Genomic Health proxy 2017

Genomic Health Proxy Voting Guide

Genomic Health proxy 2017Genomic Health Proxy Voting Guide by CorpGov.net. Genomic Health (GHDX), a healthcare company, provides actionable genomic information to personalize cancer treatment decisions in the United States and internationally. It develops and commercializes genomic-based clinical laboratory services that analyze the underlying biology of cancer, allowing physicians and patients to make individualized treatment decisions.  Genomic Health is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of no fund family when I checked and voted. Their annual meeting is coming up on June 15, 2017.

I voted FOR #5 proxy access, proposed by me. See how and why I voted this and other items below. I voted with the Board’s recommendations 62% of the time. View proxy via SEC’s EDGAR system (look for DEF 14A).

Genomic Health graphicRead Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

Genomic Health: ISS Rating

From the Yahoo Finance profile: Genomic Health, Inc.’s ISS Governance QualityScore as of May 1, 2017 is 6. The pillar scores are Audit: 5; Board: 7; Shareholder Rights: 3; Compensation: 9. The pillar scores are Audit: 10; Board: 1; Shareholder Rights: 1; 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: Board and Compensation.

Genomic Health: Compensation

Genomic Health’s Summary Compensation Table (p. 18) shows the highest paid named executive officer (NEO) was CEO Kimberly J. Popovits at $2.3M in 2016. I am using Yahoo! Finance to determine the market cap ($1.1B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Genomic Health is a small-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation at small-cap corporations is $3.85M in 2016, so pay was well below that amount. Genomic Health’s’ shares underperformed the S&P 500 over the most recent one, two, five and ten year time periods, outperforming only over ten years. Is it worth keeping?

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.

Genomic Health earned a compensation score of “Good:”
Egan-Jones

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 agreed, but barely, and voted “For” the say-on-pay item.

Genomic Health: 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. Egan-Jones notes Ernst & Young, LLP has been serving as the Company’s auditor for more than seven years. Agreed, that is problematic but I’m not ready to vote against them on that basis. Maybe I will change my mind next year. I voted FOR.

Genomic Health: Board Proposals

Board Elections: Egan-Jones recommended as follows:

Inside director Kimberly J. Popovits is a current Chairman of the Board and CEO of the Company, and combined with the Board Rating of Some Concerns the Company has received, we recommend that clients WITHHOLD votes from this nominee. We believe that there is an inherent potential conflict, in having the CEO or former CEO serve as the Chairman of the Board. Consequently, we prefer that companies focus on the following areas to improve its corporate governance practices: separate the roles of the Chairman and CEO, hold annual director elections, have one class of voting stock only, have key board committees consisting of independent directors and majority of independent directors on board and include non-binding compensation vote on agenda to further ensure board independence and accountability.

Moreover, we recommend that clients WITHHOLD votes from Affiliated outside director Julian C. Baker, current member of the Nominating and Corporate Governance Committee, and Affiliated outside director Fred E. Cohen, M.D., D.Phil., 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’m not quite ready to go there on the Chairman but did vote against J. Baker and Cohen.

virtual meetingsAdditionally, I have decided to also WITHHOLD my vote from all the members of the Nominating and Governance Committee for their presumed recommendation to the full board to hold a virtual-only shareholders meeting. Virtual-only meetings are easily programmed by the current board to avoid difficult questions. Shareholders lack an opportunity to meet with directors, staff and each other. Such meetings make a mockery of one of the most important mechanisms available and will lead to corporations as democratic-free zones. Vote AGAINST Henry J. Fuchs, M.D. (Chair), Felix J. Baker, Ph.D. and Fred E. Cohen, M.D., D.Phil.

#2 Amend Omnibus Stock Plan

Egan-Jones recommended as follows:

Taking into account the maximum amount of effective dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined below, we believe that shareholders should support the passage of this plan as proposed by the board of 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 see that both Calvert and TRS voted AGAINST, so I did as well.

#3 Amend Qualified Employee Stock Purchase Plan

Egan-Jones recommended as follows:

An Employee Stock Purchase Plan or (ESPP) can be an important tool increasing ownership among company employees. In the US the tax advantages of a qualified plan are compelling, but qualifying for these tax benefits requires shareholder approval of the plan as well as several other structural elements, such as a minimum of 85% of fair market value as a minimum stock price and holding of the stock for a defined period of time. Egan-Jones supports the establishment of such qualified ESPPs unless there is a compelling example of prior abuse or significant reason to expect such abuse in the future.

We find no evidence of prior or expected future abuse of this ESPP and note that it appears to meet the requirements of a qualified plan. Thus we believe this ESPP to be in the best interests of shareholders, we recommend a vote FOR this Proposal.

I agreed and voted For.

Genomic Health: Shareholder Proposal on Proxy Access

#5, Amend Proxy Access Right (McRitchie) Proxy access should be viewed as a fundamental right to ensure shareholders can hold directors accountable. Yes, in uncontested elections we can vote against directors and Genomic Health requires a majority vote to win. However, losing candidates can be replaced by board nominated candidates who may be no better. Proxy access would allow shareholders to place up to 25% of the board or two, whichever is more, nominees on the proxy.  We do not need independent directors as much as directors who know they are dependent on shareholders — their vote and sometimes even their nomination.

Egan-Jones notes, “we believe that shareholders should have the right to nominate their own representatives according to the shareholders’ criteria proposed in this proposal. As such, we recommend a vote FOR this Proposal.”

The vast majority of large-cap companies offer proxy access, most mid-caps will soon follow. The Board argues, proxy access “creates a risk that any such candidates have not first been thoroughly evaluated for their suitability, experience and perspective to serve on the board.” Of course, nominating candidates is not the same as electing them. Under proxy access, the Board will have ample opportunity to argue their candidates are more qualified. While proxy access candidates would be limited to a 500 word statement in the proxy, no such limitation would apply to Board nominees. While proxy access may take more time to come to small-caps, such as Genomic Health, eventual adoption is almost inevitable.

Please vote FOR proposal #5 to give shareholders a right to proxy access.

Genomic Health: Votes Against Board Position in Bold Proxy Insight

As mentioned above, ProxyDemocracy.org had not collected any advance votes.  Proxy Insight reported those of Calvert and Teachers Retirement of System of Texas (TRS). Calvert voted against all the directors. TRS voted against Cohen. Both voted against #3, the stock plan, and FOR #7 proxy access.

# PROPOSAL TEXT CorpGov
1.1 Elect Director Kimberly J. Popovits For
1.2 Elect Director Felix J. Baker For
1.3 Elect Director Julian C. Baker Against
1.4 Elect Director Fred E. Cohen Against
1.5 Elect Director Henry J. Fuchs Against
1.6 Elect Director Ginger L. Graham For
1.7 Elect Director Geoffrey M. Parker For
2 Amend Omnibus Stock Plan Against
3 Amend Qualified Employee Stock Purchase Plan For
4 Advisory Vote to Ratify Named Executive Officers’ Compensation For
5 Advisory Vote on Say on Pay Frequency One Year
6 Ratify Ernst & Young LLP as Auditors For
7 Provide Proxy Access Right

Has user-contributed links Has 1 user-contributed link with more info
FOR

Genomic Health: 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.
  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (66.67%) to amend certain charter and all bylaw provisions.
  • No proxy access rights for shareholders.

Genomic Health: Mark Your Calendar

If a stockholder wishes to present a proposal to be considered for inclusion in our proxy statement for the 2018 Annual Meeting of Stockholders, the proponent and the proposal must comply with the proxy proposal submission rules of the SEC. One of the requirements is that the proposal be received by Genomic Health’s Secretary no later than December 31, 2017. Proposals we receive after that date will not be included in the proxy statement. We urge stockholders to submit proposals by Certified Mail—Return Receipt Requested.


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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