MBII, Marrone Bio Innovations, Inc., was added to the Russell Microcap Index after the market closed on June 23, 2017. Hopefully, that will provide some needed stability to this volatile stock, so it is great news. However, corporate governance concerns remain. For example, when will our company hold the 2017 annual meeting?
MBII Has Plenty of Positives
According to Dr. Pamela Marrone, Founder and CEO of Marrone Bio Innovations,
We are very pleased to have joined the Russell Microcap Index. This is an important milestone for Marrone Bio Innovations and represents an opportunity to increase our visibility within the public market investment community.
Marrone Bio Innovations, Inc. (MBII) is a leading provider of bio-based pest management and plant health products for the agriculture, turf and ornamental and water treatment markets. MBII is dedicated to pioneering smart biopesticide solutions that support a better tomorrow for both farmers and consumers around the globe. It is one of the largest holdings in my portfolio because I really believe in MBII’s mission. Reducing the use of chemical poisons in the environment should help create the more salubrious environment we all seek. I’m no expert, but it appears their commercially available products (Regalia®, Grandevo®, Venerate®, Majestene®, Haven™ and ZeQuanox®) are second to none.
Concerns With Corporate Governance at MBII
However, the company’s corporate governance continues to concern me.
- Classified board with staggered terms.
- Plurality vote standard to elect directors with no resignation policy.
- 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 provisions. Supermajority vote requirement (66.67% or 80%) to amend all bylaw.
- The bylaws include no provisions to allow substantial long-term shareholder proxy access for the purpose of nominating up to 25% of the board, provisions common to the vast majority of large-cap companies.
While I understand the board’s wish to ensure against an unwanted change of control for a company still in early development, I would be happier if these entrenchment devices were subject to known sunset dates. As shareholders will recall, back in 2014, the Audit Committee
reviewed certain of the Company’s historical sales transactions with distributors. The principal findings of the Committee were that (i) certain employees did not share with the Company’s finance department or the external auditors certain important transactional terms, (ii) certain sales personnel executed inaccurate “sales representation” letters, which are intended to inform the Company’s finance department and the external auditors of any commitments not included on a customer purchase order provided to the finance department, and (iii) certain employees mischaracterized expenses related to agreements to pay for the storage and freight fees associated with certain transactions. As a result, the Committee concluded that the Company recognized revenue for certain transactions prior to satisfying the criteria for revenue recognition required under U.S. Generally Accepted Accounting Principles. In addition, the Committee found that supply chain personnel were directed to ship the wrong product to a customer because the Company did not have the ordered product readily available. The employees primarily responsible for the foregoing conduct are no longer with the Company.
The class action law suit has since been settled but I, for one, have not seen payout and remain concerned as to why the Audit Committee did not notice the discrepancies earlier. What steps have been taken to ensure such activities will not happen again? I understand it takes time to bring our company to profitability but I don’t understand why basic corporate governance functions and standards are not met. Improvements could bring additional investments, especially from institutional investors, who may demand higher corporate governance standards.
MBII’s AGM Gone Missing
For example, holding an annual meeting seems like one of the most basic standards of corporate governance. MBII is registered in the state of Delaware. Pursuant to Section 211 of the DGCL, the Court of Chancery, upon the application of any shareholder or director, may order a meeting if no annual meeting for the election of directors has been held for 13 months after the last annual meeting or for a period of 30 days after the date designated for the annual meeting. The last annual meeting was held on May 25, 2016. A date for the AGM should have been announced by June 24, 2017.
I have not taken action to request the Court of Chancery compel an AGM at MBII. However, I did file a proxy proposal, which should appear on the ballot when the proxy is finally issued. I hope shareholders will vote in favor of the measure when provided the opportunity. With a proxy access bylaw in place, I would expect the Board to be more conscientious in its duties, such as auditing accounts and ensuring legally required meetings are properly scheduled. I would be delighted to hear from other MBII shareholders regarding any concerns you may have with MBII, especially with regard to issues around corporate governance. (contact) Comments also welcome below.
Proxy Access Proposal to be Voted at MBII
The proposal is reproduced below. [Note: *4, actual number to be assigned by MBII]
Proposal [4*] – Shareholder Proxy Access
RESOLVED: Shareholders of Marrone Bio Innovations, Inc. (the “Company”) ask the board of directors (the “Board”) to amend its bylaws or other documents, as necessary, to provide proxy access with essential elements for substantial implementation as follows:
- Nominating shareholders or shareholder groups (“Nominators”) must beneficially own 3% or more of the Company’s outstanding common stock (“Required Stock”) continuously for at least three years and pledge to hold such stock through the annual meeting.
- Nominators may submit a statement not exceeding 500 words in support of each nominee to be included in the Company proxy.
- The number of shareholder-nominated candidates eligible to appear in proxy materials shall be one quarter of the directors then serving or two, whichever is greater.
- No limitation shall be placed on the number of shareholders that can aggregate their shares to achieve the 3% of Required Stock.
- No limitation shall be placed on the re-nomination of shareholder nominees by Nominators based on the number or percentage of votes received in any election.
- The Company shall not require that Nominators pledge to hold stock after the annual meeting if their nominees fail to win election.
- Loaned securities shall be counted as belonging to a nominating shareholder if the shareholder represents it has the legal right to recall those securities for voting purposes and will hold those securities through the date of the annual meeting.
The SEC’s universal proxy access Rule 14a-11 (https://www.sec.gov/rules/final/2010/33-9136.pdf) was vacated after a court decision regarding the SEC’s cost-benefit analysis. Therefore, proxy access rights must be established on a company-by-company basis. Subsequently, Proxy Access in the United States: Revisiting the Proposed SEC Rule (http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1) a cost-benefit analysis by CFA Institute, found proxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption,” raising US market capitalization by up to $140.3 billion. Public Versus Private Provision of Governance: The Case of Proxy Access (http://ssrn.com/abstract=2635695) found a 0.5 percent average increase in shareholder value for proxy access targeted firms.
Proxy Access: Best Practices (http://www.cii.org/files/publications/misc/08_05_15_Best%20Practices%20-%20Proxy%20Access.pdf) by the Council of Institutional Investors, “highlights the most troublesome provisions” in recently implemented access bylaws, such as the fact that even if the 20 largest public pension fund members were able to aggregate their shares, they would not meet the 3% criteria at most companies examined by the Council.
Many corporate boards have adopted proxy access bylaws with troublesome provisions that significantly impair the ability of shareholders to participate in the nominating process, the ability of shareholder nominees to effectively serve if elected, and the ability of shareholder nominees to run again. Adoption of bylaws with all the requested elements outlined above would help ensure meaningful proxy assess is available to more shareholders.
Increase Shareholder Value
Vote for Shareholder Proxy Access – Proposal [4*]