Cisco ($CSCO) is one of the stocks in my portfolio. Their annual meeting is coming up on 11/15/2012. ProxyDemocracy.org had collected the votes of five funds when I voted on 11/8/2012. I voted with management 83% of the time. View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes)
I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions where something obviously warrants different treatment. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), aggregate compensation by public companies to NEO increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.
Few firms want to admit to having average executives. They survey executive compensation at corporations and then set compensation packages that are 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 and 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.
With regard to Kenneth Steiner’s proposal to split the CEO and chair positions, as far as I’m concerned that’s a no-brainer. I voted in favor of it. How can a CEO act with independent judgement as a chair in evaluating himself? Paul Hodgson, Chief Communications Officer and Senior Research Associate at GovernanceMetrics International, put this more eloquently (The Costs of a Combined Chair/CEO, HLS Forum on Corporate Governance and Financial Regulation, 7/13/2012):The two most authoritative positions in a boardroom are the CEO and the chairman. However, when these roles are combined, all the authority is vested in one individual; there are no checks and balances, and no balance of power. The CEO is charged with monitoring him or herself, presenting an obvious conflict of interest. Indeed, if the CEO is responsible for running the company, and the board is tasked with overseeing the CEO’s decisions in the interests of shareholders, how can the board properly monitor the CEO’s conduct if he or she is also serving as board chair?
Companies that combine the roles of CEO and chair score far worse in our ESG model, which evaluates companies using GMI Ratings’ comprehensive list of ESG KeyMetrics, as well as scoring far worse on our AGR Ratings, which test for fraud and financial restatements, among other quantitative accounting items. Furthermore, shareholder returns over an extended period seem to be favorable for those companies which separate the CEO and chairman roles. Indeed, there appears to be very little benefit to long-term shareholders in having a combined CEO and chair. The only benefit seems to be an economic one to those CEOs who have convinced the board to allow them also to serve as chair.
How I Voted; see below under CorpGov:
| # | PROPOSAL TEXT | CorpGov | DOMINI | CBIS | AFSCME | TRILLIUM | CALVERT |
|---|---|---|---|---|---|---|---|
| 1a | Carol A. Bartz | For | For | For | Against | Against | For |
| 1b | Marc Benioff | For | For | For | For | Against | For |
| 1c | M. Michele Burns | For | For | For | For | Against | For |
| 1d | Michael D. Capellas | For | For | For | Against | Against | For |
| 1e | Larry R. Carter | For | For | For | Against | Against | For |
| 1f | John T. Chambers | Against | Against | For | Against | Against | For |
| 1g | Brian L. Halla | For | For | For | For | Against | For |
| 1h | John L. Hennessy | For | For | For | For | Against | For |
| 1i | Kristina M. Johnson | For | For | For | For | Against | For |
| 1j | Richard M. Kovacevich | For | For | For | For | Against | For |
| 1k | Roderick C. McGeary | For | For | For | For | Against | For |
| 1l | Arun Sarin | For | For | For | For | Against | For |
| 1m | Steven M. West | For | For | For | Against | Against | For |
| 2 | Amend Exec Bonus Plan | For | Against | For | Against | Against | For |
| 3 | Ratify NEO Compensation | For | Against | For | For | Against | For |
| 4 | Ratify Auditors | For | For | Against | Against | For | For |
| 5 | Require Independent Chair | For | For | For | For | For | For |
| 6 | Report on Conflict Minerals | For | For | For | For | For | For |
Looking at SharekRepellent.net for possible corporate governance improvements for next year. I see the Board is authorized to increase or decrease the size of the board without shareholder approval. That seems like something that could potentially be abused. The Council of Institutional Investors includes the following language in their Corporate Governance Policies:
2.11 Board Size and Service: Absent compelling, unusual circumstances, a board should have no fewer than five and no more than 15 members (not too small to maintain the needed expertise and independence, and not too large to function efficiently). Shareowners should be allowed to vote on any major change in board size.
It might be a reasonable precaution to require shareowner approval of any change in board size. Here’s the deadline for next year’s proposals:
Shareholders of Cisco may submit proposals on matters appropriate for shareholder action at meetings of Cisco’s shareholders in accordance with Rule 14a-8 promulgated under the Exchange Act. For such proposals to be included in Cisco’s proxy materials relating to its 2013 Annual Meeting of Shareholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by Cisco no later than May 29, 2013. Such proposals should be delivered to Cisco Systems, Inc., Attn: Secretary, 170 West Tasman Drive, San Jose, California 95134-1706 (and we encourage you to send a copy via email to CorporateSecretary@cisco.com), with a copy to Cisco Systems, Inc., Attn: General Counsel at the same address.
Comments are closed.