BLK

BlackRock (BLK) Proxy Voting Recommendations

BLKBlackRock $BLK is one of the stocks in my portfolio. Their annual meeting is coming up on 5/29/2014. ProxyDemocracy.org had collected the votes of one fund when I checked and voted on 5/21/2014.  I voted with management 65% of the time.  View Proxy Statement. Read Warnings below.  What follows are my proxy voting recommendations for BLK.

Compensation

BLK’s Summary Compensation Table shows CEO/Chair Laurence D. Fink was the highest paid named executive officer (NEO) at about $22.9M in 2013. I’m using Yahoo! Finance to determine market cap ($50B) and Wikipedia’s rule of thumb regarding classification. BLK is a large-cap company.  According to Equilar (page 6), the median CEO compensation at large-cap corporations was $19.7 million in 2012, so BLK is paying slightly over median.  BLK shares outperformed the S&P 500 over the two year period but underperformed over the one and five year periods.

According to GMIAnalyst:

  •  Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 90.2% of companies in the home market. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.

  • The company has not disclosed specific, quantifiable performance target objectives for the CEO, in contrast to 73.9% of companies in its home market that have provided such metrics. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.

I voted against the pay package, the executive bonus plan, and members of the compensation committee: David H. Komansky, Chairperson, Murry S. Gerber, James Grosfeld, and Sir Deryck Maughan.

GMIAnalystGMIAnalyst  

The GMIAnalyst report I reviewed gave BLK an overall grade of ‘D.’ From their report the following were listed as potential areas of concern:  

  • Securities Fraud

  • Executive Misconduct

  • Related Party Transactions

  • Board Integrity

  • Overboarded Directors

  • Severance Vesting

A few highlights from the report stood out:

  • The board is elected in separate classes with terms that expire in different years rather having all directors subject to annual BlackRock does not regularly publish a formal sustainability report. It does not currently report on its sustainability policies and practices via the Global Reporting Initiative, a commonly used and highly effective standard for such reporting, nor has it become a voluntary signatory of the UN Global Compact, yet another commonly employed global standard for achieving and maintaining more effective sustainability practices. In the area of workplace safety this company has not yet implemented OHSAS 18001 as its occupational health and safety management system, nor does it actively disclose its workplace safety record in its annual report or other reporting vehicle.

Board of Directors 

  • The board is elected in separate classes with terms that expire in different years rather having all directors subject to annual reelection. While often touted as a means of ensuring board continuity, a classified board structure severely limits the ability of shareholders to hold directors accountable and serves as a takeover defense.
  • The board includes at least one executive director in addition to the CEO, characteristic of 32.7% of companies in this market. Multiple inside directors may provide a too-strong management voice within the boardroom.
  • The company has failed to split the roles of CEO and chairman, which may compromise even further the board’s independence from current management interests. Split CEO and chairman roles are characteristic of 46.1% of companies in the S&P 500.

I would have voted against James E. Rohr, who apparently sits on six boards. That’s too many to devote enough time to each, especially if one or more goes into a crisis. However, Mr. Rohr has notified BlackRock that he will not seek or accept re-election to the Board of Directors at the 2014 Annual Meeting, so I can’t vote against him.

Other Proxy Issues

I voted to ratify the auditors. I also voted against an exclusive forum for disputes as too restrictive on shareowner rights.

CorpGov Recommendations Below – Votes Against Board Position in Bold
# PROPOSAL TEXT CorpGov AFSCME CBIS
1a Elect Director Abdlatif Yousef Al-Hamad For For For
1b Elect Director Mathis Cabiallavetta For For For
1c Elect Director Pamela Daley For For For
1d Elect Director Jessica P. Einhorn For For For
1e Elect Director Fabrizio Freda For For For
1f Elect Director Murry S. Gerber Against Against For
1g Elect Director James Grosfeld Against Against For
1h Elect Director David H. Komansky Against Against For
1i Elect Director Deryck Maughan Against For For
1j Elect Director Cheryl D. Mills For For For
1k Elect Director Marco Antonio Slim Domit For For For
1l Elect Director John S. Varley For For For
1m Elect Director Susan L. Wagner For Against For
2 Amend Omnibus Stock Plan For For For
3 Amend Executive Incentive Bonus Plan Against Against For
4 Ratify NEO Compensation Against For For
5 Ratify Auditors For Against Against

Mark your Calendar

Stockholders who, in accordance with the Exchange Act Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed by us in connection with our 2015 Annual Meeting must submit their proposals to BlackRock’s Corporate Secretary on or before December 16, 2014.

Issues for Future Proposals

 Looking at SharkRepellent.net: 
  • Classified board with staggered terms.
  • Action by written consent is prohibited unless approved in advance by the board.
  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (80%) to amend certain charter provisions.
From Yahoo! FinanceBlackRock, Inc.’s ISS Governance QuickScore as of May 1, 2014 is 8. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 6; Compensation: 9. 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.

Warnings

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.

 

 

 

 

 

 

 

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