Citigroup $C

Citigroup $C Proxy Voting Recommendation

Citigroup $C, a diversified financial services holding company, provides various financial products and services for consumers, corporations, governments, and institutions. 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.

The annual meeting is coming up on April 24th, 2018. I voted with the Board’s recommendations 52% 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.

 $C: ISS Rating

From the Yahoo Finance profile: Citigroup Inc.’s ISS Governance QualityScore as of April 1, 2018 is 2. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 2; Compensation: 7.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. Therefore, we need to pay closer attention to the executive compensation.

$C: Board Proposals

1. $C Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends “For” all. “We note the presence of the key Board committees, namely Audit, Personnel and Compensation, and Nomination, Governance and Public Affairs Committees, comprised solely of Independent outside directors. Also, each director attended at least 75% of all the meetings of the Board and of the committees during fiscal year 2017.”

As explained in the section below, I think the CEO is overpaid, so I voted against members of the Compensation Committee. I voted AGAINST all members of the Committee.

Duncan P. Hennes (Chair)
Michael E. O’Neill
Gary M. Reiner
Diana L. Taylor

2. $C: 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 KPMG, LLP has been serving as the Company’s auditor for more than seven years. “We believe that the companies should consider the rotation of their lead audit partner to ensure auditor objectivity, professionalism and independence.” Therefore, they recommend against. I largely agree but do not have a firm policy. I abstained.

3. $C: Executive Compensation

Citigroup’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Michael Corbat at $17.8M. I’m using Yahoo! Finance to determine market cap ($175.6B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Citigroup 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. Citigroup shares outperformed the S&P500 over the most recent one and two year time periods, but underperformed over the most recent five year time period. At least Citigroup 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.

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. “Superior” is their rating given on compensation issues for Citigroup. Egan-Jones concludes:
Egan-Jones

After taking into account both the quantitative and qualitative measures outlined below, 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.

Given underperformance over five years and far above median pay, I voted “AGAINST” the say-on-pay item.

4. $C: Amend Omnibus Stock Plan

Although Egan-Jones recommend in favor, I am voting AGAINST both the pay package and the stock plan.

$C: Shareholder Proposals

5. Adopt Human and Indigenous People’s Rights Policy

This proposal was submitter by Harrington Investments, Inc. According to Egan Jones, We believe that the Board should consider human rights when making decisions where there is significant potential impact on the well-being of the Company, as doing otherwise could result to a reputational damage. Moreover, we believe that policies must be founded on principles, which are socially responsible and accountable to the consequences of the implementation of such policies. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal. I concur and voted FOR.

6. Provide for Cumulative Voting

This is my proposal (James McRitchie), so of course I voted FOR. Yes, I know cumulative voting has gone out of vogue. However, it is certainly a time honored method of ensuring shareholders have a real voice. Vote FOR.

7. Report on Lobbying Payments and Policy

This proposal by CtW Investment Group is sorely needed.  Although Egan Jones recommends against, a vote FOR this resolution is warranted as additional information on the company’s payments to trade associations, along with its direct lobbying expenditures, would enable shareholders to better assess the company’s comprehensive lobbying-related activities and management of related risks and opportunities. Vote FOR.

8. Amend Proxy Access Right

John Chevedden submitted this proposal, which is similar to many I have submitted. Citigroup ($C) has proxy access but it is very unlikely to be used, since it would certainly take more than 20 shareholders to put together a nominating group. Passage of the proposal would change proxy access “lite” to a more workable form. Vote FOR.

9. Prohibit Accelerated Vesting for Government Service

AFL–CIO Reserve Fund submitted the proposal. Shareholders should not have to incur the costs associated with an executive’s personal decision to enter government service. Moreover, policies providing for special compensation arrangements to enter into government service are uncommon, and the proposal is sufficiently tailored to address concerns. Vote FOR.

10. Reduce Special Meeting Threshold

Kenneth Steiner has submitted, which already won a majority vote at our 2011 annual meeting. Moving the threshold from 25% to 15% would create a tool more likely to be used that is still way above the common threshold of 10%. Vote FOR.

7. Prepare an Annual Diversity Report

Trillium Asset Management LLC, on behalf of the Paul LeFort Revocable Trust, submitted this proposal. Shareholders currently have insufficient information to determine if Starbucks has a diverse workforce or has been successful in expanding diversity into senior roles. McKinsey & Company found that companies with greater ethnic diversity were 35 percent more likely to outperform. Starbucks Corp should provide the information necessary for shareholders to assess progress in this area.

I voted FOR.

$C CorpGov Recommendations: Votes Against Board Position in Bold Proxy Insight

In addition to votes reported by Proxy DemocracyProxy Insight reported on Texas Teachers and Australia’s Local Gov Super. I expect they will report out a few more votes before the meeting.  My recommended votes that differ from what the Board recommends are noted in bold.

NUM. PROPOSAL TEXT CorpGov CBIS CALVERT TRILLIUM
1a Elect Director Michael L. Corbat For For For Against
1b Elect Director Ellen M. Costello For For For Against
1c Elect Director John C. Dugan For For For Against
1d Elect Director Duncan P. Hennes Against For For Against
1e Elect Director Peter B. Henry For For For Against
1f Elect Director Franz B. Humer For For For Against
1g Elect Director S. Leslie Ireland For For For Against
1h Elect Director Renee J. James For For For Against
1i Elect Director Eugene M. McQuade For For For Against
1j Elect Director Michael E. O’Neill Against For For Against
1k Elect Director Gary M. Reiner Against For For Against
1l Elect Director Anthony M. Santomero For For For Against
1m Elect Director Diana L. Taylor Against For For Against
1n Elect Director James S. Turley For For For Against
1o Elect Director Deborah C. Wright For For For Against
1p Elect Director Ernesto Zedillo Ponce De Leon For For For Against
2 Ratify KPMG LLP as Auditors For For For For
3 Ratify Named Executive Officers’ Compensation Against For For Against
4 Amend Omnibus Stock Plan Against Against For Against
5 Adopt Human and Indigenous People’s Rights Policy For For For For
6 Provide for Cumulative Voting For Against Against Against
7 Report on Lobbying Payments and Policy For For For For
8 Amend Proxy Access Right For For For For
9 Prohibit Accelerated Vesting for Government Service For For For For
10 Amend Bylaws — Call Special Meetings For For For For

$C: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for other provisions unfriendly to shareowners:

  • Proxy access provisions are ‘lite,’ since nominating groups are limited to 20 stockholders, holding at least 3% of the outstanding common stock for at least three years and they can only nominate two directors or 20% of the board, instead 25%.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.

$C: Mark Your Calendar

Under SEC Rule 14a-8, a stockholder who intends to present a proposal at the next Annual Meeting of stockholders and who wishes the proposal to be included in the Proxy Statement for that meeting must submit the proposal in writing to the Corporate Secretary of Citi, Rohan Weerasinghe, at 388 Greenwich Street, New York, New York 10013. The proposal must be received no later than November 14, 2018. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.

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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