2U 2021 annual meeting is June 3, noon Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit here. You need your control number. I recommend voting in advance. To enhance long-term value. Vote AGAINST all directors, Pay, Auditor; FOR Elect All Directors Annually.
2U, Inc. operates as an education technology company in the United States, Hong Kong, South Africa, and the United Kingdom. The company operates in two segments, Degree Program and Alternative Credential. The Degree Program segment provides the technology and services to nonprofit colleges and universities to enable the online delivery of degree programs. Most shareholders do not vote. Reading through 70 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 9 minutes of reading. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.
I voted with none of the Board’s recommendations. 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.
Biogen 2021: ISS Rating
From the Yahoo Finance profile page: 2U, Inc.’s ISS Governance QualityScore as of April 30, 2021, is 9. The pillar scores are Audit: 2; Board: 9; Shareholder Rights: 8; Compensation: 8.
Biogen 2021: Board Proposals
1. Directors
The Board failed to act on a 2018 vote by shareholders to declassify the board. Introduced by CalPERS, it won 87% of the vote. Defying the will of shareholders on that level should not be tolerated. Directors are elected by shareholders and should be cognizant that we will hold them accountable. I will also note that last year directors were reelected with votes ranging from 61% to 68%. That is incredibly low for a board running without opposition.
Vote: AGAINST/WITHHOLD
2. Executive Compensation
2U Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Christopher J. Paucek at $6.4 M. I’m using Yahoo! Finance to determine market cap ($2.7 B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Biogen is certainly a mid-cap company, but barely.
According to MyLogIQ, the median CEO compensation at mid-cap corporations was $6.4 M in 2020. CEO Christopher Paucek at $6.4 M is at that amount. 2U shares underperformed the Nasdaq in the most recent one-year 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 130 to 1. 
Given the lack of pay alignment with shareholder returns and my concern for growing wealth disparity, 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 served ten years. No other issues appear significant.
Vote: AGAINST.
2U 2021: Shareholder Proposals
4. Elect each Director Annually
2U takes no position. This proposal from me (James McRitchie), so, of course, I voted For it. Egan-Jones generally notes: “staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board. We prefer that the entire board of a company be elected annually to provide appropriate responsiveness to shareholders.”
Almost 90% of S&P 500 and Fortune 500 companies have declassified boards. According to Equilar; “A classified board creates concern among shareholders because poorly performing directors may benefit from an electoral reprieve. Moreover, a fraternal atmosphere may form from a staggered board that favors the interests of management above those of shareholders. Since directors in a declassified board are elected and evaluated each year, declassification promotes responsiveness to shareholder demands and pressures directors to perform to retain their seat. Notably, proxy advisory firms ISS and Glass Lewis both support declassified structures.”
Vote FOR.
2U 2021 CorpGov Recommendations
Proxy Insight reported no votes when I last checked.
In looking up a few funds in our Shareowner Action Handbook, NYC Pensions voted Against/Withhold all directors. They do not provide a reason. I suspect it is for failing to act on a 2018 vote by shareholders to declassify the board. Introduced by CalPERS, it won 87% of the vote. They voted For all other items.
I wish I could report how ARK Investment Management voted, since they own 18% of 2U and I am also an investor in ARK. Unfortunately, I have contacted them several times with no reply and I have been unable to find their proxy voting policies online.
Norges voted For all items.
- Directors: AGAINST/WITHHOLD all
- Executive Compensation: AGAINST
- Auditor: AGAINST
- Elect Each Director Annually: FOR
2U 2021: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement that unopposed directors be elected by majority vote
- Shareholders lack the right to hold a special meeting
- Classified board
- Independent board chair not required
- No written consent provision
- Proxy access not provided
- Supermajority requirements
2U 2022: Mark Your Calendar
To be included in the 2022 proxy shareholder proposal must be received by no later than the close of business on December 20, 2021.
Related Posts
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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