Citigroup 2021

Citigroup 2021 AGM Proxy Votes (update 1)

Citigroup 2021 annual meeting is April 27, 9AM Eastern Time. To attend, vote, and submit questions during the Annual Meeting visit www.virtualshareholdermeeting.com/CITI2021 and enter the 16-digit control number. Of course, I recommend voting in advance. To enhance long-term value. Vote AGAINST Dugan, Henry, Jacobs, Reiner, Taylor, Wynaendts, Zedillo, Auditor, Pay, Stock Incentives. Vote FOR Improve Proxy Access, Independent Board Chair, Increase Diversity of Director Nominees, Lobbying Disclosure, Racial Equity Audit, Convert to Public Benefit Corporation. Updated 4/22 with several disclosing funds voted. 

Citigroup Inc. is a diversified financial services holding company, providing financial products and services to consumers, corporations, governments worldwide.  Most shareholders do not vote.  Reading through 150 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 25 years and trust my judgment, skip 11 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations xx% 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.

Citigroup 2021: ISS & Sustainalytics Ratings

From the Yahoo Finance profile page: Citigroup Inc.’s ISS Governance QualityScore as of April 1, 2021 is 1. The pillar scores are Audit: 4; Board: 1; Shareholder Rights: 1; Compensation: 7.

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.
Sustainalytics’ rates ESG score significantly riskier than its peers.

Apple 2021: Board Proposals

1. Directors

Egan-Jones Proxy Services recommends against John C. Dugan, Duncan P. Hennes, Lew W. (Jay) Jacobs, IV, Gary M. Reiner, Diana L. Taylor, and Alexander R. Wynaendts.  All are members of the Compensation Committee. Additionally, because the board is less than 30% diverse, I voted against all members of the Nominations Committee. Peter B. Henry, and Ernesto Zedillo Ponce de Leon.

Vote: AGAINST Dugan, Hennes, Henry, Jacobs, Reiner, Taylor, Wynaendts, Zedillo.

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

Vote: AGAINST

3. Executive Compensation

Citigroup’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Michael Corbat at $23M. I’m using Yahoo! Finance to determine market cap ($152B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Citigroup is certainly a large-cap company.mylogiq_logo

According to MyLogIQ, the median CEO compensation at large-cap corporations was $13M in 2020. CEO Michael Corbat at $23M is at $14.8M is substantially above that amount.  Citigroup’s shares beat the S&P 500 over the most recent one-year time period but underperformed during, 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 420 to 1. Egan-Jones Ratings

Egan-Jones Proxy Services found “the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders.”

Vote: AGAINST.

4. Stock Incentive Plan (additional Shares)

Egan-Jones recommend Against it. “The board should seek to align CEO pay more closely with the performance of the company.” It should “work to reduce the cost of any similar plan that may be proposed in the future.” Agreed.

Vote: AGAINST.

Citigroup 2021: Shareholder Proposals

5. Improve the Catch-22 Proxy Access

This good corporate governance proposal comes from John Chevedden. The 20 member limit to form a proxy access group is unreasonable and has only ever been met once. In that case, a founder with a substantial holding in the company was able to get back on the board.  Egan-Jones also recommends For.

Real proxy access creates a more competitive environment for directors. That increases the value of our shares.

Vote: FOR

6. Independent Board Chairman

This proposal from Kenneth Steiner, another prominent individual shareholder like Mr. Chevedden. There is an inherent potential conflict, in having an Inside director serve as the Chairman of the board. Consequently, companies should separate the roles of the Chairman and CEO and the Chairman should be independent to further ensure board independence and accountability.  Egan-Jones recommends a vote FOR.

Vote FOR.

7. Increase Diversity of Director Nominees (Non-Management Employees on Director Nominee Candidate Lists)

This proposal from me. Of course, I voted FOR it. The Proposal argues the following in support:

  • According to the National Bureau of Economic Research, giving workers formal control rights increases female board representation and raises capital formation.
  • Employees are often more diverse than boards in terms of race, gender, and wealth.
  • The German “co-determination” model of shared governance is lauded as an excellent check against short-term capital allocation practices.
  • Polling demonstrates bipartisan public support (over 53%) for employee representation.
  • Anticipated benefits include reduced turnover, better-informed decision-making, better monitoring of management, and reduced shareholder myopia since employees often take a longer-term view.

Citigroup opposes because “Citi’s employees have numerous opportunities to express their views and concerns.” Mentioned are the following:

  • Town Halls
  • Diversity Events
  • Surveys
  • Ethics Hotline

None of those opportunities provide a mechanism for ongoing dialogue. My proposal is an opening move. I would have withdrawn if the Board had agreed to any significant step to increase worker voices. That includes even just a Board liaison to workers with an annual report to workers and shareholders on the results of such dialogue. Citigroup refused to even discuss.

The Council of Institutional Investors Research and Education Fund surveyed employee access to boards at S&P100 companies. It found growing support for director interactions with employees as a way for boards to better understand and oversee corporate culture. More than one-third (36%) detailed a formal or informal process by which boards interact with employees. Studies find non-US companies with worker board representatives created nine percent more wealth for their shareholders and twice the amount of investment as comparable companies without board-level worker representation.

Including worker perspectives on the Board would generate inclusivity and social cohesion, a major predictor of retention and productivity. Increased involvement by workers will increase productivity and share value. I am very interested in hearing from shareholders and Citigroup employees. Email.

Vote FOR.

8. Lobbying Disclosure

This proposal was from Miller/Howard Investments on behalf of Luc Theeuwes and the Greater Manchester Pension Fund. Citigroup’s lack of direct and indirect lobbying disclosure presents reputational risks when its lobbying contradicts company public positions. How do we know the expenses are in our best interest if they are not disclosed? That’s a basic requirement for assessing alignment.

Vote FOR.

9. Racial Equity Audit

This proposal was submitted by CtW Investment Group. Citi has a conflicted history when it comes to addressing racial injustice within the communities it serves. Egan-Jones, which often recommends against ESG proposals, wrote “a company’s success depends upon its ability to embrace diversity… this proposal is in the best interests of the Company and its shareholders.”  

Vote FOR.

10. Convert to Public Benefit Corporation

Harrington Investments submitted this proposal. Citigroup’s CEO signed the Business Roundtable’s Statement on the Purpose of a Corporation, including a statement supporting “… the communities in which we work … respect(ing) the people in our communities and protect(ing) the environment by embracing sustainability practices across our business.” Our company says it is committed to embracing sustainability practices. Yet, Citigroup is the second-largest source of fossil-fuel financing globally, having provided $237 billion in financing to fossil-fuel companies and projects since the Paris Agreement.

This behavior is inconsistent with long-term sustainability and increases reputational risk. It is inconsistent with our Company’s “Statement on the Purpose of a Corporation.” Citigroup’s legal framework requires it to prioritize financial return to shareholders above all else. Yet, the vast majority of us are diversified. A recent study found public companies impose social and environmental costs on the economy equal to more than half of their profits. Those costs—$2.2 trillion annually—equal more than 2.5% of global GDP. Citigroup may increase its isolated return to shareholders by applying a company-first shareholder primacy model and neglecting the costs it externalizes. However, its diversified shareholders, the vast majority of us, will pay these costs as our other investments, the environment, and society suffers.

Converting to a Public Benefit Company (PBC) would better align our company’s legal obligations with its ethical statements and our long-term interests as shareholders. I have introduced similar proposals to be voted at several companies this year. For many more robust arguments, see this SEC filing.

Vote FOR.

Citigroup 2021 CorpGov RecommendationsProxy Insight

Proxy Insight reported Trillium voted For Auditor and all shareholder proposals; Against all other items.

In looking up a few funds in our Shareowner Action Handbook, I see CBIS voted Against Auditor and Stock Plan; For all other items. Update 4/22: Norges voted for all board items, against all shareholder proposals except Lobbying Disclosure. Calvert voted for all board and shareholder proposals except Independent Board Chair. Australia’s Local Government Super voted for all board and shareholder proposals except Auditor, Independent Board Chair, Increase Diversity of Director Nominees.


CorpGov Votes

  1. Directors: AGAINST Dugan, Henry, Jacobs, Reiner, Taylor, Wynaendts, Zedillo.
  2. Auditor: AGAINST
  3. Executive Pay: AGAINST
  4. Stock Incentive Plan: AGAINST
  5. Improve Proxy Access: FOR
  6. Independent Board Chair: FOR
  7. Increase Diversity of Director Nominees: FOR
  8. Lobbying Disclosure: FOR
  9. Racial Equity Audit: FOR
  10. Convert to Public Benefit Corporation: FOR

Citigroup 2021: Mark Your Calendar

A stockholder who intends to present a proposal to be included in the next Proxy Statement must submit the proposal in writing to the Corporate Secretary:

388 Greenwich Street, New York, New York 10013 or email address: shareholderrelations@citi.com.

The proposal must be received no later than November 17, 2021. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.

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 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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