Whole Foods Proxy Access - Give Us the Key

Whole Foods Proxy Access: Proxy Score 82

Whole Foods Proxy Access - Give Us the Key

Whole Foods Proxy Access – Give Us the Key (cartoon from Pensions & Investments)

Whole Foods Proxy Access, we have another chance to vote to make proxy access real before the annual meeting on February 17.

Whole Foods Market, Inc. (NASD:WFM) is a retailer of natural and organic foods and is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of four funds when I checked and voted.  Whole Foods Market (WFM)

I voted FOR Whole Foods Proxy Access and the report on Food Waste; AGAINST director Jonathan Sokoloff because of his poor attendance record. I voted with the Board’s recommendations 82% 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.

Whole Foods: ISS Rating

From the Yahoo Finance profile: Whole Foods Market, Inc.’s ISS Governance QualityScore as of February 2, 2017 is 3.  The pillar scores are Audit: 1; Board: 10; Shareholder Rights: 1; Compensation: 9. 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: Compensation and Board.

Whole Foods: Compensation

Whole Foods Market’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Jason Buechel –Executive Vice President and Chief Information Officer at $1.3. I’m using Yahoo! Finance to determine market cap ($9.7B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Whole Foods is a mid-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $8.4M in 2014, so pay was well under that amount.  Whole Foods Market dramatically underperformed the NASDAQ over the most recent one, two, five and ten year time periods.
GMIAnalyst

The MSCI GMIAnalyst report I reviewed gave United Natural Foods, Inc. an overall grade of ‘C.’

Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.
Egan-Jones

Taking into account both the quantitative and qualitative measures (outlined above), 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.

I voted “FOR” the say-on-pay item and voted in favor of a one-year frequency.

Whole Foods: 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 “AGAINST.”

Whole Foods: Board Proposals

As mentioned above, I voted “FOR” the pay package and in favor of one year say-on-pay frequency. Per the recommendation of Egan Jones, I voted against Jonathan Sokoloff, who attended less than 75% of all the meetings of the Board and of the committees during the fiscal year that has ended.

Whole Foods Proxy Access

#5 Whole Foods Proxy Access –  The proposal is mine, so you can be sure I voted ‘FOR.’ While the proposal seeks a number of amendments to reach ‘best practices’ standards, the most important involves raising the group limit for making nominations from 20 to something substantially higher. Under current provisions, even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the 3% criteria at most of the companies examined by the Council of Institutional Investors, whose members have over $3T in assets. Saying that Whole Foods has proxy access is a little like saying Exxon is green because they recycle their office paper.

Other than new director Mary Ellen Coe, the average tenure of directors at Whole Foods is 15 years. Can directors that have served so long really be considered independent? More importantly, if this long-serving board has failed to beat the NASDAQ over the most recent over the most recent one, two, five and ten year time periods, what are the chances Whole Foods will outperform during the next ten years? It is time to open the board to competition.

Vote FOR proxy access to make it real.

Food Waste

#6 Food Waste. From the proxy:

While WFM provides anecdotal evidence of its food waste reduction efforts in select stores, it has yet to report on its food waste management strategy or disclose current, company-wide data on food waste prevention or diversion. Several states have laws that commonly require retailers to divert food waste from landfills, creating regulatory risk for those who lack adequate diversion strategies. Food waste related legislation has also been introduced in the U.S. Congress and the EPA announced a national target to reduce food waste 50 percent by 2030.

Whole Foods should be on top of this issue and should be a leader in food waste reduction. Writing the requested report would be an inexpensive first step in the process.

Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had collected the votes of funds when I voted.  Proxy Insight reported additional votes from CalSTRS, Canada Pension (CPPIB), Teacher Retirement System of Texas, Unitarians and others. All voted FOR Whole Foods proxy access. Most also voted AGAINST Sokoloff and FOR food waste.

# PROPOSAL TEXT CorpGov DOMINI TRILLIUM CALVERT  CBIS
1a Elect Director John Elstrott For For Against Against For
1b Elect Director Mary Ellen Coe For For Against For For
1c Elect Director Shahid (Hass) Hassan For For Against For For
1d Elect Director Stephanie Kugelman For For Against Against For
1e Elect Director John Mackey For For Against For For
1f Elect Director Walter Robb For For Against For For
1g Elect Director Jonathan Seiffer For For Against For For
1h Elect Director Morris (Mo) Siegel For For Against For For
1i Elect Director Jonathan Sokoloff Against Against Against Against Against
1j Elect Director Ralph Sorenson For For Against Against For
1k Elect Director Gabrielle Sulzberger For For Against Against For
1l Elect Director William (Kip) Tindell, III For For Against Against For
2 Ratify NEO Compensation For Against Against Against For
3 Advisory Vote on Say on Pay Frequency One Year One Year One Year One Year One Year
4 Ratify Ernst & Young LLP as Auditors For For For For For
5 Proxy Access

Included in FocusLists Included in 1 FocusList: Proxy Access
For For For For For
6 Report on Food Waste Management For For For For For

Whole Foods Proxy Access: Issue for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:

  • Whole Foods Proxy Access is Lite and difficult if not impossible to implement. “Proxy access provision whereby a shareholder, or a group of up to 20 shareholders, holding at least 3% of the outstanding common stock for at least three years may nominate one director, so long as the number of directors elected via proxy access does not exceed 20% of the board. For nominations to be timely, the Notice of Proxy Access Nomination must be addressed to the Secretary and delivered to or mailed to and received at the principal executive offices of the Corporation not more than one hundred fifty (150) calendar days and not less than one hundred twenty (120) calendar days prior to the anniversary date of the date on which the Corporation first mailed its proxy materials for its immediately preceding annual meeting of shareholders. Nominees who receive less than 25% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.”

Whole Foods: Mark Your Calendar

Pursuant to SEC Rule 14a-8, any proposal that a shareholder of the Company wishes to have considered in connection with the 2018 Annual Meeting of Shareholders must be submitted to the Corporate Secretary at our principal executive offices no later than September 6, 2017, and in accordance with related provisions of the Company’s current Bylaws.

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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