Gilead Sciences Proxy Voting Guide by McRitchie

Gilead Sciences Proxy Voting Guide

Gilead Sciences Proxy Voting Guide by McRitchie

Gilead Sciences Proxy Voting Guide by James McRitchie. Graphic by Gilead.

Gilead Sciences Proxy Voting Guide by James McRitchie. Gilead Sciences, Inc., a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical needs in Europe, North America, Asia, South America, Africa, Australia, India, and the Middle East. Gilead $GLD is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of four fund families when I checked and voted. The annual meeting is May 10, 2017, so vote NOW! If you have already voted, you can change your vote online until May 9.

I voted FOR Written Consent and requiring an Independent Chairman. See how and why I voted these and other items below. I voted with the Board’s recommendations 47% 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.

Gilead Sciences Proxy Voting Guide: ISS Rating

From the Yahoo Finance profile: Gilead Sciences, Inc.’s ISS Governance QualityScore as of May 1, 2017 is 2. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 3; Compensation: 4. 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: the Board and Compensation.

Gilead Sciences Proxy Voting Guide: Compensation, Equity Incentive Plan, & Directors

Gilead’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CFO John F. Milligan at $13.9M in 2016. I am using Yahoo! Finance to determine the market cap ($87.8B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Twitter 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 above that amount. Gilead shares outperformed the NASDAQ over the most recent five and ten year periods but have vastly underperformed in the most recent one and two 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.

Gilead earned a compensation score of “Needs Attention,”
Egan-Jones

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’s Approval of a Restatement of the Gilead Sciences, Inc. 2004 Equity Incentive Plan earns an AGAINST recommendation due to its dilutive effect to the interests of the shareholders, as such, we recommend that clients WITHHOLD votes from the members of the Compensation Committee, namely Independent outside directors Kevin E. Lofton and Per Wold-Olsen, and Affiliated outside director Nicholas G. Moore.

Moreover, we recommend that clients WITHHOLD votes from Affiliated outside director John F. Cogan, Ph.D., current member of the Audit Committee, and Affiliated outside director Nicholas G. Moore, current member of the Audit and Compensation Committees of the Board. 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.

I agreed, without reservation.

Gilead Sciences Proxy Voting Guide: 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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar, so voted FOR.

Gilead Sciences Voting Guide: Shareholder Proposals

#6 Right to Act by Written Consent

James McRitchie (that’s me) is the proponent. Of course, I voted ‘FOR.’ Egan-Jones also recommended FOR.

We have determined that it is a positive corporate governance measure to allow the stockholders to have the ability to take action by written consent, if such written consent or consents sets forth the action to be taken and is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on the matter were present and voted. As such, we recommend a vote FOR this Proposal.

#7 Independent Board Chairman

John Chevedden is the proponent. I voted FOR. Egan-Jones also recommended FOR.

We believe that there is an inherent potential conflict, in having an Inside director serve as the Chairman of the board. Consequently, we prefer that companies separate the roles of the Chairman and CEO and that the Chairman be independent to further ensure board independence and accountability.  We recommend a vote FOR this Proposal.

Gilead Sciences Proxy Voting Guide: CG Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had collected the votes of four funds when I voted.  Proxy Insight (PI below) reported additional votes from Canada Pension (CPPIB), Teacher Retirement System of Texas (TRS), CalSTRS, CalPERS and others. All voted FOR all items, including shareholder proposals #5 & #6.

# PROP CG PI CALVERT  TRILLIUM DOMINI CBIS
1a John F. Cogan Against For For Against For For
1b Kelly A. Kramer For For For Against For For
1c  Kevin E. Lofton Against For For Against For For
1d  John C. Martin For For For Against Against For
1e John F. Milligan For For For Against For For
1f Nicholas G. Moore Against For For Against For For
1g  J. Whitley For For For Against For For
1h Gayle E. Wilson For For For Against For For
1i Per Wold-Olsen Against For For Against For For
2 Ratify Auditor For For For For For Against
3 Amend Omnibus Stock Plan Against For Against Against Against For
4 Executive Officers’ Compensation Against For For Against Against For
5 Say on Pay Frequency One Year One Year One Year One Year One Year One Year
6 Provide Right to Act by Written Consent FOR For For For For For
7 Require Independent Board Chairman FOR For For For For For

Gilead Sciences Proxy Voting Guide: Issue for Future Proposals

SharkRepellentLooking 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 20% of the voting power.
  • Proxy access 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 constituting up to the greater of two directors 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.

Gilead Sciences Proxy Voting Guide: Mark Your Calendar

You may submit proposals for consideration at future stockholder meetings. For a stockholder proposal to be considered for inclusion in our Proxy Statement for the 2018 annual meeting of stockholders pursuant to SEC Rule 14a-8, the Corporate Secretary must receive the written proposal at our principal executive offices no later than November 27, 2017. Such proposals also must comply with SEC regulations under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding the inclusion of stockholder proposals in company proxy materials. Proposals should be addressed to: Corporate Secretary, Gilead Sciences, Inc., 333 Lakeside Drive, Foster City, California 94404.

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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