DaVita HealthCare Partners

DaVita HealthCare Partners: Proxy Score 50

DaVita HealthCare PartnersDaVita HealthCare Partners Inc (NYSE:DVA), one of the stocks in my portfolio, is a biopharmaceutical company focused on the development and commercialization of therapies to treat serious diseases for which there are limited treatment options. Their annual meeting is coming up on 6/16/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 6/11/2015.  I voted with the board 50% of the time and assigned DaVita HealthCare Partners a proxy score of 50.

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

DaVita HealthCare Partners: ISS Rating

From Yahoo! Finance: DaVita HealthCare Partners Inc.’s ISS Governance QuickScore as of June 1, 2015 is 4. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 4; Compensation: 5. 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.

DaVita HealthCare Partners: Compensation

DaVita HealthCare Partners Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Co-Chair Kent J. Thiry, at about $13.8M in 2014.  I’m using Yahoo! Finance to determine market cap ($17.7B) and Wikipedia’s rule of thumb regarding classification.

DaVita HealthCare Partners 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 DaVita HealthCare Partners’ pay is above that number. DaVita HealthCare Partners shares out-performed the S & P 500 over the most recent one, five, and ten year periods, doing worse only for the most recent two year period.

The MSCI GMIAnalyst report I reviewed gave DaVita HealthCare Partners an overall grade of ‘C.’ According to the report:MSCI GMIAnalyst

  •  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.

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

DaVita HealthCare Partners: 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: Pamela M. Arway, Chair, Paul J. Diaz, Peter T. Grauer and Roger J. Valine. 

I voted in favor of authorizing additional shares for the purpose of splitting the stock.

DaVita HealthCare Partners: Accounting

I voted in favor of ratifying DaVita HealthCare Partners’ auditor, since less than 25 percent of total audit fees paid appear attributable to non-audit work.

Shareholder Proposals at DaVita HealthCare Partners

Of course, I voted in favor of the proxy access proposal from the UAW Retiree Medical Trust. The proposal uses the now standard language. As Nell Minow says, directors dance with the one that brought them… or something like that. Directors who are nominated and elected by shareholders can be expected to be more accountable.

CorpGov Recommendations for DaVita HealthCare Partners – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CALVERT SOCIAL INDEX CBIS
1a Elect Director Pamela M. Arway Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1b Elect Director Charles G. Berg For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1c Elect Director Carol Anthony (‘John’) Davidson For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1d Elect Director Paul J. Diaz Against Against Against
Calvert Social Index Fund: The nominee attended less than 75 percent of the board and committee meetings.There is both gender and racial diversity on the board.
1e Elect Director Peter T. Grauer Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1f Elect Director John M. Nehra For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1g Elect Director William L. Roper For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1h Elect Director Kent J. Thiry For For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1i Elect Director Roger J. Valine Against For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
2 Ratify KPMG LLP as Auditors For For Against
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
3 Advisory Vote to Ratify Named Executive Officers’ Compensation Against For For
Calvert Social Index Fund: SRI note
4 Adopt Proxy Access Right For For For
Calvert Social Index Fund: A vote FOR this non-binding proposal is warranted because adoption of proxy access will enhance shareholder rights while providing necessary safeguards to the nomination process.

SharkRepellentGovernance Issues at DaVita HealthCare  Partners

Looking at SharkRepellent.net for provisions unfriendly to shareowners:

  • No action can be taken without a meeting by written consent.

DaVita HealthCare Partners Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

If you wish to present a proposal for action at the 2016 annual meeting of stockholders and wish to have it included in the proxy statement and form of proxy that management will prepare, you must notify us no later than January 8, 2016 in the form required under the rules and regulations promulgated by the SEC. Otherwise, your proposal will not be included in management’s proxy materials.

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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