SciClone Pharmaceuticals

SciClone Pharmaceuticals: Proxy Score 78

SciClone PharmaceuticalsSciClone Pharmaceuticals, Inc. (NASD:SCLN) is one of the stocks in my portfolio. Their product portfolio of therapies includes oncology, infectious diseases and cardiovascular disorders.discovers, develops, manufactures, and markets therapies for the treatment of neurological, autoimmune, and hematologic disorders in the United States and internationally. Their annual meeting is coming up on 6/11/2015. ProxyDemocracy.org had the vote of one fund when I checked and voted on 6/9/2015.  I voted with management 78% of the time and assigned SciClone Pharmaceuticals a proxy score of 78.

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

SciClone Pharmaceuticals: ISS Rating

From Yahoo! Finance: SciClone Pharmaceuticals, Inc.’s ISS Governance QuickScore as of Jun 1, 2015 is 6. The pillar scores are Audit: 10; Board: 3; Shareholder Rights: 6; Compensation: 6. 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… Audits.

SciClone Pharmaceuticals: Compensation

SciClone Pharmaceuticals Summary Compensation Table (p. 40) shows the highest paid named executive officer (NEO) was CEO Friedhelm Blobel, Ph.D., at about $1.5M in 2014.  I’m using Yahoo! Finance to determine market cap ($450M) and Wikipedia’s rule of thumb regarding classification.

SciClone Pharmaceuticals is a small-cap company.  According to Equilar (page 6), the median CEO compensation at small-cap corporations was $2.7M million in 2013, so SciClone Pharmaceuticals’ pay is below that number. To its credit, SciClone Pharmaceuticals shares out-performed the NASDAQ over the most recent one, two and five but not ten year periods.

The MSCI GMIAnalyst report I reviewed gave SciClone Pharmaceuticals 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.
  • 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.
  • The company’s failure to establish and disclose specific standards regarding minimum equity retention standards for its CEO and directors may weaken the ability of equity awards to align executives’ interests with long-term value creation.

With below median relative pay and return, I voted for the pay package and stock plan, despite the above issues.

SciClone Pharmaceuticals: Board of Directors and Board Proposals

I voted against Gregg A. Lapointe and Simon Li since neither directors appears to own any stock in our company. I believe ‘skin in the game’ is motivating.

SciClone Pharmaceuticals: Accounting

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

Shareholder Proposals at SciClone Pharmaceuticals

With regard to shareholder proposals, there were none.

CorpGov Recommendations for SciClone Pharmaceuticals – Votes Against Board Position in Bold

Proposal CorpGov CalSTRS CBIS
1.1 Elect Jon S. Saxe For For For
1.3 Elect Nancy T. Chang For For For
1.5 Elect Gregg A. Lapointe Against For For
2 Advisory Vote on Executive Compensation For For For
4 Ratification of Auditor For For Against

Governance Issues at SciClone Pharmaceuticals

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

  •  No action can be taken without a meeting by written consent.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.

SciClone Pharmaceuticals Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

We welcome comments or suggestions from our stockholders. Stockholder proposals may be included in our proxy materials for an annual meeting so long as they are provided to us on a timely basis and satisfy the other conditions set forth in applicable SEC rules. For a stockholder proposal to be included in our proxy materials for the next annual meeting of stockholders, the proposal must be received by Corporate Secretary, SciClone Pharmaceuticals, Inc., 950 Tower Lane, Suite 900, Foster City, California 94404, not less than 120 calendar days before the first anniversary of the date our proxy statement released to stockholders in connection with the previous year’s annual meeting, which date shall be January 1, 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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