Axon Enterprise 2021 Majority Vote Standard?

Axon Enterprise 2021 Majority Vote Standard?

Axon Enterprise 2021 annual meeting is May 27, 10 AM Pacific Time. To attend, vote, and submit questions during the Annual Meeting visit here. You will need your control number. Vote in advance. You may not have time at the meeting. Enhance long-term value. Vote WITHHOLD Carmona, Cullivan, and Kalinowski, Auditor; For Pay, increase number of board members, and majority voting standard for directors.

Axon Enterprise, Inc. develops, manufactures, and sells conducted energy weapons (CEWs) under the TASER brand in the United States and internationally. It operates through two segments: TASER and Software/Sensors. Most shareholders do not vote.  Reading through 53 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 the Board’s recommendations only 10% 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.

Axon Enterprise Inc 2021: ISS & Sustainalytics Ratings

From the Yahoo Finance profile page: Axon Enterprise, Inc.’s ISS Governance QualityScore as of April 30, 2021, is 3. The pillar scores are Audit: 1; Board: 2; Shareholder Rights: 4; 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 to Shareholder Rights, and Compensation.
Sustainalytics’ rating unavailable.

Axon Enterprise 2021: Board Proposals

1. Directors

I voted Against Richard H. Carmona who has served on the Board for 14 years and should no longer be considered independent. I would have voted against others for the same reason but Axon has a classified board, so only three are up for election this year.

Another strike against long-standing directors, such as Carmona is their failure to act on shareholder votes. My proposals to declassify the board won 67% of the vote in 2018 and 85% in 2020. It may take a withhold campaign to get their attention.

Therefore, I also voted Against Julie Cullivan and Caitlin Kalinowski for failing to implement the overwhelming wishes of shareholders. Our elected representatives should represent us not what may be their own personal desire for entrenchment.

Vote: WITHHOLD Carmona, Cullivan, and Kalinowski.

2. Executive Compensation

Axon Enterprise Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Patrick Smith at $2.6 M. I’m using Yahoo! Finance to determine market cap ($8.4 B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Axon is a mid-cap company.mylogiq_logo

According to MyLogIQ, the median CEO compensation at mid-cap corporations was $6.4M in 2020. CEO Patrick Smith at  $2.6M is below that amount.  Axon Enterprise shares outperformed 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 25 to 1.

Vote: FOR.

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 and others recommend voting against the auditor if they served for seven years. Independence becomes compromised by that time. Grant Thornton has served for 16 years. No other issues appear significant

Vote: AGAINST

4. Increase size of Board of Directors from 9 to 11

While I am in favor of a larger board so that Axon can address diversity concerns, I am hesitant. Yes, they are likely to add diverse candidates. However, will they get rid of directors who have served too long? More than half the board has served for more than 10 years. We will see.

Vote: FOR

Axon Enterprise 2021: Shareholder Proposals

5. Elect Directors by Majority Vote

90% of S&P 500 companies have a majority vote standard for directors. Even 48% of Russell 3000 have that standard. One reason the Board gives for opposing this proposal is my use of “non-customary language.” The proposal asks the Board to replace any incumbent director who fails to reach a majority consensus on an expedited basis, instead of 90 days. “Requiring the Board to find a replacement on an expedited basis could divert Board attention away from managing the Company towards finding replacements.”

Unfortunately, the Company failed to accept the proponent’s offer to negotiate. That “non-customary” language was meant to give the Board more flexibility. Had they discussed their concerns with me, I would have been happy to allow 90 days, or even more if needed.

The Board disagrees with  the shareholder’s charge that the Company’s Board features an “outdated governance structure that reduces accountability to shareholders, increasing the likelihood of stagnation.” The Board insists “Axon enjoys a strong, engaged and independent Board of Directors that actively maintains strong relationships with shareholders…”

In 2018 67% of shares voted to declassify the board. In 2020 85% of shares voted again to declassify the board. As mentioned above, more than half the board has served for more than 10 years.  Axon has no requirement to separate CEO and Chair positions and shareholders have no right to proxy access. Axon claims to have an “engaged and independent Board of Directors that actively maintains strong relationships with shareholders.” Yet, I have filed three shareholder proposals in three years, with votes ranging from 67%-97%. They have certainly never engaged with me.

Vote: FOR

Axon Enterprise 2021 CorpGov RecommendationsProxy Insight

Proxy Insight reported no votes when I last checked. 

In looking up a few funds in our Shareowner Action Handbook, NYC Pensions voted Against all the directors and Pay; For all other measures. Norges voted For all items except Carmona for failure to act on a material request from shareholders. Calvert voted Against all directors; For all other items. “WITHHOLD votes are warranted for incumbent director nominees Richard Carmona, Julie Cullivan, and Caitlin Kalinowski for the board’s failure to adequately respond to the majority supported board declassification proposal submitted at last year’s annual meeting.” I agree.


CorpGov Votes:

  1. Directors: WITHHOLD Carmona, Cullivan, and Kalinowski
  2. Executive Pay: FOR
  3. Auditor: AGAINST
  4. Increase Board of Director Size: FOR
  5. Majority Vote: FOR

Axon Enterprise 2021: Issues for Future Proposals  doneinsightia

Looking at insightia for anti-shareholder provisions:

  • No requirement to separate CEO and Chair
  • Directors are not elected by a majority vote
  • No shareholder right to proxy access
  • Classified board

Axon Enterprise 2022: Mark Your Calendar

Shareholder proposals for inclusion in the 2022 Proxy must be received no later than December 12, 2021, by the Corporate Secretary.  The Company’s principal executive offices are at 17800 North 85th Street, Scottsdale, Arizona 85255.

Related Posts

Axon Enterprise 2020 Annual Director Election

Axon Enterprise Proxy Recommendations

Axon 2019 Proxy Voting Guide

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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