United-Guardian: Proxy Score 22

United-GuardianUnited-Guardian Inc. (UG:NASDAQ) is one of the stocks in my portfolio. The Company researches, develops, manufactures, and markets cosmetic ingredients, personal care products, pharmaceuticals, medical lubricants, health care products, and specialty industrial products in the United States, Canada, China, the United Kingdom, France, and internationally. Their annual meeting is coming up on 5/19/2015. ProxyDemocracy.org doesn’t track United-Guardian. Therefore, this analysis will be brief, since I am without my usual assessment research tools. I voted with management 22% of the time and assigned United-Guardian a proxy score of 22.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the United-Guardian 2015 proxy in order to enhance corporate governance and long-term value.

United-Guardian: ISS Rating 

From Yahoo! Finance: There was no ISS Governance QuickScore as of May 11, 2015. United-Guardian is probably too small for ISS to track.

United-Guardian: Compensation

United-Guardian Summary Compensation Table (p. 11) shows the highest paid named executive officer (NEO) was CEO/Chair Kenneth Globus at about $0.4M in 2014. I’m using Yahoo! Finance to determine market cap ($84M) and Wikipedia’s rule of thumb regarding classification.

United-Guardian is a micro-cap company. According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7 million in 2013. Equilar doesn’t report a median for micro-caps as far as I know. Due mostly to last years plunging stock price, United-Guardian’s shares underperformed the NASDAQ over the most recent one, five and ten year periods.

MSCI GMIAnalystThe MSCI GMIAnalyst report did not rate United-Guardian, at least not in the usual way. Because I have very little information and the pay does not appear outrageously high, I voted for the pay plan.

United-Guardian: Board of Directors and Board Proposals

Given the huge plunge in stock price last night, something is wrong. Insiders have been only selling, not buying, United-Guardian stock since 2013. I see most Board members have been directors at the company before the beginning of the century, going back as far as 1982 and 1984. I think it is time for new blood and new ideas… AND more diversity. I voted against the following directors appointed 18 years or more ago: Rubinger, Globus, Marietta, Dresner.

After looking at information in the proxy regarding ownership, I saw that Boccone and Nolan appear to own any shares in our company. So, half the board doesn’t own any stock and the board members who do own stock have been selling it. I voted against the lot of them.

United-Guardian: Auditor

I voted to ratify the auditor, since there was no apparent conflict of interest in terms of other fees paid.

Shareholder Proposals at United-Guardian 

Of course, I voted in favor of the proxy access proposal submitted by my wife and I. As indicated in the supporting statement. Despite the misleading opposition statement from United-Guardian, the proposal would adopt the same terms enacted by the SEC’s Rule 14a-11 (3yr/3% threshold to nominate up to 25% of board), which was overturned by the court after a lawsuit brought by a group representing CEOs.

At the time the Business Roundtable (BRT) took the rulemaking to court, there was very little evidence as to cost and benefits. The court bought into BRT’s argument that companies would hypothetically spend up to their entire treasury to fight candidates proposed by shareholders. However, since that decision CFA Institute’s extensive study Proxy Access in the United States: Revisiting the Proposed SEC Rule found:
proxy access has the potential to enhance board performance and raise overall US market capitalization by between $3.5 billion and $140.3 billion…
none of the event studies indicate that proxy access reform will hinder board performance…
proxy access would serve as a useful tool for shareowners in the United States and would ultimately benefit both the markets and corporate boardrooms.
We know the chances of passing the proposal are slim, since insiders own 43% of shares. They essentially control the company. However, we can at least send a strong signal to the board. I will consider it a major victory if we get 29% of the vote… that would be a majority of shares voted by shareholders not working for the company. Let the board know, we want them working for us. Vote FOR proxy access.

CorpGov Recommendations for United-Guardian – Votes Against Board Position in Bold

1.1Robert S. RubingerAgainst
1.2Kenneth H. GlobusAgainst
1.3Lawrence F MaiettaAgainst
1.4Arthur M. DresnerAgainst
1.5Andrew A. BocconeAgainst
1.6Christopher W. Nolan SrAgainst
2Approve Executive Pay PackageFor
3Ratify AuditorFor
3Approve Proxy Access ProposalFor

Corporate Governance Issues at United-Guardian

Looking at SharkRepellent.net for provisions unfriendly to shareowners:SharkRepellent

  •  No coverage and I haven’t investigated other sources.

United-Guardian Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Proposals of stockholders for possible consideration at the 2016 Annual Meeting (expected to be held in May 2016) must be received by the Secretary of the Company not later than December 16, 2015 to be considered for inclusion in the proxy statement for that meeting, if appropriate for consideration under applicable securities laws.


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.

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2 Responses to United-Guardian: Proxy Score 22

  1. James McRitchie 05/13/2015 at 2:12 pm #

    The stock fell 4.2% after the meeting.

  2. James McRitchie 05/13/2015 at 10:05 am #

    OK, I really messed up on this one. The vote was today, not the 19th. Urgh. Although I expected to lose because insiders control 43% of the vote, I probably would have done a little better had I got the timing correct.

    The preliminary vote count for proxy access was small indeed.

    For: 318,369
    Against: 2,404,602
    Abstain: 16,080
    Broker non-votes: 1,582,384

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