Axon Enterprise 2020

Axon Enterprise 2020 Annual Director Election

Axon Enterprise 2020 annual meeting is 5/29/2020 at 10AM Pacific virtually by entering the eligible shareholder’s 16-digit control number found on the proxy card. To enhance long-term value: Vote AGAINST Kroll, Smith, Pay, Auditor. Vote FOR 4A&B Amendments, and Annual Election of Directors.  See list of all virtual-only meetings maintained by ISS. Vote by 5/28 online or miss your chance to improve Axon.

Axon Enterprise, Inc. develops, manufactures, and sells conducted energy weapons (CEWs) worldwide. The company operates through two segments, TASER and Software and Sensors Reading through 60 pages of the proxy takes too much time for most. 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 38.5% 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.

Axon Enterprise 2020: ISS Ratings

From the Yahoo Finance profile: Axon Enterprise, Inc.’s ISS Governance QualityScore as of December 5, 2019 is 6. The pillar scores are Audit: 5; Board: 3; Shareholder Rights: 7; 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 shareholder rights and compensation.

Axon Enterprise 2020 Proxy Voting Guide: Board Proposals

1. Axon Enterprise 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends For all directors. Both Kroll and Smith have served for 10 years or more, so should no longer be considered independent nor should they serve on compensation, audit or nominating committees. I am voting WITHHOLD against both.

Vote: WITHHOLD: Kroll and Smith

2. Executive Compensation

mylogiq_logoAxon Enterprise 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was President Luke S. Larson at $21.8M. It is worth noting that CEO Patrick W. Smith was paid $246M in 2018 ($38,500 in 2019). I’m using Yahoo! Finance to determine market cap ($4.4B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Axon is a mid-cap company.

According to MyLogIQ, the median CEO compensation at mid-cap corporations was $6.6M in 2019. Axon shares underperformed during the last one year time period but outperformed 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 0.36:1. That’s frankly deceptive, given the 2018 payout.

Egan-Jones Proxy Services writes:

We believe that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value. Therefore, we recommend a vote FOR this Proposal.

Given the above median pay, mixed performance and my general concerns about inequality, 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. Deloitte & Touche, LLP has served more than seven years. No other issues appear significant.

Vote: AGAINST

4. A&B Eliminate Supermajority Provisions

My (James McRitchie) proposal last year to eliminate supermajority provisions won 96.6% of the vote. The Board is following up with two proposals to accomplish that goal. Will they do more this year to encourage shareholders to vote in favor?

Egan-Jones recommends For: “Voting, a simple majority standard will give the shareholders equal and fair representation in the Company by limiting the power of shareholders who own a large stake in the entity, therefore, paving way for a more meaningful voting outcome.”

Vote: FOR

Axon Enterprise 2020 Shareholder Proposals

5. Shareholder Proposal: Elect Each Director Annually

This good governance proposal from me (James McRitchie) asks that our Company reorganize the Board of Directors into one class with each director subject to election each year for a one-year term.

Almost 90% of S&P 500 and Fortune 500 companies, worth more than One trillion dollars have adopted this important proposal topic since 2012. Annual elections are widely viewed as a corporate governance best practice. Annual election of each director could make directors more accountable, and thereby contribute to improved performance and increased company value.

Last year and earlier this year shareholder proposals to elect each director annually (declassify the board) won large majority votes at National Fuel Gas, Farmer Brothers, Western Asset, BlackRock Credit, United Therapeutics, Knight Swift Transportation Holdings, Anthem, and Kellogg.

Adoption of this proposal would be facilitated by adoption of proposals that won strong support at the 2019 Axon Enterprise annual meeting: move to a simple majority vote standard, shareholder which won 96.6% support; and annual election of directors, which won 98% support.

Egan-Jones recommends For: “It is intuitive that when directors are accountable for their actions, they perform better. We therefore prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders.”

Vote: FOR

Axon Enterprise 2020 CorpGov Recommendations

Proxy Insight reported no votes as of when I last checked, but may have updated by the time I post this. Looking up a few funds announcing votes in advance, NYC Pensions voted FOR all items except except Executive Pay. Calvert voted For all items.

CorpGov Votes:

  1. Directors: WITHHOLD: Kroll and Smith
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Eliminate Supermajority A&B: FOR
  5. Elect Each Director Annually: FOR

Axon Enterprise 2020: Mark Your Calendar

To be eligible for inclusion in the Company’s proxy materials for the 2021 Annual Meeting of Shareholders, a proposal intended to be presented by a shareholder for action at that meeting must, in addition to complying with the shareholder eligibility and other requirements of the SEC’s rules governing such proposals, be received not later than December 24, 2020 by the Corporate Secretary of the Company at the Company’s principal executive offices, 17800 North 85th Street, Scottsdale, Arizona 85255.

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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