Illumina 2019 annual meeting is May 29th. To enhance long-term value. Vote AGAINST Frances Arnold, Pay, & Auditor. Vote FOR Declassify the Board and Disclose Political Contributions.
Illumina, Inc. (ILMN) provides sequencing and array-based solutions for genetic analysis. Most shareholders do not vote. Reading through 74+ pages of the proxy takes too much time. Your vote 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.
Illumina 2019: ISS & Sustainalytics Ratings
From the Yahoo Finance profile:
Illumina, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 6. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 6; Compensation: 8.
Illumina 2019 Proxy Voting Guide: Board Proposals
1. Illumina 2019: Directors
Egan-Jones Proxy Services recommends a vote FOR all directors.
I would have voted against Robert S. Epstein, M.D., Chair of the Nominating and Governance Committee, for his role in approving how abstentions are counted as “against votes” when it comes to shareholder proposals. That is clearly rigging the vote. Unfortunately, he is not up for election, so I voted against Frances Arnold, a member of that Committee.
Vote AGAINST Frances Arnold.
2. 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. Ernst & Young, LLP has served more than seven years. No other issues appear significant.
3. Executive Compensation
Illumina’s Summary Compensation Table shows the highest paid named executive officer (NEO) was President, CEO, and Director Francis A. deSouza at $11.1M. I’m using Yahoo! Finance to determine market cap ($45.2B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Illumina 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. Illumina 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 103 to 1. According to MyLogIQ, mean CEO compensation in the Health Industries was $5.4M, median was $3.4M last year. Pay at Illumina puts them almost in the top 90% of Health Industry CEOs ($11.6M).
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.
Given above median pay (especially within Health sector) and my concern for growing wealth inequality, I voted against. However, since it was a close call, I did not vote against the compensation committee.
Illumina 2019 Proposals
Vote Rigging on Shareholder Proposals: At Illumina, “abstentions” (not just votes left blank) are treated as votes AGAINST. If you mark your ballot to ABSTAIN because you do not want your vote counted, Illumina will ignore your wish and instead count it as a vote AGAINST. This vote-rigging leads me to vote against Robert S. Epstein, M.D. of the nominating and governance committee, because he approved this deceitful tactic. If Illumina is going to count ABSTAIN as AGAINST, do not offer ABSTAIN as a voting option. This unusual voting policy is designed to disenfranchise shareholders by over counting AGAINST votes on these critical issues.
4. Board Proposal: Declassify the Board
This good governance proposal is a direct result of my proposal from last year on the same topic that passed with 85% of shares voted and by 78% of outstanding shares. As noted by Egan-Jones, “staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board.”
5. Shareholder Proposal: Disclosure of Political Contributions
This good governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones disagrees. The Company argues they comply with the laws. However, the laws allow dark money contributions. Anyone concerned with our ability to ensure Illumina’s political contributions are in the best interests of shareholders should vote FOR this proposal.
Proxy Insight had not reported votes as of when I last checked. They may have updated by the time I post this.
In looking up a few funds in our Shareowner Action Handbook, I see Calvert, CBIS, and Praxis voted FOR all items. Domini voted Against Frances Arnold, Pay and Declassify Board. NYC Comptroller voted Against Frances Arnold. Trillium voted against Pay.
- Directors: AGAINST Frances Arnold
- Auditor: AGAINST
- Executive Pay: AGAINST
- Declassify Board of Directors: FOR
- Disclose Political Contributions: FOR
Illumina 2020: Issues for Future Proposals
Looking at SharkRepellent.net for anti-shareholder provisions:
- Classified board with staggered terms.
- No action can be taken without a meeting by written consent.
- Shareholders cannot call special meetings.
- Supermajority vote requirement (66.67%) to amend certain bylaw provisions.
Illumina 2020: Mark Your Calendar
Under SEC Rule 14a-8, a stockholder who intends to present a proposal at our 2020 annual meeting of stockholders (other than a director nomination) and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our principal executive offices. The proposal must be received no later than December 18, 2019. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.
Illumina, Inc., 5200 Illumina Way, San Diego, California 92122, Attention: Corporate Secretary
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.