3M Proxy Voting Guide

3M Proxy Voting Guide from CorpGov3M Proxy Voting Guide provided by Corporate Governance (CorpGov.net). 3M (MMM), 3M Company operates as a diversified technology company worldwide and is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of three fund families when I checked and voted. Their annual meeting is coming up on May 9, 2017.

I voted FOR lowering the special meeting threshold; AGAINST pay, compensation committee and other items. See how and why I voted all items below. I voted with the Board’s recommendations 47% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

3M Proxy Voting Guide: ISS Rating

From the Yahoo Finance profile: 3M Company’s ISS Governance QualityScore as of May 1, 2017 is 2. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 3; Compensation: 5. Brought to us by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus: Compensation.

3M Proxy Voting Guide: Compensation

3M’s Summary Compensation Table shows the highest paid remaining named executive officer (NEO) was CEO and Chair Inge G. Thulin  at $16.7M in 2016. I am using Yahoo! Finance to determine the market cap ($118B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. 3M is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2015, so pay was significantly above that amount. 3M shares outperformed the S&P 500 over the most recent one, five, and ten year time periods; underperforming in the last two year time period. That’s worth paying above median but not that much more.

Egan-JonesEgan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.

3M earned a compensation score of “Superior.”
Egan-Jones

We believe that shareholders should support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote FOR this Proposal.

I disagreed and voted “AGAINST” the say-on-pay item. The “Lake Woebegone effect,” where everyone is above average and the averages are recalculated upward every year, has to stop. We cannot just keep voting in favor of higher and higher pay packages.

I also voted against all the compensation committee members: Michael L. Eskew, Chair, Vance D. Coffman, Muhtar Kent, Edward M. Liddy, Robert J. Ulrich, and Patricia A. Woertz.

3M Proxy Voting Guide: Accounting

I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.

3M Proxy Voting Guide: Board Proposals

As mentioned above, I voted “Against” the pay package. As is my habit, when I vote against the pay package, I also vote against/withhold on the compensation committee.

Egan-Jones also recommended that clients

WITHHOLD votes Affiliated outside director Vance D. Coffman, current member of the Compensation committee; Affiliated outside directors Michael L. Eskew and Edward M. Liddy, current members of the Compensation and Nominating & Governance committees; and Affiliated outside director Herbert L. Henkel, current member of the Audit committee of the Board. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice.

Moreover,  Inside director Inge G. Thulin is a current Chairman of the Board and CEO of the Company and combined with the Board Rating  of Some Concerns,  the Company has received we recommend that clients WITHHOLD votes from this nominee.  We believe that there is an inherent potential conflict, in having the CEO or former CEO serve as the Chairman of the Board. Consequently, we prefer that companies focus on the following areas to improve its corporate governance practices: separate the roles of the Chairman and CEO, hold annual director elections, have one class of voting stock only, have key board committees consisting of independent directors and majority of independent directors on board and include non-binding compensation vote on agenda to further ensure board independence and accountability.

I agree with regard to voting against affiliated outside directors on key committees but am not ready to go there with regard to splitting chair and CEO,., not yet. Many of these directors served on Compensation Committee, so this screen added only a new vote AGAINST Herbert L. Henkel.

3M Proxy Voting Guide: Shareholder Proposals

#5 Adopt Holy Land Principles. I voted in favor of the Holy Land Principles. 3M claims their operations in Palestine-Israel essentially comply with these principles of nondiscrimination. If so, why not take a more public stand? Vote For.

3M Proxy Voting Guide: Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had collected the votes of three funds when I voted.  Proxy Insight reported additional votes from Canada Pension (CPPIB) and Teacher Retirement System of Texas (TRS)  voted.

# PROPOSAL TEXT CorpGov CPPIB/TRS CALVERT  TRILLIUM CBIS
1a Elect Director Sondra L. Barbour For For For Against For
1b Elect Director Thomas “Tony” K. Brown For For For Against For
1c Elect Director Vance D. Coffman Against For For Against For
1d Elect Director David B. Dillon For For For Against For
1e Elect Director Michael L. Eskew Against For For Against For
1f Elect Director Herbert L. Henkel Against For For Against For
1g Elect Director Muhtar Kent Against For For Against For
1h Elect Director Edward M. Liddy Against For For Against For
1i Elect Director Gregory R. Page For For For Against For
1j Elect Director Inge G. Thulin For For For Against For
1k Elect Director Patricia A. Woertz Against For For Against For
2 Ratify PricewaterhouseCoopers LLP as Auditors For For For For Against
3 Advisory Vote to Ratify Named Executive Officers’ Compensation Against For For Against For
4 Advisory Vote on Say on Pay Frequency One Year One Year One Year One Year One Year
5 Adopt Holy Land Principles For Against Abstain Abstain For

3M Proxy Voting Guide: Issue for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:

  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.
  • Proxy access provision whereby a stockholder, or a group of up to 20 stockholders, holding at least 3% of the outstanding common stock for at least three years may nominate up to the greater of two directors or 20% of the board.

3M Proxy Voting Guide: Mark Your Calendar

In order for a stockholder proposal to be considered for inclusion in 3M’s Proxy Statement for next year’s Annual Meeting, our Corporate Secretary must receive the proposal by November 22, 2017. Such proposals must be sent via registered, certified, or express mail (or other means that allows the stockholder to determine when the proposal was received by the Company) to: Gregg M. Larson, Vice President, Deputy General Counsel and Secretary, 3M Company, 3M Center, Building 220-14W-06, St. Paul, MN 55144-1000.

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime).I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

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