3D Systems

3D Systems Proxy Voting Guide

3D Systems Corporation (DDD), through its subsidiaries, provides three-dimensional (3D) printing products and services worldwide. Most shareholders do not vote because reading through 50+ pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I voted 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 my rationale), 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 May 15, 2018. I voted with the Board’s recommendations 67% 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.

3D Systems: ISS Rating

From the Yahoo Finance profile:

3D Systems Corporation’s ISS Governance QualityScore as of April 1, 2018 is 4. The pillar scores are Audit: 2; Board: 3; Shareholder Rights: 1; Compensation: 10.

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 executive compensation.

3D Systems: Board Proposals

1. 3D Systems Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends “For,” with the exception of: William E. Curran (1A), Kevin S. Moore (1I) and Jim D. Kever (1F) because they have served for more than ten years (with compromised independence) and sit on key committees, which should be composed only of independent directors. Although I agree with the thrust of their arguments, I am not ready to set that as my policy.

Since I voted against the pay package, I also voted against all members of the compensation committee: William E. Curran, William D. Humes, and Kevin S. Moore. I also note, there are no women on the board. I am inclined to vote against the nominating committee next year, if that continues.

2. 3D Systems: Executive Compensation

3D Systems’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Vyomesh I. Joshi at $1.9M. I’m using Yahoo! Finance to determine market cap ($1.3B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. 3D Systems is a small-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $3M in 2014, so pay was under that amount.

3D Systems shares substantially underperformed the Nasdaq over the most recent one, two, and five year time periods. For 2017 the ratio of the annual total compensation of Mr. Joshi, our CEO, to the annual total compensation of our median employee was 35 to 1.

Egan-Jones Proxy Services rates compensation practices as “Neutral” and recommends For.
Egan-Jones

However, to me it looks like 3D Systems is gaming the system, since they substantially reduced pay from $8.1M to $1.9M in one year. I feel I cannot ignore this recent history of overpaying. That factor and continued underperformance led me to vote “AGAINST” the say-on-pay item, as well as members of the compensation committee.

3. 3D Systems: 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 the auditor has been serving as the Company’s auditor for more seven years and their independence is compromised. 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.

3D Systems: Shareholder Proposals

4. REDUCE THE OWNERSHIP REQUIRED FOR STOCKHOLDERS TO CALL A SPECIAL MEETING 

This proposal is from Myra Young, as written and recommended by me (James McRitchie), so we certainly voted in favor. Most states allow 10% to call a special meeting. Before we submitted the proposal 3D Systems had a threshold of 50+%, so we have already won substantial ground prior to this vote. We believe 15% is a reasonable compromise above the 10% standard.

Vote FOR.

3D Systems CorpGov RecommendationsProxy Insight

Proxy Democracy was down. Proxy Insight reported on CalSTRS. which also voted AGAINST the pay package and compensation committee. They voted FOR all other items, including our shareholder proposal to lower the requirements for calling a special meeting.

CorpGov Votes:

  1. Directors: Vote AGAINST William E. Curran, William D. Humes, and Kevin S. Moore.
  2. Auditor: Vote For.
  3. Ratify Executive Pay: Vote Against.
  4. Reduce Ownership Requirement to Call a Special Meeting; Vote FOR

3D Systems: Issues for Future Proposals

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

  • 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.

3D Systems: Mark Your Calendar

Under Rule 14a-8 of the Exchange Act, certain stockholder proposals may be eligible for inclusion in our proxy statement and form of proxy for our 2019 Annual Meeting. The date by which we must receive stockholder proposals to be considered for inclusion in the proxy statement and form of proxy for the 2019 Annual Meeting of Stockholders is November 28, 2018 or, if the date of our 2019 Annual Meeting is changed by more than 30 days from May 15, 2018, a reasonable time before we begin to print and mail the proxy materials for the 2019 Annual Meeting.

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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