Legg Mason 2019

Legg Mason 2019

Legg Mason 2019 annual meeting is July 30th. To enhance long-term value: Vote AGAINST directors Angelica, Murphy, Peltz and Quirk, Pay, & Auditor. Vote FOR Eliminate Supermajority Voting Requirements.

Legg Mason, Inc. (LM) is a publicly owned asset management holding company. Most shareholders do not vote.  Reading through 80+ 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 in my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 45% 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.

Legg Mason 2019: ISS Ratings

From the Yahoo Finance profile:

Legg Mason, Inc.’s ISS Governance QualityScore as of June 25, 2019 is 6. The pillar scores are Audit: 1; Board: 8; Shareholder Rights: 5; Compensation: 5.

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 Board issues.

Legg Mason 2019 Proxy Voting Guide: Board Proposals

1. Legg Mason 2019: Directors Egan-Jones

Egan-Jones Proxy Services recommends Against: Robert E. Angelica (10 years, so no longer considered independent), John V. Murphy, Alison A. Quirk (both on compensation committee) and Joseph A. Sullivan (chair of board accountability for cybersecurity that needs improvement).

I am not quite ready to apply E-J’s advice on cybersecurity accountability yet… maybe next year. However, Nelson Peltz sits on more than 4 boards. That is too many.

Vote: AGAINST Robert E. Angelica, John V. Murphy, Nelson Peltz and Alison A. Quirk.

2. Executive Compensation

Legg Mason’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Joseph A. Sullivan at $10.0M. I’m using Yahoo! Finance to determine market cap ($3.3B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Legg Mason is a mid-cap company.

According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at mid-cap corporations was $8.4M in 2014. Legg Mason shares outperformed the S&P 500 over the most recent one year time period, but underperformed during the most recent two and fimylogiq_logove 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 60 to 1.

According to MyLogIQ, mean CEO compensation in the S&P 400 was $8M, median was $6.2M last year. Pay at Legg Mason puts them in the top 75% of mid-cap CEOs ($8.7M and higher).

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies.

We believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote AGAINST this Proposal.Egan-Jones

Given above median pay, mixed performance, failure to align pay with performance, and my concern for growing wealth inequality, I voted Against. I also voted against the compensation committee.


3. 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. PricewaterhouseCoopers, LLP has served more than seven years. No other issues appear significant.


5. Shareholder Proposal: Eliminate Supermajority Voting Requirements

This good governance proposal comes from me, James McRitchie, so of course I voted FOR. Egan-Jones agrees. The Company takes no position. Anyone concerned with our ability to ensure Legg Mason is not held hostage by a few large shareholders should vote FOR this proposal to make our corporate governance more democratic.

Vote: FOR

Legg Mason 2019 CorpGov RecommendationsProxy Insight

Proxy Insight had only reported votes of CalSTRS as of when I last checked. They may have updated by the time I post this. CalSTRS voted For all items except Against Nelson Peltz.

In looking up a few funds in our Shareowner Action Handbook, I see Calvert voted For all items except Against Nelson Peltz.

CorpGov Votes:

  1. Directors: AGAINST Angelica, Murphy, Peltz and Quirk.
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Eliminate Supermajority Voting Requirements: FOR

Legg Mason 2020: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • Written consent must be unanimous
  • Special Meetings can only be called by shareholders with 50.1% of voting power or more.
  • Supermajority vote requirement (70%, including 55% not held by a Related Person) to amend certain charter provisions unless proposed by the board by a vote which includes the affirmative vote of a majority (but not less than two) of the disinterested directors.

Legg Mason 2020: Mark Your Calendar

We must receive in writing, at our principal executive offices located at 100 International Drive, Baltimore, Maryland 21202, Attn: Corporate Secretary, any stockholder proposal intended for inclusion in the proxy material for the 2020 Annual Meeting of Stockholders on or before February 21, 2020. The inclusion of any proposal will be subject to applicable rules of the SEC. Under our Bylaws, stockholders who would like to submit proposals for the 2020 Annual Meeting of Stockholders must deliver written notice of the proposal to our Corporate Secretary, at the above address, between January 22, 2020 and February 21, 2020. In the event our 2020 Annual Meeting of Stockholders is held more than 30 days before or after July 30, 2020, notice must be delivered between the 150th day prior to the date of the meeting and 5:00 p.m., Eastern Time, on the later of the 120th day before the meeting or the tenth day following the day on which we publicly announce the date of the meeting.


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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One Response to Legg Mason 2019

  1. James McRitchie 08/05/2019 at 12:31 pm #

    This proposal received a 97% vote at Legg Mason’s annual meeting at 10:00 a.m. on Tuesday, July 30, 2019. See https://www.sec.gov/Archives/edgar/data/704051/000070405119000094/form8-kitem507votingresults.htm Another victory for long-term value

    When some organization says that shareholder proposals should be curbed, perhaps we should respond with the number potential shareholder proposals which could obtain more than a 50% vote at Fortune 500 companies (if we only had enough money to own $2000 of each of those Fortune 500 companies).

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