This is our Bristol-Myers Squibb Proxy Voting Guide for 2017. Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. Bristol-Myers Squibb is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of two fund families when I checked and voted. Their annual meeting is coming up on May 2, 2017.
I voted FOR reducing the threshold to call a special meetings. See how and why I voted other items below. I voted with the Board’s recommendations 41% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Bristol-Myers Squibb Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: Bristol-Myers Squibb Company’s ISS Governance QualityScore as of April 1, 2017 is 4. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 4; Compensation: 6. 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.
Bristol-Myers Squibb Proxy Voting Guide: Compensation
Bristol-Myers Squibb’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Giovanni Caforio, M.D at $19.6M in 2016. I am using Yahoo! Finance to determine the market cap ($88.6B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. BMY 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 2015, so pay was well above that amount. BMY shares outperformed the S&P 500 over the most recent ten year time period, but underperformed in the most recent one, two, and five year time periods.
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.
AXP earned a compensation score of “Needs Attention.”
We believe that shareholders cannot 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 not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.
The Company earns a compensation score of Needs Attention, and as such, we recommend that clients WITHHOLD votes from the member/s of the Compensation Committee, namely Independent outside directors Peter J. Arduini, Mathew W. Emmens, Dinesh C. Paliwal, Gerald L. Storch, and Affiliated outside director Michael Grobstein. We believe that key Board committees namely Audit, Compensation and Nominating committees should be comprised solely of Independent outside directors for sound corporate governance practice. Likewise, Egan-Jones believes that the Compensation Committee should be held accountable for such a poor rating and should ensure 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.
I voted “AGAINST” the say-on-pay item. The “Lake Woebegone effect,” where everyone is above average and the averages are recalculated upward every year, has to stop. We cannot just keep voting in favor of higher and higher pay packages. I also voted against all the compensation committee member.
Bristol-Myers Squibb Proxy Voting Guide: Accounting
Egan-Jones recommends voting against, favoring auditor rotation after seven years and also pointing to disciplinary actions. I am not quite ready to set rotation as the bar, but was primarily concerned that of the money BMY paid Deloitte & Touche, 40% was for non-audit services, so setting up a potential conflict of interest. I voted Against.
Bristol-Myers Squibb Proxy Voting Guide: Board Proposals
As mentioned above, I voted “Against” the auditor and the pay package. As is my habit, when I vote against the pay package, I also vote against/withhold on the compensation committee.
Re items 4 and 5, Egan-Jones also recommended that clients
After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote AGAINST these Proposals.
That seems like good advice to me. I voted Against.
Bristol-Myers Squibb Proxy Voting Guide: Shareholder Proposals
#7 Reduce Ownership Threshold for Shareholders to Call Special Meeting
James McRitchie (that’s me) is the proponent. I voted ‘FOR.’
We do not believe it is appropriate to enable holders of below 25% of the common stock to have an unlimited ability to call special meetings for any purpose at any time. As such, we recommend a vote AGAINST this Proposal.
A shareholder right to call a special meeting is a costly way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle.
It takes 25% of BMY shares outstanding to call a special meeting, whereas most state laws would allow 10% of shares outstanding to call a special meeting. I might be dissuaded if BMY had a long-term activist holder owning 15% of the company. Then, calling a meeting might be a hostile self-serving act. Wellington Management, which owned 9% of BMY as of the last quarter, is know as an active investor, but is far from an activist investor. The next several largest investors are passive index funds. 15%, in that context, seems entirely reasonable. Vote FOR #5.
Bristol-Myers Squibb Proxy Voting Guide: Votes Against Board Position in Bold
As mentioned above, ProxyDemocracy.org had collected the votes of 3 funds when I voted. Proxy Insight reported additional votes from Teacher Retirement System of Texas (TRS), and Unitarian Universalists. All voted FOR #7.
Bristol-Myers Squibb Proxy Voting Guide: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners. The main outstanding issue is proxy access:
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
- Proxy access lite provision whereby a shareholder or group of no more than 20 stockholders 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 the greater of two individuals or 20% of the board. 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.
Bristol-Myers Squibb Proxy Voting Guide: Mark Your Calendar
Shareholder proposals relating to our 2018 Annual Meeting of Shareholders must be received by us at our principal executive offices, Bristol-Myers Squibb Company, 345 Park Avenue, New York, New York 10154, attention: Corporate Secretary, no later than November 23, 2017. Such proposals must comply with SEC regulations under Rule 14a-8 regarding the inclusion of shareholder proposals in company sponsored proxy materials. Shareholders are encouraged to contact the Office of the Corporate Secretary prior to submitting a shareholder proposal or any time they have a concern. At the direction of the Board of Directors, the Office of the Corporate Secretary acts as corporate governance liaison to shareholders.
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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