Marrone Bio Innovations 2020

Marrone Bio Innovations 2020: VOTE!

Marrone Bio Innovations 2020. October 29, 2020 at 9:00 a.m. Pacific time. The Annual Meeting will be a virtual meeting of stockholders conducted online by live audio webcast. Attend the virtual meeting, vote your shares electronically and submit questions during the meeting by visiting www.virtualshareholdermeeting.com/MBII2020, using your control number. To enhance long-term value: Withhold your vote from directors Woods and Mago. Vote FOR all other items, including Phase in Simple Majority Vote.

Marrone Bio Innovations, Inc. discovers, develops, produces, and promotes biological products for pest management, plant nutrition, and plant health in the United States and internationally. Reading through 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 25 years and trust my judgment, skip the 10 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 57% 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.

Marrone Bio Innovations 2020: ISS Ratings

From the Yahoo Finance profile: The pillar scores are Audit: 10; Board: 4; Shareholder Rights: 6; Compensation: 10. 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 audits, shareholder rights, and compensation, but also the board.

Marrone Bio Innovations 2020: Board Proposals

1. Directors

Marrone Bio is attempting to suppress the vote of proxy item 5 by failing to be clear and impartial, as required by law.  See Proposal 5 below. Since the Nominating and Governance Committee approves the proxy, we could vote to withhold on all members of that Committee up for election. However, Dr. Marrone (the founder) is too valuable to lose from the Board, especially in this transition year to a new CEO. Therefore, I am withholding my vote from Yogesh Mago, the only other member of the Committee up for election this year, since Marrone Bio maintains a classified board.

Egan-Jones

Egan-Jones Proxy Services recommends withhold from Robert A. Woods and Yogesh Mago. According to their Proxy Guidelines, a director who has or had a professional services contract with a Company or their senior management within the previous three years is considered affiliated. Key Board committees such as Audit, Compensation, and Nominating committees should be comprised solely of Independent outside directors.

Vote: Withhold from Robert A. Woods and Yogesh Mago.

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 FOR.

Vote: FOR

3. Reverse Stock Split

A reverse stock split will help Marrone Bio maintain Nasdaq listing, which requires a minimum bid price of at least $1.00 per share. The split will not proportionately reduce the number of shares of our common stock currently authorized. Therefore, such shares could be used for strategic acquisition opportunities, equity financings, issuance of warrants and convertible securities, or other transactions.

Given the continued unprofitability of Marrone Bio, the shares might well be used in another round of financing that will dilute the value held by existing shareholders.

Egan-Jones believes “approval of the reverse stock split will enable the Company to continue its listing on NASDAQ and will enhance the attractiveness of its common shares to existing and potential investors. We recommend a vote FOR this Proposal.”

Vote: FOR

4. Issuance of Common Stock upon Exercise of Warrants

I not excited about this proposal but will defer to Egan Jones. “After evaluating the provisions and tenets of the proposal, we determined that the proposed resolution contemplated thereby is advisable, substantively, and procedurally fair to, and in the best interests of Company and its shareholders. We recommend a vote FOR this Proposal.”

Vote: FOR

Marrone Bio Innovations 2020 Shareholder Proposals

5. Phase in Simple Majority Vote

My proposal asks Marrone Bio to phase out supermajority voting requirements over the next four years. Entrenching devices, like supermajority provisions, are associated with lower shareholder valuations.

Many of MBII’s large institutional investors, such as BlackRock, Northern Trust, and State Street favor eliminating or reducing supermajority provisions. I am less sure how opportunistic funds, such as Waddell & Reed or Ardsley Advisory Partners stand. They may have received what could be considered sweetheart deals as activist investors when rescuing MBII. The current structure facilitates their ability to maintain control. Marrone Bio would be worth far more without its corporate governance straight-jacket. Supermajority provisions require the agreement of 80% of outstanding shares (not just shares voted) to make substantive changes and adapt to a changing business climate.

Poorly crafted incentives and lax oversight allowed their former chief operating officer (COO) to inflate revenue figures. MBII paid $1.7 million in civil penalties to settle SEC allegations of securities fraud, failed internal controls, and books and records violations. That set off a cascade of problems costing Marrone Bio $60 million in shareholder value.

MBII’s poor corporate governance provisions discourage widespread ownership and monitoring by mainstream institutional investors. The following are several problematic practices.  For comparison purposes, I note the percentage of S&P 500 companies with such practices after each one.

  • Lack of board diversity (14% female, compared to 29% average)
  • Shareholders cannot call special meetings. (69% allow)
  • There are no specified requirements for the number of board meetings. (56% specify)
  • Directors can only be removed by shareholders for “cause” (e.g. committing a crime) by a vote of 66 2/3% of outstanding shares. (75% do not have this restriction)
  • There is no retirement policy for directors. (66% have such policies)
  • Staggered board. (86% have annual elections of all directors)
  • Shareholders have no proxy access to nominate directors. (75% have proxy access)
  • Supermajority provisions to amend bylaws. (54% have no such provisions)

Egan-Jones recommends FOR.

Majority vote requirements in boardroom elections enhance director accountability to shareholders and director accountability is the hallmark of good governance. The board election process should ensure that shareholder expressions of dissatisfaction with the performance of directors have real consequences.  A majority-vote standard will transform the director election process from a symbolic gesture to a process that gives meaningful voice to shareholders.

Vote: FOR

Marrone Bio Innovations 2020: The Illegal Proxy

This vote is important because a small entrenched group can maintain control of the company and act against the will of the majority. For example, Maronne Bio has a classified board. That is, the board is divided into three classes. Directors in each class are up for election and can be held accountable only once every three years.

Overturning that bylaw requires a vote of 80% of outstanding shares.  Classified boards are rare among large companies. For example, only 14% of S&P 500 companies have classified boards. Additionally, most have no supermajority voting requirement to amend their bylaws. Corporations have annual elections of directors and simple majority voting standards because shareholders are willing to pay more for the shares of companies with good corporate governance standards.

SEC Rule 14a-4(a)(3) requires the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” Indicating the existence of a stockholder proposal only as one that will be considered if properly presented does NOT clearly and impartially identify the matter to be acted upon. The language used by MBII is meant to confuse and mislead. The administrative law is clear on its face. However, to remove any doubt, Staff issued guidance on March 22, 2016, providing further clarification of the legal requirement. In fact, one example in that update that “would not satisfy Rule 14a-4(a)(3)” is the following:

A shareholder proposal, if properly presented.

Instead of heeding the prohibition, MBII utilized a slight variation of the prohibited language:

To Consider a stockholder proposal, if properly presented at the Annual Meeting.

How does the illegal Marrone Bio proxy impact us? Marrone Bio has great potential as a company but it has poor governance, with little or no accountability to the majority of shareholders. How corporations are governed impacts shareholders, employees, communities, suppliers, customers, and all stakeholders. Marrone Bio’s potential won’t be reached if the board can violate the law with impunity in order to entrench themselves.

Marrone Bio Innovations 2020: CorpGov Recommendations

Proxy InsightProxy Insight may have reported more votes by the time I post this. Looking up a few funds announcing votes in advance:

  • Calvert voted Withhold Marrone, Woods, and Mago: FOR all other items.

CorpGov Votes:

  1. Directors: WITHHOLD from Woods and Mago.
  2. Auditor: FOR
  3. Reverse Stock Split: FOR
  4. Issuance of Common Stock upon Exercise of Warrants: FOR
  5. Phase in Simple Majority Vote: FOR

Marrone Bio Innovations 2020: Mark Your Calendar

Proposals of stockholders intended to be presented at our 2021 annual meeting of stockholders and included in the board of directors’ proxy statement and form of proxy for that meeting must be received no later than May 28, 2021 at the following address:

Marrone Bio Innovations, Inc.
Attention: Corporate Secretary
1540 Drew Ave., Davis, California 95618

Marrone Bio Innovations 2020: Related Posts

Warnings

Be sure to vote for 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 the 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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