Woodward 2021

Woodward 2021: Empower Workers

Woodward 2021 annual meeting is January 27th, 8AM Mountain Standard Time. Shareholders need to register in advance (by 3PM MST on 1/25/21) to attend the virtual meeting. Register at the bottom of this page. You cannot cut and paste your 12 or 16 digit control number.  You must enter it twice, along with some other information. To vote at the meeting, you’ll need to obtain a legal proxy from your broker/bank. Of course, I recommend voting in advance. To enhance long-term value. Vote AGAINST Gendron, Sega & Auditor. Vote FOR Pay; Amended Incentive Plan, and Increase Diversity of Director Nomination.

Woodward, Inc. designs, manufactures, and services control solutions for the aerospace and industrial markets worldwide. The company operates in two segments, Aerospace and Industrial. Most shareholders do not vote.  Reading through 90+ pages of the proxy takes time but 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 7 minutes of reading. 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.

Woodward 2021: ISS & Sustainalytics Ratings

From the Yahoo Finance profile: Woodward, Inc.’s ISS Governance QualityScore as of November 2, 2019 was 6. The pillar scores are Audit: 5; Board: 4; Shareholder Rights: 9; Compensation: 1.

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 Shareholder Rights.
Sustainalytics’ rates Woodward’s ESG risk as “severe.”

Woodward 2021 Proxy Voting Guide: Board Proposals

1. Directors

Egan-Jones Proxy Services recommends withholding (1.1) Thomas A. Gendron and (1.3) Ronald M. Sega. Sega for serving so long on the Board, Gendron for occupying CEO and chair positions at the same time, and failing to adequately address cybersecurity risk.

I voted to withhold on Thomas A. Gendron (15 years), Dr. Ronald M. Sega (12 years). Both served more than ten years and are not fully independent.

Vote: AGAINST Gendron, Sega

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 served more than seven years. No other issues appear significant.


3. Executive Compensation

Woodward’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Thomas A. Gendron at $4.9M. I’m using Yahoo! Finance to determine market cap ($7.6B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Woodward Inc is a mid-cap company.

According to MyLogIQ, the median CEO compensation at mid-cap corporations was $6.4M in 2020. Woodward’s shares outperformed mid-caps over the most recent two- and five-year time periods but underperformed during the most recent one-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 77 to 1.

Egan-Jones Proxy Services recommended For. Given below median pay and good long-term performance, I voted For.

Vote: FOR

4. Amend Omnibus Incentive Plan

E-J recommended For after taking into account dilution and strong alignment with long-term interests.

Vote: For

5. Shareholder Proposal: Proposal to Increase Diversity of Director Nominees

Egan-Jones recommended For.

This good corporate governance proposal comes from me, James McRitchie, so of course I voted FOR. The proposal seeks to increase diversity on the Board by requiring the initial list of candidates to non-management employees. A qualified worker on the Board could offer insights, improving consideration of human resources.

The proposal was an opening gambit. I would have withdrawn it had the board agreed to take any significant step to increase worker voice on the Board. For example, the Board could have appointed a formal workforce advisory panel or designated a director to be a liaison with workers. Instead, they refused to negotiate. Their opposition statement notes employees (members) “have numerous ways to be heard and exert influence outside of board representation.”

For example, the “CEO and senior leaders host company- and organization-wide meetings to provide business updates and answer questions posed by members.” They “periodically poll our members to collect feedback on management, strategy, culture, compensation, and a variety of other areas.”  Members can raise issues to Human Resources, to Legal, Oversight Committee members, to officer or director, through the Company website, or an independently administered Ethics HelpLine.

These are all good but they are one-off opportunities. They do not facilitate ongoing systematic dialogue or any real empowerment. A worker on the Board, workforce advisory panel or a designated director would institutionalize ongoing dialogue. That would contribute to more engaged employees and a company that utilizes all its brain-power.

To learn more about the advantages of empowering workers, read the footnotes in the proposal or the following discussion papers from KPMG:

Vote: FOR

Woodward 2021 CorpGov RecommendationsProxy Insight

Proxy Insight reported no votes when I last checked. 

In looking up a few funds in our Shareowner Action Handbook, I see Calvert voted against Korte, pay, amened incentive plan. They voted For all other items, including Increase Diversity of Director Nomination Pool.

I will check back on votes announced in advance a few days before the meeting.

CorpGov Votes:

  1. Directors: AGAINST Gendron, Sega
  2. Executive Pay: FOR
  3. Auditor: AGAINST
  4. Amend Omnibus Incentive Plan: FOR
  5. Increase Diversity of Director Nomination Pool: FOR

Woodward 2021: Issues for Future Proposalsinsightia

Looking at insightia for anti-shareholder provisions:

  • Combined CEO and Chair
  • Classified Board
  • Shareholders cannot take action by Written Consent
  • Shareholders do not have Proxy Access
  • Supermajority requirement to change bylaws

Woodward 2021: Mark Your Calendar

Stockholders … must submit their proposals so that they are received by us at our principal executive offices no later than the close of business on August 20, 2021. Proposals should be sent to the attention of the Corporate Secretary.”

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Be sure to vote for each item on the proxy. Any items left blank get automatically 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.” Peer groups are often chosen by aspiration. The “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average.” However, corporations live in the real world. All CEOs are above average. Ignoring that fact partly explains why their collective pay spiraling out of control. We need to slow the pace of money going to the 1% or our economy will fail to serve the majority. 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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