Kellogg Company (K): How I Voted – Proxy Score 78

kelloggKellogg Company $K, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/25/2014. had collected the votes of three funds when I checked and voted on 4/21/2014.  I voted with management 78% 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

Kellogg’s Summary Compensation Table shows CEO John Bryant, was the highest paid named executive officer (NEO) at about $8M in 2013. I’m using Yahoo! Finance to determine market cap ($24B) and Wikipedia’s rule of thumb regarding classification. Kellogg 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 Kellogg is well within that amount.


The GMIAnalyst report I reviewed gave Kellogg an overall D for several reasons, including concerns about possible related party transactions, board integrity, overboarded non-exec directors, overboarded audit committee members, and severance vesting.

Kellogg’s profile calls into question the board’s ability to not only provide effective oversight, but also a forward looking strategic vision in combination with long-term sustainability. Both CEO John Bryant and Executive Chairman (and former CEO) James Jenness serve on the board. While Gordon Gund has been designated as Lead Director, his independence is questioned due to having served on the board for nearly three decades and also being a brother of George Gund III, who owns 7.5% of Kellogg shares. Aside from Mr. Jenness and Mr. Gund, three other directors are long-tenured with over a decade of service. Long-tenured directors can often form relationships that may compromise their independence and therefore hinder their ability to provide effective oversight. However, any attempt to change the board by public shareholders may be difficult due to certain takeover defense mechanisms at Kellogg…

In 2012, Kellogg spent $790,700 to help defeat Prop 37 in California, which required the mandatory labeling of GMOs. In October 2013, it was reported Kellogg was among a group of companies that have contributed a record breaking $17 million to the Grocery Manufacturers Association (GMA) to defeat proposal I-522 in Washington state…

Kellogg continues to use unnatural food dyes to color some of its products despite the fact that the U.S. Food & Drug Administration had banned some in cosmetics and medicines because of its cancer-causing properties. The dyes have been linked to allergies, hyperactivity and bad sleep habits in children…

Concerns over links to palm oil are nascent but growing. Kellogg has partnered up with Wilmar International to obtain cheap palm oil to use in its products. Wilmar has been deemed the least sustainable company in the world by Newsweek for causing significant deforestation in Indonesia and destroying the habitats of endangered species such as Sumatran tigers.

Kellogg has too many directors that have been on the board for too long – 14, 17, 25 and 28 years. While experience can certainly be a plus, it can also lead companies to be stale. As GMI points out, at Kellogg their are a confluence of board issues: “a classified board, entrenching takeover defenses, the lack of an independent chairman, which together with the high number of long-tenured directors raises concerns about whether the board is able to provide an effective counterbalance to management.”

I was tempted to vote against all the directors up for election, just to protest the direction of the company, but refrained since most of them are the most recently appointed directors. I may vote against directors next year if improvements aren’t made.

With regard to shareowner proposals, I voted in favor of the proposal to report on Kellogg’s human rights risk assessment process per the United Nations Guiding Principles on Business and Human Rights (the “Ruggie Principles”). Kellogg certainly needs to make progress in this area and this seems like a reasonable step to take in moving forward. I wish companies would at least publish the name of proponents.

Of course, I also voted in favor of my own proposal to move to simple majority voting requirements. As noted by the Council of Institutional Investors, whose members have more than $3 trillion of invested assets:

3.6   Voting Requirements:  A majority vote of common shares outstanding should be sufficient to amend company bylaws or take other action that requires or receives a shareowner vote. Supermajority votes should not be required. A majority vote of common shares outstanding should be required to approve:

  • Major corporate decisions concerning the sale or pledge of corporate assets that would have a material effect on shareowner value. Such a transaction will automatically be deemed to have a material effect if the value of the assets exceeds 10 percent of the assets of the company and its subsidiaries on a consolidated basis;
  • The corporation’s acquisition of five percent or more of its common shares at above-market prices other than by tender offer to all shareowners;
  • Poison pills;
  • Abridging or limiting the rights of common shares to:  (1) vote on the election or removal of directors or the timing or length of their term of office or (2) nominate directors or propose other action to be voted on by shareowners or (3) call special meetings of shareowners or take action by written consent or change the procedure for fixing the record date for such action; and
  • Issuing debt to a degree that would excessively leverage the company and imperil its long-term viability.

How I voted (CorpGov) below with votes in opposition to the Board’s recommendations highlighted on bold:

1.1Elect Director John BryantForForForFor
1.2Elect Director Stephanie A. BurnsForForForFor
1.3Elect Director La June Montgomery TabronForForForFor
1.4Elect Director Rogelio RebolledoForForForFor
2Ratify NEO CompensationForForForAgainst
3Declassify the Board of DirectorsForForForAgainst
4Ratify AuditorsForForAgainstFor
5Report on Human Rights Risk Assessment ProcessForForForFor
6Reduce Supermajority Vote RequirementForForForFor

Mark your calendar:

Shareowner proposals submitted for inclusion in our proxy statement for the 2015 Annual Meeting of Shareowners must be received by us no later than November 11, 2014. Other Shareowner proposals to be submitted from the floor must be received by us not earlier than November 11, 2014 and not later than December 11, 2014, and must meet certain other requirements specified in our bylaws.

  Looking at, Kellogg has a classified board with staggered terms. Vote to end that now. It has a plurality vote standard to elect directors with resignation policy, instead of the more common majority vote standard. Directors may only be removed for cause and only by the vote of 66.67% of the shares entitled to vote. No action can be taken without a meeting by written consent. Shareholders cannot call special meetings. Supermajority vote requirement (66.67%) to approve mergers not approved by a majority of continuing directors. Supermajority vote requirement (66.67%) to amend certain charter and certain bylaw provisions. Vote for my proposal to end those last two practices.

From Yahoo! Finance, Kellogg Company’s ISS Governance QuickScore as of Apr 1, 2014 is 9. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 10; Compensation: 5. 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. I haven’t seen a company with so few shareowner rights in a while.

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