FedEx Fights for a democratic-free zone @ 9/25/2017 annual meeting. Seeks to maintain fake proxy access; refuses to disclose lobbying payments; wants to continue to monitor say-on-pay vote to lobby those who vote against; wants to disrespect human rights where allowed by state laws.
FedEx Corporation provides transportation, e-commerce, and business services worldwide. FedEx is one of many 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 September 25, 2017. Vote today. If you have already voted, and want to change your vote, you can. Your last vote will override the previous vote. More than 90% of retail shareholders don’t bother to vote, so think of yourself as voting for 10.
I voted FOR Proxy Access Amendments and all the other shareholder proposals. See how and why I voted other items below. I voted with the Board’s recommendations only 25% 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.
FedEx Fights Proxy Voting Guide: ISS Rating
From the Yahoo Finance profile: FedEx Corporation’s ISS Governance QualityScore as of September 1, 2017 is 4. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 3; 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: the Board. You can tell FedEx fights its shareholders from just looking at its ISS scores, which are low when it comes to audit and shareholder rights.
FedEx Proxy Voting Guide: Compensation
FedEx’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Frederick W. Smith at $15.6M in 2016. I am using Yahoo! Finance to determine the market cap ($58.7B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. FedEx is a large-cap company. According to EY Center for Board Matters, the 3-yr average CEO compensation at large-cap corporations is $12.7M (mid-cap corporations was $6.2, small-cap corporations was $3.4), so pay was well above the amount paid to average CEOs. FedEx shares outperformed the NASDAQ over the most recent one-, two-, and five- year time periods, but how hard should that be, given the rise of Amazon.com and increased volume in shipping? FedEx underperformed in the most recent ten-year time period.
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.
FedEx earned a compensation score of “Good,”
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.
But Egan-Jones does not rate the impact of ever increasing CEO pay on society and the ultimate viability of all the stocks in my portfolio. 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. FedEx has done well but is that really because of their CEO? I doubt it. Read CEO Pay Machine Destroying America.
I voted against the pay package, the incentive pay plan and also voted against all the compensation committee members: Paul S. Walsh (Chairman), Marvin R. Ellison, John C. (“Chris”) Inglis, Shirley Ann Jackson, and Susan C. Schwab. Committee members should be held accountable for their poor recommendations.
FedEx 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 agree and voted against the Auditor. When I vote against the auditor I also vote against the committee: Paul S. Walsh (Chairman), Marvin R. Ellison, John C. (“Chris”) Inglis, Shirley Ann Jackson, Susan C. Schwab. Again, committee members should be held accountable for their poor recommendations.
FedEx Fights Proxy Voting Guide: Board Proposals
As mentioned above, I voted “Against” the pay package and auditor. As is my habit, when I vote against those items, I also vote against/withhold on the committee members.
Egan-Jones recommended:
Frederick W. Smith 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.
In addition, we recommend that clients WITHHOLD votes from Affiliated outside director John A. Edwardson, current member of the Audit Committee; Affiliated outside director Paul S. Walsh, current member of the Compensation Committee; and Affiliated outside director James L. Barksdale, current member of the Nominating Committee 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.
That seems like excellent advice to me, so I did the same, adding them to the previously mentioned withholds.
FedEx Fights All Shareholder Proposals
FedEx Fights #6: Proxy Access Bylaw Amendments
Myra Young (my wife) is the proponent and I wrote the proposal, you know I voted ‘FOR.’ FedEx has a “lite” version of proxy access. Egan-Jones recommend FOR as well.
Current bylaws limit shareholder nominees to 20% of the 12 member board or 2. The proposal recommends one quarter of the directors then serving or two, whichever is greater. In the case of FedEx, that would yield up to 3 candidates.
Research suggests three women may constitute a critical mass for reframing the decision-making culture of boards. Similarly, having three shareholder-nominated directors may help ensure not only participation on each of the committees but a critical mass for bringing a shareholder perspective to Board decisions. Research also finds that director insulation from removal is associated with lower firm value and worse performance.
Current bylaws limit nominating groups to 20 members. The Council of Institutional Investors studied such provisions and found their members, who hold in excess of $3 trillion in assets, would not be able to meet the requirement of 3% held for 3 years with a 20-member limit. The proposal seeks removal of the cap on the number of members that can form a group.
One thing few take into account is that shares are not consistently held. Funds frequently buy or sell shares. Looking at funds that held in the last reporting period does not tell you which funds have held significant amounts over the last 12 reporting periods.
FedEx fights proxy access by claiming to have it but their form of proxy access is like calling gasoline “natural,” since it is made from a product found in nature. Three shareholder nominees could form critical mass. No cap on group members would give a voice to smaller funds and even individuals concerned with FedEx’s sustainability — if they can join together with like-minded investors. Remember, this would just get them on the proxy. As a shareholder, you would still help decide who gets elected.
FedEx Fights #7: Report on Lobbying Payments and Policy
The International Brotherhood of Teamsters General Fund introduced this proposal. Investor Voice is a co-filer.
The proposal is part of an ongoing investor campaigni for greater corporate political spending disclosure. Transparency and accountability in corporate spending to influence public policy are in the best interests of FedEx stockholders. Without a clear system ensuring accountability, corporate assets can be used to promote public policy objectives which can pose risks FedEx’s reputation to the detriment of stockholder value. See Teamsters Demand Lobbying Transparency at FedEx. Egan-Jones recommends against because of cost. The real reason FedEx fights it isn’t cost but possible embarrassment. They have the data. I voted ‘FOR.’
FedEx Fights #8: Executive Pay Confidential Voting
This is a new type of proxy proposal from John Chevedden, so many funds and proxy advisors probably have not taken the time to analyze it. The proposal essentially asks that FedEx not do an end-run around a vote by shareholders against pay by prohibiting the use of interim vote tallies to alert them when to solicit votes to ensure passage.
Simple idea; good idea. Put us on an even playing field. I voted ‘FOR.’
FedEx Fights #9: Apply FedEx’s Nondiscrimination Policies in States Allowing Discrimination
NorthStar Asset Management filed this proposal. The proposal asks for a report detailing the known and potential risks and costs to the Company caused by any enacted or proposed state policies supporting discrimination against LGBT people, and detailing strategies above and beyond litigation or legal compliance that the Company may deploy to defend the Company’s LGBT employees and their families against discrimination and harassment that is encouraged or enabled by the policies.
When FedEx fights it own employees or fails to stand up for their rights, we all lose. I voted ‘FOR.’
FedEx Proxy Voting Guide: Votes Against Board Position in Bold
As mentioned above, ProxyDemocracy.org had collected the votes of two funds when I voted. Proxy Insight reported additional votes from Canada Pension (CPPIB), Teacher Retirement System of Texas (TRS), and Calvert. All voted FOR #6 amendments to FedEx proxy access bylaws. Of all the funds, Trillium voted closest to how I voted.
My votes against management recommendations are in bold below. (under CorpGov)
FedEx Fights 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.
- Proxy access lite provisions, as discussed above.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- Blank check stock may also board to create a poison pill or a new series of stock with special voting power.
FedEx Fights Proxy Voting Guide: Mark Your Calendar
Stockholder proposals (other than director nominations) intended to be presented at FedEx’s 2018 annual meeting must be received by FedEx no later than April 16, 2018, to be eligible for inclusion in FedEx’s proxy statement and form of proxy for next year’s meeting. Proposals should be addressed to FedEx Corporation, Attention: Corporate Secretary, 942 South Shady Grove Road, Memphis, Tennessee 38120.
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. For more on the subject, see CEO Pay Machine Destroying America.
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