Alphabet 2018 proxy recommendations. Alphabet is run by an Oligarchy. Will $GOOG overlords give up their position as a dictatorship? Are companies governed by dictatorships and oligarchies healthy for democratic governments? Shareholders can vote for change.
Alphabet Inc., through its subsidiaries, provides online advertising services in the United States and internationally. Most shareholders do not vote because reading through 80+ 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, have values aligned with mine, and trust my judgment (or you do not 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 on June 6, 2018. I voted with the Board’s recommendations 45% of the time. View Proxy Statement via SEC 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.
Alphabet 2018: ISS Rating
From the Yahoo Finance profile: Alphabet Inc.’s ISS Governance QualityScore as of April 30, 2018 is 10. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 10; Compensation: 10.
Alphabet 2018: Board Proposals
1. Alphabet 2018 Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends “For” with the exception of K. Ram Shriram, L. John Doerr, and John L. Hennessy. Against is recommended for Hennessy and Doerr because they are unlikely to be independent after ten years of service. That is a consideration for me but not a red line. Doerr and Shriram were on the compensation committee, which recommended excessive pay. I voted against them.
Ann Mather serves as a director on more than five public company boards. That disqualifies her for me. I want to see more focus from my board members.
Vote: AGAINST Doerr, Mather and Shriram.
2. Alphabet 2018: 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 the Company for seven years or more, so 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.
Vote: FOR.
3. Alphabet 2018: Stock Incentive Plan
Egan-Jones finds the proposal would cause too much shareholder equity dilution. They “recommend a vote AGAINST this Proposal.”
Vote: AGAINST. 
Alphabet 2018: Shareholder Proposals
4. Alphabet 2018: Equal Shareholder Voting (Recapitalization)
This proposal is from NorthStar Asset Management, with me (James McRitchie) co-filing, to recapitalize stock to allow one vote per share. The current dual class structure allows certain stock to have more voting power than others.
RESOLVED: Shareholders request that our Board take all practicable steps in its control toward initiating and adopting a recapitalization plan for all outstanding stock to have one vote per share. This would include efforts at the earliest practicable time toward encouragement and negotiation with Class B shareholders to request that they relinquish, for the common good of all shareholders, any preexistingrights. This is not intended to unnecessarily limit our Board’s judgment in crafting the requested change inaccordance with applicable laws and existing contracts.
Currently there are three classes of shareholders at Alphabet: Class A, Class B, and Class C. The key differentiating factor between them is voting power. Class A common stock is entitled to one vote per share, Class B common stock is entitled to 10 votes per share, and Class C capital stock is entitled to zero votes per share.
Co-founders Page and Brin control over 51 percent of total voting power, while owning less than 13 percent of stock. Our Company took money from public shareholders but does not let us have an equal proportionate voice in the company’s management. Egan-Jones notes:
We oppose such differential voting power as it may have the effect of denying shareholders the opportunity to vote on matters of critical economic importance to them. We prefer that companies do not utilize multiple class capital structures to provide equal voting rights to all shareholders.
Similar proposals were voted at the 2012, 2013, 2014, 2015, and 2016 annual meetings, which received support from 17.7 to 20.9% of votes cast, raising each year. Insiders currently hold 51% of the company’s voting power, so the support for this proposal from unaffiliated shareholders has been substantial.
See NorthStar’s PX14A6G filing, in response to Alphabet opposition.
Vote: FOR.
5. Alphabet 2018: Report on Lobbying Payments and Policy
This proposal is from Walden Asset Management and co-filers. I have submitted similar proposals. Egan-Jones recommends against in part because is in the “best interests of the Company and the stockholders to belong to industry associations and coalitions. However the proposal does not seek to ban such memberships, only to disclose them.
The proposal is good governance, simply requesting a report to account on lobbying. It would do nothing to prevent any such spending. As I have reminded readers in previous posts, the US Supreme Court’s decision in Citizens United v. Federal Election Commission was based on a false premise. Justice Kennedy’s majority opinion justifies the decision by pointing to the Internet.
With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
The decision also said that disclosure
permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.
And the Court expressed enthusiasm that technology today makes disclosure “rapid and informative.” Yet, corporations are not required to make the disclosures of lobbying expenditures and political contributions to shareowners as Justice Kennedy seems to have believed.
Vote FOR.
6. Alphabet 2018: Report on Pay Gender Gap
Arjuna Capital, as lead filer, requests Alphabet/Google prepare a report on the risks to the company associated with emerging public policies on the gender pay gap, including associated reputational, competitive, and operational risks, and risks related to recruiting and retaining female talent. The report should be prepared at reasonable cost, omitting proprietary information, litigation strategy and legal compliance information.
Egan-Jones writes “Pay disparities by gender in companies, in our view, could bring operational risks and reputational damage that is detrimental to shareholder value.” They recommend for. Alphabet reports similar gender pay gap statistics in the UK, why not here?
Vote FOR.
7. Alphabet 2018: Adopt Simple Majority Vote
This proposal is from John Chevedden:
Shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simply majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is important that our company take each step necessary to adopt this proposal topic completely.
This is a simple good governance proposal, nearly identical to many I have also submitted over the years. Egan-Jones writes,
The advantages of eliminating supermajority provisions outweigh the benefits of maintaining it as a voting standard. We believe that a simple majority vote will strengthen the Company’s corporate governance practice. Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome.
They recommend voting For.
Vote FOR.
8. Alphabet 2018: Sustainability Metrics Report
Zevin Asset Management submitted this proposal:
Shareholders request the Board Compensation Committee prepare a report assessing the feasibility of integrating sustainability metrics, including metrics regarding diversity among senior executives, into theperformance measures of the CEO under the Company’s compensation incentive plans. For the purposes of this proposal, “sustainability” is defined as how environmental and social considerations, and related financial impacts, are integrated into long-term corporate strategy, and “diversity” refers to gender, racial, and ethnic diversity.
Egan-Jones writes “We believe that the proposal would encourage good governance and enhance shareholder value by bringing together a diverse range of skills and experience necessary in building a constructive and challenging board and management.” They recommend For.
Vote FOR.
9. Alphabet 2018: Board Diversity
This proposal is from the National Center for Public Policy Research, a conservative think tank. The proposal seems to be an attempt to head off a similar proposal from NYC public pension funds, which have also been seeking a diversity matrix through various proposals at companies. Although I do not like much of the work or sentiment of the Center, I do support adoption of a diversity matrix, so voted for. Many will be voting against, because of the proponent.
Egan-Jone wrote: “We believe that the proposal would encourage good governance and enhance shareholder value by bringing together a diverse range of skills and experience necessary in building a constructive and challenging board.” I understand ISS recommends against.
Vote FOR.
10. Alphabet 2018: Content Governance Report
Arjuna Capital requests the company publish a report assessing how well the enforcement of its content policies is working and reviewing the risks associated with content management controversies. E-J endorses: “The report will provide useful information to shareholders regarding which will help the Company address related ethical concerns.” Agreed, the report will help shareholders evaluate how well the company is assessing and mitigating content-related controversies. Read their PX14A6G.
Vote FOR.
Alphabet 2018 CorpGov Recommendations
Proxy Democracy is still down. I am looking for contributions to bring it back to life. Proxy Democracy provided information on votes cast in advance of annual meetings by institutional investors at thousands of companies. If you think that is worthy of financial support, please contact me.
As I write this on June, Proxy Insight had reported the votes of 7 funds. I cut and paste their Quick View below:
CorpGov Votes:
- Directors: AGAINST Doerr, Mather and Shriram.
- Auditor: FOR.
- Stock Incentive Plan: AGAINST
- Equal Shareholder Voting (Recapitalization): FOR
- Report on Lobbying Payments and Policy: FOR
- Report on Pay Gender Gap: FOR
- Adopt Simple Majority Vote: FOR
- Sustainability Metrics Report: FOR
- Board Diversity: FOR
- Content Governance Report: FOR
Alphabet 2018: Issues for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners:
- Plurality vote standard to elect directors with no resignation policy.
- No action can be taken without a meeting by written consent.
- Special meetings can only be called by shareholders holding not less than 20% of the voting power.
- The Corporation shall not consummate a Change in Control Transaction (or amend this provision) without first obtaining the affirmative vote, at a duly called annual or special meeting of the stockholders of the Corporation, of the holders of the greater of: (A) a majority of the voting power of the issued and outstanding shares of capital stock of the Corporation then entitled to vote thereon, voting together as a single class, and (B) sixty percent (60%) of the voting power of the shares of capital stock present in person or represented by proxy at the stockholder meeting called to consider the Change in Control Transaction and entitled to vote thereon, voting together as a single class.
- Supermajority vote requirement (66.67%) to amend certain charter provisions.
- No proxy access for shareholders.
Alphabet 2018: Mark Your Calendar
Stockholders may present proper proposals for inclusion in our proxy statement and for consideration at the 2019 Annual Meeting of Stockholders by submitting their proposals in writing to Alphabet’s Corporate Secretary in a timely manner. For a stockholder proposal to be considered for inclusion in our proxy statement for our 2019 Annual Meeting of Stockholders, the Corporate Secretary of Alphabet must receive the written proposal at our principal executive offices or at the email address set forth below no later than December 28, 2018. If we hold our 2019 Annual Meeting of Stockholders more than 30 days before or after June 6, 2019 (the one-year anniversary date of the 2018 Annual Meeting of Stockholders), we will disclose the new deadline by which stockholder proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report on Form 10-Q or, if impracticable, by any means reasonably determined to inform stockholders. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act and with the SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials. Proposals should be addressed to corporatesecretary@abc.xyz.
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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