H&R Block $HRB, which provides tax preparation and related services to the general public, is one of the stocks in my portfolio. Their next annual meeting is September 11, 2014. ProxyDemocracy.org had collected the votes of two funds when I checked and voted on 9/7/2014. I also checked the votes of OTPP and CalSTRS. All advance disclosers that I know of except CBIS voted in favor of all items. I voted with the Board’s recommendations 54% of the time and assigned them a proxy score of 54. View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the H&R Block proxy in order to enhance corporate governance and long-term value.
H&R Block ISS Rating
From Yahoo! Finance: H&R Block, Inc.’s ISS Governance QuickScore as of Aug 1, 2014 is . The pillar scores are Audit: 1; Board:1; Shareholder Rights: 7; Compensation: 4. Brought to you by Institutional Shareholder Services (ISS). Scores range from “” (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. That gives us a quick idea of where to focus.
H&R Block Compensation
H&R Block Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO William C. Cobb, at about $7.5M. I’m using Yahoo! Finance to determine market cap ($9.25B) and Wikipedia’s rule of thumb regarding classification. H&R Block is a mid-cap company. According to Equilar (page ), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so H&R Block’s pay is well above that. H&R Block’s shares outperformed the NASDAQ over the most recent two year period, underperformed over the one period, and was about even over the five year period. 
The GMIAnalyst report I reviewed gave Medtronic an overall grade of ‘F.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 90.% of companies in the home market. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
Because pay was above median and performance is slipping, I voted against the pay package, bonus plan and members of the compensation committee: Bruce C. Rohde, Chair, Marvin R. Ellison, Tom D. Seip, and James F. Wright. Marvin R. Ellison informed the Board on March 21, 2014 of his decision not to stand for re-election following the completion of his term at the 2014 annual meeting of shareholders, due to policies of his employer which limit the number of external boards of directors on which he can serve. Therefore, since he isn’t running, I can’t vote against him.
H&R Block Board
As indicated above, I voted against members of the compensation committee. All board members own substantial stock. None server on more than three boards.
H&R Block Accounting
I voted to ratify H&R Block’s auditor, Deloitte & Touche LLP, since they don’t appear to be involved in a conflict of interest.
Shareholder Proposals
The New York State Common Retirement Fund submitted a proposal to require disclosure of political contributions, such as direct and indirect contributions to political candidates, parties, or organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates. Citizens United v FEC limited the government’s ability to constrain corporate political expenditures. Justice Kennedy’s majority opinion in justifies the Court’s by pointing to the Internet.
With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
Yet, corporations are not required to make the disclosures to shareowners as Justice Kennedy seems to have believed. How can we, as shareowners, hold corporate managers accountable when we do not know what candidates or measures they are supporting? Please vote in favor of this proposal.
CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | OTPP & CalSTRS | CBIS | Florida SBA |
|---|---|---|---|---|---|
| 1a | Elect Director Paul J. Brown | For | For | For | For |
| 1b | Elect Director William C. Cobb | For | For | For | For |
| 1c | Elect Director Robert A. Gerard | For | For | For | For |
| 1d | Elect Director David Baker Lewis | For | For | For | For |
| 1e | Elect Director Victoria J. Reich | For | For | For | For |
| 1f | Elect Director Bruce C. Rohde | Withhold | For | For | For |
| 1g | Elect Director Tom D. Seip | Withhold | For | For | For |
| 1h | Elect Director Christianna Wood | For | For | For | For |
| 1i | Elect Director James F. Wright | Withhold | For | For | For |
| 2 | Ratify Auditors | For | For | Against | For |
| 3 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | For | For | For |
| 4 | Approve Executive Incentive Bonus Plan | Against | For | For | For |
| 5 | Report on Political Contributions | For | For | For | For |
(Note: Since OTPP and CalSTRS voted the same on every item, I put their votes in one column to avoid running into the margins.)
Issues for Future Proposals at H&R Block
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Unanimous written consent (default Missouri state statute).
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
- Supermajority vote requirement (66.67%) to approve mergers (default Missouri state statute).
Mark your Calendar to Submit Future Proposals at H&R Block
For a shareholder proposal to be considered for inclusion in the Company’s proxy statement for the 2015 annual meeting pursuant to Rule 14a-8 of the SEC, the Company must receive notice at our offices at One H&R Block Way, Kansas City, Missouri 64105, Attention: Corporate Secretary, on or before March 30, 2015. Applicable SEC rules and regulations govern the submission of shareholder proposals and our consideration of them for inclusion in next year’s proxy statement and form of proxy.
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 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 % 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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