Hain Celestial

Hain Celestial Group: How I Voted – Proxy Score 64

Hain CelestialHain Celestial Group Inc (HAIN) manufactures, markets, distributes, and sells organic and natural products in the United States, the United Kingdom, Canada, and Europe.  Hain Celestial is one of the stocks in my portfolio. Their annual meeting is on November 19, 2015. ProxyDemocracy.org had collected the votes of two funds when I checked. I also checked CalSTRS, since their votes don’t seem to be posted at ProxyDemocracy.org and I voted with the Board’s
recommendations 64% of the time. View Proxy Statement

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

Hain Celestial: ISS Rating

From Yahoo! Finance: The Hain Celestial Group, Inc.’s ISS Governance QuickScore as of Nov 1, 2015 is 2. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 1; Compensation: 6. Brought to us 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 and Compensation.

Hain Celestial: Compensation

Hain Celestial’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Irwin D. Simon at $16.3M. I’m using Yahoo! Finance to determine market cap ($4.2B) and Wikipedia’s rule of thumb regarding classification. Hain Celestial is a mid-cap company. According to Equilar (page 6), the median CEO compensation at mid-cap corporations was $4.9 million in 2013, so pay is well above that. Additionally, last year a majority of shares were voted against Hain Celestial’ pay plan. Although the board did take some steps to address the pay issues, including an agreement to support my proxy access proposals, this year’s pay proposal is $5M higher.  That seems excessive. Hain Celestial shares outperformed the NASDAQ over the most recent five and ten year time periods but has underperformed during the latest one and two year time periods.GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave Hain Celestial an overall grade of ‘D.’ 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 CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
  • 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.

Given slipping performance and pay that was substantially above average, I voted against the plan and the directors on the compensation committee:  Scott M. O’Neil, Chairperson, Adrianne Shapira and Richard C. Berke.

Hain Celestial: Accounting

There is no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices. I voted for the auditor.

Hain Celestial: Board Proposals

I voted against the plan and all directors on the compensation committee. I share the concerns of other shareholders that Hain Celestial would benefit from a more diverse board.

Hain Celestial: Shareholder Proposals

I negotiated relatively minor changes to my proxy access proposal with Hain Celestial to arrive at language that is still strong but is more agreeable to representatives of our company. The Board of Directors unanimously recommends that you vote “FOR” this proposal.

Of course, I voted in favor of my own proposal for proxy access. According to ProxyPulse, “seventy percent of the more than 80 proxy access proposals voted on this season received majority support from shareholders, averaging 57%.” Proxy access is quickly becoming the norm.

Readers might want to check out Proxy Access 2016: Market Trends and Shareholder Proposal Developments from Sullivan & Cromwell LLP. I think it could be read as a warning to companies to adopt proxy access now, before they get a proposal using my updated template.

Choi, Stephen J. and Fisch, Jill E. and Kahan, Marcel and Rock, Edward B., Does Majority Voting Improve Board Accountability? (November 4, 2015). University of Chicago Law Review, Forthcoming; U of Penn, Inst for Law & Econ Research Paper No. 15-31 found

a substantial difference between early and later adopters of majority voting. The early adopters of majority voting appear to be more shareholder-responsive than other firms. These firms seem to have adopted majority voting voluntarily, and the adoption of majority voting has made little difference in shareholder-responsiveness going forward. By contrast, later adopters, as a group, seem to have adopted majority voting only semi-voluntarily. Among this group, majority voting seems to have led to more shareholder-responsive behavior.

These differences between early and late adopters have important implications for understanding the spread of corporate governance reforms and evaluating their effects on firms. Reform advocates, rather than targeting the firms that, by their measures, are most in need of reform, instead seem to have targeted the firms that are already most responsive. They then seem to use the widespread adoption of majority voting to create pressure on the non-adopting firms. Empirical studies of the effects of governance changes thus need to be sensitive to the possibility that early adopters and late adopters of reforms differ from each other and that the reforms may have different effects on these two groups of firms.

I believe the same logic will apply to proxy access. Companies that resist adoption are likely to be those that need it the most. I am delighted that Hain Celestial will be an early adopter with your affirmative vote.

Hain Celestial: CorpGov Recommendations Below – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CALVERT  TRILLIUM
1.1 Elect Director Irwin D. Simon For Withhold Withhold
1.2 Elect Director Richard C. Berke Withhold Withhold Withhold
1.3 Elect Director Andrew R. Heyer For Withhold Withhold
1.4 Elect Director Raymond W. Kelly For Withhold Withhold
1.5 Elect Director Roger Meltzer For Withhold Withhold
1.6 Elect Director Scott M. O’Neil Withhold Withhold Withhold
1.7 Elect Director Adrianne Shapira Withhold Withhold Withhold
1.8 Elect Director Lawrence S. Zilavy For Withhold Withhold
2 Executive Officers’ Compensation Against Against Against
3 Ernst & Young LLP as Auditors For For For
4 Adopt Proxy Access Right For For For

Hain Celestial: Issues for Future Proposals

 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. 

Hain Celestial: Mark your Calendar

Should a stockholder proposal be brought before the 2016 Annual Meeting of Stockholders, regardless of whether it is included in our proxy materials, our management proxy holders will be authorized to vote for or against the proposal, in their discretion, if we do not receive notice of the proposal, addressed to the Corporate Secretary at our principal executive offices, prior to the close of business on August 25, 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 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.

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