CSP Inc. (CSPI), together with its subsidiaries, develops and markets IT integration solutions and cluster computer systems to commercial and defense customers in the Americas, Europe, and Asia. CSP Inc. is one of the stocks in my portfolio. Their annual meeting is on February 9, 2016. ProxyDemocracy.org didn’t have a listing for CSP I presume it is because the company is too small. I voted for the directors, pay, auditor and for proxy access, therefore with the Board’s recommendations 87% 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.
CSP: ISS Rating
From Yahoo! Finance: No ISS rating for CSP. I presume CSP is too small to be rated.
CSP: Compensation
CSP’s Summary Compensation Table (page 14) shows the highest paid named executive officer (NEO) was Victor Dellovo, President and CEO, at $600,000. I’m using Yahoo! Finance to determine market cap ($20.5M) and Wikipedia’s rule of thumb regarding classification. CSP Inc. is a nano-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $3.0 million in 2014. I don’t know what it is for nano-caps. CSP Inc. shares underperformed the NASDAQ over the most recent one, two, five, and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave CSP Inc. an overall grade Accounting & Governance Risk (AGR) of 93, very high.
I abstained on the compensation plan.
CSP: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
CSP: Board Proposals
I don’t know enough about current board members to have a position. I voted for all of them.
CSP: Shareholder Proposals
My wife and I (James McRitchie) submitted a proxy access proposal, similar to all those we have been filing this season so allow shareholders holding 3% of CSP’s common stock for three years to be able to nominate 25% of the board, or two, whichever is greater.
In their opposition to my proxy access proposal, CSP objects to the fact that the proposal, as set forth, “places no limits as to the frequency with which a shareholder group, including professional shareholder activists, could utilize Proxy Access to nominate special interest director candidates.” However, the proposal requires the nominating group to certify “the required shares were acquired in the ordinary course of business, not to change or influence control at the Company.” Additionally, proponents only get 500 words to outline a proposal that took the SEC over 400 pages to explain.
While limits as to the frequency of nominations, as mentioned in the board’s opposition aren’t addressed by the proposal, and are therefore “not required” by the proposal, neither are they prohibited. Every board I know of that has adopted proxy access has included such limits. I expect CSP will as well. The proposal is strictly advisory, subject to changes by the Board as they deem necessary.
Regarding the 25% or two cap on proxy access nominees, this is included because a single director on a board could be easily isolated. They wouldn’t even be able to make a motion to discuss an issue without a second.
Shareholders at Costco recently voted on a nearly identical proposal at their annual meeting (the names of the company’s were the only substantive difference in the proposals).
CSP: CorpGov Recommendations
I also checked Proxy Insight. They also had no reported votes in advance of the meeting.
I voted in favor of all directors, the compensation plan, the company auditors and proxy access.
CSP Inc.: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Plurality vote standard to elect directors with no resignation policy.
- Unanimous, instead of majority, written consent.
- Special meetings can only be called by shareholders holding not less than 40% of the voting power, instead of shareholders with 10%.
- Supermajority vote requirement (66.67%) to approve mergers and amend bylaws, instead of a simple majority.
CSP Inc.: Mark Your Calendar
In order for a proposal of one of our stockholders to be considered for inclusion in our proxy statement and proxy card for our 2016 Annual Meeting of Stockholders, the proposal must comply with SEC Rule 14a-8 and any other applicable rules and must be submitted to our corporate secretary at our executive offices located at 175 Cabot Street Suite 210, Lowell, Massachusetts 01854 at least 120 days prior to the anniversary date of this proxy statement. This proxy statement is dated January 8, 2016, so the date by which proposals must be received under Rule 14a-8 will be September 10, 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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