SciClone Pharmaceuticals $SCLN: Proxy Vote

SCLNSciClone Pharmaceuticals $SCLN, is one of the stocks in my portfolio. Their annual meeting is June 12, 2014. had collected the votes of one fund when I checked and voted on 6/10/2014.  I voted with management 37% of the time.  View Proxy Statement. Would it kill them to include a hyperlinked table of contents? Read Warnings below. What follows are my recommendations on how to vote the SCLN proxy in order to enhance corporate governance and long-term value.  Compensation

SCLN’s Summary Compensation Table (p. 31) shows  was the highest paid named executive officer (NEO) was CEO Friedhelm Blobel, Ph.D at about $1.6M in 2013. I’m using Yahoo! Finance to determine market cap ($271M) and Wikipedia’s rule of thumb regarding classification. SCLN is a small-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.5 million in 2012, so SCLN is under that. SCLN shares underperformed the NASDAQ substantially over the one and two year periods, but met the average in the five year period. GMIAnalyst

The GMIAnalyst report I reviewed gave SCLN an overall grade of ‘C.’ According to the report:

  • The SciClone Pharmaceuticals board does not include a fully independent compensation committee, raising concerns about the board’s effectiveness in overseeing the company’s CEO and other managers, a key board function, as well as its ability to design sufficiently rigorous incentives for executives.
  • The board has not established a formal clawback policy regarding its executive incentive pay. Such policies allow boards to recoup incentive payouts that may have been the undeserved result of erroneous or fraudulent financial reporting.
  • 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.
  • The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.

Because pay was below median and despite the problems noted by GMIAnalyst, I voted in favor of the pay package.

Board Issues

I’m concerned that all members of the board but one are 64 or older. I’d like to see more diversity. More importantly, as reported by GMIAnalyst, none of the following directors own any shares in SCLN: Gregg Anthony LaPointe, Nancy T. Chang Ph.D., Richard J. Hawkins and Simon Li. Chang and Li might be forgiven, since they have only been on the board. I’m quite concerned that most directors hold only options given them for their service. If they aren’t willing to invest in our company, maybe we shouldn’t be either. I won’t be so forgiving next year. 


The GMIAnalyst report includes the following and more:

  • The SciClone Pharmaceuticals board of directors does not currently include a fully independent audit committee, a serious concern for company shareholders. We note that 99.7% of company boards in this market maintain a fully independent audit committee, which is critical in providing appropriate oversight of financial reporting. The company’s independent auditor is PricewaterhouseCoopers Zhong Tian LLP.
  • The company has disclosed material weaknesses in its internal controls in the past two years.
  • The company has a history of significant restatements, special charges, and/or write-offs in the past two years.

Because of these deficiencies, I voted against the Chairman of the Board (Jon S. Saxe), members of the audit committee (which includes Simon Li among those I haven’t already named) and the auditor.

CorpGov Recommendations Below – Votes Against Board Position in Bold

Mark your Calendar
Proposals of stockholders intended to be presented at our 2015 Annual Meeting of Stockholders must be received by Corporate Secretary, SciClone Pharmaceuticals, Inc., 950 Tower Lane, Suite 900, Foster City, California 94404, no later than December 31, 2014, and must satisfy the conditions established by the SEC for stockholder proposals to be included in our proxy statement for the meeting.

Issues for Future Proposals  

 Looking at

  • SciClone Pharmaceuticals currently has a shareholder rights plan (poison pill) in force that will expire on 12-19-2016.
  • No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.

From Yahoo! FinanceSciClone Pharmaceuticals, Inc.’s ISS Governance QuickScore as of Jun 1, 2014 is 7. The pillar scores are Audit: 10; Board: 6; Shareholder Rights: 5; Compensation: 6. 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.


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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