FedEx (FDX): How I Voted on Proxy Access & Other Critical Issues – Proxy Score 24

fedex-logoFedEx $FDX is one of the stocks in my portfolio. Their annual meeting is coming up on 9/23/2013. had collected the votes of four funds when I checked on 9/15/2013.  I voted with management 24% of the time.  View Proxy Statement.

Warning: 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.
FDX’s Summary Compensation Table shows Frederick W. Smith, CEO/Chair, was the highest paid named executive officer (NEO) at about $12.6M in 2013. I’m using Yahoo! Finance to determine market cap ($34.2B) and Wikipedia’s rule of thumb regarding classification. FDX is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9 & 10), using data from Equilar, the median CEO compensation at mid-cap corporations was $10.8 million in 2010.
FDX’s pay is above median when we factor inflation and more than UPS, a competitor with a market of over $80B. FedEx has a numerical GMI Ratings’ ESG score of just eight out of 100, three points above an “F” rating on their long-term sustainability risk measurements, and is in danger of being downgraded further. More from GMI Analyst:

Fred Smith, the company’s founder, has served as both Chairman and CEO of FedEx Corporation and predecessor entities for the past 35 years. Not only does he hold the two highest positions of power in the boardroom, but he does so without the counterweight of a lead director.

Therefore, I voted against the pay package and the omnibus stock plan.  I also voted against the members of the compensation committee: Steven R. Loranger — Chairman, Shirley Ann Jackson, Susan C. Schwab and Paul S. Walsh. In addition, I voted against Joshua Cooper Ramo, who holds no stock in our company and James L. Barksdale, John A. Edwardson, Joshua I. Smith, Paul S. Walsh, and Shirley Ann Jackson, who have all served on the board for more than 10 years. It is time for a board refresh, if not a total reboot.GMIAnalyst According to GMI-Analyst, Shirley Ann Jackson,

serves on five public boards and on more than a dozen separate committees. Ms. Jackson has served on the board of FedEx for 13 years and received nearly 16 percent of shares voted against her most recent board election… More than 40 percent of board members are also preoccupied with outside obligations, serving on at least three other public boards GMI Ratings covers in addition to their day jobs. FedEx’s board also houses three full-time CEOs.

One of these full-time CEOs is Paul S. Walsh, who not only runs Diaego PLC, among the largest spirit and wine producers in the world, but apparently has ample time to perform his duties as a FedEx Compensation Committee member. Joining Mr. Walsh on the committee is Ms. Jackson, Susan Schwab (whom we’ve flagged for involvement on the board of Calpine Corporation, which filed for bankruptcy in 2005, and who shares an intra-board relationship with director Josh Smith at Caterpillar Inc.), and Steven Loranger, the committee chairman who received nearly 10 percent of votes against his re-election to the board. The Compensation Committee in particular and the board as a whole have failed to appropriately tie Mr. Smith’s pay to performance, resulting in average realized compensation of about $22 million over the last three years.

With regard to shareowner proposals:

  • Independent chair – I voted for this proposal from the Teamsters. End the Fred Smith dictatorship. They don’t even have a lead director! Crazy. You shouldn’t be allowed to lead the evaluation of yourself.
  • Proxy access – Of course I voted in favor of my own proposal (submitted by my wife). There is nothing more important to our company’s future than the board. Their authority is unquestioned but it is time they share it, at least temporarily with shareowners willing to put in the effort, to gather information and propose candidates that can make our company more efficient. GMI Analyst notes the following:

We question whether FedEx, with a current ESG Rating of “F”, has the governance structure in place to breakout of the doldrums. The stock has been middling for almost a decade. Since November 2004, ex its small dividend payouts, Fedex has essentially provided long-term shareholders with no return on its stock, as the current quote reflects the same price levels it traded at in 2004.

    It is time to be proactive and proxy access is the only proposal that might lead to substantive changes on the board, if access is passed, if implemented by the board, if shareowners take advantage of it and are they are able to convince a majority of shareowners they have a better plan than management and have better board candidates. This is a several step process that will take a lot of time and effort and it begins with your affirmative vote. ISS has recommended against the proposal and that is probably the main reason the funds listed below have voted against it. ISS is concerned that it will be used for short-term advantage. Nonsense!

Studies by Boyson and Mooradian, and Brav, Jiang, Partnoy, and Thomas have demonstrated that the short-term run up in stock prices after hedge funds file a Schedule 13D persists for at least a year. A more recent study by Bebchuk, Brav and Jiang shows no abnormal negative returns over a five year period. No study provides conclusive proof that proxy access will add value at FDX but the evidence strongly suggests it won’t result in losses. See a full discussion of these issues in Shareholder Activism as a Corrective Mechanism in Corporate Governance by Paul Rose and Bernard S. Sharfman.

Any activist using proxy access at FDX has the high burden of overcoming the general presumption that favors the existing boar and management, since they have inside information. Any activist must win the vote of a majority, which will happen only if their ideas and candidates are seen as leading to greater value. My proposal recommends that two non-coordinating parties be eligible to nominate 2 directors each. Even if implemented, even it two groups take up the challenge and win, shareowners will elect only 4 members to an 11 member board. If those four directors are to accomplish anything they will have to convince the 7 incumbent board members of the added value of their opinions and proposals.

ISS has been recommending in favor of proposals where 3% shareowners who have held for 3 years can nominate up to 25% of the board. That would be two nominees at FDX. Most of the funds who hold for three years are passive indexers who aren’t likely to offer candidates. Even if they did, they have little experience or capability to do so. At FDX shareowners who are dissatisfied with the current board and GMI’s risk rating of “F”really have only one choice to give activist shareowners a chance to make a difference – vote in favor of proxy access.

  • Limit accelerated voting –  I voted in favor of John Chevedden’s proposal ask our board to adopt a policy to not accelerate vesting with a change of control; unvested award would vest on a partial, pro rata basis up to the time of the senior executive’s termination. Don’t severe the relationship between rewards and long-term performance. 
  • Hedging and pledging  –  I voted in favor of Amalgamated Bank’s proposal that equity-based compensation plans should prohibit directors and senior executives who are compensated under such plans from engaging in hedging or pledging transactions involving FedEx shares issued pursuant to those plans. It is simple, don’t let execs bet against our company or defeat the promised link between pay and performance.
  • Report political contributions –  I voted in favor of the proposal from the Comptroller of the City of New York to report on policies and contributions. We want to know if our company is spending money to increase value or for pet personal projects. The corporate treasury should not be viewed as the CEO’s or board’s piggy-bank.
  • Congruent political values and spending  –  I voted in favor of this proposal by NorthStar Asset Management. Don’t lie to us.
  • Exclude abstentions  –  I voted against this well intended proposal by Investor Voice. Yes, it is a confusing issue but not counting abstentions could result in problems obtaining a quorum. In most cases, when shareowners vote “abstain” on a proposal other than the election of directors, their vote will have the same practical effect as an “against” vote. That’s good; passage of proposals, whether from management or shareowners, should require a majority positive vote.

How I voted (CorpGov) below:

1.1Elect Director James L. BarksdaleAgainstForAgainstAgainstFor
1.2Elect Director John A. EdwardsonAgainstForAgainstAgainstFor
1.3Elect Director Shirley Ann JacksonAgainstAgainstAgainstAgainstFor
1.4Elect Director Steven R. LorangerAgainstForForAgainstFor
1.5Elect Director Gary W. LovemanForForAgainstAgainstFor
1.6Elect Director R. Brad MartinForForAgainstAgainstFor
1.7Elect Director Joshua Cooper RamoAgainstForAgainstAgainstFor
1.8Elect Director Susan C. SchwabAgainstForForAgainstFor
1.9Elect Director Frederick W. SmithAgainstForAgainstAgainstFor
1.10Elect Director David P. SteinerForForForAgainstFor
1.11Elect Director Paul S. WalshAgainstForAgainstAgainstFor
2Ratify NEOs’ CompensationAgainstAgainstAgainstAgainstAgainst
3Amend Omnibus Stock PlanAgainstAgainstAgainstAgainstFor
4Ratify AuditorsForForAgainstForAgainst
5Independent Board ChairmanForForForForFor
6Adopt Proxy Access RightForAgainstAgainstAgainstAgainst
7Limit Accelerated VestingForForForForFor
8Prohibit Hedging and Pledging ForForForForFor
9Report on Political ContributionsForForForForFor
10Values/Pol Contributions ConsistentForForAgainstForFor
11Exclude Abstentions in VotesAgainstAgainstAgainstAgainstAgainst

Mark your calendar:

Stockholder proposals intended to be presented at FedEx’s 2014 annual meeting must be received by FedEx no later than April 14, 2014, to be eligible for inclusion in FedEx’s proxy statement and form of proxy for next year’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120.

  Looking at, I see no action can be taken without a meeting by written consent. Special meetings can only be called by shareholders holding not less than 20% of the voting power. From Yahoo! Finance, FedEx Corporation’s ISS Governance QuickScore as of Sep 1, 2013 is 6. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; Compensation: 7. Brought to you 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.

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