Intuitive Surgical 2019 annual meeting is April 25th. Vote AGAINST (1F) Alan Levy and (1H) Mark Rubash. Vote FOR #5 Eliminate Supermajority Provisions.
Intuitive Surgical, Inc. (ISRG), designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories. Most retail 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 77% 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.
Intuitive Surgical 2019: ISS Rating
From the Yahoo Finance profile: Intuitive Surgical, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 6. The pillar scores are Audit: 2; Board: 2; Shareholder Rights: 6; Compensation: 9.
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 Shareholder Rights and Compensation.
Intuitive Surgical 2019 Proxy Voting Guide: Board Proposals
1. Intuitive Surgical 2019: Directors
Egan-Jones Proxy Services recommends FOR, with EXCEPTION of (1F) Alan J. Levy, Ph.D., (1H) Mark J. Rubash, and (1I) Lonnie M. Smith. With respect to Levy and Rubbish, they have served 10 years or more so can no longer be considered independent for purposes of sitting on key Board committees namely Audit, Compensation and Nominating.
With regard to Smith, Egan-Jones’ Proxy Guidelines state that the Chairman of the Board should be held accountable in cases when the Company obtains the score of Needs Attention on the Cyber Security Risk Rating. This is a relatively new policy. I will wait until next year on that one.
Vote AGAINST Levy and Rubash.
2. Intuitive Surgical 2019: Executive Compensation
Intuitive Surgical’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Gary S. Guthart, PhD at $6.4M. I’m using Yahoo! Finance to determine market cap ($66.7B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Intuitive Surgical 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. Intuitive Surgical shares outperformed 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 39:1.
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 Intuitive Surgical. They recommend a vote of FOR on the say-on-pay item. I agree.
3. Intuitive Surgical 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, I am not certain if it is because one of the committee members has served for more than 10 years, so their independence is compromised or it is because PricewaterhouseCoopers was fined again by the Public Company Accounting Oversight Board. No other issues appear significant. I am voting FOR.
4. Intuitive Surgical 2019: Renew 2010 Incentive Award Plan
Persons eligible to participate in the Amended 2010 Plan include the eight non-employee members of the Board, approximately 5,527 employees of the Company and its subsidiaries and affiliates (including the executive officers), and consultants to the Company and its subsidiaries, as determined by the Compensation Committee. Shareholder Equity Dilution is 5.6%, a reasonable amount to provide employee incentives. Egan-Jones recommends for; I concur.
Intuitive Surgical 2019: Shareholder Proposals
4. Shareholder Proposal: Eliminate Supermajority Provisions
This proposal from my wife and I (James McRitchie). The majority of S&P 500 and S&P 1500 companies have no supermajority voting requirements. Additionally, unlike many S&P 500 and S&P 1500 companies, our shareholders cannot act by written consent or by calling a special meeting.
Egan-Jones believes the advantages of eliminating supermajority provisions outweigh the benefits of maintaining it as a voting standard. A simple majority vote will strengthen the Company’s corporate governance practice. Contrary to supermajority voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome. They recommend For, as of course do I.
Intuitive Surgical 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 had so far reported votes as shown below.
- Directors: AGAINST (1F) Alan J. Levy, Ph.D., (1H) Mark J. Rubash.
- Executive Pay: FOR
- Ratify Auditor: FOR
- Renew 2010 Incentive Award Plan: FOR
- Eliminate Supermajority Provisions: FOR
Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- 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 and all bylaw provisions.
- Proxy access lite.
Mark Your Calendar
Any stockholder who meets the requirements of the proxy rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), may submit to the Board proposals to be considered for submission to the stockholders at the 2020 Annual Meeting of Stockholders. In order to be considered for inclusion in the proxy material to be disseminated by the Board, your proposal must comply with the requirements of Rule 14a-8 under the Exchange Act and be submitted in writing by notice delivered or mailed by first-class United States mail, postage prepaid, to our Corporate Secretary at:
Intuitive Surgical, Inc.
Attn: Corporate Secretary
1020 Kifer Road
Sunnyvale, CA 94086-5301
and must be received no later than November 16, 2019. Your notice must include the following:
- Your name and address and the text of the proposal to be introduced.
- The number of shares of stock you hold of record, beneficially own and represent by proxy as of the date of your notice.
- A representation that you intend to appear in person or by proxy at the 2020 Annual Meeting of Stockholders to introduce the proposal specified in your notice.
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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