Electronic Arts 2020 annual meeting is 8/6/2020 at 2PM Pacific virtually by entering the eligible shareholder’s 16-digit control number found on the proxy card. To enhance long-term value: Vote AGAINST Coleman, Hong, Huber, Ubinas, Simonson, Probst, Ueberroth, Pay and Auditor. Vote FOR Written Consent. See list of all virtual-only meetings maintained by ISS.
Electronic Arts Inc. develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. 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 only 25% of the time. View the 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.
Electronic Arts 2020: ISS Ratings
From the Yahoo Finance profile: Electronic Arts Inc.’s ISS Governance QualityScore as of December 7, 2019 is 4. The pillar scores are Audit: 2; Board: 5; Shareholder Rights: 4; Compensation: 6. Corporate governance scores courtesy ofInstitutional 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.
Electronic Arts 2020 Proxy Voting Guide: Board Proposals
1. Electronic Arts 2020 Directors
Egan-Jones Proxy Services recommends Against LEONARD S. COLEMAN, JAY C HOAG, JEFFREY T HUBER, LUIS A UBINAS, RICHARD A SIMONSON, LAWRENCE F PROBST III, HEIDI J. UEBERROTH. Coleman, Huber, Ubinas, and Simonson should not be considered independent, since they have served for 10 years or more. They should not serve on compensation, audit or nominating committees. Since I voted against the “say on pay” item, I also voted against the compensation committee, since they should be held accountable: Coleman, Huber, and Ueverroth. Additionally, Mr. Probst III should be held accountable, as the Board Chairman, in cases when the Company obtains the score of Needs Attention on the Cyber Security Risk Rating. I am also concerned that less than a third of the directors are women. Vote: AGAINST Leonard S. Coleman, Jay C Hoag, Jeffrey T Huber, Luis A Ubinas, Richard A Simonson, Lawrence F Probst III, Heidi J. Ueberroth.
3. Executive Compensation
Electronic Arts 2020 Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Andrew Wilson at $21.4M. I’m using Yahoo! Finance to determine market cap at $41B. I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Electronic Arts is a large-cap company.
According to MyLogIQ , the median CEO compensation at large-cap corporations was $12.2M in 2019. Electronic Arts shares outperformed during the last one year and five year time periods but underperformed during the last two year time period. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 218:1.
Egan-Jones Proxy Services writes:
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. Therefore, we recommend a vote AGAINST this Proposal.
I also urge you to read the notice of exempt solicitation filed by CtW Investment Group and their informative shareholder letter recommending a vote Against this item.
Given pay far above median, mixed performance, a high pay ratio, lack of alignment with performance measures 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. KPMG, LLP has served more than seven years. No other issues appear significant.
Vote: AGAINST
Electronic Arts 2020 Shareholder Proposals
4. Shareholder Proposal: Written Consent
This good corporate 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 Electronic Arts, 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
Electronic Arts 2020 CorpGov Recommendations
Proxy Insight may have updated by the time I post this.
Looking up a few funds announcing votes in advance:
- Calvert: voted Against Hoag & Pay; FOR Written Consent.
- NYC Comptroller: voted Against Hoag & Pay; FOR Written Consent.
- Praxis: voted Against Pay; FOR Written Consent.
- NEI: voted Against Coleman, Hoag, Probst, Ubinas, Ueberroth, Pay; FOR Written Consent.
- Directors: AGAINST Leonard S. Coleman, Jay C Hoag, Jeffrey T Huber, Luis A Ubinas, Richard A Simonson, Lawrence F Probst III, Heidi J. Ueberroth.
- Executive Pay: AGAINST
- Auditor: AGAINST
- Written Consent: FOR
Electronic Arts 2021: Issues for Future Proposals
- No ability for shareholders to at by Written Consent
- Only 2 of 9 directors are women.
Electronic Arts 2020: Mark Your Calendar
Proposals to be considered for inclusion in our proxy materials: No later than February 19, 2021. All proposals must comply with Rule 14a-8 under the Exchange Act. Stockholder proposals and director nominations should be sent in writing to Jacob Schatz, Corporate Secretary at Electronic Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065.
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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