Northern Trust 2019

Northern Trust 2019 Proxy Recommendations

The Northern Trust 2019 annual meeting is April 23rd. Vote AGAINST  Bynoe, Richards, Slark, and Tribbett; AGAINST Executive Pay & Auditor: FOR Disclose Political Contributions and Right to Call a Special Meeting.

Northern Trust Corporation (NTRS), a financial holding company, provides wealth management, asset servicing, asset management, and banking solutions for corporations, institutions, families, and individuals 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 24 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 53% 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.

Northern Trust 2019: ISS Rating

From the Yahoo Finance profile: Northern Trust Corporation’s ISS Governance QualityScore as of April 1, 2019 is 3. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 2; Compensation: 6.

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 members of the Board and Compensation issues.

Northern Trust 2019 Proxy Voting Guide: Board Proposals

1. Northern Trust 2019: Directors

Egan-Jones Proxy Services recommends FOR, without exception. Audit, Compensation and Corporate Governance/Nominating committees, were solely of Independent outside directors. Also, each director attended at least 75% of all the meetings of the Board and of the committees during fiscal year 2018.

Since I voted against Executive Compensation I also voted against all members of the compensation committee.

Vote AGAINST  Linda Walker Bynoe, Thomas Richards, Martin P. Slark, and Charles A. Tribbett III.

2. Northern Trust 2019: Executive Compensation

Northern Trust’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman, President, and CEO Michael G. O’Grady at $8.0M. I’m using Yahoo! Finance to determine market cap ($19.8B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Northern Trust 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. Northern Trust 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 109:1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. They believe the company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.Egan-Jones

Given far above median pay, underperformance, and my concern for growing wealth inequality, I voted against and also voted against the members of the compensation committee: Linda Walker Bynoe, Thomas Richards, Martin P. Slark, and Charles A. Tribbett III.

Vote AGAINST.

3. Northern Trust 2019: Ratification of Independent Auditor

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. KPMG served more than seven years. No other issues appear significant.

Vote AGAINST.

Northern Trust 2019: Shareholder Proposals

4. Shareholder Proposal: Disclosure of Political Contributions

This good governance proposal comes from Unitarian Universalist Association. Egan-Jones believes the shareholder proposal is unnecessary and will not result in any additional benefit to the shareholders. However, the Company’s payments to trade associations can be used for election-related activities, are undisclosed and are unknown. I file many similar proposals myself.

Vote: FOR

5. Shareholder Proposal: Right to Call Special Meetings

This good governance proposal is from me (James McRitchie), so of course I support it. Right now, Northern Trust shareholders have no right to call a special meeting, even for an emergency situation. The proposal asks that shareholders with 15% net long of our outstanding common stock have the power to call a special shareowner meeting. This proposal does not impact our board’s current power to call a special meeting. Egan-Jones recommends “For,” since the proposal “is consistent with best corporate governance practices.”

Vote FOR.

Northern Trust 2019 CorpGov RecommendationsProxy Insight

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 the votes of three funds as I wrote up my recommendations. Domini voted against CEO/Chair O’Grady and in favor of all other items. Christian Brothers Investment Services voted against ratifying the auditor but in favor of all other items. Everence Capital Management voted against Crown, Henderson, and Smith but for all other items. In looking up a few funds on our Shareowner Action Handbook, I see Praxis voted the same as Everence. Calvert voted for all items.

CorpGov Votes:

  1. Directors: AGAINST  Linda Walker Bynoe, Thomas Richards, Martin P. Slark, and Charles A. Tribbett III.
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Disclose Political Contributions: FOR
  5. Right to Call a Special Meeting: FOR

Northern Trust 2019: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • Special meetings can only be called by shareholders holding not less than 25% of the voting power, instead of 15%, which I support.
  • Proxy access lite: Proxy access provision whereby a shareholder, or a group of up to 20 shareholders holding at least 3% of the outstanding common stock continuously for at least three (3) years may nominate directors, constituting up to the greater of two individuals, or 20% of the Board. Nominees who receive less than 20% of the votes would be ineligible for nomination under the proxy access provision for the next two (2) annual meetings.

Northern Trust 2019: Mark Your Calendar

Any stockholder proposals for the Corporation’s 2020 Annual Meeting of Stockholders (other than proxy access nominations) must be received by the Corporation, directed to the attention of the Corporation’s Corporate Secretary, no later than November 13, 2019 in order to be eligible for inclusion in the Corporation’s proxy statement and form of proxy for that meeting.

All proposals and director nominations submitted by stockholders must comply in all respects with the rules and regulations of the SEC and the Corporation’s By-laws.

Northern Trust Corporation, 50 South La Salle Street, M-9, Chicago, Illinois 60603, Attention: Corporate Secretary.

Warnings

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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