The Guidewire Software 2018 annual meeting is December 6th. Vote AGAINST ratifying the auditor and pay. Vote FOR our proposal to declassify the board to enhance long-term shareholder value.
Guidewire Software, Inc. (GWRE) provides software products for property and casualty insurers worldwide. Most shareholders do not vote. Reading through 50+ 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 50% 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.
Guidewire Software 2018: ISS Rating
From the Yahoo Finance profile: Guidewire Software, Inc.’s ISS Governance QualityScore as of November 1, 2018 is 6. The pillar scores are Audit: 2; Board: 2; Shareholder Rights: 8; Compensation: 9.
Guidewire Software 2018 Proxy Voting Guide: Board Proposals
1. Guidewire Software 2018: Directors
Egan-Jones Proxy Services recommends FOR all board nominees.
2. Guidewire Software 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. Guidewire’s auditor has served more than seven years. No other issues appear significant.
3. Guidewire Software 2018: Executive Compensation
Guidewire Software’s Summary Compensation Table shows the highest paid named executive officer (NEO) was President and CEO Marcus S. Ryu at $11.2M. I’m using Yahoo! Finance to determine market cap ($6.9B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Guidewire Software is a mid-cap company.
According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $8.4M in 2014, so pay was over that amount. Guidewire Software shares outperformed 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 approximately 68:1.
Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “Good” is their compensation rating for Guidewire Software. They recommend a vote of FOR for the say-on-pay item.
Given above median pay and my concern for growing wealth inequality:
Vote AGAINST. Normally, when I vote against pay I also vote against members of the compensation committee. Because of Guidewire’s use of a classified board, none of the members are up for a vote at this year’s meeting.
Guidewire Software 2018: Shareholder Proposals
4. Shareholder Proposal: Declassify the Board
This is our proposal. (James McRitchie filed on behalf of my wife, Myra Young) According to Egan-Jones:
It is intuitive that when directors are accountable for their actions, they perform better. We therefore prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders. After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal.
As indicated in the proposal:
In 2010 over 70% of S&P 500 companies had annual election of directors. Now that number stands at 89%. Most (65%) mid-caps have also declassified their boards. It is time for GWRE to join the 21st century.
Shareholder resolutions on this topic won an average of 84% support in 2018 as of early June. Wins included 94% at Hecla Mining, 88.4% at FleetCor Technologies, 86.9% at Whitestone REIT, and 84.4% at Illumina Inc. No shareholder on this topic was recorded as willing less than 67.3% of the vote. That low support was at Axon Enterprise Inc.
According to Equilar: “A classified board creates concern among shareholders because poorly performing directors may benefit from an electoral reprieve. Moreover, a fraternal atmosphere may form from a staggered board that favors the interests of management above those of shareholders. Since directors in a declassified board are elected and evaluated each year, declassification promotes responsiveness to shareholder demands and pressures directors to perform to retain their seat. Notably, proxy advisory firms ISS and Glass Lewis both support declassified structures.”
Guidewire’s opposition statement notes that even if a majority of shares vote in favor of the proposal, it is non-binding. If passed, the board could put the issue on the proxy and enactment would require the affirmative vote of the holders of 66 2/3% of the shares entitled to vote. That is a fairly high bar. However, it brings the proposed reform into context. Shareholders cannot call special meetings. Shareholders have no right to act by written consent and supermajority vote requirements are needed to amend certainly charter provisions. The combined effect is to lock the board into an out-dated corporate governance structure and reduce board accountability to shareholders.
Guidewire Software 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 has not yet reported any votes as of this writing.
- Directors: FOR all
- Auditor: AGAINST
- Ratify Executive Pay: AGAINST
- Declassify Board: FOR
Guidewire Software 2018: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- Classified board with staggered terms.
- Plurality vote standard to elect directors with no resignation policy.
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain charter provisions.
- No proxy access.
Guidewire Software 2018: Mark Your Calendar
To be included in our proxy statement for the 2019 annual meeting, stockholder proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and be received by our Secretary at our principal executive offices no later than July 8, 2019, which is one hundred twenty (120) calendar days before the one-year anniversary of the date on which we first released this proxy statement to stockholders in connection with this year’s annual meeting.
Contact our Secretary at Guidewire Software, Inc., 1001 E. Hillsdale Blvd., Suite 800, Foster City, CA 94404.
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.
Preliminary count was 92% FOR Declassify the Board. Thank you to CorpGov.net readers, especially GWRE shareholders.