Ferro (FOE) is not one of the stocks in my portfolio but I did help in reviewing companies I thought were good candidates for a proxy access proposal and I did help design the proposal submitted to FOE, so I’m offering my voting advice.
As the proposal’s proponent, Ken Steiner, said in the justification for the proxy access proposal, GMI downgraded Ferro to a “C” rating due to executive pay concerns, which was more dependent on subjective short term measures without performance vesting features. FOE has no clawback policy and a potential payment of $13 million to the CEO that GMI says is not in the best interest of shareowners. In their last 2010 election, two of FOE’s directors failed to receive a majority vote, yet they were still on the board. The stock price declined 67% in the year ending 11/23/2011.
I’d downgrade it further. Stock price was at $15.50 on April 25, 2011 and was less than $5.00 when I wrote this yesterday. FOE is a small cap company, with a market cap of less than $0.5 billion. Revenue “growth” was -17.6% for last quarter, compared to competitors: CHMT -.40, PPG +6.2, SEH +20. It has a classified board, plurality voting standards, has not separated CEO from chair positions, and supermajority requirements to amend bylaws or approve a merger. Shareowners cannot act by written consent and it takes 25% just to call for a special meeting.
FOE has a history of ignoring shareowners. In 2010, the board failed to implement a shareowner proposal to opt out of Ohio’s Control Share Acquisitions Act, even though it won a majority vote, and, as already mentioned, in 2011 the board continued to seat two directors (Sandra Austin and William Lawrence) voted down by a majority of shareowners.
The Summary Compensation Table on page 31 of their proxy materials shows FOE paid CEO/Chair James F. Kirsch more than $4.6 million last year. As stated at the top of page 10 in the Shareowner Guidelines for Say Pay Voting, according to Equilar, median pay for CEOs at small-cap companies was $2.2 million.
I might add, unrelated to FOE, Equilar has a great new tool, Peer Group Dashboard, that helps companies evaluate second-degree peers (the peers of your peers) for inclusion in your company’s peer group, and that Glass Lewis is now beta testing. Another of their tools looks at “realizable pay.”
As a small-cap, it is hard to find out how others are voting. Moxy Vote’s proxy voting platform listed only the votes of Calvert. ProxyDemocracy.org listed the votes only of CBIS.
Given FOE’s record of underperformance, overpaying their CEO, ignoring the vote of shareowners and its many poor corporate governance practices, I would vote against both continuing directors, the auditor and the advisory vote on pay. I would support only Peter Kong, who is new, and Ken Steiner’s proxy access proposal. If voters pass proxy access, they still have to wait another year for the possible opportunity to nominate board members. Yet, without changes to the board, it is hard to see FOE turning around.
Here’s the deadline for proposals by shareowners for next year, according to page 53:
Any shareholder who intends to present a proposal at the 2013 Annual Meeting and who wishes to have the proposal included in Ferro’s proxy statement and form of proxy for that meeting must deliver the proposal to the Company at our headquarters at 6060 Parkland Boulevard, Mayfield Heights, Ohio 44124, not later than November 28, 2012, and must comply with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the advance notice provisions in the Company’s Code of Regulations.
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