Archive | May, 2011

Cognizant (CTSH): How I Voted

Cognizant Technology Solutions (CTSH) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. had four funds voting when I looked yesterday.

Checking the Summary Compensation Table, it appears CEO/Chairman Francisco D’Souza was paid more than $11 million.  Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against most pay packages where the company paid more than the median $9 million last year, including this one. I also voted against Robert E. Weissman, the member of the compensation committee up for election this year and the proposal to increase authorized stock.

I voted for a pay advisory every year, instead of management’s recommended every three years but in favor of the other management proposals.

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Biogen Idec (BIIB): How I Voted

Biogen Idec (BIIB) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. had five funds voting.

Checking the Summary Compensation Table, it appears former CEO/Chairman James C. Mullen was paid more than $20 million and current CEO George A. Scangos was paid $9.4 million.  Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against most pay packages where the company paid more than the median $9 million last year. I also voted against Robert W. Pangia (Chair), Alexander J. Denner, Eric K. Rowinsky, and Lynn Schenk, since they served on the compensation committee.  I voted for a pay advisory every year and in favor of declassifying the board, a management proposal.

The 2011 Annual Shareholder Meeting will be webcast live on Thursday, June 2, 2011 at 9:00 a.m. ET. To access the live webcast, please visit Biogen Idec’s Investor Relations section ( An archived version of the webcast will be available following the meeting.

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Possible Stick Yields Results for Female Directors

The number of women being hired as non-executive directors to FTSE 100 companies is running at nearly double the rate it was before the Davies report, which threatened the introduction of fixed quotas.

Over the past six months, 23 per cent of all new non-executive board appointments have been filled by women, compared with just under 10 per cent for all of 2010, and the number of companies with no women on the board has fallen from 21 to 17. (Boards double number of women members, The Independent, 5/29/2011)

It looks like the possibility of legal mandates does have an impact, at least in the UK, and that quick action by boards may avoid legislation.

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How I Voted: Home Depot

Home Depot (HD) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. had five funds voting.

Checking the Summary Compensation Table, it appears CEO/Chair Francis S. Blake was paid about $10.5 million. Using the United States Proxy Exchange (USPX) released draft guidelines, I am voting against most pay packages over the median for large-caps of $9 million, including this one. I also voted against all members of the compensation committee: Brenneman, Codina and Hill.

I voted in favor of the proposal by Evelyn Y. Davis for cumulative voting. This right could become increasingly important is shareowners are ever given proxy access. I voted in favor of William Steiner’s proposal to allow special meetings to be called by 15% of the shares. I’ve introduced similar proposals and see this as simple good governance.

Similarly, I favor the proposal by Trillium Asset Management for a diversity report. Home Depot should take a leadership position on this important issue. I also favor the proposal from NorthStar Asset Management Funded Pension Plan to allow a shareowner vote on specified political expenses. After Citizens United, I think such votes at every company are warranted.

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Wal-Mart (WMT): How I Voted

Wal-Mart Stores (WMT) is one of the stocks in my portfolio. Their annual meeting is coming up June 2. had four funds voting when I looked yesterday.

Checking the Summary Compensation Table, it appears CEO Michael T. Duke was paid more than $17 million.  Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against most pay packages where the company paid more than the median $9 million last year, including this one. I also voted against compensation committee members Wolf, Reinemund, and Daft.

I voted for a pay advisory every year and in favor of most of the shareowner proposals, including:

  • Amend EEO Policy to Prohibit Discrimination based on Gender Identity
  • Report on Political Contributions
  • Reduce Requirements to Call Special Meetings
  • Prepare Sustainability Report

I think Wal-Mart, of late, has been doing a good job relative to climate change. Therefore, I voted against the proposal seeking a business report on that subject.
See also, Wal-Mart Is Being Pressed to Disclose How Global Suppliers Treat Workers, NYTimes, 5/30/2011.

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Google: How I Voted

Google (GOOG) is one of the stocks in my portfolio.  Their annual meeting is coming up June 2. had several funds voting. Although I reviewed how they voted, my votes didn’t align with any of the funds.

Checking the Summary Compensation Table, it appears two senior vice presidents (Patrick Pichette and Nikesh Arora) each got more than $22.5 million last year. That’s too much, even for Google, when the median large cap CEO is getting a little more than $9 million. Using the United States Proxy Exchange (USPX) released draft guidelines, I voted against the pay package, against the stock plan and against L. John Doerr and Paul S. Otellini, since they served on the compensation committee. Management wanted a say-when-on-pay frequency of three years but I voted for every year.

Turning to shareowner proposals, I voted in favor of John Harrington’s bylaw to establish a Sustainability Committee. Although Google is doing more than many companies, I think soliciting public input and issuing periodic reports to shareholders and the public, as requested in the proposal, would put Google farther ahead in this important area. I also voted in favor of John Chevedden’s proposal that each shareowner voting requirement impacting our company, that calls for a greater than simple majority vote, be changed to a majority of the votes cast for and against the proposal in compliance with applicable laws. I submitted similar proposals at other companies and see this as good governance to avoid entrenchment.

I voted against the proposal by the National Center for Public Policy Research to report on possible conflicts of interest. Although the proposal sounds good, I think this is the same group that has encouraged companies to account for lobbying costs to support cap and trade programs, so I don’t trust them.

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Directors Should Thank Dodd-Frank

Eleanor Bloxham, a contributor to Fortune magazine, tells readers Why corporate directors should thank Dodd and Frank. With investors focused on “say-on-pay,” ISS recommendations against directors are down substantially.

Ture, but this isn’t likely to last. Most institutional investors seem to be taking a year off from voting against compensation committee members, giving them a free pass this year. Personally, I haven’t joined them. In fact, this is the first year I’ve been conscientiously voting against pay enabling compensation committee members. Expect an increase in such votes by institutional investors next year if companies ignore “say-on-pay” votes this year.

Directors should thank Dodd-Frank, not for temporarily distracting investors but for bringing better focus to their jobs… requiring that compensation committees be composed solely of independent directors and reducing conflicts of interest in compensation consultants, among many other reforms.

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CalPERS Runoff: Bilbrey & Ross — CalPERS Forum July 6

Michael Bilbrey got 46,032 preliminary count votes. Richard Ross placed second with 26,522 votes to qualify for a runoff. Donna Snodgrass and David Miller were close behind with 24,101 and 23,627 respectively. Ballots go out June 30 and are due back July 28. will hold another CalPERS Candidate Forum on July 6, from 6-8 pm, in the CalPERS auditorium at 400 P Street, Sacramento. The League of Women Voters of Sacramento County will again facilitate the forum.

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Bogle Spinning in His Grave: Vanguard, a "Pay Enabler"

No, he isn’t dead but he might as well be as far as his ability to influence Vanguard, the giant mutual fund he founded. John Bogle wants funds to introduce resolutions at companies requiring a 75% shareowner vote in order to make political contributions. Yet, Vanguard has never introduced a single shareowner resolution anywhere that I know of. Bogle believes funds should vote in the interest of their shareowners, not their managers. We see no evidence of that at Vanguard. Corporations, he says, shouldn’t be controlled by their agents. Yet, Continue Reading →

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Believe it: Sometimes Governance is to Blame More than the Tax Code

The recent discussion in the media about the litigation around the Tribune Company LBO in 2007, is an excellent illustration of the consequences of a governance failure as well as the failure of many commentators to recognize the causal relationship. In the linked article, Holman Jenkins of the WSJ correctly notes that this deal was ill-conceived from the beginning.

To sum up a complicated situation, a bankruptcy judge has now decided that the Tribune’s unsecured creditors can sue everyone involved in the leveraged buyout, including the lending banks, on grounds that the deal was a “fraudulent conveyance”—they knew or should have known they were piling on more debt than the company could survive. Already a special examiner appointed by the bankruptcy judge has found sufficient evidence to support such a claim. 

He pins the blame on our convoluted Internal Revenue Code, specifically its provisions awarding special dispensation to Employee Stock Ownership Plans, one of the vehicles used to bring the deal to fruition.

While there is little doubt that IRC incentives played some role in the debacle, the fact remains that the deal was quite aggressive in all events. This was the case even with the most favorable tax consequences and economic assumptions, and prompted significant concern at the time by those asked to pass on the company’s solvency ex post. In other words, the deal resulted from bad decisions by both purchasers and sellers. There was simply insufficient vetting of the deal by anyone.

As we know, the corporate governance field exists in large part to cause companies to avoid such bad decisions. Caused in large part by terrible decisions in the financial sector (as well as households entering into the overly aggressive mortgages), the Great Recession attests to the fact that governance law has not worked in the intended manner and that substantive changes are required to have it work properly.

While there is no question that our IRC is sorely in need of overhaul for many reasons, it is important that its deficiencies not be used as a scapegoat for governance failures. It is important that public dialogue about what needs to be done to avoid the sorts of bad decisions that led to the Great Recession be properly focused and prominently note the role of governance and the need to change its framework so as to bring about fewer bad decisions.

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InGovern Proxy Analysis Launched in India

A new proxy vote analysis service, InGovern Corporate Governance Platform, allows institutional investors to analyze various companies, follow the agendas of shareholder meetings, exercise votes and collaborate with other investors. Research based on “objective criteria” – Governance Radar – is also embedded into the platform, according to a press release from Bangalore.

This is a part of InGovern’s pioneering efforts at promoting shareholder activism among institutional investors in India.

Global research has shown that there is high correlation between good corporate governance and long term returns on an investment. Shareholder activism is in its infancy in India. The Ministry of Corporate Affairs and SEBI have been prodding institutional investors to exercise their rights as minority shareholders in companies. Investors can hope to get superior investment returns by actively participating in enhancing the corporate governance culture in India.


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Bainbridge Draws False Analogy Between Speech & Access

Stephen Bainbridge, in an uncharacteristically sloppy argument, rails against Lucian Bebchuk and his “acolyte” Robert Jackson for continuing to spread the claim that shareholders ought to be actively involved in an ever-expanding array of corporate decisions, by giving shareholders “a greater role in corporate political speech decisions.”

I can understand that Professor Bainbridge resents interference by shareowners, since he believes boards should have exclusive domain over such activities.  Fair enough. However, he then argues the SEC’s change in position regarding proposals influencing Continue Reading →

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India: Class Action, Insider Trading & CSR

Companies Bill 2009 proposes to introduce the concept of class action suits for the first time in India, which would empower investors to sue a company for “oppression and mismanagement” and claim damages.

Among other things, it also proposes to tighten the laws for raising money from the public and seeks to prohibit insider trading by company directors or key managerial personnel by treating such activities as a criminal offense.

Further, the UPA report said that voluntary guidelines on corporate social responsibility were released to promote socially and environmentally responsible business practices in the Indian corporate sector.

via New companies bill to encourage ‘responsible corp behaviour’ – Economic Times, 5/22/2011.

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Clowns, Annual Election of Directors & ACGI

Like many, I read that a proposal at McDonalds to halt marketing to kids, retire Ronald McDonald, and report on links between fast food and children’s health, failed… winning only 6% of shares voted. Every change has to start somewhere.

However, I also learned from a reliable source that a proposal submitted by Florida SBA, with the assistance of the American Corporate Governance Institute (ACGI) to declassify the board won 77%. It was a real cooperative effort, with Dan Nielsen, the Director of Socially Responsible Investing at Christian Brothers Investment Services, presenting the proposal at the meeting.

It is great to see shareowners working together and even more exciting to learn about ACGI, which I see Nell Minow already discussed a bit back on May 10.  Minow writes a little on the evolution of classified boards, cites a study that finds they insulate directors while providing no apparent benefit and discusses the campaign by Florida SBA and the Nathan Cummings Foundation to address many of the 10% of large Continue Reading →

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IRobot: How I Voted

IRobot (IRBT) is one of the stocks in my portfolio. Their annual meeting is coming up May 24. had only one fund voting, CBIS, when I voted yesterday. had none. Today is the last day to vote using

Checking the Summary Compensation Table, it appears CEO/Chair Colin M. Angle was paid more than $2.3 million, which is more than the $2.2 million median for a small-cap firm.  Using the United States Proxy Exchange (USPX) released draft guidelines and adjusting for company size, I voted against the pay package. However, because the difference was relatively small, I didn’t vote against the compensation committee. Management wanted a say-when-on-pay frequency of three years but I voted for every year. I voted using the platform.

1.1Elect Director Gail DeeganFor
1.2Elect Director Andrea GiesserFor
1.3Elect Director Jacques S. Gansler, Ph.D.For
2Approve Executive Incentive Bonus PlanFor
3Ratify AuditorsFor
4Advisory Vote to Ratify Named Executive Officers’ CompensationAgainst
5Advisory Vote on Say on Pay FrequencyOne Year


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Video Friday: NYSE Board Education

On “This Week in the Boardroom,” hosts TK Kerstetter, President, Corporate Board Member, and Scott Cutler, Executive Vice President, NYSE Euronext, announced the launch of the NYSE Board Education Program which is designed to provide voluntary education for public and private company board members and offers core information and critical updates through Corporate Board Member conferences, events, publications, and online resources.

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Executive Pay

Pay continues to be the biggest issue this proxy season. The May 17 edition of Pirc Alert had several articles on point. In “A challenge to high pay” they discuss some of the findings by the High Pay Commission. Here’s a few choice tidbits from the Commission’s report:

  • attempts to link top pay with company performance only seem to have resulted in pushing up remuneration, with little corresponding step up in business success.
  • the top 0.1% earners – are finance workers (30%), those working in business (38%) and company directors (34%)
  • Excessive rewards are undermining relationships with employees and shareholders; they are encouraging harmful risk taking and creating an economic elite which wields enormous power but appears to have lost touch with how the rest of us live.
  • Defenders of high pay talk about executives being poached by international competitors but only one FTSE 100 company has been the victim of poaching in the last 5 years, that was from another British firm.
  • a feeling that business leaders are ‘in it for themselves’ pervades all discussions on the behaviour of businesses.
  • 58% of people either agree or strongly agree there is one rule for the rich and another for the poor; 18% disagree
  • The failure of our corporate governance system means that we are now paying more and getting less

The Commission will now look at options, such as “reforms of the Remuneration Committees and the inclusion of other stakeholders.” PIRC has also argued that introducing dissident elements onto committees may restrict excess. We look forward to the Commission’s recommendations later this year.

Yesterday Broc Romanek reported “four more companies filed Form 8-Ks reporting failed say-on-pay votes: Helix Energy Solutions (34%); Curtiss-Wright (41%); Intersil (44%); and Cincinnati Bell (34%). I keep maintaining our list of Form 8-Ks for failed SOPs in’s “Say-on-Pay” Practice Area.”  His list was up to 24 when I looked yesterday; it could be higher today. See the agenda for their upcoming November 1 conference.

Thanks in part to “say on pay,” U.S. directors are receiving less opposition from investors this season. As of May 12, the average “withhold” vote was 4.7 percent, as compared with 5.5 percent last year. At S&P 500 companies, the average opposition rate has fallen from 4.1 percent in 2010 to 3.9 percent this year, according to ISS data. (Advisory Votes Help Shield Directors From Investor Dissent, Ted Allen, ISS, 5/19/2011)

The United States Proxy Exchange (USPX) released draft guidelines for shareowners to use in making say-on-pay voting decisions. Our guidelines call for a no vote on “say-on-pay” when the ratio of CEO pay to average workers exceeded a shareowner specified threshold or when the CEO was higher than the median. We also recommend voting against compensation committee members when shareowners vote down pay packages.

Is this a good strategy, or should we wait until the following year to vote out compensation members who don’t take voting down pay packages seriously? That seems to be the strategy of many shareowners this year. What are your ideas on how to ratchet down pay packages that seem to rise every year, regardless of company performance and oblivious to the widening gap between the super-rich and the rest of us?

Comment letters are due by June 2nd to [email protected]. Please put “Say-on-Pay Guidelines” in the e-mail subject line. Letters will be posted to the USPX website, unless you indicate you would rather remain anonymous.

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Rovi: How I Voted

Rovi (ROVI) is one of the stocks in my portfolio. Their annual meeting is coming up May 24. had only one fund voting, Calvert, when I looked two days ago. had four “good causes” but only one readily identifiable source, Calvert.

Checking the Summary Compensation Table, it appears CEO/Alfred J. Amoroso was paid almost $7 million. That’s too much for what is essentially a small cap where median pay is $4.3 million. Using the United States Proxy Exchange (USPX) released draft guidelines and adjusting for company size, I voted against the pay package, against the stock plan and against Ludwick, Quindlen and O’Shaughnessy, since they served on the compensation committee. Management wanted a say-when-on-pay frequency of three years but I voted for every year. I voted using the platform.

1.1Elect Director Alfred J. AmorosoFor
1.2Elect Director Alan L. EarhartFor
1.3Elect Director Andrew K. LudwickWithhold
1.4Elect Director James E. MeyerFor
1.5Elect Director James P. O’ShaughnessyWithhold
1.6Elect Director Ruthann QuindlenWithhold
2Amend Omnibus Stock PlanAgainst
3Ratify AuditorsFor
4Advisory Vote to Ratify Named Executive Officers’ CompensationAgainst
5Advisory Vote on Say on Pay FrequencyOne Year


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Why Routinely Approve Auditors?

Ever since the demise of Enron, I’ve wondered why the vote by shareowners to approve auditors is considered such a routine nonevent. Ask anyone who used to work for former big five firm Arthur Andersen LLP. Yet, “ratification” of auditors remains among the last holdouts of broker voting.

Who watches the watchers in the world of big business? That question is asked by corporate governance consultant Pirc in its Annual Stewardship Review. Reviewing voting results over the last five years, they couldn’t find a single instance of any vote of more than 20% against an auditor appointment. According to Alan MacDougall, managing director at Pirc:

We’re surprised that even after the financial crisis, shareholders don’t seem to make the connection between value destruction and the fairly closed world of auditing UK plc.

John Gray, a member of the investment panel of the London Borough of Tower Hamlets pension fund, says trustees and local authority panels need to devote far more time to their fiduciary duties. He shows faith in the newly formed Association of Member-Nominated Trustees.

The FT article ends with a quote from Lord Myners: “You don’t wash or service a rented car because you expect to give it back. I still get the impression that shareholders treat their holdings like a rented car. For the efficient use of capital, that attitude has to change.”

via / FTfm / FTfm Structured Products – Review questions positon of auditors.

Pirc makes valid points that his American counterparts should also be raising. Where was/is the outpouring of votes against the auditors who dropped the ball in their audits of American banks during and proceeding the financial crisis?  Shouldn’t we be voting down auditors who so obviously failed us?

The best solution I have seen is Mark Latham’s proposal that would allow shareowners to recommend auditors from a pool of qualified applicants, rather than asking us to approve one chosen by management.  For an example, see Latham’s proposal to USG dated November 17, 2002 at

I also like the idea of an Association of Member-Nominated Trustees. The closest the US comes to that, as far as I know, is the effort led by CalPERS and CalSTRS to develop a primarily digital resource, the Diverse Director DataSource (or 3D), devoted to finding untapped diverse talent to serve on corporate boards. (see 3D Advisory Panel Named)

It would be good to see this group or another also take on the additional aims of the UK’s Association, which include:

  1. To support the development of member nominees and to enable them to perform their role to the best of their ability.
  2. To provide member nominees with a collective voice, and if desired, to lobby on pension matters with the Regulator, within the pensions industry and through the professional associations and trade bodies.
  3. To provide or guide access to training services which meet member nominees’ needs.
  4. To help identify and champion best practice among pension schemes – including scheme governance, performance and communications.
  5. To provide a networking environment through which member nominees can share their experiences and challenges with other member nominees in confidence.
  6. To provide support for sponsors through targeted services – including for example a member nominee selection process.
  7. To conduct research or studies which may help MNs become more effective in their performance.

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Interface: How I Voted

Interface, Inc (IFSIA) is one of the stocks in my portfolio. Their annual meeting is coming up May 23. had only one fund voting, CBIS, when I looked yesterday. Often they seem to vote against just about every management recommendation but not this time. had five opinions but only two readily identifiable sources, Calvert and Trillium. They were at odds with each other.

Checking the Summary Compensation Table, it appears CEO/Daniel T. Hendrix was paid Continue Reading →

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Waste Connections: How I Voted

Waste Connection (WCN) is one of the stocks in my portfolio. Their annual meeting is coming up May 20. had only one fund voting, CBIS, when I looked yesterday. had none. Checking the Summary Compensation Table, it appears CEO/Chair Ronald J. Mittelstaedt was paid less than the $4.3 median for mid-cap stocks, using the United States Proxy Exchange (USPX) released draft guidelines and adjusting for company size. I’m happy with the relatively steady performance of the company, so I’m voting with management, except that I am voting for an annual say-on-pay.

1Elect Director Robert H. DavisForAgainst
2Increase Authorized Common StockForFor
3Ratify AuditorsForAgainst
4Advisory Vote to Ratify Named Executive Officers’ CompensationForFor
5Advisory Vote on Say on Pay FrequencyOne YearOne Year


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Kinetic Concepts: Victory for Shareowners!

I was about to sit down this morning and write another scathing post on Kinetic Concepts when I learned of their press release announcing they will gradually declassify their board. They gave no reason as to why they took this action just ahead of their annual meeting. Perhaps they looked again at their guiding principles,

We act with integrity and honesty above all, in all that we do.

I e-mailed them to ask why but they have not answered. A more probable cause was the likelihood that shareowners would oust board members currently up for election. The whole episode shows that persistant shareowners can hold board members accountable.

As readers of may recall, shareowner John Chevedden submitted a proposal to Kinetic Concepts to declassify their board and have all members up for annual election. Kinetic Concepts filed for a no-action letter from the SEC on the grounds that Chevedden had provided insufficient evidence that he owned Kinetic stock. The SEC’s March 21 denial was in line with previous denials at Hain Celestial, Union Pacific, Devon Energy, Prudential, and News Corp where companies had  not met the burden of 14a-8(g). They had not demonstrated they are entitled to exclude these proposals.

Despite denial of their no-action request, Kinetic Concepts sent an April 5 letter to the SEC putting them on notice they would mail their proxy without Mr. Chevedden’s proposal, despite the SEC’s refusal to grant their no-action request.

As justification, Kinetic pointed to a flawed court decision from a suit brought against Mr. Chevedden by KBR. Even a quick glance at page 6 (2011-04-04 KBR Chevedden Docket 24 – Memorandum and Order reveals the judge didn’t base her decision on what is required in order to show evidence of ownership for a 14a-8 proposal. Instead, she based her decision on evidence of ownership requirements adopted in 14a-11, the provisions for placing shareowner director nominees on the proxy. Aside from being on a completely different subject, these rules are not even in effect, but have been stayed because of the lawsuit on the SEC’s proxy access rules.

They made no attempt to exhaust legal remedies. Kinetic simply pointed to the flawed court decision and essentially said, our case is like that case, so we’re not including the proposal from Chevedden.

I wrote several articles warning of dire consequences if Kinetic Concepts was allowed to get away with simply ignoring the law. (SEC: Time to Remove the Gag; Texas Secession Led by Apache, KRB and Kinetic Concepts; Take Action: Sixty Years of ShareOwner Rights at Risk; and Go Directly to Court, Do Not Pass SEC, Prepare to Spend Thousands). Some of these posts also appeared at and Accountability Central. I also contacted several large funds, unions, proxy advisors and, of course, the SEC.

My experience with the SEC was frustrating. Although I got a sympathetic ear at Corporation Finance, they claimed the case was out of their jurisdiction. I needed to contact Enforcement. Enforcement has no public phone number and the internet forms are not set up to handle complaints on shareowner rights.

It was like writing into a black hole. In my direct experience, nothing seems to come out of Enforcement. As a brief aside, note Broc Romanek’s recent posts at The SEC’s Whistleblower Office Does Not Want To Talk To You and The Bigger Picture: Why Doesn’t the SEC’s Enforcement Division Provide a Phone Number? It turns out that due to a lack of funding the whistleblower office doesn’t exist and the Enforcement Division doesn’t want to talke to anyone.

I don’t know if the SEC took any action at all. However, I do know funds that investigated the issues and spoke to people at Kinetics. The big break for shareowners probably came when ISS and Glass Lewis both recommended voting against board members. The following are extensive quotes from ISS’ advisory:

In this case, while the company cites precedent cases as a reason for excluding the proposal, the company has not received correspondence from the SEC or a ruling from the US District Court stating that the company may exclude Mr. Chevedden’s proposal. Furthermore, the company has not filed a case to the court with regarding this proposal and as such has not fully exhausted its legal remedies in seeking a no action ruling from the SEC. In this instance the company has taken upon itself the role that is reserved for the SEC and the courts and in doing so, has denied shareholders an opportunity to vote on an important issue without the force of law…

ISS also notes that the company is ignoring a proposal to declassify the board, which is a well-accepted governance reform that regularly receives high levels of shareholder support. For instance, in 2010, such shareholder proposals filed at U.S. public companies received an average of 61.1-percent support from votes cast for and against. Furthermore, studies have shown a negative correlation between the existence of a classified board and a company’s value. ISS believes that all directors should be accountable on an annual basis and that a staggered board can entrench management and effectively preclude takeover bids or proxy contests…

By omitting this item despite the SEC’s correspondence stating that it should be included, the company has disenfranchised its shareholders from one of their key entitlements. As owners of the company, shareholders should have the right to judge a shareholder proposal which could affect the governance structure of the company. In this case, by directly disregarding the SEC’s statement confirming that the shareholder proposal should appear on the ballot, the company has intentionally disenfranchised its shareholders and as such, ISS recommends that shareholders WITHHOLD votes from the entire class of directors standing for election at this annual meeting.

Soon after Kinetic Concepts issued their press release indicating they would move to declassify their board, both ISS and Glass Lewis revised their voting recommendations to include voting in favor of all incumbents.

Lesson: Vigilance pays. Had we done nothing, shareowner rights would have been trampled. Thanks to our many readers who took action.

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Insider Trading: Two Perspectives

Contrasting opinions from Marty Robins, attorney and adjunct law professor at Northwestern University School of Law and DePaul University College of Law, as well as a frequent commentator on

As a retail investor, I’m told that I should be happy about the Rajaratnam conviction on various charges related to insider trading activity. The prosecutor in the case tells the world that this behavior “cheats the ordinary investor.” I’m also told that the insider trading crackdown which we are now seeing ‘levels the playing field’ between professional and ‘ordinary’ investors. “In scoring their biggest insider-trading victory in a generation, regulators have a message for a nation of nervous individual investors: When it comes to information about stocks, the playing field is getting a little more level.”

I don’t follow this logic and am concerned that this crackdown is misguided and perhaps counterproductive… To actually benefit retail investors, and the economy as a whole, we need governmental efforts which focus on causing companies to be better run and avoid the sort of debacles which have plunged our economy into recession twice during the last ten years… Until such matters are front and center, stopping insider trading will be nothing but an economic sideshow.  (Marty Robins: Tell Me Why I Should Care About Ending Insider Trading, Huffington Post, 5/13/2011)

And this from Mort Zuckerman, magazine editor, publisher, and real estate billionaire.

As one of the trial witnesses put it: “Research is sort of like doing your homework ahead of time. Getting the number is more like cheating on the test.”…

The playing field may never be truly level on Wall Street, but the government is now in a position to patrol more aggressively the grey line between financial research and financial crimes. The courts will be more willing and able to make wiretaps available to the Securities and Exchange Commission. Concern that federal agents are listening should be an effective deterrent and reinforce the idea that people need to be very careful about how they deal with information that has financial value. As the prosecutor put it in the press conference announcing the original arrest: “Greed sometimes is not good.” (Timely strictures on the audacity of greed, FT., 5/16/2011)

Personally, I’m all for fairness. Insider trading may be a “sideshow” compared to better corporate governance but it is still wrong.

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Juniper Networks: How I Voted

Juniper Networks (JNPR) is one of the stocks in my portfolio. Their annual meeting is coming up May 18. May 14 is the last day to vote my proxy on the platform. had only one fund voting, CBIS, when I looked yesterday. had no recommendations.  The Summary Compensation Table shows CEO/Chair Kevin R. Johnson earned $10 last year. That’s more than the median pay of CEOs in the S&P 500. I’m voting against all pay packages above the median, including this one and I’m voting against the bonus plan. See Nay on Pay: How Continue Reading →

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