EMC Corporation (EMC): How I Voted – Proxy Score 13

EMCEMC Corporation $EMC is one of the stocks in my portfolio. Their annual meeting is coming up on 4/30/2014. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 4/22/2014.  I voted with management 13% of the time.  View EMC’s Proxy Statement, which is user friendly.

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 CrimeI 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

EMC’s Summary Compensation Table shows CEO and Chair Joseph M. Tucci was the highest paid named executive officer (NEO) at about $12.6M in 2013. I’m using Yahoo! Finance to determine market cap ($54B) and Wikipedia’s rule of thumb regarding classification. EMC is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $9.7 million in 2012, so EMC’s is over median. Therefore, I voted against the pay plan and members of the compensation committee (Windle B. Priem is not standing for reelection):

  • Randolph L. Cowen, Chair
  • Gail Deegan
  • William D. Green
  • Paul Sagan

I also voted against CEO/Chairman Joseph M. Tucci and members of the Corporate Governance and Nominating Committee because I disagree strongly with EMC’s tactic of suing a shareowner for simply filing a precatory proposal, rather than exhausting administrative remedies through an SEC ‘no-action’ request. The lawsuit was expensive, sought legal expenses against a small retail shareowner (me) and was unsuccessful. See EMC v. John Chevedden and James McRitchie: Case Dismissed and SRI Funds & Advisors Send Open Letters on Lawsuits Against Shareholders.

As Judge Wolf made clear in his decision against EMC:
dealing with this matter on declaratory judgment on an expedited basis, when, as here, EMC has not presented all of its arguments to the SEC first, would be essentially reversing the statutory scheme and not be in the interests of the administration of justice… In addition it would abet what I regard as an inappropriate practice of depriving the SEC of the opportunity to perform its proper role of considering all the grounds that in this case have been argued to me and giving informed advice.

I also have in mind Mr. McRitchie’s last argument, that permitting — or where there’s a legitimate discretion or abetting an end run around the SEC deprives shareholder of a relatively inexpensive opportunity to get claims dispute resolved in their favor and by forcing them into court keeps them from really, as a practical matter, having an appropriate opportunity to have their positions evaluated on an informed basis as the SEC’s in a better position to do quickly and relatively inexpensively.

Wolf made it clear that before rendering a decision on the substance of EMC’s objections, he would want to hear from the SEC. As the SEC itself argued in their 1947 winning case against TransAmerica:

Assuming that such informal rulings of an administrative agency do not have the full force of formal interpretations in the course of administrative adjudication, nevertheless an agency’s construction of its own rules has been said to be ‘of controlling weight unless it is plainly erroneous or inconsistent with the regulation.’ Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 413 (1945). Even agency interpretations of statutes they administer are said to be entitled to substantial weight. Skidmore v. Swift & Co., 323 U.S. 134 (1944).

Members of the Corporate Governance and Nominating Committee, which would normally be the board group recommending such a lawsuit, included:

  • David N. Strohm (chair)
  • James S. DiStasio
  • Jami Miscik

Additionally, I voted against John R. Egan because he is overboarded. In serving on five boards, I don’t think he can devote enough time to any of them. Being a director is no longer an honorary position; it is a job.

GMIAnalyst

The GMIAnalyst report I reviewed gave EMC an overall C for several reasons. One high impact negative event was listed as follows:

In January 2014, EMC Corporation filed suit in federal court to exclude a shareholder proposal made by John Chevedden from its proxy ballot. This lawsuit bypasses the SEC’s well known process for providing no-action enforcement relief under Rule 14-a-8, and reflects a board that has chosen to sue, rather than engage its shareholders on topics that have traditionally garnered significant support. The company failed to receive a favorable ruling in court, however, and Chevedden’s proposals can proceed.

Other flagged areas included: Related Party Transactions, Overboarded Directors, Overboarded Audit Committee Members, Severance Vesting.

With regard to shareowner proposals, of course I voted in favor of my own proposal to prospectively move EMC to an independent chair. As I mentioned in my video on the same subject at The Coca-Cola Company, this form of governance is endorsed by the Council of Institutional Investors and the Millstein Center for Corporate Governance, which says, “The time has come for independent chairmanship to become the default model of board leadership in corporate North America.” Ten years ago 25% of the S&P 500 had an independent chair. Now that’s 60%. 

Our Board opposes my proposal, citing the fact they have a ‘lead director.’ Think about it. Someone tells you they are a ‘lead director,’ while another says they are chairman of the board. Who do you think has more influence? Frank Sinatra – chairman of the board or lead director? Would a lead director sing, I Did it My Way? Let’s face it; a CEO shouldn’t be his own boss.

I also vote in favor of NorthStar’s request that the Board of Directors create and implement a policy consistent with the corporate values as defined by EMC’s stated policies and affirmations regarding EMC’s political and electioneering contributions; and report to shareholders, at reasonable expense and excluding confidential information, any electioneering or political contribution expenditures which raise an issue of congruency with corporate values, and stating the justification for these exceptions.

When the Supreme Court rolled back restrictions on political spending in Citizens United v. Federal Election Commission they assumed assumed shareowners would be watchdogs with respect to their own companies. In his Citizens United dissentJustice Stevens argued  the law should protect shareholders from funding speech they oppose. The majority, however, argued that ownership of corporate stock was voluntary. Unhappy shareholders could simply sell off their shares if they did not agree with the corporation’s speech. Both assumed shareowners know how our corporations are spending our money. We don’t. NorthStar’s proposal still wouldn’t tell us, but at least it would let us know of contributions made that aren’t in conformity to EMC’s stated values. That’s a step in the right direction.

The Board’s opposition statement says EMC is transparent and complies with all legal requirement. How do we know? Transparent to whom? Not to shareowners, that’s for sure.

How I voted (CorpGov) below using bold where my vote opposes the board’s recommendation (It has been a long time since I have seen so many opposition votes for directors):

# PROPOSAL CorpGov DOMINI CBIS TRILLIUM CALVERT 
1a Michael W. Brown For Against Against Against Against
1b Randolph L. Cowen Against Against Against Against Against
1c Gail Deegan Against Against Against Against Against
1d James S. DiStasio Against Against Against Against Against
1e John R. Egan Against Against Against Against Against
1f William D. Green Against Against Against Against Against
1g Edmund F. Kelly Against Against Against Against Against
1h Jami Miscik Against Against Against Against Against
1i Paul Sagan Against Against Against Against Against
1j David N. Strohm Against Against Against Against Against
1k Joseph M. Tucci Against Against Against Against Against
2 Ratify Auditors For For Against For For
3 Ratify NEO Compensation Against Against For Against For
4 Independent Board Chairman For For For For For
5 Screen Political Contributions For For For For For

Mark your calendar:

To be eligible for inclusion in EMC’s Proxy Statement for the 2015 Annual Meeting of Shareholders, shareholder proposals submitted under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) must be received at EMC’s principal executive offices no later than November 21, 2014. Shareholder proposals should be addressed to: EMC Corporation, 176 South Street, Hopkinton, MA 01748, Attn:  Paul T. Dacier, Executive Vice President, General Counsel and Assistant Secretary, facsimile number: (508) 497‑8079.

  Looking at SharkRepellent.net, special meetings can only be called by shareholders holding not less than 25% of the voting power. That seems high to me. I’d like to see that reduced to 10 or 15%.

From Yahoo! Finance, EMC Corporation’s ISS Governance QuickScore as of Apr 1, 2014 is 5. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 2; 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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