Facebook

Facebook: Proxy Score 0

FacebookFacebook Inc (NASD:FB) operates as an online retailer in North America 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 three fund families when I checked and voted on 6/8/2015. I added the votes of CalSTRS in the table below. Like ALL the pre-disclosing funds, I voted with management 0% of the time. I assigned Facebook a proxy score of 0.

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

Facebook: ISS Rating  

From Yahoo! Finance: Facebook, Inc.’s ISS Governance QuickScore as of Jun 1, 2015 is 10. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 10; Compensation: 10. 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, Shareholder Rights and Compensation.

Facebook: Compensation

Facebook Summary Compensation Table (p. 27) shows the highest paid named executive officer (NEO) was COO Sheryl K. Sandberg at about $15.5M in 2014.  I’m using Yahoo! Finance to determine market cap ($226B) and Wikipedia’s rule of thumb regarding classification.

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

The MSCI GMIAnalyst report I reviewed gave Amazon an overall grade of ‘F.’ According to the report:MSCI GMIAnalyst

  • 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’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.

With high pay and the above issues, I voted against the omnibus stock plan.

Facebook: Board of Directors and Board Proposals

Like all the other funds announcing their votes in advance, I withheld my vote from all directors. The board has no minorities and are basically puppets of CEO Mark Zuckerberg who controls 62% of the company’s total voting power. 

Facebook: Accounting

I voted to against Facebook’s auditor, since more than 25 percent of total audit fees paid to the auditor were attributable to non-audit work..

Shareholder Proposals at Facebook

With regard to shareholder proposals, of course I voted FOR my (James McRitchie) proposal to Give Each Share An Equal Vote through a recapitalization program, if need be.  This is the most important issue at the company. We need to send a message to Mr. Zuckerberg and hope he will listen. A similar proposal at Google won 84% of the non-insider vote. Vote FOR #4, Approve Recapitalization Plan for all Stock to Have One-vote per Share.

I also voted FOR the other shareholder proposals, #5 and #6, to create a sustainability report and a report on human rights. I support such proposals at most companies.

CorpGov Recommendations for Facebook – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CALVERT  CBIS CalSTRS TRILLIUM
1.1 Elect Director Marc L. Andreessen Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.
1.2 Elect Director Erskine B. Bowles Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.
1.3 Elect Director Susan D. Desmond-Hellmann Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.
1.4 Elect Director Reed Hastings Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.
1.5 Elect Director Jan Koum Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.The nominee is non-independent and the board lacks a key committee.
1.6 Elect Director Sheryl K. Sandberg Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.The nominee is non-independent and the board lacks a key committee.
1.7 Elect Director Peter A. Thiel Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.
1.8 Elect Director Mark Zuckerberg Withhold Withhold Withhold Withhold Withhold
Calvert Social Index Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Calvert Social Investment Fund: The nominee is non-independent and the board lacks a key committee.The board does not include at least one minority director after the election.
Trillium Asset Management: Research The board does not include at least one minority director after the election.Less than 30 percent of the board is diverse.The nominee is non-independent and the board lacks a key committee.
2 Ratify Ernst & Young LLP as Auditors Withhold Against Against Against Against
Calvert Social Index Fund: More than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
Calvert Social Investment Fund: More than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
Trillium Asset Management: Research Greater than 25 percent of total audit fees were attributable to non-audit work.
3 Amend Omnibus Stock Plan Withhold Against Against Against Against
Calvert Social Index Fund: Based on evaluation of the estimated cost, plan features, and grant practices using the Equity Plan Score Card (EPSC), a vote AGAINST this proposal is warranted, due to the following key factors: The plan permits repricing and/or exchange of grants without shareholder approval. The plan permits cash buyout of awards without shareholder approval. Plan cost is excessive The plan permits liberal recycling of sharesThe plan’s dilution exceeds 10 percent.The plan has an automatic share replenishment feature.
Calvert Social Investment Fund: Based on evaluation of the estimated cost, plan features, and grant practices using the Equity Plan Score Card (EPSC), a vote AGAINST this proposal is warranted, due to the following key factors: The plan permits repricing and/or exchange of grants without shareholder approval. The plan permits cash buyout of awards without shareholder approval. Plan cost is excessive The plan permits liberal recycling of sharesThe plan’s dilution exceeds 10 percent.The plan has an automatic share replenishment feature.
Trillium Asset Management: Research Total compensation to outside directors exceeds 100,000 dollars.
4 Approve Recapitalization Plan for all Stock to Have One-vote per Share For For For For For
Calvert Social Index Fund: Dual-class voting structures are generally designed to preserve or increase the voting power of insiders or a significant shareholder. Furthermore, a structure with one class having super-voting rights perpetuates an unequal voting structure which could have an adverse impact on Class A shareholders. Providing equal voting rights for the Class A shares would represent an improvement in shareholders’ rights. As such, support FOR this proposal is warranted.
Calvert Social Investment Fund: Dual-class voting structures are generally designed to preserve or increase the voting power of insiders or a significant shareholder. Furthermore, a structure with one class having super-voting rights perpetuates an unequal voting structure which could have an adverse impact on Class A shareholders. Providing equal voting rights for the Class A shares would represent an improvement in shareholders’ rights. As such, support FOR this proposal is warranted.
Trillium Asset Management: Research Trillium will vote CASE-BY-CASE on this proposal.
5 Report on Sustainability For For For For For
Calvert Social Index Fund: Calvert supports shareholder proposals seeking reporting initiatives regarding corporate sustainability.
Calvert Social Investment Fund: Calvert supports shareholder proposals seeking reporting initiatives regarding corporate sustainability.
Trillium Asset Management: Research We support resolutions asking for sustainability reports.
6 Report on Human Rights Risk Assessment Process For For For For For
Calvert Social Index Fund: A vote FOR this resolution is warranted because shareholders would benefit from additional information on how the company is assessing human rights risks, including additional information on how it is managing compliance with its policies and related oversight mechanisms.
Calvert Social Investment Fund: A vote FOR this resolution is warranted because shareholders would benefit from additional information on how the company is assessing human rights risks, including additional information on how it is managing compliance with its policies and related oversight mechanisms.
Trillium Asset Management: Research We support resolutions on human rights risk assessments.

Governance Issues at Facebook

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

  • Plurality vote standard to elect directors with no resignation policy.
  • Shareholders cannot call special meetings.

Facebook Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

You may present proposals for action at a future meeting or submit nominations for election of directors only if you comply with the requirements of the proxy rules established by the SEC and our amended and restated bylaws, as applicable. In order for a stockholder proposal or nomination for director to be considered for inclusion in our proxy statement and form of proxy relating to our annual meeting of stockholders to be held in 2016, the proposal or nomination must be received by us at our principal executive offices no later than January 2, 2016.

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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