Kimberly Clark Corp (KMB), which manufactures and markets personal care, consumer tissue, and K-C professional products, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/30/2015. ProxyDemocracy.org had the vote of four funds when I checked and voted on 4/24/2015. I voted with management 57% of the time and assigned Kimberly Clark a proxy score of 57.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Kimberly Clark 2015 proxy in order to enhance corporate governance and long-term value.
Kimberly Clark ISS Rating
From Yahoo! Finance: Kimberly-Clark Corporation’s ISS Governance QuickScore as of Apr 1, 2015 is 3. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 5; Compensation: 3. 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. That gives us a quick idea of where to focus… board and shareholder rights.
Kimberly Clark Compensation
Kimberly Clark’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Thomas J. Falk at about $15.4M in 2014. I’m using Yahoo! Finance to determine market cap ($41B) and Wikipedia’s rule of thumb regarding classification.
Kimberly Clark is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Kimberly Clark’s pay is substantially more than that, even factoring for inflation. Kimberly Clark shares underperformed the S&P 500 over the most recent six month, one, two, and ten year periods. Kimberly Clark outperformed very slightly over the most recent five year period.
The GMIAnalyst report I reviewed gave Kimberly Clark an overall grade of ‘C.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. 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. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
- The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
- A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.
Pay of more than $15M for mediocre performance, combined with the above issues, led me to vote against the pay package.
Kimberly Clark Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommend the package to the full board. Therefore, I voted against: Abelardo E. Bru, Fabian T. Garcia, Mae C. Jemison, M.D. and Marc J. Shapiro. I am also concerned that half the directors have served 13 years of more, while none have served less than 4. It is time for board refreshment.
Kimberly Clark Accounting
I voted to ratify Kimberly Clark’s auditor, Deloitte & Touche LLP, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Kimberly Clark
With regard to shareholder proposals. Of course I voted in favor of my wife’s proposal to allow shareholder to act by written consent. This is simple good governance, especially important in any possible unforeseen emergency.
CorpGov Recommendations for Kimberly Clark – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI | CALVERT | CBIS | TRILLIUM |
|---|---|---|---|---|---|---|
| 1.1 | John F. Bergstrom | For | For | For | For | Against |
| 1.2 | Abelardo E. Bru | Against | For | For | For | Against |
| 1.3 | Robert W. Decherd | For | For | For | For | Against |
| 1.4 | Thomas J. Falk | For | Against | For | For | Against |
| 1.5 | Fabian T. Garcia | Against | For | For | For | Against |
| 1.6 | Mae C. Jemison | Against | For | For | For | Against |
| 1.7 | James M. Jenness | For | For | For | For | Against |
| 1.8 | Nancy J. Karch | For | For | For | For | Against |
| 1.9 | Ian C. Read | For | For | For | For | Against |
| 1.10 | Linda Johnson Rice | For | For | For | For | Against |
| 1.11 | Marc J. Shapiro | Against | For | For | For | Against |
| 2 | Ratify Auditor Deloitte & Touche | For | For | For | Against | For |
| 3 | Ratify Executive Pay | Against | Against | Against | For | Against |
| 4 | Provide Right to Act by Written Consent | For | For | For | For | For |
Corporate Governance Issues at Kimberly Clark
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- 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.
Kimberly Clark Proxy Proposal Deadline for Next Year
I see the papermaker wants proposals on paper, not via e-mail. Mark your calendar to submit future proposals:
Proposals by stockholders for inclusion in our proxy statement and form of proxy for the Annual Meeting of Stockholders to be held in 2016 should be addressed to the Corporate Secretary, Kimberly-Clark Corporation, P.O. Box 619100, Dallas, Texas 75261-9100, and must be received at this address no later than November 13, 2015. Upon receipt of a proposal, we will determine whether or not to include the proposal in the proxy statement and form of proxy in accordance with applicable law. It is suggested that proposals be forwarded by certified mail, return receipt requested.
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 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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