Bio-Rad Laboratories, Inc. (NYSE:BIO, $BIO) manufactures and supplies products and systems used for the life science research, healthcare, analytical chemistry and other markets. It is one of the stocks in my portfolio. Their annual meeting is coming up on April 26, 2016. ProxyDemocracy.org had collected the votes of two funds when I checked. Vote AGAINST the directors who own no shares in Bio-Rad and FOR my shareholder proposal to adopt proxy access. I voted with the Board’s recommendations 25% 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.
Bio-Rad: ISS Rating
From Yahoo! Finance:Bio-Rad Laboratories, Inc.’s ISS Governance QuickScore as of Apr 1, 2016 is 9. The pillar scores are Audit: 10; Board: 10; Shareholder Rights: 5; Compensation: 8. 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: Everywhere!
Bio-Rad: Compensation
Bio-Rad Laboratories’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Norman Schwartz at $5.4M. I’m using Yahoo! Finance to determine market cap ($4.1B) and Wikipedia’s rule of thumb regarding classification. Bio-Rad is a small-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $2.7M in 2014, so pay is lower than that amount. Their shares underperformed the S&P 500 over the most recent five year time period but outperformed during the most recent one, two and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave BIO-Rad an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination, characteristic of 89% of companies in the home market. 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, 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 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.
- 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures American Express Company’s wealth creation in comparison to other widely held issuers. “Superior” is the rating given.
There was no vote on pay, since they are on a three year voting cycle.
Bio-Rad: 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.
Bio-Rad: Board Proposals
Egan-Jones recommended the following: There is a single slate of nominees, the nominees appear qualified and we recommend a vote “FOR” this Proposal.
I notice that neither of the directors up for election own any stock in Bio-Rad, even though they have served on the board for 2 to 9 years. As I have mentioned previously on many occasions, I like directors representing me to have skin in the game. If they own stock, they are more likely to look out for my interests as a shareholder. See evidence at Bhagat, Sanjai and Carey, Dennis C. and Elson, Charles M., Director Ownership, Corporate Performance, and Management Turnover. I voted against both directors.
The real problem at Bio-Rad is that a controlling shareholder controls 68.63% of the voting power. The company has taken the controlled company exemption available to such firms under current SEC and exchange listing requirements, allowing it to have a non-majority independent board and to have non-independent members on certain key board committees. The company’s multiple share classes also have disparate voting rights, which in concert with the presence of a controlling shareholder may have an additional negative impact on minority shareholder rights.
We can voice our displeasure, but will anyone listen? As we have discussed at length, Controlled Companies Underperform, Overpay. For the sake of all parties concerned, Bio-Rad should transition away from their dual-class structure so our company can reach its full potential.
Bio-Rad: Shareholder Proposals
Egan-Jones recommends for the shareholder proposal.
We believe that the proposal warrants shareholder approval. We believe that because the board of directors serves as the representatives of shareholders, shareholders should have the right to nominate their own representatives. As such, we recommend a vote “FOR” this Proposal.
The proposal for proxy access is mine. Of course, I support it. What we are seeking is real proxy access of the type worked out over a decade of negotiations with various parties at the SEC’s… their vacated Rule 14a-11. Our proposal language meets most of the concerns addressed by CII’s policy paper Proxy Access: Best Practices. Bio-Rad opposes the proposal but offers no rationale for their opposition.
Bio-Rad: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on the votes of Calvert and Colorado PERA. Calvert voted the same as Domini, Colorado the same as Florida SBA (see below).
Bio-Rad: CorpGov Recommendations Below – Votes Against Board Position in Bold
| # | PROPOSAL TEXT | CorpGov | DOMINI | FLORIDA SBA |
|---|---|---|---|---|
| 1.1 | Elect Director Louis Drapeau | Against | Against | For |
| 1.2 | Elect Director Robert M. Malchione | Against | Against | For |
| 2 | Ratify KPMG LLP as Auditors | For | For | For |
| 3 | Proxy Access Included in 1 FocusList: Proxy Access | For | For | For |
Bio-Rad: Issues for Future Proposals
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Holders of Class A Common Shares are entitled to one-tenth of a vote per share held. Holders of Class B Common Shares are entitled to one vote per share held.
- Special meetings can only be called by shareholders holding not less than 50.1% of the voting power.
- No proxy access provisions.
Bio-Rad: Mark Your Calendar
If you want us to consider including a proposal in next year’s proxy statement, you must deliver it in writing to Attention: Corporate Secretary, Bio-Rad Laboratories, Inc. at 1000 Alfred Nobel Drive, Hercules, California 94547, no later than December 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 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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