3D Systems 2019

3D Systems 2019 Proxy Guide

3D Systems 2019 annual meeting is April 20th. Vote AGAINST Curran, Kever, McClure, Moore, and Wadsworth. Vote FOR all other items, including lowering the threshold requirement to call a special meeting.

3D Systems Corporation (DDD), through its subsidiaries, provides three-dimensional (3D) printing products and services worldwide. Most shareholders do not vote.  Reading through 55+ 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 57% 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.

3D Systems 2019: ISS Rating

From the Yahoo Finance profile: 3D Systems Corporation’s ISS Governance QualityScore as of April 1, 2019 is 2. The pillar scores are Audit: 3; Board: 4; Shareholder Rights: 1; Compensation: 8.

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.

3D Systems 2019 Proxy Voting Guide: Board Proposals

1. 3D Systems 2019: Directors

Egan-Jones Proxy Services recommends FOR, with the exception of 1B) William E. Curran, 1G) Jim D. Kever, 1H) Charles G. McClure, Jr., and 1I) Kevin S. Moore. Curran, Never and Moore have each served for ten years or more, so can no longer be considered independent. Agreed.

Egan-Jones believes McClure is overboard, because the CEO sits on more than one outside board. Cybersecurity also needs attention at 3D Systems and E-J favors holding the Board Chair responsible for the deficit.

Because the board only has one female director, I am voting against members of the nominating and governance committee: Jim D. Kever, Chairman and Jeffrey Wadsworth.

Vote AGAINST  Curran, Kever, McClure, Moore, and Wadsworth.

2. 3D Systems 2019: Executive Compensation

3D Systems’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Vyomesh I. Joshi at $2.1M. I’m using Yahoo! Finance to determine market cap ($992M) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. 3D Systems is a small-cap company.

According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at small-cap corporations was $3.6M in 2014. 3D Systems shares far underperformed the NASDAQ YTD and 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 37:1.

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

I am very disappointed with the company’s performance. However, at least executives are not overpaid.

Vote FOR.

3. 3D Systems 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 For.

Vote FOR.

3D Systems 2019: Shareholder Proposals

4. Shareholder Proposal: Reduce Threshold to Call Special Meeting

This good governance proposal to lower the threshold to 15% comes from wife (written by me, James McRitchie). Egan-Jones believes the shareholder proposal is unnecessary and will not result in any additional benefit to the shareholders. However, the current threshold of 25% is too high given that 3D Systems’ largest shareholders are index funds, unlikely to take any action, even in an emergency.

CalPERS, is the largest owner that could be considered active (they at least file shareholder proposals) and they hold less than 0.8% of 3D’s shares. It is unreasonable to require 25%, since, in all likelihood, that would require about 100 shareholder to sign such a filing.

Vote: FOR

3D Systems 2019 CorpGov RecommendationsProxy Insight

Proxy Insight reported the votes of Calvert funds as I wrote up recommendations. They voted for all items, except members of the nominating and governance committee (Kever and Wadsworth) for failing to create a diverse board. It is a small company with few investors, so I did not bother looking up other funds in our Shareowner Action Handbook,

CorpGov Votes:

  1. Directors: AGAINST  Curran, Kever, McClure, Moore, and Wadsworth.
  2. Executive Pay: FOR
  3. Auditor: FOR
  4. Right to Call a Special Meeting (lower threshold): FOR

3D Systems 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.

3D Systems 2019: Mark Your Calendar

Under Rule 14a-8 of the Exchange Act, certain stockholder proposals may be eligible for inclusion in our proxy statement and form of proxy for our 2020 Annual Meeting. The date by which we must receive stockholder proposals to be considered for inclusion in the proxy statement and form of proxy for the 2020 Annual Meeting of Stockholders is November 30, 2019, or, if the date of our 2020 Annual Meeting is changed by more than 30 days from May 21, 2020, a reasonable time before we begin to print and mail the proxy materials for the 2020 Annual Meeting.

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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