Bristol-Myers Squibb Company (BMY) discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
Bristol-Myers Squibb: ISS Rating
From the Yahoo Finance profile: Bristol-Myers Squibb Company’s ISS Governance QualityScore as of April 1, 2018 is 4. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 4; Compensation: 5.
Bristol-Myers Squibb: Board Proposals
1. Bristol-Myers Squibb Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends “For,” with the exception of: (1D) Giovanni Caforio, M.D, (1F) Michael Grobstein and (1G) Alan J. Lacy. Caforio serves as both CEO and Chair. That is a conflict of interest. Grobstein and Alan J. Lacy serve on key committees but have served for more than ten years, so independence is compromised. Although I agree, conflicts of interest exist and independence is compromised, as per Egan-Jones analysis, I am not ready to set hard and fast rules yet in those areas.
I did, however vote against all members of the compensation committee, since I disagree with their pay recommendations: Peter J. Arduini, Matthew W. Emmens, Michael Grobstein, Dinesh Paliwal, and Gerald L. Storch.
2. Bristol-Myers Squibb: Executive Compensation
Bristol-Myers Squibb Summary Compensation Table shows the highest paid named executive officer (NEO) was Alan J. Lacy. Caforio who serves as both CEO and Chair at $18.7M. I’m using Yahoo! Finance to determine market cap ($83.7B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Bristol-Myers Squibb 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 2014, so pay was well over that amount. Bristol-Myers Squibb shares underperformed the S&P500 over the most recent one, two, and five year time periods. At least Bristol-Myers Squibb does not appear on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years. Dr. Caforio’s 2017 total compensation was $18,687,123, which was 169 times that of the median of the annual total compensation of all employees.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Good” is their rating given on compensation issues for BMY, Egan-Jones concludes:
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.
Given continued underperformance, above median pay, my concern with growing inequality, and despite the recommendation of Egan Jones, I voted “AGAINST” the say-on-pay item.
3. Bristol-Myers Squibb: Ratify Auditors
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 notes that Deloitte & Touche, LLP has been serving as the Company’s auditor for seven years and their independence is compromised. They also several other issues. I also believe that the companies should consider the rotation of their audit firm to ensure auditor objectivity, professionalism and independence. I have not set a specific number of years. In this case, I voted FOR.
Bristol-Myers Squibb: Shareholder Proposals
4. Report Disclosing How Risks Related to Public Concern over Drug Pricing Strategies are Incorporated into Executive Compensation Plans
This proposal is sponsored by Trinity Health and other co-filers. I share their concern that the incentive compensation arrangements applicable to BMY’s senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in BMY’s best long-term financial interests.
5. Lower Share Ownership Threshold for Special Meetings to 15%
This is my proposal (James McRitchie), so of course I voted FOR. Delaware law allows 10% of company shares to call a special meeting. A shareholder right to call a special meeting is a way to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. This is important because there could be 15-months between annual meetings. 15% is still well above the 10% allowed by law, which many other companies provide. Emergencies do happen.
This topic won more than 38% support at Bristol-Myers Squibb in 2017. According to Proxy Insight, 228 funds voted for, while 72 voted against. Unfortunately, large funds like Wellington, Vanguard, State Street, Fidelity and BlackRock were among those voting against. We hope they and others will reconsider their position this year, given our Company’s low performance, compared to the S7P 500 over a two-year period.
Bristol-Myers Squibb CorpGov Voting Recommendations
Proxy Insight reported the votes of four funds. Teacher Retirement System of Texas, Canada Pension Plan Investment Board (CPPIB), Calvert, Trillium and Domini. Most funds voted FOR every item. Trillium and Domini voted against pay. Trillium voted against all directors. Domini voted against Peter J. Arduini and Giovanni Caforio, M.D.
I voted AGAINST Peter J. Arduini, Matthew W. Emmens, Michael Grobstein, Dinesh Paliwal, and Gerald L. Storch, as well as say-on-pay. I voted FOR all other items, including my proposal to reduce the special meeting threshold.
Bristol-Myers Squibb: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- 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 provisions are Lite. A shareholder or group of no more than 20 shareholders 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 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: Mark Your Calendar and Note Change of Address
Shareholder proposals relating to our 2019 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, until July 1, 2018, after which, please address to Bristol-Myers Squibb Company, 430 East 29th Street—14th Floor, New York, New York 10016, Attention: Corporate Secretary, no later than November 22, 2018. 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. For more on the subject, see CEO Pay Machine Destroying America.