Kellogg 2020 Proxy Votes

Kellogg 2020 annual meeting is 4/24/2020. To enhance long-term value: Vote AGAINST Steve Cahillane, Richard Dreiling, Exec Compensation, and Auditor. Vote FOR Employee Stock Ownership Plan, Declassify Board and Simply Majority Vote Standard. Warning: Don’t skip this vote. The affirmative vote of holders representing at least two-thirds of the voting power of outstanding common stock is necessary for approval of the amendment to the Certificate of Incorporation to declassify the Board of Directors (item 5). Virtual meeting link. List of all virtual meetings kept by ISS.

Kellogg Company (K), manufactures and markets ready-to-eat cereal and convenience foods. Reading through 85 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 33% 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.

Kellogg 2020: ISS Ratings

From the Yahoo Finance profile: Kellogg Company’s ISS Governance QualityScore as of December 4, 2019 is 7. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 9; Compensation: 2. 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 the Board. Sustainability scores are about average.

Kellogg 2020 Proxy Voting Guide: Board Proposals

1. Kellogg 2020 : Director

Egan-Jones Proxy Services recommends Against Steve Cahillane and Richard Dreiling. According to Egan-Jones’ Proxy Guidelines hold the Chair of the Board reposonible for inadequately addressing cybersecurity and the Chair of the Compensation Committee for inadequately addressing pay. I concur.

Vote: AGAINST Steve Cahillane and Richard Dreiling.

2. Executive Compensation

Kellogg 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Steve Cahillane at $9.7. I’m using Yahoo! Finance to determine market cap ($22B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Kellogg is a large-cap company.

According to MyLogIQ , the median CEO compensation at large-cap corporations was $12.5M in 2019. Kellogg shares outperformed the Nasdaq over the most recent one year time period but underperformed during the last 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 249 to 1.

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

This Company has earned a grade of Needs Attention in compensation and thus, has failed to pass our quantitative tests. From looking at those measures, it appears the CEO failed to create positive value, so pay is not aligned with value creations

Given poor long-term performance, I voted AGAINST.

Vote: AGAINST.

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.

Vote: AGAINST

4. Kellogg 2020 Employee Stock Purchase Plan

An Employee Stock Purchase Plan or (ESPP) can be an important tool increasing ownership and productivity among company employees. The tax advantages of a qualified plan are compelling. Egan-Jones supports the establishment of such qualified ESPPs unless there is a compelling example of prior abuse or significant reason to expect such abuse in the future.

We find no evidence of prior or expected future abuse of this ESPP and note that it appears to meet the requirements of a qualified plan. Thus we believe this ESPP to be in the best interests of shareholders, we recommend a vote FOR this Proposal.

Vote: FOR

5. Declassify the Board

This is a board sponsored good governance proposal, very likely submitted to shareholders to ratify our advisory proposal on this topic, which won more than 60% of the vote last year. The affirmative vote of holders representing at least two-thirds of the voting power of outstanding common stock is necessary for approval of the amendment to the Certificate of Incorporation to declassify the Board of Directors. Therefore, if you only vote one item, this should be it. E-J also recommends FOR.

Vote: FOR

Kellogg 2020 Shareholder Proposal

This good governance proposal, which requires unopposed directors to be elected by a majority of the vote, comes from me. Of course I voted FOR. Supermajority requirements are used to block initiatives supported by most shareowners but opposed by a status quo management. The majority of S&P 500 and S&P 1500 companies have no supermajority voting requirements. E-J also recommends FOR.

Vote: FOR

Kellogg 2020 CorpGov Recommendations

Proxy Insight had only reported any votes as of when I last checked. They may have updated by the time I post this. Everence voted for all items. CBIS voted for all but auditor. 

Looking up a few funds announcing votes in advance, New York City Comptroller and Praxis voted FOR all items. 

CorpGov Votes:

1. Directors: Steve Cahillane and Richard Dreiling.
2. Executive Pay: AGAINST
3. Auditor: AGAINST
4. Employee Stock Purchase Plan: FOR
5. Declassify the Board: FOR
6. Simple Majority Vote Standard

Kellogg: Issues for Future Proposals

• No ability for shareholders to at by Written Consent
• No ability for shareholders to call for a Special Meeting
• Supermajority standard required to amend bylaws and/or charter
• No prohibition against directors or employees hedging company stock

Kellogg 2021: Mark Your Calendar

Shareowner proposals submitted for inclusion in our proxy statement for the 2021 Annual Meeting of Shareowners must be received by us no later than November 10, 2020. Other Shareowner proposals or Director nominations to be submitted from the floor must be received by us not earlier than November 10, 2020 and not later than December 10, 2020, and must meet certain other requirements specified in our bylaws.

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.