The Biogen 2018 annual meeting is June 12. I voted AGAINST several directors and the pay package. Vote FOR the auditor and both shareholder proposals to enhance value.
Biogen Inc. (BIIB) discovers, develops, manufactures, and delivers therapies for the treatment of neurological and neurodegenerative diseases worldwide. 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 am voting 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, go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.
I voted with the Board’s recommendations 57% 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.
Biogen 2018: ISS Rating
From the Yahoo Finance profile: Biogen Inc.’s ISS Governance QualityScore as of May 1, 2018 is 1. The pillar scores are Audit: 1; Board: 3; Shareholder Rights: 3; Compensation: 3.
Biogen 2018: Board Proposals
1. Biogen 2018 Proxy Voting Guide: Directors
Egan-Jones Proxy Services recommends voting Against (1E) Robert Pangia, (1F) Stelios Papadopoulos, and (1G) Brian Posner. Pangia and Posner have served for over 10 years, so cannot be considered independent. Papadopoulos, as chair, should hold no more than one other public directorship. Papadopoulos serves on three. I am not as concerned about ten year tenure but agree with their policy limiting the number of boards a chair should sit on.
Since I voted against the say-on-pay, I also voted AGAINST all members of the compensation committee up for election: Robert W. Pangia (Chair), Richard C. Mulligan, Eric K. Rowinsky, and Lynn Schenk. I also voted against Papadopoulos, as stated above.
2. Biogen 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 served for more than seven years, so believes 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.
3. Biogen 2018: Executive Compensation
Biogen’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Michel Vounatsos at $13.7M. I’m using Yahoo! Finance to determine market cap ($62.7B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Biogen 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 over median.
Biogen shares underperformed the Nasdaq over the most recent one, two, and five year time periods. It also appears 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. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 92 to 1.
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. “Neutral” is their rating given on compensation issues for Biogen and they recommend For the say-on-pay item.
Given above median pay, the appearance on As You Sow‘s list of the 100 Most Overpaid CEOs, and my concern with growing wealth inequality, I voted “AGAINST” the say-on-pay item and the members of the compensation committee.
Biogen 2018: Shareholder Proposals
4. Biogen 2018: Adopt Proxy Access
Although our board approved bylaw amendments to effect proxy access as a result of our proposal in 2015, the provisions adopted were lite, instead of robust. This year, shareholders have an opportunity to vote on a new proposal from me (James McRitchie) to enhance the terms of proxy access, primarily by removing the group limit of 20 on shareholders putting forth nominees. A study by the Council of Institutional Investors found that caps make it extremely difficult to make proxy access useable. Egan-Jones recommends For.
6. Shareholder Proposal: Report on Drug Pricing and Incentive Compensation
This proposal was submitted by Azzad Asset Management (co-sponsored with Boston Common Asset Management, LLC; Domini Impact Equity Fund; Mercy Investment Services, Inc.; Missionary Oblates of Mary Immaculate OIP Investment Trust; Northwest Women Religious Investment Trust; Sisters of St. Francis Charitable Trust; Trinity Health; and UAW Retiree Medical Benefits Trust)
Shareholders of Biogen Inc. (“Biogen”) urge the Compensation Committee to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Biogen’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives…
E-J recommends against the proposal but it seems reasonable to me. The requested disclosure would allow shareholders to better assess how incentive compensation arrangements encourage or discourage senior executives to responsibly manage risks related to drug pricing. Failure to do so could lead to very bad publicity and costly regulations. That would contribute to long-term value creation.
Biogen 2018 CorpGov Recommendations
Proxy Democracy is still down. I am starting to look for contributions to bring it back to life. As I write this on May 9, Proxy Insight had reported only on Australia’s Local Government Superannuation Scheme. They voted For all items.
- Directors: AGAINST Mulligan, Pangia, Papadopoulos, Rowinsky, and Schenk.
- Auditor: FOR
- Ratify Executive Pay: AGAINST
- Enhance Proxy Access: FOR
- Report on Drug Pricing: FOR
Biogen 2018: Issues for Future Proposals
Looking 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 ‘lite’ provision allowing groups of up to only 20 stockholders holding at least 3% of the outstanding common stock for three (3) or more years may nominate directors, so long as the number of directors elected via proxy access does not exceed 25% of the board. Nominees who fail to receive at least 25% of the votes cast are prohibited from being a nominee again for the next two (2) annual meetings.
Biogen 2018: Mark Your Calendar
Stockholder proposals submitted pursuant to Exchange Act Rule 14a-8and intended to be presented at our 2019 annual meeting of stockholders must be received by our Secretary no later than December 28, 2018, to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting.
All stockholder proposals for our 2019 annual meeting of stockholders should be sent to our Secretary, Biogen Inc., 225 Binney Street, Cambridge, Massachusetts 02142.
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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