the theoretical opportunity to make $1.4B if Warner Brothers’ share price regains its 2021 high of $77.

2. To walk in the door:

1. Ciena Corporation’s new CFO Marc D. Graff will get $2M in cash and $10.5M in time-vesting equity.

2. While Arista Networks’ new COO Todd Nightingale is welcomed with $32M in equity, $30M of which vest simply over time without any performance-based conditions: an amount which is 92 times greater than his base salary.

1. Boeing’s longest-tenured director Lynn Good joins the Board of Morgan Stanley just two days after the crash of a Boeing 787 Dreamliner in India killed more than 200 people.

1. Yum! Brands CFO Christopher Turner has been promoted to CEO to replace David Gibbs. In doing so, the company skipped right over Chief Operating Officer and Chief People & Culture Officer Tracy Skeans who has been at the company 20 years longer than Chris and in her dual roles oversees two key industry areas of risk in customer experience and labor management.

1. Maybe we have Yum! Brands Chair Brian Cornell to thank for this decision? As CEO of Target Brian has overseen the company’s recent demise due partially to customer-alienating decisions surrounding the lack of support for Gay Pride and the sudden abandonment of the company’s DEI policies due to the perceived threats from a US election.

2. At Yum Brands’ annual meeting last month Chair Cornell received 17% votes against his reelection, more than 3 times greater than any other director.

1. Continuing to follow the trend of large cap companies with only 2 women on the board:

1. Thomas Frist, III is stepping down at VeriSign, a board with only two women. Will they take this opportunity to replace him with a woman?

2. Same thing at Nutanix where Brian Stevens just stepped down on a board with only two women

3. And at Live Nation Entertainment where Greg Maffei’s 33% influence just left the board.

4. Affirm Holdings, however, is keeping the board at two women ignore the problem by replacing retiring director Keith Rabois with Richard Galanti, keeping its board below the accepted minimum threshold of three women on the board.

1. And finally, Pitney Bowes has cleverly circumnavigated shareholder approval as it appointed Brent Rosenthal to its Board only a month after its annual meeting in May.

<PROXY CAGE MATCH BUMPER>

PROXY CAGE MATCH

1. Activist investor  , which owns about 1% of Victoria’s Secret, is arguing that the company has failed to realize its potential since its separation from its parent company, L Brands, in 2021. Specifically, CEO Hillary Super “has limited chief executive and public company experience with only a brief tenure in intimate apparel.”

1. CEO Hillary Super (September 2024-)

1. CEO, Savage X Fenty, intimates retailer, 2023 – 2024

2. CEO, Anthropologie Group, 2020 – 2021

1. Global President, Anthropologie Group, 2019 – 2020

2. Co-President, Anthropologie Group, 2018 – 2019

3. President of Women Apparel, Accessories, Beauty and Bridal, Anthropologie Group, 2017 – 2018 

2. Six directors sat on the board during the company's decline and the remaining two independent directors "have limited experience successfully scaling global consumer businesses … We believe that Victoria’s Secret requires a reconstituted Board comprised of directors with proven experience in brand revitalization, operational execution, international expansion, and shareholder value creation … “ [the retailer] should consider replacing a majority – if not all – of the Board with independent directors who bring relevant backgrounds, fresh perspectives, and a strong track record of value creation."

1. 8F/2M

2. Chair Donna James, (2021-); (L Brands: the former parent company of VS&Co, 2003 – 2021)

2. Chairman George Mayes was voted out and then resigned at  Forward Air’s annual shareholder meeting last week. Directors Javier Polit and Laurie Tucker have also stepped down despite receiving a majority vote. The Board has appointed Jerome Lorrain as Executive Chair and Paul Svindland as Lead Independent Director.

1. Ancora Holdings, which owns a 4.1% stake, previously said the three “unfit legacy directors” cannot be trusted based on their “history of inaction, failed oversight and highly problematic decisions,” blaming them for the company’s decision to pursue the Omni Logistics acquisition in August 2023.

<VOTE RESULTS BUMPER>

VOTE RESULTS TABLE 

Here are the highlights from 45 large-cap annual meetings over the past week:

1. 30 total SHPs: but from only 13 companies, meaning 32 meetings had zero SHPs

1. Nearly half (13) came from Alphabet

1. only 3 on G

2. 4 on AI

3. equal shareholder voting 31% YES (highest YES vote)

4. A stockholder proposal presented at the 2025 Annual Meeting but not included in the 2025 Proxy Statement regarding a report on implementing AI app preload capabilities into Android OS 0.000273% YES (lowest)

1. 342|12,515,614,679|1

2. 27 of 45: zero shareholder proposals and zero shareholder dissent.

3. Only 2 wins overall:

1. Fidelity National Financial: elect each director annually 93% YES

2. MONOLITHIC POWER SYSTEMS: call a special shareholder meeting 58% YES

4. 7 “moral” victories (over 30%): 

1. Alphabet: equal shareholder voting 31% YES

1. 96.1% of Class B shares (10 votes) held by Larry Page/Sergey Brin/Eric Schmidt/John Doerr=57.3% voting power; 73% on non-class B voted YES

2. Marvell Technology: Independent Board Chairman 38% YES

3. CORPAY: independent Board chair 39% YES

4. Fortinet: require that two separate individuals hold the office of Chairman of the Board of Directors and the office of the Chief Executive Officer 42% YES

5. Fidelity National Financial: (MGMT Prop) redomestication of the Company from the State of Delaware to the State of Nevada 34% NO

6. Chipotle Mexican Grill: 45% NO on Pay

1. “One-time retention awards” on August 2024 after Brian Niccols left: $38M aggregate to NEOs

7. CORPAY: 47% NO on Pay

5. The shareholder disconnects:

1. Chipotle Mexican Grill: lowest director 4% NO Fili-Krushel & 45% NO on Pay

2. Target: lowest Cornell 9% NO and Stockton 5% NO

6. The shareholder connects?

1. Marvell Technology: Independent Board Chairman 38% YES

2. CORPAY: independent Board chair 39% YES

3. Fortinet: require that two separate individuals hold the office of Chairman of the Board of Directors and the office of the Chief Executive Officer 42% YES

7. The directors : 5 over 20%

1. Regeneron Pharmaceuticals: Brown 27% NO (classified)

2. Natera: Gail Marcus 29% NO; Roy Baynes 19% NO (classified)

3. Pure Storage: 64% NO Scott Dietzen; 21% NO Charles Giancarlo; John Murphy & Greg Tomb 18% NO (classified)

1. Dietzen Vice Chairman and Former CEO (2010-2017) and on Nomination and Risk Committees; referred to as "Independent"

4. CORPAY: Joseph W. Farrelly 26% NO

5. Alphabet: Larry Page 19% NO (44% NO)

1. Page/Brin 52% Voting Power 

1. The oddities:

1. The oddities:

<THE BIG VOTE BUMPER>

THE BIG VOTE PICKS

MATT

NVIDIA

• Founder firm, top of its game, on any given day largest company in the world at 3.5tn cap - with no governance of its founder

• Could Nvidia be the next Tesla?

• Similarities:

• AI meme wave - trades at a 40-50 P/E ratio, which was a 140 P/E (Tesla traded at 40-50x before they started losing money, now at a 180)

• Deeply entrenched boards (more on that)

• Deeply oversized pay packages

• Stanford

• Both immigrants

• Deep relationship WITH Musk

• Outsized, leather jacket wearing CEOs

• Kissed Trump’s ass about tariffs

• From 2018: US chipmaker Nvidia's founder and Chief Executive Jensen Huang said curbing China's technological development could not be achieved by adopting heavy tariffs.

• From May: “Obviously, I don’t know all of his ideas, but let me tell you about two that are incredible,” answered Huang. "The first one is utterly visionary. The idea of tariffs being a pillar of a bold vision to re-industrialize to onshore manufacturing and motivate the world to invest in the United States is just an incredible vision.”

• Deep dive into founder boards - who do we hire to work with outsized, unique, long-term founders

Defining “Founder boards”

• 152 US founder firms that IPOed 10+ years ago

• “Mature” public founder firms

• Not controlled companies - 1 share, 1 vote or no majority shareholder

• Includes Nvidia, Amazon, Tesla, not Meta, Berkshire, Oracle, Nike

• 1,395 US non controlled, non founder firms (the control group)

Findings

• Surprising things that are the same between founder boards and non founder boards

• Same percentage of VCs on the boards on average - speaks to the importance of private markets

• No age differences on average

• No gender gap difference on average after adjusting for founder and CEO power - this surprised me

• When you include founder power on boards, it definitely skews to much larger gender power gaps, but adjusted shows that if NOT for the founder, you’d have near parity

• In fact, in the control cohort, the power gaps are better as soon as you exclude CEOs, too - the fact that men hold the vast majority of the top positions everywhere is THE LARGEST difference in power gaps on boards

• Solution: no CEOs on boards, you’ll have better power parity

• Biggest differences

• Founder boards skew long tenured - 15% of founder boards have more than 15 years tenure, compared to 12% of the control

• VCs stick around longer - 46% of VCs on the board stay more than 10 years vs. 36% for control

• VCs in general have longer tenure

• Founder boards tend to underperform on earnings, outperform on TSR

• Founder boards rely LESS on connections to one another - it’s only the connection to the founder that matters

Summary thoughts

• Boards operate in one of two ways: fetishize the most powerful person in the room (founder, CEO) OR as a social club (high degree of interconnectedness)

Nvidia needs governance now, not later…

• Nvidia is an outlier - nearly 60% of the board is long tenured, with 33% of board more than 15 year tenures - only other company this bad is Netflix at mega caps - all of which were original investor VCs

• Tench Coxe - like Robyn Denholm - has not only been around for 30 years, his shareholdings have made him a billionaire from just this company

• Harvey Jones and Brooke Seawell haven’t just been at Nvidia for more than 30 years EACH - they worked together at Synopsis in the 1990s

• Of the 13 directors, 8 have been on the board at least 10 years - the average tenure of the Nvidia board is 13 years, and 62% of it wouldn’t be considered independent in the UK

• If our advice at Netflix was to break up the lack of independence - and investors have rewarded Netflix with a lower average vote for directors than peers (94% vs. 96% average), and the longest tenured directors get 90% routinely over the last decade

• Just on its face, who makes decisions:

• Ex head of marketing for NFL and former food executive (Dawn Hudson)

• Ex 31 year Taco Bell executive (Melissa Lora)

• Two professors (John Dabiri, Persis Drell)

• Ex NASA engineer (Ellen Ochoa)

• Lawyer (Stephen Neal)

• Ex CIO of a drug company (Aarti Shah)

• FIVE 1990s/00s tech and VC bros - all bros - Rob Burgess, Tench Coxe, Harvey Jones, Brooke Seawell, Mark Stevens - most of whom have been with Jensen Huang for 30 years

This is easy - break up the 90s tech VC fraternity block:

• Vote out Brooke Sewell

• Vote out Harvey Jones

• Vote out Tench Coxe