Union Pacific 2020 Chair & Climate

Union Pacific 2020 Chair & Climate

Union Pacific 2020 annual meeting is 5/14/2020 at 6AM Pacific virtually by entering the eligible shareholder’s 16-digit control number found on the proxy card. To enhance long-term value: Vote AGAINST Card, Fritz, McCarthy and McLarty, Auditor, Pay. Vote FOR Independent Board Chair and Climate Report.  See list of all virtual-only meetings maintained by ISS.

Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, engages in the railroad business in the United States.. Reading through almost 100 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 9 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 47% 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.

Union Pacific 2020: ISS Ratings

From the Yahoo Finance profile: Union Pacific Corporation’s ISS Governance QualityScore as of December 5, 2019 is 1. The pillar scores are Audit: 1; Board: 6; Shareholder Rights: 1; 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 the board.

Union Pacific 2020 Proxy Voting Guide: Board Proposals

1. Union Pacific 2020 DirectorsEgan-Jones

Egan-Jones Proxy Services recommends Against (1A) ANDREW H CARD JR, (1D) LANCE M FRITZ, (1G) MICHAEL R MCCARTHY AND (1H) THOMAS F MCLARTY III. Mr. Fritz should not be considered independent, since he holds both the CEO and chair positions. The other three 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 (1A) ANDREW H CARD JR, (1D) LANCE M FRITZ, (1G) MICHAEL R MCCARTHY AND (1H) THOMAS F MCLARTY III.

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. Deloitte & Touche, LLP has served more than seven years. No other issues appear significant.

Vote: AGAINST

3. Executive Compensation

mylogiq_logoUnion Pacific 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Lance M. Fritz at $15M. I’m using Yahoo! Finance to determine market cap ($105B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Union Pacific is a large-cap company.

According to MyLogIQ , the median CEO compensation at large-cap corporations was $12.2M in 2019. Union Pacific 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 189:1.

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

Union Pacific 2020 Shareholder Proposals

4. Shareholder Proposal: Independent Board Chair

This good governance proposal comes from John Chevedden. I voted FOR.

Shareholders request that our Board require that the Chair of the Board of Directors, whenever possible be an independent member of the Board.

Although it would be better to have an immediate transition to an independent Board Chairman, the Board should have the discretion to phase in this policy for the next Chief Executive Officer transition.

If the Board determines a Chair who was independent when selected is no longer independent, the Board should select a new Chair who is independent within a reasonable amount of time.

Compliance with this policy is waived in the unlikely event that no independent director is available and willing to serve as Chairman under the succession planning program of the company. This proposal requests that all the necessary steps be taken to accomplish the above.

This proposal topic won 55% at Baxter International and 53% at Boeing during the current proxy season.

Lead Director Michael McCarthy is no substitute for an independent Board Chair.

An independent Chair is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challenging day-to-day issues facing the company. The roles of Chairman of the Board and CEO are fundamentally different and should not be held by the same person. There should be a clear division of responsibilities between these positions to insure a balance of power and authority on the Board.

Egan-Jones writes:

We believe that there is an inherent potential conflict, in having an Inside director serve as the Chairman of the board. Consequently, we prefer that companies separate the roles of the Chairman and CEO and that the Chairman be independent to further ensure board independence and accountability.  After evaluating the details pursuant to the shareholder proposal and in accordance with the Egan-Jones’ Proxy Guidelines, we recommend a vote FOR this Proposal.

Vote: FOR

5. Shareholder Proposal: Climate Assessment Report

This proposal from me (James McRitchie) asks Union Pacific to issue a report on how it plans to reduce or offset its total contribution to climate change to align operations with the Paris Agreement’s goal of maintaining global temperature increases well below 2 degrees Celsius.

After negotiations, Union Pacific met my request in March by submitting a commitment letter to the Science Based Targets Initiative (SBTi), noting that it intends to utilize SBTi’s Sectoral Decarbonization Approach Transport tool, which models targets for direct and indirect transportation emissions, to help establish Union Pacific’s GHG emissions reduction goals.

SBTi assesses corporate emissions reduction targets in line with what climate scientists believe is needed to meet the Paris Agreement goals of limiting global warming to well below 2″C above pre-industrial levels. Union Pacific anticipates finalizing its target and submitting it for approval to the SBTi within a year.

The timing of that commitment did not allow for timely withdrawal my proposal before the April 3rd proxy. I would like to thank our Company and urge a vote in favor of the proposal as validation of Union Pacific’s accomplishment and its commitment to reducing GHG emissions. Egan-Jones also recommends a vote For.

Vote: FOR

Union Pacific 2020 CorpGov RecommendationsProxy Insight

Proxy Insight had not reported any votes in advance of the meeting 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, Calvert voted FOR all items except #4 independent chair. The New York City Comptroller voted FOR all items except Lute, McCarthy and Villarreal. Praxis voted FOR all items except Hopkins and Lute. Trillium voted FOR all items except Lute, McCarthy, McClarty, Villarreal and Executive Pay. 

CorpGov Votes:

  1. Directors: AGAINST (1A) ANDREW H CARD JR, (1D) LANCE M FRITZ, (1G) MICHAEL R MCCARTHY AND (1H) THOMAS F MCLARTY III.
  2. Auditor: AGAINST
  3. Executive Pay: AGAINST
  4. Independent Board Chair: FOR
  5. Climate Assessment Report: FOR

Union Pacific 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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