The DaVita 2018 annual meeting is June 18. Vote AGAINST Arway, Desroches, Grauer and Thiry, as well as pay. Vote FOR proxy access amendments to enhance long-term shareholder value.
DaVita Inc. (DVA) provides kidney dialysis services for patients suffering from chronic kidney failure or end stage renal disease. Most shareholders do not vote. Reading through 80+ 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 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
I voted with the Board’s recommendations 54% 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.
DaVita 2018: ISS Rating
From the Yahoo Finance profile: DaVita Inc.’s ISS Governance QualityScore as of May 1, 2018 is 3. The pillar scores are Audit: 1; Board: 9; Shareholder Rights: 2; Compensation: 2.
DaVita 2018 Proxy Voting Guide: Board Proposals
1. DaVita 2018: Directors
Egan-Jones Proxy Services recommends For all board nominees, except (1A) Pamela Arway, (1D) Pascal Desroches, (1F) Peter Grauer, and (1I) Kent Thiry. Arway, Desroches, and Grauer are members of the compensation committee, which recommends too high of a pay package. Thiry serves as both Chairman of the Board and CEO, an inherent conflict of interest.
Vote AGAINST Arway, Desroches, Grauer and Thiry.
2. DaVita 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 DaVita auditor served more than seven years. No other issues appear significant.
3. DaVita 2018: Executive Compensation
DaVita’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Kent J. Thiry at $15.3M. I’m using Yahoo! Finance to determine market cap ($12.4B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. DaVita 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. DaVita shares underperformed the S&P 500 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 254 to 1.
Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “Needs Attention” is their compensation rating for DaVita. They recommend a vote AGAINST the say-on-pay item.
Given above median pay, below average performance, a high CEO to median employee pay ratio and my concern for growing wealth inequality:
DaVita 2018: Shareholder Proposals
4. Shareholder Proposal: Amend Proxy Access
This is my proposal. (James McRitchie) DaVita adopted a ‘lite’ form of proxy access after a shareholder proposal on the topic. The bylaws limit nominating groups to 20 members, instead of having no cap.
Egan-Jones recommends a vote For. The Board takes issue with my argument:
In support of their position, the proponents suggest that the 20-shareholder aggregation limitation could preclude proxy access by even the largest institutional investors, citing an analysis by the Council of Institutional Investors (“CII”), claiming that “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 CII].” Proponents’ suggestion and the CII statement are irrelevant and misleading when applied to the Company’s stockholders. The largest 20 institutional shareholders of the Company held approximately 57% of the outstanding shares of the Company according to regulatory filings as of December 31, 2017.
However, their analysis completely disregards the fact that eligible group members must hold qualifying shares continuously for three years. Many funds, even indexed funds, often trade shares just to keep balanced with an index or other target. See graphic at the top of this post.
Additionally, the largest owners of DaVita (Berkshire Hathaway, Vanguard, BlackRock, and SSgA) 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, New York State Common, CalSTRS, and Gabelli hold much smaller stakes. Gabelli’s holdings, while valued at over $7M, represent only .06% of shares. The 20 member limit adopted by DaVita and most other companies allows them to say they have proxy access, without having usable proxy access. Putin’s Russia holds elections but 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 DaVita shares
DaVita 2018 CorpGov Recommendations
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 and Calvert. Teachers voted FOR all items, including my shareholder proposal. Calvert voted AGAINST executive pay. In looking up funds on our Shareowner Action Handbook, CBIS voted AGAINST pay and the auditor; FOR all other items.
- Directors: AGAINST Arway, Desroches, Grauer and Thiry.
- Auditor: FOR.
- Ratify Executive Pay: AGAINST.
- Enhance Proxy Access: FOR.
DaVita 2018: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- No action can be taken without a meeting by written consent.
- Proxy access ‘lite’ provision whereby a group of no more than 20 stockholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate 2 directors or 20% of the board. (Vote for Proposal #4 to address.)
DaVita 2018: Mark Your Calendar
If you wish to present a proposal for action at the 2019 annual meeting of stockholders and wish to have it included in the proxy statement and form of proxy that management will prepare, you must notify us no later than December 28, 2018 in the form required under the rules and regulations promulgated by the SEC. Otherwise, your proposal will not be included in management’s proxy materials.
Corporate Secretary, DaVita Inc., 2000 16th Street, Denver, Colorado 80202
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,” 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.
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