Edwards Lifescience 2021 annual meeting is May 4, 10 AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit www.proxydocs.com/EW. They do not make it easy. I had to put in my control number, which was not in the TDAmeritrade library where I vote proxies. I had to find the control number of the ProxyVote email sent when the proxy came out. Then you fill out a form that asks how many shares you own, etc. But I am still not done. I will receive further instructions via email, including a unique link that will allow me access to the Annual Meeting, to vote, and submit questions during the Annual Meeting. Will that email come in time? Vote in advance. To enhance long-term value vote AGAINST LaViolette, Marsh, Valeriani, Auditor, and Pay. Vote FOR all other items, including #7 Increase Diversity of Director Nominees.
Edwards Lifesciences Corporation provides products and technologies for structural heart disease, and critical care, and surgical monitoring in the United States and internationally. 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 10 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 50% 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.
Edwards Lifesciences 2021: ISS & Sustainalytics Ratings
From the Yahoo Finance profile page: Edwards Lifesciences’ ISS Governance QualityScore on April 1, 2021, is 4. The pillar scores are Audit: 7; Board: 7; Shareholder Rights: 3; Compensation: 5. 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 the Board.
Edwards Lifesciences 2021: Board Proposals
1. Directors
Egan-Jones Proxy Services recommends against Michael A. Mussallem, holding the CEO accountable for cybersecurity risk. Trillium voted Against LaViolette, Marsh, and Valeriani (Nomination Committee members and board lack of diversity). I will go with both recommendations next year if the issues are not resolved. However, LaViolette, Marsh, and Valeriani all sit on the Compensation Committee too. Since I voted against pay, I also voted against these directors.
Vote: AGAINST LaViolette, Marsh, and Valeriani.
2. Executive Compensation
Edwards Lifesciences’ Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO and Chairman Michael Mussallem at $10M. I’m using Yahoo! Finance to determine market cap ($60B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Edwards Lifesciences is a large-cap company.
According to MyLogIQ, the median CEO compensation at large-cap corporations was $13M in 2020. Michael Mussallem is under that amount. However, Edwards Lifesciences lagged the Nasdaq over the most recent one-, two-, and five-year time periods, substantially so last year. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 194 to 1. Of course, 
Egan-Jones Proxy Services finds Company compensation strongly aligned with the long-term interest of its shareholders. Calvert and Trillium, discussed later, find pay unaligned. I agree.
Vote: AGAINST.
3. Employee Stock Purchase Plan (“The U.S. ESPP”)
Egan-Jones finds no evidence of prior or expected future abuse of this ESPP. “We believe this ESPP to be in the best interests of shareholders.”
Vote: FOR
4. Employee Stock Purchase Plan for International Employees
Similar to #3 above.
Vote: FOR
5. 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. PricewaterhouseCoopers, LLP served more than seven years. No other issues appear significant
Vote: AGAINST
Edwards Lifesciences 2021: Shareholder Proposals
6. Shareholder Right to Act by Written Consent
This is a good corporate governance proposal of the type I submit. 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
Egan-Jones recommends For. I agree.
Vote: FOR
7. Increase Diversity of Director Nominees
This proposal from my wife, Myra Young, and I wrote it. Yes, we 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 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.
Edwards Lifesciences opposes because employees have “open communications” with management and the Board. Mentioned are the following:
- Surveys
- “Ask Mike”
- Quarterly all-employee meetings
- Board presentations
- Engagements with Board, such as breakfast, lunch, and dinner events
- Hotline
None of those opportunities provide a mechanism for ongoing dialogue. I would have withdrawn if the Board 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. Our Board 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 want to hear from shareholders and Edwards Lifesciences employees. Email. Egan-Jones also recommends voting For.
Vote FOR.
Edwards Lifesciences 2021 CorpGov Recommendations
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 Marsh and Valeriani (board lacks diversity), compensation (not aligned with performance), and written consent. They voted For all other items. Trillium voted Against LaViolette, Marsh, and Valeriani (Nomination Committee members and board lacks diversity). They voted Against Pay (CEO pay not tied to ESG performance. CEO-worker pay ratio exceeds 50:1. The previous year’s restricted shares and stock options awarded to the CEO vest over less than five years.). Against Written Consent (because of Special Meeting Rights at 15%). They voted For all other items, including my Board of Directors Diversity proposal. CBIS voted Against Auditor and Written Consent; For all other items.
- Directors: AGAINST LaViolette, Marsh, and Valeriani.
- Executive Pay: AGAINST
- U.S. ESPP: FOR
- International ESSP: FOR
- Auditor: AGAINST
- Written Consent: FOR
- Increase Diversity of Director Nominees: FOR
Edwards Lifesciences 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair.
- The Chairman has tenure 3 times longer than average.
- No overboarding limit for directors.
- No right of written consent for shareholders.
Edwards Lifesciences 2022: Mark Your Calendar
In order for a stockholder proposal to be eligible for inclusion in the 2022 proxy, written proposasl must be received by the Corporate Secretary no later than November 23, 2021. Proposals must comply with the requirements of the Rule 14a-8 under the Exchange Act.
Warnings
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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