Walgreens Boots Alliance

Walgreens Boots Alliance (WBA): Proxy Score 38

Walgreens Boots AllianceWalgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. The company operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. Walgreens Boots Alliance is one of the stocks in my portfolio. Their annual meeting is on January 27, 2016. ProxyDemocracy.org had collected the votes of three funds when I checked.  I voted with the Board’s recommendations 38% 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. 

Walgreens Boots Alliance: ISS Rating

From Yahoo! Finance: Walgreens Boots Alliance, Inc.’s ISS Governance QuickScore as of Dec 1, 2015 is 1. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 1; Compensation: 4. 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.

Walgreens Boots Alliance: Compensation

Walgreens Boots Alliance’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Gregory D. Wasson at $20.1M. I’m using Yahoo! Finance to determine market cap ($89.6B) and Wikipedia’s rule of thumb regarding classification. Walgreens Boots Alliance 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 pay is well above that. Walgreens Boots Alliance shares outperformed the NASDAQ over the most recent one, two, and five year time periods, but underperformed during the latest ten year time period.GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave Walgreens Boots Alliance an accounting governance risk (ARG) rating of 2 out of 100, with lower values representing greater risks. The worst 10% of companies, such as Walgreens Boots Alliance, are considered ‘very aggressive.

Given these issues and pay that was substantially above average, I voted against the plan and the directors on the compensation committee: Nancy M. Schlichting (Chair), William C. Foote (member), John A. Lederer (member)Barry Rosenstein (member)Leonard D. Schaeffer (member). 

Walgreens Boots Alliance: Accounting

I have no reason to believe the auditor has rendered an inaccurate opinion or is engaged in poor accounting practices, so voted to confirm.

Walgreens Boots Alliance: Board Proposals

I voted against the pay plan and all directors on the compensation committee. I also voted in against Janice M. Babiak and Ginger L. Graham who have served on the board since 2012 and 2010 respectively but still are not beneficial shareowners in our company. I believe directors serve more conscientiously when they have “skin” in the game. I purchased a stake in Walgreens Boots Alliance but they have not.

Walgreens Boots Alliance: Shareholder Proposals

None at this time.

Proxy InsightWalgreens Boots Alliance: CorpGov Recommendations Below – Votes Against Board Position in Bold

I also checked a relatively new site, Proxy Insight. They report the Teacher Retirement System of Texas and the Canada Pension Plan voted with management on all items.

NUM. PROPOSAL TEXT CorpGov CBIS CALVERT  TRILLIUM
1a Elect Director Janice M. Babiak Against Against Against Against
1b Elect Director David J. Brailer For Against Against Against
1c Elect Director William C. Foote Against Against Against Against
1d Elect Director Ginger L. Graham Against Against Against Against
1e Elect Director John A. Lederer Against Against Against Against
1f Elect Director Dominic P. Murphy For Against Against Against
1g Elect Director Stefano Pessina For Against Against Against
1h Elect Director Barry Rosenstein Against Against Against Against
1i Elect Director Leonard D. Schaeffer Against Against Against Against
1j Elect Director Nancy M. Schlichting Against Against Against Against
1k Elect Director James A. Skinner For Against Against Against
2 Ratify Exec Officer Compensation Against For For Against
3 Ratify Deloitte & Touche Auditors For Against For For

Walgreens Boots Alliance: Issues for Future Proposals

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

  • Board is authorized to increase or decrease the size of the board without shareholder approval.
  • Special meetings can only be called by shareholders holding not less than 20% of the voting power.
  • Proxy access provisions are ‘lite.” Nominees cannot exceed 20% of the board. Nominators whose candidates receive less than 25% of the vote are prohibited from nominating again for the next two annual meetings.

Walgreens Boots Alliance: Mark Your Calendar

Stockholders may submit proposals appropriate for stockholder action at the 2017 Annual Meeting consistent with the regulations of the SEC. If you want the Company to consider including a proposal in its proxy statement relating to the 2017 Annual Meeting pursuant to Exchange Act Rule 14a-8, you must have delivered it in writing to the Company’s Corporate Secretary, Walgreens Boots Alliance, Inc., 108 Wilmot Road, Mail Stop #1858, Deerfield, Illinois 60015 by August 11, 2016 (or, if the date of the 2017 Annual Meeting is moved by more than 30 days, the deadline will be a reasonable time before the Company begins to print and send its proxy materials, which date will be announced by the Company), and such proposal and your submission thereof must comply with applicable SEC rules and regulations regarding the inclusion of stockholder proposals in company-sponsored 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 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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