Ford Motor Company (NYSE:F) is one of the stocks in my portfolio. Ford Motor Company (Ford) is a manufacturer of automobiles is engaged in other businesses, including financing vehicles. Their annual meeting is coming up on 5/14/2015. ProxyDemocracy.org had the votes of three funds when I checked and voted on 5/7/2015. I voted with management 47% of the time and assigned Ford a proxy score of 47.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Ford 2015 proxy in order to enhance corporate governance and long-term value.
Ford: ISS Rating
From Yahoo! Finance: Ford Motor Co.’s ISS Governance QuickScore as of May 1, 2015 is 9. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 9; Compensation: 9. 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…. Shareholder Rights and Compensation.
Ford: Compensation
Ford’s Summary Compensation Table shows the highest paid named executive officer (NEO) was co-CEO Mark Fields at about $18.6M in 2014. I’m using Yahoo! Finance to determine market cap ($61.7B) and Wikipedia’s rule of thumb regarding classification.
Ford 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 Ford’s pay was substantially more than that, even factoring for inflation. Ford shares underperformed the S&P 500 substantially over the most recent one, two, five and ten year periods.
The MSCI GMIAnalyst report I reviewed gave Ford an overall grade of ‘F.’ 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 company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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.
- The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its directors may weaken the ability of equity awards to align directors’ interests with long-term value creation.
Pay of almost $19M, for poor performance, combined with the above issues, led me to vote against the pay package.
Ford: 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 pay package to the full board. Therefore, I voted against:
| Anthony F. Earley, Jr. (Chair) Jon M. Huntsman, Jr. John C. Lechleiter | Ellen R. Marram John L. Thornton |
I also voted against Hance, Huntsman (overlapping), and Kennard, who appear to sit on four boards each. That’s too many, especially for a company doing so poorly. There are also four directors with more than 15 years tenure and only one woman. I voted against all except the two that have been there less than eight years.
Ford: Auditor
I voted against the auditor, since it appears more than 25 percent of total audit fees paid to the auditor were attributable to non-audit work. That can lead to a conflict of interest.
Shareholder Proposals at Ford
The most important vote this year is #18 by Mr. Chevedden to recapitalize and negotiate with the Ford family to achieve one-share one-vote. The 2014 proposal on this topic won the all-time highest support for any Ford shareholder proposal — 1.6 Billion votes. It has received more than 50% of the independent vote of the non-family Ford stock each year since 2011. It is time that the 59-year practice (1956-2015) of disenfranchising Ford public shareholders is changed for the common benefit of all shareholders. It is time we ended royalty at Ford. Vote “For.” Don’t wait until we are dealing with the great-great-great-great-great-grandchildren.
I also voted for my (James McRitchie) own proposal to lower the threshold for holding a special meeting to 20%, down from 30%. This shareholder right can be important in emergencies.
CorpGov Recommendations for Ford – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | CBIS | TRILLIUM | CALVERT |
|---|---|---|---|---|---|
| 1 | Elect Director Stephen G. Butler | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 2 | Elect Director Kimberly A. Casiano | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 3 | Elect Director Anthony F. Earley, Jr. | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 4 | Elect Director Mark Fields | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 5 | Elect Director Edsel B. Ford II | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 6 | Elect Director William Clay Ford, Jr. | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 7 | Elect Director James P. Hackett | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 8 | Elect Director James H. Hance, Jr. | Against | For | Against | Against |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: Director sits on the board at more than 4 public companies.There is both gender and racial diversity on the board. | |||||
| 9 | Elect Director William W. Helman Iv | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 10 | Elect Director Jon M. Huntsman, Jr. | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 11 | Elect Director William E. Kennard | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 12 | Elect Director John C. Lechleiter | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board.The nominee is a CEO and sits on more than 2 public company boards. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 13 | Elect Director Ellen R. Marram | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding).A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 14 | Elect Director Gerald L. Shaheen | For | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding). A shareholder proposal received at least 20% shareholder support in the last year (shares cast). Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 15 | Elect Director John L. Thornton | Against | For | Against | For |
| Trillium Asset Management: Research A shareholder proposal received at least 20% shareholder support in the last year (shares outstanding). A shareholder proposal received at least 20% shareholder support in the last year (shares cast).Less than 30 percent of the board is diverse.There is both gender and racial diversity on the board. | |||||
| Calvert Social Index Fund: There is both gender and racial diversity on the board. | |||||
| 16 | Ratify PricewaterhouseCoopers LLPas Auditors | For | Against | For | For |
| Trillium Asset Management: Research Less than 25 percent of total audit fees paid are attributable to non-audit work. | |||||
| Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work. | |||||
| 17 | Advisory Vote to Ratify Named Executive Officers’ Compensation | Against | For | Against | For |
| Trillium Asset Management: Research Total CEO compensation exceeds 7 million dollars. Total compensation to outside directors exceeds 100,000 dollars. | |||||
| Calvert Social Index Fund: A vote FOR this proposal is warranted, as pay for new CEO Fields was reasonably aligned with performance for the year under review, and the compensation committee has taken steps in response to shareholder feedback after last year’s say-on-pay vote. | |||||
| 18 | Approve Recapitalization Plan for all Stock to Have One-vote per Share | For | For | For | For |
| Trillium Asset Management: Research Trillium will vote CASE-BY-CASE on this proposal. | |||||
| Calvert Social Index Fund: A vote FOR this proposal is warranted, as it would provide shareholders of the company with equal voting rights on all matters. | |||||
| 19 | Amend Bylaws to Call Special Meetings | For | For | For | For |
| Trillium Asset Management: Research A vote FOR this proposal is warranted as it would enhance the current shareholder right to call special meetings. | |||||
| Calvert Social Index Fund: Calvert supports the right of shareholders to call a special meeting. | |||||
Corporate Governance Issues at Ford
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Special meetings can only be called by shareholders holding not less than 30% of the voting power.
- Unequal voting power.
- Shareholder rights plan (poison pill).
Ford Proxy Proposal Deadline for Next Year
Mark your calendar to submit future proposals (Thanks for allowing Faxes):
Unless the Board of Directors determines otherwise, next year’s annual meeting will be held on May 12, 2016. Any shareholder proposal intended for inclusion in the proxy materials for the 2016 Annual Meeting must be received by the Company’s Secretary no later than November 27, 2015, and can be sent via facsimile to 313-248-8713.
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.
Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:
- Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
- Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
- Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
- More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
- Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.
The motion to get rid of Ford’s two-class stock system where family members get 16 votes per share compared with a single vote attached to common shares, was defeated by about 64%. The 36.3% in favor is higher than 34.4% last year and is the highest in the many years the idea has been put forward, said John Chevedden, the shareholder who put forward the proposal again this year.
A proposal to allow special meetings on urgent matters between annual meetings if enough stakeholders want it was also defeated by about 74%. http://www.usatoday.com/story/money/cars/2015/05/14/shareholders-approve-fords-direction/27323343/
Tough going against shareholders with 16 times the voting power… but Chevedden is making progress.