Kansas City Southern 2020

Kansas City Southern 2020 Written Consent

Kansas City Southern 2020 annual meeting is 5/21/2020 at 7AM Pacific virtually by entering the eligible shareholder’s 16-digit control number found on the proxy card. To enhance long-term value: Vote AGAINST Druten and McDonnell. Vote FOR Auditor, Pay, and Written Consent.  See list of all virtual-only meetings maintained by ISS.

Kansas City Southern, a transportation holding company, provides domestic and international rail transportation services in North America.  Reading through almost 80 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 7 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 77% 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.

Kansas City Southern 2020: ISS Ratings

From the Yahoo Finance profile: Kansas City Southern’s ISS Governance QualityScore as of December 5, 2019 is 2. The pillar scores are Audit: 1; Board: 5; Shareholder Rights: 2; Compensation: 4. 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 the board.

Kansas City Southern 2020 Proxy Voting Guide: Board Proposals

1. Kansas City Southern 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends Against (withhold) 1C) Robert J. Druten and 1I) Thomas A. McDonnell. Both directors have served for 10 years or more, so should no longer be considered independent nor should they serve on compensation, audit or nominating committees.

Vote: AGAINST Druten and McDonnell.

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. Usually, they do so if the served for seven years or had serious disciplinary actions, excessive non-audit fees. None of those appear to apply in this case.

Vote: FOR

3. Executive Compensation

mylogiq_logoKansas City Southern 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Patrick J. Ottensmeyer at $6.4M. I’m using Yahoo! Finance to determine market cap ($12.6B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Kansas City Southern is a large-cap company.

According to MyLogIQ , the median CEO compensation at large-cap corporations was $12.2M in 2019. Kansas City Southern shares underperformed during the last 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 131:1.

Egan-Jones Proxy Services recommend For:

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. 

Given below median pay and a pay ratio better than many, I voted FOR, although I am very disappointed with performance.

Vote: FOR.

Kansas City Southern 2020 Shareholder Proposals

4. Shareholder Proposal: Written Consent

This good governance proposal comes from me (James McRitchie), so of course I voted FOR. Many boards and investors assume a false equivalency between rights of written consent and special meetings. However, any shareholder, regardless how many (or few) shares she owns, can seek to solicit written consents on a proposal.

By contrast, calling a special meeting may require a two-step process. A shareholder who does not own the minimum shares required must first obtain the support of other shareholders. Once that meeting is called, the shareholder must distribute proxies asking shareholders to vote on the proposal to be presented at the special meeting. This two-step process can take more time and expense than the one-step process of soliciting written consents, especially at KSU, which allows only investors with 15% of outstanding shares to call a special meeting, instead of 10%, as allowed by many companies.

Similar proposals won more than 50% of the vote recently at Stanley Black & Decker, Berry Global Group, Flowserve, JetBlue, United Rentals, Capital One, Cigna, Applied Materials and Nuance.

Egan-Jones recomments FOR.

Vote: FOR

Kansas City Southern 2020 CorpGov RecommendationsProxy Insight

Proxy Insight had not reported on any advance disclosures when I last checked but may have updated by the time I post this., 

Looking up a few funds announcing votes in advance, Calvert voted For all items except Written Consent. Trillium voted Against Beebe, Druten, Garza, McDonnell, Executive Pay and Written Consent. 

CorpGov Votes:

  1. Directors: AGAINST Druten and McDonnell.
  2. Auditor: FOR
  3. Executive Pay: FOR
  4. Writen Consent: FOR

Kansas City Southern 2020: Mark Your Calendar

Under SEC rules, any shareholder who wishes to present a proposal to be included in our Proxy Statement and introduced at our 2021 Annual Meeting of Shareholders must submit the proposal to the Secretary of the Company so that it is received no later than the close of business on December 4, 2020, and must satisfy the other requirements of SEC Rule 14a-8.

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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