Biogen (BIIB): Proxy Score 47 – Proxy Access Victory

Biogen Inc. (BIIB) discovers, develops, manufactures, and markets therapies for the treatment of neurological, autoimmune, and hematologic disorders in the United States and internationally. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/10/2015. ProxyDemocracy.org had the vote of five funds (removed 2nd Calvert from table below, since it was duplicative) when I checked and voted on 6/4/2015.  I voted with management 47% of the time and assigned Biogen a proxy score of 47.

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

Biogen: ISS Rating

Biogen: Compensation

Biogen Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO George A. Scangos, at about $18.6M in 2014.  I’m using Yahoo! Finance to determine market cap ($91.2B) and Wikipedia’s rule of thumb regarding classification.

Biogen 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 Biogen’s pay is above that number. To its credit, Biogen shares out-performed the NASDAQ over the most recent one, two, five, and ten year periods.

The GMIAnalyst report I reviewed gave Biogen 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 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.

With far above median relative pay and the above issues, I voted against the pay package.

Biogen: Board of Directors and Board Proposals

Generally, when I vote against the pay package I also vote against the compensation committee, since they recommended the pay package to the full board: Robert W. Pangia (Chair), Caroline D. Dorsa, Richard C. Mulligan, Eric K. Rowinsky and Lynn Schenk.

I am also concerned that Stephen A. Sherwin sits on four boards, too many to give full attention to Biogen. I voted against him as well. I am also concerned with the lack of diversity on the board and voted against Alexander J. Denner who chairs the governance and nominating committee, hoping to get their attention. 

I voted in favor of both the employee stock purchase plan and the plan for directors hoping to provide the right incentives for motivation.

Biogen: Accounting

I voted to ratify Biogen’s auditor, since less than 25% percent of total audit fees paid are attributable to non-audit work.

Shareholder Proposals at Biogen

With regard to shareholder proposals, I submitted a proxy access proposal and reached a compromise agreement with the firm, which the board subsequently adopted. The proxy access bylaw amendments, effective March 27, 2015 permit a stockholder, or a group of up to 20 stockholders, who have owned at least 3% of the Corporation’s outstanding common stock for three or more years, to nominate directors not to exceed 25% of the number of directors then serving for inclusion in the Corporation’s proxy materials applicable to the election of directors at an annual meeting of stockholders. As I have been saying, this year proxy access is ‘on sale’ as shareholders try to ensure momentum. I don’t know that I would agree to a 20 stockholder limit in the future.

CorpGov Recommendations for Biogen – Votes Against Board Position in Bold

Governance Issues at Biogen

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

• Special meetings can only be called by shareholders holding not less than 25% of the voting power.

Biogen Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Stockholder proposals submitted pursuant to Securities Exchange Act Rule 14a-8 and intended to be presented at our 2016 annual meeting of stockholders must be received by our Secretary no later than January 1, 2016 to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting. All stockholder proposals for our 2016 annual meeting of stockholders should be sent to the Secretary, Biogen Inc., 225 Binney Street, Cambridge, Massachusetts 02142.

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.