Netgear 2020

Netgear 2020 Written Consent

Netgear 2020 annual meeting is 5/28/2020 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 Lo, Graham, Roberts, Rossmann, Scherer, Auditor, Exec Comp, Equity Incentive Plan; FOR Written Consent.  See list of all virtual-only meetings maintained by ISS. Vote by 5/27 to be counted.

NETGEAR, Inc. designs, develops, and markets networking and Internet connected products for consumers, businesses, and service providers. It operates in two segments, Connected Home, and Small and Medium Business. 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 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 25% 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.

Netgear 2020: ISS Ratings

From the Yahoo Finance profile: NETGEAR, Inc.’s ISS Governance QualityScore as of December 5, 2019 is 1. The pillar scores are Audit: 2; Board: 2; Shareholder Rights: 1; Compensation: 3. 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 compensation.

Netgear 2020 Proxy Voting Guide: Board Proposals

1. Netgear 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends Against 1A) Patrick C.S. Lo, 1C) Jef T. Graham, 1E) Janice M. Roberts, 1F) Gregory J. Rossmann, and 1G) Barbara V. Scherer. Graham and Rossmann have served for 10 years or more, so should no longer be considered independent nor should they serve on compensation, audit or nominating committees. Regarding Lo, holding both chair and CEO positions is an inherent conflict. Roberts and Scherer should be held accountable for recommending poor compensation plan.

Vote: AGAINST 1A) Patrick C.S. Lo, 1C) Jef T. Graham, 1E) Janice M. Roberts, 1F) Gregory J. Rossmann, and 1G) Barbara V. Scherer.

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

Vote: AGAINST

3. Executive Compensation

mylogiq_logoNetgear 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Patrick C.S. Lo, at $4.2M. I’m using Yahoo! Finance to determine market cap ($699M) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Netgear is a small-cap company.

According to MyLogIQ , the median CEO compensation at small-cap corporations was $3.95M in 2019. Netgear 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 39:1.

Egan-Jones Proxy Services recommends Against:

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.

Given the above median pay, misalignment, poor performance and my general concerns about inequality, I voted AGAINST.

Vote: AGAINST

4. Amend Equity Incentive Plan

Egan-Jones Proxy Services recommends Against:

We believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future.

Vote: AGAINST

Netgear 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 Netgear, which allows only investors with 25% 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

Netgear 2020 CorpGov Recommendations

Proxy Insight reported no votes as of when I last checked, although 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 equity incentive plan. Calvert voted Against auditor, exec pay and equity incentive plan; For all other items. 

CorpGov Votes:

  1. Directors: AGAINST 1A) Patrick C.S. Lo, 1C) Jef T. Graham, 1E) Janice M. Roberts, 1F) Gregory J. Rossmann, and 1G) Barbara V. Scherer.
  2. Auditor: AGAINST
  3. Executive Pay: AGAINST
  4. Equity Incentive Plan: AGAINST
  5. Written Consent: FOR

Netgear 2020: Mark Your Calendar

As a stockholder, you may be entitled to present proposals for action at a forthcoming meeting if you comply with the requirements of the proxy rules established by the Securities and Exchange Commission. Proposals by our stockholders intended to be presented for consideration at our 2021 Annual Meeting must be received by us no later than December 21, 2020 (120 calendar days prior to the anniversary of the mailing date of this proxy statement), in order that they may be included in the proxy statement and form of proxy related to that meeting. The submission of the stockholder proposal does not guarantee that it will be included in our 2021 proxy statement.

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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