3M (MMM): How I Voted – Proxy Score 50

3m3M $MMM, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/13/2014. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 5/7/2014.  I voted with management 50% 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

3M’s Summary Compensation Table shows CEO/Chair, Inge G. Thulin, was the highest paid named executive officer (NEO) at about $16.4M in 2013. I’m using Yahoo! Finance to determine market cap ($92.3B) and Wikipedia’s rule of thumb regarding classification. 3M 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 3M is well over median. Therefore, I voted against the pay package and against the members of the compensation committee: Vance D. Coffman, Chair, Michael L. Eskew, Edward M. Liddy, Robert S. Morrison, Aulana L. Peters, and Robert J. Ulrich. Liddy also sits on four boards. I think that’s too many to do a good job, especially if companies run into significant trouble. Robert S. Morrison, and Aulana L. Peters are no longer eligible to stand for reelection as they have reached the mandatory retirement age under the Board’s Corporate Governance Guidelines, so I couldn’t vote against them. 

GMIAnalystThe GMIAnalyst report I reviewed gave 3M an overall ‘C’ for several reasons, including concerns about possible Securities Fraud, Board Integrity, Overboarded Directors, Severance Vesting, and Other Social Impact Events.  With regard to specifics:

Half of 3M’s board has served for at least a decade and two board members are flagged for their service on boards that filed for bankruptcy. As for Pay, remuneration is not linked to sustainability performance and CEO pay is excessive. Inge Thulin’s base salary exceeds the limit for deductibility; pay perks for the CEO exceeded $500K due to premiums for the Executive Life Insurance Plan and his personal use of corporate aircraft; and the company continues to award time-vested market-priced stock options. This is concerning because small increases in the company’s share price (which may be due to general market movements) can result in large increases in value of these awards. Taken together, these facts call into question whether 3M’s board is able to provide effective oversight and put a system in place to ensure long-term sustainability…

3M Co is currently rated as having Aggressive Accounting & Governance Risk (AGR). This places them in the 22nd percentile among all companies in North America, indicating higher accounting and governance risk than 78% of companies.

With regard to shareowner proposals, of course I voted in favor of my own (James McRitchie) proposal to allow shareowners to act by written consent. This proposal would empower shareholders by giving us the ability to effect change at our company without being forced to wait until an annual shareholder meeting. Shareholders could replace a director using action by written consent. Shareholder action by written consent could save our company the cost of holding a physical meeting between annual meetings. For additional background, see Alyce Lomax’s post, Shareholders Want This Power, at The Motley Fool.

How I voted (CorpGov) below, with votes against the Board’s position noted in bold:

1aElect Director Linda G. AlvaradoForForForAgainstForFor
1bElect Director Thomas ‘Tony’ K. BrownForForForForForFor
1cElect Director Vance D. CoffmanForForForAgainstForAgainst
1dElect Director Michael L. EskewForForForAgainstForAgainst
1eElect Director Herbert L. HenkelForForForAgainstForFor
1fElect Director Muhtar KentForForForAgainstForFor
1gElect Director Edward M. LiddyForForForAgainstForAgainst
1hElect Director Inge G. ThulinForAgainstForAgainstForFor
1iElect Director Robert J. UlrichForForForAgainstForAgainst
2Ratify AuditorsForForAgainstForForFor
3Advisory Vote to Ratify Named Executive Officers’ CompensationForAgainstForAgainstForAgainst
4Provide Right to Act by Written ConsentAgainstForForForForFor

Mark your calendar:

In order for a stockholder proposal to be considered for inclusion in 3M’s Proxy Statement for next year’s Annual Meeting, our Corporate Secretary must receive the proposal by November 26, 2014. Such proposals must be sent via registered, certified, or express mail (or other means that allows the stockholder to determine when the proposal was received by the Company) to: Gregg M. Larson, Vice President, Deputy General Counsel and Secretary, 3M Company, 3M Center, Building 220-14W-06, St. Paul, MN 55144-1000. Such proposals must comply with the Securities and Exchange Commission’s regulations regarding the inclusion of stockholder proposals in Company sponsored proxy materials, such as the stockholder continuing to own a minimum number of shares until the Annual Meeting and appearing in person or through an authorized representative at the meeting to present the proposal.

  Looking at SharkRepellent.net, no action can be taken without a meeting by written consent. Shareholders cannot call special meetings without at least 25% support. From Yahoo! Finance3M Company’s ISS Governance QuickScore as of May 1, 2014 is 1. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 2; Compensation: 2. 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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