Clorox Company
Clorox Company (CLX), operates through four segments:
- Cleaning – laundry, home care and professional products.
- Household – charcoal, cat litter and plastic bags, wraps and container products.
- Lifestyle – food products, water-filtration systems and filters, and natural personal care products.
- International many of the same consumer brands.
Their annual meeting is coming up on November 16, 2016. ProxyDemocracy.org had collected the votes of 2 fund families when I checked. Vote FOR reducing the threshold to call a special meeting and all other items on the proxy. I voted with the Board’s recommendations 93% of the time. View Proxy Statement via iiWisdom.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Clorox Company: ISS Rating
From Yahoo Finance: The Clorox Company’s ISS Governance QuickScore as of October 1, 2016 is 5. The pillar scores are Audit: 1; Board: 7; Shareholder Rights: 6; Compensation: 3. 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: Shareholder Rights and Board.
Clorox Company: Compensation
Clorox Company’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman/CEO Benno Dorer at $8.9M. I’m using Yahoo! Finance to determine market cap ($15.3B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Clorox Company is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was well under that amount. Clorox Company shares underperformed the S&P500 over the most recent one year time period but outperformed in the most recent two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave Medivation an overall grade of ‘C.’ 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, 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Superior” is the rating given on compensation issues. Egan-Jones concludes:
We believe that shareholders should support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote “FOR” this Proposal.
Given below median pay, the “C” grade and recommendation Egan Jones, I will also vote “FOR” the say-on-pay item.
Clorox Company: 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.
Clorox Company: Board Proposals
As mentioned above, I voted “For” the pay package. Per the recommendation of Egan Jones and the votes disclosed by other investors, I also voted for all the board members.
Clorox Company: Shareholder Proposals
#4 Reduce Threshold to Call Special Meeting – There is only one shareholder proposal on the proxy. The proposal is mine, so you can be sure I voted ‘FOR.’ The current threshold to call a special meeting is 25%.
Delaware law allows owners of 10% of shares to call a special meeting. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowner input on the timing of shareowner meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This is important because there could be 15-months or more between annual meetings. Plus shareholders have no right to act by written consent. We urge the Clorox Board to move to Delaware’s default, allowing owners of 10% of shares to call a special meeting.
CorpGov Recommendations: Votes Against Board Position in Bold 
I am voting early this time. Proxy Insight had reported that both the Canada Pension Plan Investment Board (CPPIB) and the Teacher Retirement System of Texas voted FOR all items below, as I did as CorpGov. I expect more early disclosures in the next week or so but I think we can already see a pattern.
# | PROPOSAL TEXT | CorpGov | ||
1.1 | Elect Director Amy Banse | For | For | For |
1.2 | Elect Director Richard H. Carmona | For | For | For |
1.3 | Elect Director Benno Dorer | For | For | For |
1.4 | Elect Director Spencer C. Fleischer | For | For | For |
1.5 | Elect Director Esther Lee | For | For | For |
1.6 | Elect Director A.D. David Mackay | For | For | For |
1.7 | Elect Director Robert W. Matschullat | For | For | For |
1.8 | Elect Director Jeffrey Noddle | For | For | For |
1.9 | Elect Director Pamela Thomas-Graham | For | For | For |
1.10 | Elect Director Carolyn M. Ticknor | For | For | For |
1.11 | Elect Director Christopher J. Williams | For | For | For |
2 | Advisory Vote to Ratify Named Executive Officers’ Compensation | For | For | For |
3 | Ratify Ernst & Young LLP as Auditors | For | For | Against |
4 | Reduce Threshold to Call Special Meetings from 25% to 10% of Outstanding Shares | FOR | For | For |
Clorox Company: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- No action can be taken without a meeting by written consent.
- Supermajority vote requirement (80%) to amend certain charter provisions.
- Proxy access provisions are Lite. A shareholder or group of no more than 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, so long as the number of directors elected via proxy access does not exceed 20% of the board. Nominees who receive less than 20% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.
Clorox Company: Mark Your Calendar
In the event that a stockholder wishes to have a proposal considered for presentation at the 2017 Annual Meeting of Stockholders and included in the Company’s proxy statement and form of proxy used in connection with such meeting pursuant to Exchange Act Rule 14a-8, the proposal must be received by the Company’s Corporate Secretary no later than the close of business on May 26, 2017. Any such proposal must comply with the requirements of Rule 14a-8.
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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