Franklin Resources 2019 annual meeting is 2/12/2019. Shareholder rights are under attack. Vote AGAINST Barker, Johnson, Pigott, Stein, and Waugh, as well as the auditor. Most important, vote AGAINST the Board’s attempted Ratification of a Substitute Special Meeting Amendment. Shields up! Vote to protect shareholder rights and enhance long-term shareholder value.
Franklin Resources, Inc. (BEN) is a publicly owned asset management holding company. The firm invests in the public equity, fixed income, and alternative markets. 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 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 38% 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.
Franklin Resources 2019: ISS Rating
From the Yahoo Finance profile: Franklin Resources, Inc.’s ISS Governance QualityScore as of January 1, 2019 is 4. The pillar scores are Audit: 2; Board: 7; Shareholder Rights: 2; Compensation: 8. Unfortunately, there is no say-on-pay vote this year at Franklin Resources.
Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to Compensation and the Board.
Franklin Resources 2019: Board Proposals
1. Franklin Resources 2019: Directors
Egan-Jones Proxy Services recommends For board nominees, except (1A) Peter K. Barker, (1D) Gregory E. Johnson, (1F) Mark C. Pigott and (1I) Seth H. Waugh. Barker, Pigott and Waugh all serve on the compensation committee, which is too generous. Additionally, all have served ten years or longer, so are potentially conflicted. Johnson, as Board Chairman, failed to address cyber security issues.
Additionally, I voted against (1H) Laura Stein. She chairs the Corporate Governance committee, which chose to substitute a Board special meeting proposal and eliminate the opportunity for shareholders to vote on my proposal on the same topic. My proposal was submitted months before the Board acted to recommend a higher threshold. Read more below under item 3. The SEC allowed Franklin Resources to delete my proposal as long as they provided that the company’s proxy statement discloses:
- that the company has omitted a shareholder proposal to lower the ownership threshold for calling a special meeting,
- that the company believes a vote in favor of ratification is tantamount to a vote against a proposal lowering the threshold,
- the impact on the special meeting threshold, if any, if ratification is not received, and
- the company’s expected course of action, if ratification is not received.
Although the proxy might technically comply with that, it is not clear that voting for “ratification” is tantamount to voting against a lower threshold. Many shareholders, and some advisors (such as Egan-Jones), will simply see some ability to hold a special meeting as better than not having any such right. Instead of voting for ratification as a rejection of the invisible shareholder proposal (as theorized by the SEC), they will be voting or advising in favor of the only option that grants them such rights that appears on the proxy. Although that is understandable, it rewards bad behavior. If both proposal had appeared on the proxy, shareholders would have been able to choose. By rejecting the ratification proposal, you open that as an opportunity for next year.
Vote AGAINST: (1A) Peter K. Barker, (1D) Gregory E. Johnson, (1F) Mark C. Pigott, (1H) Laura Stein and (1I) Seth H. Waugh.
2. Franklin Resources 2019: 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.
3. Franklin Resources 2019: Ratification of Substitute Special Meeting Amendment
Franklin Resources used the strategy of ‘do the opposite’ by winning a no-action from SEC staff, allowing them to substitute “ratification” of recently adopted special meeting provisions for my proposal to lower the threshold. I submitted my proposal on August 13, 2018 to allow shareholders with 15% of the common shares to call a special meeting. On October 22, 2018, the Board adopted a bylaw allowing shareholders with 25% of the common shares to call a special meeting. They then won a no-action request to omit my proposal, conditioned on mentioning the substitution in their proxy.
Regardless of what threshold you believe is best, I hope you will vote AGAINST the Board’s 25% proposal because they should not be able to hijack a shareholder proposal by substituting their own. SLB 14H attempted to prohibit such gaming but the SEC’s poorly crafted language allowed a loophole for doing the opposite. Shareholders should have the choice to vote for the Board’s proposed threshold or mine. The winner would then reflect the preferred choice of shareholders.
Proxy advisors ISS and Glass-Lewis adopted policies to recommended against such “ratification” proposals as abusive. Glass Lewis goes further and will typically recommend voting against the management proposal and against the governance committee chair. (ISS and Glass Lewis Policy Updates for the 2019 Proxy Season)
The largest shareholders of Franklin Resources are other large funds like Vanguard, BlackRock, SSgA, and T Rowe Price. They voted with AES last year when that company chose to do the opposite prior to the change in proxy voting policies by ISS and Glass Lewis. Will they support Franklin Resources on their “ratification” proposal? These funds are so large and unaccountable, they can do the opposite too, and the four of them own 18% of Franklin Resources.
Doing the opposite of what shareholders suggest makes a mockery of shareholder oversight of corporate boards and democracy in corporate governance. It is a funny strategy for a sitcom but, as I recall, it only lasted for one episode on Seinfeld. How long can companies like Franklin Resources do the opposite of what shareholders want and get away with it?
Franklin Resources 2019: Shareholder Proposals
4. Shareholder Proposal: Institute Procedures on Genocide-Free Investing
This proposal from William L. Rosenfeld requests the Board institute transparent procedures to avoid holding or recommending investments in companies that, in management’s judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights.
Egan-Jones recommends AGAINST because the firm’s business practices “already reflect support and respect for the protection of fundamental human rights and the prevention of crimes against humanity as reflected in the Human Rights Statement, in accordance with the principles set forth in the United Nations Universal Declaration of Human Rights.”
I am not sure how effective that is. I abstained, hoping that Franklin Resources will use its voice in proxy voting to address human rights issues. Voice is more powerful than exit but how do we get Franklin to vote its proxies to reduce genocide? What companies has Franklin Resources invested in that practice genocide and what efforts has Franklin Resources made to end those practices. As for a report and I am more likely to vote for it.
Franklin Resources 2019: 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 reported no votes at this early date but many votes do not come in until about the last week of voting. I am posting this early to ensure shareholders are alert to item #3. I may update at a later date.
- Directors: AGAINST (1A) Peter K. Barker, (1D) Gregory E. Johnson, (1F) Mark C. Pigott, (1H) Laura Stein and (1I) Seth H. Waugh.
- Auditor: AGAINST.
- Ratification of Substitute Special Meeting Amendment: AGAINST.
- Institute Procedures on Genocide-Free Investing: ABSTAIN.
Franklin Resources 2019: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- Special meetings require a 25% , instead of preferred 15% threshold.
- 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.)
Franklin Resources 2019: Mark Your Calendar
If a stockholder wishes to present any proposal for inclusion in the proxy materials to be distributed by us in connection with our 2020 annual meeting, the proposal must be received by the Secretary of the Company on or before August 29, 2019.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of the Board’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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