Celgene 2018 meeting, 6/13. Vote AGAINST several directors; FOR proxy access & independent board chair to enhance long-term shareholder value. Informed voting in 10 minutes.
Celgene Corporation (CELG), a biopharmaceutical company, engages in the discovery, development, and commercialization of therapies for the treatment of cancer and inflammatory diseases worldwide. Most shareholders do not vote. Reading through 70+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why.
If you have read these posts related to my portfolio and proxy proposals for the last 22 years and trust my judgment, skip the 10 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
Celgene 2018: ISS Rating
From the Yahoo Finance profile: Celgene Corporation’s ISS Governance QualityScore as of April 1, 2018 is 6. The pillar scores are Audit: 1; Board: 10; Shareholder Rights: 3; Compensation: 2.
Celgene 2018 Proxy Voting Guide: Board Proposals
1. Celgene 2018: Directors
Egan-Jones Proxy Services recommends For all board nominees, except Michael D. Casey, Ernest Mario, and James J. Loughlin. Each served for 10 years or more. Egan-Jones assumes they are no longer independent and should not sit on critical committees, such as compensation, nominating and audits. Yes, independence erodes over time. Given the poor performance of Celgene, I voted again these directors. I also voted Against members of the compensation committee, since they recommended excessive pay.
Vote AGAINST Michael D. Casey, Carrie S. Cox, James J. Loughlin, and Ernest Mario.
2. Celgene 2018: Ratify Auditors
I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. The Celgene auditor served less than seven years. No other significant issues arose in review.
3. Celgene 2018: Executive Compensation
Celgene’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Mark J. Alles at $13.1M. I’m using Yahoo! Finance to determine market cap ($57.3B). I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Celgene 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 that amount. Celgene shares underperformed the NASDAQ over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 62 to 1.
Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “Superior” is their compensation rating for Celgene. They recommend a vote For the say-on-pay item.
Given above median pay, below average performance and my concern for growing inequality, I voted AGAINST pay and members of the compensation committee: Michael D. Casey, Carrie S. Cox, James J. Loughlin, and Ernest Mario.
Celgene 2018: Shareholder Proposals
4. Shareholder Proposal: Proxy Access
This is my proposal. (James McRitchie) Celgene adopted a ‘lite’ form of proxy access after a proposal by the UAW Retiree Medical Benefits Trust passed in 2016. Still, the proposal is definitely ‘lite,’ since it limits nominating groups to 20 members, instead of having no cap.
Egan-Jones recommends a vote For. The Board takes issue with my argument, “Under current provisions, even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the 3% holding criteria at most of companies examined by the Council of Institutional Investors. Allowing an unlimited number of shareholders to aggregate shares would facilitate greater participation by individuals and institutional investors in meeting the stock ownership requirements, 3% of the outstanding common stock entitled to vote.”
The Board argues, “Among the top 100 largest stockholders alone, there are countless combinations of two or more stockholders whose aggregate holdings would equal or exceed 3%.” However, their analysis completely disregards the fact that eligible group members must have continuously held qualifying shares for three years. Many funds, even indexed funds, trade shares frequently just to keep balanced with an index or other target. See graphic at the top of this post.
Additionally, the largest owners of Calgene (Vanguard, BlackRock, SSgA, and Northern Trust) have yet to file a proxy proposal. They are unlikely to form a group to nominate directors, since that is a much more difficult task.
Activist funds, such as Millennium Management, CalPERS, CalSTRS, and Trillium hold much smaller stakes. Trillium’s holdings, while valued at almost $16M, represent only .03% of shares. The 20 member limit adopted by Celgene and most other companies allows them to say they have proxy access, without having usable proxy access. Putin’s Russia holds elections few American consider them legitimate.
In a capitalist economy it is competition and the free-flow of ideas that drives productivity. That is why Governance Changes through Shareholder Initiatives found the announcement of shareholder proposals for proxy access submitted to 75 US public companies resulted in $10.6 billion of increased shareholder value across targeted firms. Voting For the proposal is likely to raise the value of Celgene shares.
5. Shareholder Proposal: Independent Board Chairman
John Chevedden submitted this proposal. Egan-Jones supports it. An independent chairman is important at Celgene Corporation since our Chairman, Robert Hugin, and our Lead Director, Michael Casey, each had more than 15-years long-tenure. Mr. Casey also had additional influence, since he was on our Executive Pay Committee and our Nomination Committee.
Proxy Democracy is still down. I seek 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.
Proxy Insight reported on Teacher Retirement System of Texas, which voted For all items. Trillium and Domini voted Against all items except they voted; For auditor and both shareholder proposals. Calvert voted against Bonney, Casey, Friedman, Mario, and pay; For all other items. In looking up funds on our Shareowner Action Handbook, CalSTRS voted Against Mario; For all other items. Crowley, Kishbauch and Williams, as well the stock incentive plan; FOR all other items.
- Directors: AGAINST Michael D. Casey, Carrie S. Cox, James J. Loughlin, and Ernest Mario.
- Auditor: FOR.
- Ratify Executive Pay: AGAINST.
- Enhance Proxy Access: FOR.
- Independent Board Chairman: FOR.
Celgene 2018: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- Shareholders must hold not less than 25% of the voting power to call special meetings.
- Proxy ‘lite’ access provision whereby a shareholder, or a group of up to only 20 shareholders, holding at least 3% of the outstanding common stock for at least three years may nominate 2 members of the board.
Celgene 2018: Mark Your Calendar
Stockholders wishing to include proposals in the proxy materials in relation to our Annual Meeting of Stockholders to be held on or about June 12, 2019 must submit the same in writing, by mail, first-class postage pre-paid, to Celgene Corporation, 86 Morris Avenue, Summit, New Jersey 07901, Attention: Corporate Secretary, which must be received at our executive office on or before December 31, 2018. Such proposals must also meet the other requirements and procedures prescribed by Rule 14a-8 under the Exchange Act relating to stockholders’ proposals.
Be sure to vote each item on the proxy. 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,” chosen by aspiration. 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.