iRobot adopts proxy access bylaws filed with SEC Form 8-K on March 9, 2016 (See Section 11). James McRitchie, publisher of Corporate Governance (CorpGov.net) conditioned withdrawal of his proposal for proxy access at iRobot (IRBT) on the amended bylaws, including several key elements meeting best practices as outlined by the Council of Institutional Investors.
These key elements include:
- Ownership thresholds of 3% held for 3 years
- Shareholders are eligible to nominate up to 25% of the board, or two directors, whichever is greater
- No cap is imposed on the permitted number of members in a nominating group
- Loaned securities are included, if they can be recalled within 3 business days
- Shareowners must continue to own the required shares through the applicable annual meeting date
- No restrictions, such as a 25% minimum vote, are placed on renomination of proxy access candidates
iRobot Adopts Proxy Access: Tipping Point
The robust proxy access bylaws adopted by iRobot may represent a tipping point in future negotiations with companies on proxy access. Last year many of us settled for proxy access lite in order to gain momentum on the topic.
Later 2015, I began submitting proposals with more specificity, in hopes of ensuring no-action requests under SEC subdivision (i)(10), substantially implemented, could not be used to water down proxy access provisions by keeping shareholder proposal off the ballot. Those hopes were dashed with a series of SEC no-action letters issued on February 12 (Substantial Implementation: Proxy Access Lite), although the no-action letters simply postpone further action by shareowners for a year or two. Now iRobot adopts proxy access of a genuine nature, instead of the lite versions recently adopted by companies such as Apple and Whole Foods.
It appears that iRobot decided to make several substantial changes, moving from relatively bad corporate governance to good governance practices. Instead of adopting half-way measures on a piecemeal basis, iRobot adopts proxy access and other reforms with gusto. Let’s hope others do the same. Maybe they will tire of having the same bylaw amendments proposed year after year. Eventually, they will pass.
Below is the press release from iRobot, followed by one from Red Mountain. Having a hedge fund breathing down your neck apparently incentivizes good corporate governance… at least that seems to be the positive strategy iRobot adopted.
iRobot Adopts Proxy Access, Appoints Michael Bell: The Company Press Release
iRobot Corp. (NASDAQ: IRBT), a leader in delivering robotic technology-based solutions, today announced that Michael Bell has been appointed to the Board of Directors, effective immediately. He will stand for election at the upcoming iRobot Annual Meeting of Shareholders along with Mohamad Ali. George McNamee will retire from the Board following the end of his term at the Annual Meeting. The Board has also named Deborah Ellinger as Lead Independent Director, effective immediately.
As a pioneer in the “Internet of Things,” Mr. Bell is an innovative product-oriented executive who brings iRobot significant software and technology expertise. He currently serves as President and Chief Executive Officer, as well as a Board Member, of Silver Spring Networks (NYSE: SSNI), a leading networking platform and solutions provider for smart energy networks based in Redwood City, CA, a position he has held since September 2015. Mr. Bell has been deeply involved in the development of several market-making technology products in senior leadership positions at Apple, Palm and Intel. Notably, he was responsible for founding and developing a new group at Intel focused on smart technology and connected devices. He holds a Bachelor of Science in Mechanical Engineering and Applied Mechanics from the University of Pennsylvania.
“We are excited to welcome Michael Bell to our Board,” said Ms. Ellinger. “Michael is a seasoned executive who has extensive experience in software and consumer technology. He is a true leader in connected technology and the Internet of Things, which is increasingly critical to iRobot’s go-forward product strategy.”
Mr. Bell said, “iRobot has the leading in-home robot market position and a unique platform to take advantage of the rapidly evolving market for connected devices. I am excited to help iRobot further develop and differentiate its product offering to benefit both customers and shareholders. This is an exciting time for iRobot, and I am pleased to join the team.”
Ms. Ellinger added, “On behalf of the entire Board, we want to thank George for his leadership and insights, and wish George well in his retirement.”
Corporate Governance Enhancements
In addition, iRobot announced the following corporate governance enhancements:
Declassification of the Board: iRobot will seek shareholder approval at the Annual Meeting to declassify its Board of Directors.
Adoption of Proxy Access for Shareholders: iRobot has amended its bylaws to provide proxy access for eligible iRobot shareholders. iRobot’s bylaws now allow holders of at least three percent of iRobot’s stock who have held the shares for at least three years to include nominees for iRobot’s Board of Directors in the Company’s proxy materials.
Elimination of Supermajority Voting Requirements: iRobot will seek shareholder approval at the Annual Meeting to eliminate supermajority voting requirements in its governing documents relating to removal of directors and amendments to iRobot’s certificate of incorporation and bylaws.
Codification of Lead Independent Director: iRobot has amended its bylaws to codify that a Lead Independent Director will be appointed when the Company’s CEO is also its Chairman. iRobot has had a Lead Independent Director since its 2005 IPO.
While the Board’s actions begin to address shareholder criticism of iRobot’s corporate governance practices and the constitution of the Board, Red Mountain is troubled that these initiatives were only announced as a result of substantial shareholder pressure. The Company has had years to embrace governance best practices and indeed has been the subject of numerous shareholder proposals calling for the implementation of governance best practices. Although the governance initiatives announced by the Company are steps in the right direction, Red Mountain believes there is still substantial work to be done. Red Mountain hopes that the Board will work diligently to implement the announced changes and adopt additional governance best practices, including separating the roles of Chairman and Chief Executive Officer and refreshing the Board to ensure its independence and that it has the right mix of skills and experience.
Red Mountain is disappointed that the Board failed to accept its settlement offer that would have resulted in the appointment of Lawrence Peiros and Willem Mesdag, a significant shareholder, to the Board. Red Mountain proposed that the Board appoint Mr. Peiros and Mr. Mesdag to the Board, in addition to Michael Bell, in order to bring global consumer products expertise and capital allocation skills as well as a shareholder voice to the Board. Red Mountain was prepared to enter into a long-term standstill agreement in order to allow the Board to focus its attention on the Company’s business, rather than a proxy contest with one of its largest shareholders.
Red Mountain’s nominees, Mr. Mesdag and Mr. Peiros, would bring much needed oversight with respect to cost management, capital allocation, returns on invested capital and corporate governance. The Company’s piecemeal and reactive approach to adopting changes as a result of shareholder pressure further underscores the need for independent, shareholder representation in the boardroom. Mr. Peiros is the former Chief Operating Officer of The Clorox Company, one of the most successful consumer products companies in the world, and has served with distinction on three public company boards. Mr. Mesdag is the Managing Partner of Red Mountain and a former partner of Goldman, Sachs & Co., and has served with distinction on seven public company boards.
“We were surprised by the Board’s announcement yesterday morning, and believe that it signals the Board’s intent to pursue a proxy contest at great expense to its shareholders when a better alternative is available. The Board’s action confirms our concern that it is not as accountable to or aligned with shareholders as it should be,” said Willem Mesdag, Managing Partner of Red Mountain.
About Red Mountain Capital Partners LLC
Red Mountain was established in January 2005 by Willem Mesdag, a former partner at Goldman, Sachs & Co., to invest primarily in undervalued small cap companies and to enhance and realize shareholder value through active ownership. Red Mountain’s approach to such investments is to actively engage with management teams and boards of directors in a constructive manner to unlock value for the benefit of all shareholders. Red Mountain partners have extensive experience and a successful track record of enhancing value at portfolio companies through a combination of refocusing strategy, improving operational execution, more efficiently allocating capital and upgrading corporate governance, and currently serve on the boards of five public companies in which Red Mountain’s managed funds have substantial ownership stakes.