The Big Vote at Apple, plus The Rock fills a chair, Starbucks’ empty chair, and vote results at Visa and Costco
This is Proxy Countdown. Welcome to the big show for the week of January 22nd, 2024 alongside my tag team partner Matt Moscardi. I'm Damion Rallis. On today’s countdown:
A semiconductor company finds the courage to invite its second woman into the boardroom
A hard-headed wrestler fills a folding metal board chair at a fighting company
A coalition of labor unions tries to fill a symbolically empty board chair at Starbucks
Vote results at Visa and Costco
And finally, on the Big Vote, Matt’s recommendations on the world’s most beloved brand
<TRADE WIRE BUMPER>
Trade Wire - BUY/SELL
Top Stories:
First and foremost, TKO Group has appointed two members to its board. A dude named Bradley Keywell that nobody cares about and a dude named The Rock that everybody not named Brdaley Keywell cares about. The Rock also signs a Services Agreement worth $30M in equity.
Director turnover at Las Vegas Sands where Nora Jordan and David Levi and their combined 9% influence are stepping down, while Alain Li, President of the French Chamber of Commerce and Industry in Hong Kong is joining the board. Li is on a bit of a sin company board roll as he joined the board of French booze company Remy Cointreau in July.
McCormick & Company welcomes its 3rd black male director to the board in Terry Thomas, Chief Growth Officer of Flowers Foods. For corporate America, this is saying something.
Microchip Technology is appointing only its second female director, Ellen Barker, the former Chief Information Officer of Texas Instruments. Quite odd to see only one woman on the board at such a big company.
And lastly, a possible hint at the successor to CEO Brian Cornell at Target: CFO Michael Fiddelke is now the company’s COO after having served as CFO since 2019.
<PROXY CAGE MATCH BUMPER>
PROXY CAGE MATCH
A quick update on the proxy cage match at Disney, where Blackwells has been begging shareholders to take its nominated directors seriously and where Trian has announced that it wants Disney to be as good as Netflix
Trian also dedicated an entire SEC filing with a single Jim Cramer tweet: “I think the stock of Disney is now going up in large part because of the heat Peltz is generating.”
At Starbucks, the Strategic Organizing Center has finally announced the three directors it is targeting in its attempt to convince shareholders to elect three labor-friendly nominees to the board, and they are:
Compensation Committee chair and Flat White-drinking Ritch Allison;
Audit Committee chair and Brown Sugar Oatmilk Latte fan Andy Campion; and
Nominating Committee chair and Caramel Macchiato-sipping Jørgen Vig Knudstorp
These three directors represent the least amount of influence, 3%, 6%, and 6%, respectively, so it might be an inspired choice by the SOC as they are merely there to rubber stamp decisions from the boards powerful duopoly in CEO Laxman Narasimhan and Chair Mellody Hobson
Matt: I’m calling it now - there will be a split vote - Knudstorp already got an adjusted FOR vote of 84%, worst of the board, and rare to vote against a Nom chair for anything other than diversity issues, which this board doesn’t have - either investors don’t like Laxman and the succession OR they don’t like Knudstorp, either way it could be a win for the SOC
But SOC missed a trick - the worst performing director on the board is Beth Ford, and she’s on both the comp and audit committees - she bats 385 for earnings and 387 for TSR, both below average, and outside Hobson is the most connected director on the board. Instead of choosing three white dudes and looking like you are just woke, target Knudstorp, Campion, and Beth Ford and keep Ritch Allison who bats a fantastic 731 earnings and overall is an average director
Once again, the SOC is nominating:
Labor lawyer Wilma Liebman, seasoned corporate director and pensions expert Joshua Gotbaum, and former senior White House official Maria Echaveste
We’ll be covering Starbucks on a Big Vote in the coming weeks on the Proxy Countdown
And lastly, in a different kind of proxy cage match where the wealthy corporation tries to sidestep shareholders entirely, ExxonMobil is trying to avoid a proxy battle by suing activist investors Arjuna Capital and the shareholder advocacy group Follow This to kill a proposed shareholder resolution that calls on Exxon to set more aggressive emissions-cutting targets.
The case, filed in a Texas federal district court, is an unusual effort to deter a shareholder campaign, rather than appealing to the SEC on a given resolution.
Exxon is alleging an "extreme agenda" that looks to "force ExxonMobil to change the nature of its ordinary business or to go out of business entirely."
Matt:
In the last three years, Arjuna has filed three shareholder proposals that got majority votes (Lowe’s Race/Gender pay gaps, MSFT sexual harassment policies, Kroger Race/Gender pay gaps), and 16 of their 65 proposals since 2014 at Fortune 100 companies got more than 25% approval
Average overall 18% approval
This is not some random shareholder asking for things no shareholder wants - this isn’t a social activist, this is a shareholder that tends to represent other shareholder demands
<VOTE RESULTS BUMPER>
VOTE RESULTS TABLE
Moving over to our vote results table:
Let’s start with small-cap company Aware where shareholders were asked to vote on an option exchange program which essentially gives executives another chance to make money off underwater options.
The proposal passed with 65% of the vote but it is the nature of the vote that is most telling:
The total number of YES votes was 10,214,546
While the total number of votes held by Insiders+top owners (including CEO Bob Eckel and director John Stafford) came to 10,198,223.
At large cap companies: the vote results came in at two meetings covered in our Big Vote:
First, at Costco, where average director support was 96%, only 6% rejected Say on Pay, and 98% said no to the anti-woke/anti-ESG shareholder proposals.
So let’s get right to Matt’s picks, Matt said:
Vote against Hamilton James:
2nd highest against votes (7%)
Vote against W. Craig Jelinek:
5th highest against votes (4%)
Vote for Say on Pay: (94% FOR)
Vote against anti-ESG/woke SHP: (98% against)
Strive was more aggressive than Matt:
Vote against 7/11 directors; against Pay; For anti-ESG SHP
And then at Visa:
All directors received between at least 97.12% and 99.88%
Say on Pay: 10% against
adoption of the Class B Exchange Offer Program: 99.57% yes
SHP on severance pay: 7% yes
Matt’s picks:
Vote against John Lundgren
Vote against Denise Morriso
Vote against Linda Rendle
Vote against Francisco Javier Fernández-Carbajal
Vote for SHP
And lastly, on our Vote Results table, votes are in at D.R. Horton, Intuit, and Micron Technology
In summary: nothing really happened.
Both SHPs failed, only 2 directors from the three companies were even over 10% of votes against, and Say on Pay passed easily, with just over 10% of votes against at D.R. Horton and Micron Technology
<THE BIG VOTE BUMPER>
THE BIG VOTE
Apple
AGM Date: February 28, 2024
General Observations
Ownership
Institutional voting power
Vanguard 8%
BlackRock 7%
Director Susan Wagner
Berkshire Hathaway/Warren Buffett 6%
Performance outliers:
Overall: .525
Monica Lozano .359
EBITDA .590
Art Levinson .744
Carbon .801
Monica Lozano .334
TSR .511
Alex Gorsky .395
Controversies .131
Susan Wagner .373
Board stuff
Gore/Bell retired based on 75 policy: Sugar stays
Directors receive Apple products perks: highest is James Bell $5,529 and Art Levinson $5,254
On top of average pay of about $400k
3-headed post-Jobs leadership team: CEO Tim Cook, Chair Art Levinson, Shareholder and Nomination Committee chair Susan Wagner (BlackRock co-founder; 7% owner)
Proposal 1: Election of 8 Directors
Annual Elections for ALL directors? YES
Director Slate
Art Levinson 73/2000 c 19%
Apple Chair; Founder and CEO, Calico
Other Public Company Directorships: None
Votes Against Last AGM: 6% (adjusted for Big 3: 8%)
Tim Cook 63/2011 20%
Apple CEO since 2011; COO 2005-2011
Other Public Company Directorships: Nike
Votes Against Last AGM: 2% (adjusted for Big 3: 3%)
Wanda Austin 69/2024 5%
Former CEO, The Aerospace Corporation
Other Public Company Directorships: Amgen; Chevron
Previously: Virgin Galactic Holdings
Votes Against Last AGM: na%
Alex Gorsky 63/2021 cn 13%
Former CEO/Chair, Johnson & Johnson
Other Public Company Directorships: IBM; JPMorgan & Chase
Previously: Johnson & Johnson
Votes Against Last AGM: 2% (adjusted for Big 3: 3%)
Andrea Jung 65/2008 Cn 11%
Former CEO/Chair Avon Products
Other Public Company Directorships: Wayfair
Previously: Unilever; Avon
Votes Against Last AGM: 7% (adjusted for Big 3: 10%)
Monica Lozano 67/2021 a 5%
Former CEO, College Futures Foundation
Other Public Company Directorships: Bank of America; Target
Votes Against Last AGM: 1% (adjusted for Big 3: 1%)
Ron Sugar 75/2010 A 10%
Former CEO/Chair, Northrop Grumman Corporation
Other Public Company Directorships: Amgen, Uber
Previously: Air Lease Corporation; Chevron; Northrop Grumman
Votes Against Last AGM: 7% (adjusted for Big 3: 9%)
Waived Retirement Age policy
Sue Wagner 62/2014 aN 18%
Co-founder and Director, BlackRock
Other Public Company Directorships: BlackRock.; Samsara
Previously: Swiss Re
Votes Against Last AGM: 4% (adjusted for Big 3: 6%)
Al Gore 9% cn
Reached retirement age of 75
Votes Against Last AGM: 9%
James Bell 5% a
Reached retirement age of 75
Votes Against Last AGM: 1%
Matt
Let’s be honest about Apple - the top five selling products under Tim Cook are:
iPhone - launched and designed by Steve Jobs
iPad - launched and designed by Steve Jobs
App Store - launched and designed by Steve Jobs
Apple Watch - launched under Cook, but reportedly R&D’ed under by Steve Jobs
AirPods - launched by Tim Cook
Tim Cook is an Ops guy with a quiet demeanor chosen by a professional board installed to “control” Steve Jobs who is paying for his pay package from Steve Jobs’ products
This board isn’t planning for 10 years from now, they are managing 15 years ago
Before we get to recommendations, a summary of this team:
Largest company on Earth that mints money
3rd most powerful board network in US
78% of the board are connected inside 2 degrees, so hugely insular
Nominating committee controls 47% of board influence, making it a Boards Board
Investor friendly, CEO friendly - every director at their other boards pay out big dividends, take out less than average debt, and pay shitloads to their CEOs
Customer unfriendly - Top 20 for worst large cap director team overseeing controversies ranging from fraud, consumer protection, union quashing, and environmental issues
Regulator concerned - at least one director labeled by Apple as not having government experience has PLENTY of experience lobbying at other companies, in this case 85% for Democrats by execs
No designers or engineers - 3 of the 10 directors have any engineering or design experience, and one of them is Tim Cook
Which gets us to the theory of what we want out of a board like this, as it’s proven able to return massive short term gains and stock returns, but at the cost of potentially huge long term controversies that materialize as liabilities…
Less insular board - you can get the same performance with less connected directors
Design for the future - AI can’t be in the purview of the executives, it needs guardrails on the board
Here are the notes:
This board is all heavy hitters - let’s start with network power
Quick reminder what “network power” is - we multiply every director’s influence times the company where they sit’s market cap as a measure of “director power”
So a director with 10% influence over large cap company with a $50bn market cap has $5bn in “power”, and we can rank directors across all their boards to see who’s really powerful
But what we want to know is “how powerful is that director’s friends” - so we actually look at all that directors 1st and 2nd degree connections - friends or friends of friends - and add up THEIR power
That’s a director’s “network power”
And Apple is one of the most powerful boards on Earth - they rank 3rd in the US behind MetLife and Blackrock and 10th in the world with a staggering $718 trillion in network power
So these are POWERFUL humans - the kind who, if you piss off, you might piss off a lot of other powerful people by proxy
Which is PROBABLY why you keep a guy like Ron Sugar on this board and waive his retirement age
Sugar is the 3rd most powerful INDIVIDUAL on Earth according to our network power, so you waive his retirement age, but you don’t for Al Gore who ranks 85th… because he knows Ron Sugar
But let’s just say these are hard directors to vote out, even when you don’t like the pay package they put together for Tim Cook
We adjust the votes against directors for the fact that the Big 3 passive investors - Blackrock, State Street, Vanguard - almost always always vote FOR everyone, this way we can see what most “regular” investors might actually think of these directors
And they almost universally love them with the exception of… Ron Sugar (9% against, adjusted), Andrea Jung (10% against), and Art Levinson (8% against).
Votes against Jung are really votes against pay, not her individually - she’s the head of the comp committee, and pay got less than 90% approval, which might as well be outright hatred
But here’s the real story of this board: being powerful means being connected, and Apple board members are connected to the point that they are totally compromised
78% of the board is connected through other boards - for clarity, Al Gore and Art Levinson aren’t on other boards, which means ALL OF THE DIRECTORS are connected
Levinson has been on the board since 2000, Gore was added in 2003 and has now stepped down
The replacement director is Wanda Austin - who sat on not one, but TWO boards with Ron Sugar (Amgen and Chevron)
James Bell, who also stepped down, was CFO at Boeing of all places, who is connected to Robert Bradway, the CEO of Amgen
These are some of the most intertwined directors of any company
And turns out when you choose your friends, you avoid choosing people with, you know, actual tech engineering experience
I went through every director’s skill matrix - not just on Apple, but on EVERY OTHER board they’re on
The results show that not only are skills matrices totally make believe, but that these directors on this company may have no right to be here except that they know each other, and given Apple mints money, they have permanent job security
Here’s just some of the mismatches for Apple’s skills across boards:
Andrea Jung
Apple - financial expertise, no tech expertise, no government expertise
Unilever - no financial expertise, tech expertise, “geo political” expertise
Wayfair (no matrix)
Wanda Austin
Apple - financial expert
Amgen - not financial expert, not international affairs expert, not public CEO
Chevron - international affairs expert
Virgin Galactic - financial expert, public CEO
Monica Lozano
Apple - no E expertise
Target - ESG expertise (maybe just S and G?)
Ron Sugar
Apple - no government/policy expertise, no environmental expertise
Uber - government/policy expertise
Amgen - government expertise
Chevron - government expertise, environmental expertise
Sue Wagner
Apple - brand/marketing expertise
Blackrock - no brand/marketing expertise
Samsara - brand/marketing expertise
Recommendations: vote out Sugar (you have Wanda Austin, she has all the same access and better engineering bona fides), vote out Sue Wagner (break the nominating committee board hold on nominations)
This is the beginning of a staggered alteration of the entire board - let Art Levinson retire next year (or vote him out), remove Andrea Jung next year and add more engineering, then in 2026 you flip the rest
Proposal 2: Auditor
Ernst & Young
2% against 2023
Proposal 3: Say on Pay
88% yes in 2023
Average NEO Pay: $34M
CEO Tim Cook total last 3 years: $261M
Perks include:
vacation cash-out in the amount of $57,692
security expenses in the amount of $820,309
personal air travel expenses in the amount of $1,621,468
Upon retirement: immediate vesting worth $360M
Apple’s total shareholder return relative to other companies in the S&P 500 (“Relative TSR”) was at the 98th percentile for this performance period
SHPs
2023 Results
“Civil Rights and Non-Discrimination Audit Proposal”
National Center for Public Policy Research
2% FOR
“Communist China Audit”
National Legal and Policy Center
6% FOR
Board policy for communication with shareholder proponents
Nia Impact Capita
7% FOR
“Racial and Gender Pay Gaps”
Arjuna Capital Defeated
35% FOR
“Shareholder Proxy Access Amendments”
James McRitchie
32% FOR
2024 SHPs
Proposal No. 4 - EEO Policy Risk Report
National Center for Public Policy Research
Anti-woke: “Shareholders request that Apple issue a public report detailing the potential risks associated with omitting “viewpoint” and “ideology” from its written equal employment opportunity (EEO) policy.”
Proposal No. 5 - Report on Ensuring Respect for Civil Liberties
American Family Association
Anti-woke: an organization that opposes LGBT rights and expression
One of their issues was “Apple’s threat to remove Twitter (X) from its App Store, a seemingly political swipe”
Proposal No. 6 - Racial and Gender Pay Gaps
Arjuna Capital
They basically want more details/better disclosure
Proposal No. 7 - Report on Use of AI
AFL-CIO Equity Index Funds
“a transparency report on the company’s use of Artificial Intelligence (‘AI’) in its business operations and disclose any ethical guidelines that the company has adopted regarding the company’s use of AI technology”
As it relates to labor:
“The use of AI in human resources decisions may raise concerns about discrimination or bias against employees.”
“The use of AI to automate jobs may result in mass layoffs and the closing of entire facilities.”
Proposal No. 8 - Congruency Report on Privacy and Human Rights
National Legal and Policy Center
Anti-woke: very similar to SHP #5
Matt:
P4: The NCPPR is one-upping here using the EXACT SAME LANGUAGE used by advocates of DEI why DEI is important to focus on:
“Companies with inclusive policies are better able to recruit the most talented employees from a broad labor pool, resolve complaints internally to avoid costly litigation or reputational damage, and minimize employee turnover. Moreover, inclusive policies contribute to more efficient human capital management by eliminating the need to maintain different policies in different locations.”
The different that the NCPPR misses is DEI is intrinsic - it is defined by A LACK OF CHOICE - your sexual orientation, gender orientation or fluidity, race, ethnicity - these are born attributes. Liking Ronald Reagan isn’t just a choice, it’s an utterly fickle one. I’m conservative on how much milk I drink, but liberal how much pizza I consume - WHAT AM I NCPPR? WHAT AM I?? VOTE AGAINST STUPIDITY
P5: American Family Association again is triggering the woke by talking about the human rights of the “underprivileged and marginalized” - but it’s clear the anti woke are going for WINS (ie, high votes) not agenda at this point, because I AGREE WITH THE ASK - a report detailing how apps get chosen and how app disputes with governments are resolved? WHY NOT? VOTE FOR, GIVE THE ANTI WOKE A WIN
P6: This is a great proposal, not because of what they ask, but because they are specifically saying “you already give us something, you just give us the bad version” - the ask is for pay gaps that are unadjusted. Apple, YOU ALREADY MAKE A REPORT, JUST USE A DIFFERENT NUMBER. This is dumb NOT to vote for. VOTE FOR
P8: I just love that the NLPC is arguing that pausing sales in Russia after they invaded Ukraine lost the company $1.14 billion dollars - they’re upset they DIDN’T sell tech to Russia! Ignoring that Apple stock nearly doubled the SP 500 return since then despite pulling out? Vote Against, but still, fun.
DAMION:
That’s the Proxy Countdown for the week of January 22, 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.
