Bio-Rad Laboratories (BIO): How I Voted – Proxy Score 20

Bio-RadBio-Rad Laboratories, $BIO, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/22/2014. had collected the votes of one fund when I checked and voted on 4/14/2014.  I voted with management 20% of the time.  View Proxy Statement. It is hard to believe but BIO not only doesn’t include a linked index, they don’t include an index or table of contents at all. Why make review ing the proxy so difficult?

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

BIO’s Summary Compensation Table (page 19) shows CEO/Chairman Norman Schwartz, was the highest paid named executive officer (NEO) at about $4.6M in 2013. I’m using Yahoo! Finance to determine market cap ($3.5B) and Wikipedia’s rule of thumb regarding classification. BIO is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.7 million in 2012, so BIO is under median. However, it is at the low end of mid-caps.


The GMIAnalyst report I reviewed gave BIO an overall D for several reasons, including:

Bio-Rad is a controlled company and a family firm, where the Schwartz family—including shares held by co-founder and director Alice Schwartz and her son, CEO and Chairman Norman Schwartz—controls over two-thirds of the company’s total voting power through a multiple class stock structure which disproportionately favors holders of Class B stock… 

executive compensation is insufficiently linked to performance. Corporate targets in the company’s annual cash bonus program can be modified mid-year while equity grants are discretionary and not performance-based. Furthermore, there is no policy regarding the adjustment or recovery of annual awards in the event that an accounting restatement results in corporate goals not being satisfied (a point that is especially relevant given the company’s recent SOX violations…

While the company appointed Robert Malchione to its board starting in 2014—so that there are now six directors and two new directors in the past three years—there are still only four independent directors to counteract the presence of two members of the Schwartz family, which means that the board is likely to be challenged in maintaining adequate independence, committee membership, and oversight of management. As an example, the same two independent directors serve together on both of the board’s standing committees, negating one typical benefit of committee service, which is to allow a subset of the board to devote extra attention to an issue and develop expertise in that area. One of these directors, Albert Hillman, is 81 years old and has served alongside Ms. Schwartz for over three decades. While we recognize the benefits of experience, it becomes increasingly challenging to act independently with such extensive service…

Whether it was in response to the company’s board composition or its second SOX violation in the past three years, shareholders are clearly not pleased with the board’s two committee members—Mr. Hillman and Louis Drapeau—as each received 48% withhold votes at the company’s last annual meeting. While these vote totals do not reflect a majority they certainly represent a considerable amount of shareholder dissent.

Given the above negatives from GMI (there is more), I voted against the pay plan and the stock plan. I also voted against Drapeau, since he is on the compensation committee. I also note that although he is the lead director and has served on the board for seven years, he holds not stock in our company! Why would any rational shareowner vote for him — unless you basically control the company and he is your lapdog? Since Malchione is newly appointed, I gave him the benefit of the doubt and my vote.

How I voted (CorpGov) below:

1.1Elect Director Louis DrapeauAgainstAgainst
1.2Elect Director Robert M. MalchioneForAgainst
2Ratify AuditorsForFor
3Amend Omnibus Stock PlanAgainstFor
4Advisory Vote to Ratify Named Executive Officers’ CompensationAgainstAgainst

Mark your calendar:

If you want us to consider including a proposal in next year’s proxy statement, you must deliver it in writing to Bio-Rad Laboratories, Inc. at 1000 Alfred Nobel Drive, Hercules, California 94547, Attention: Secretary, no later than December 2, 2014.

  Looking at, special meetings can only be called by shareholders holding not less than 50.1% of the voting power. However, the worst provision is the following: “Holders of Class A Common Shares shall be entitled to one-tenth of a vote per share held. Holders of Class B Common Shares shall be entitled to one vote per share held.” Unless the family relinquishes control, there isn’t much shareowners can do to change things at Bio-Rad.

From Yahoo! Finance, Bio-Rad Laboratories, Inc.’s ISS Governance QuickScore as of Apr 1, 2014 is 10. The pillar scores are Audit: 10; Board: 10; Shareholder Rights: 7; Compensation: 8. 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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