2U 2022

2U 2022 Proxy Score 75

2U 2022 annual meeting is on June 8, 2022, at noon Pacific. It is a virtual-only meeting on the Broadridge platform. Of course, I recommend voting in advance, especially since many companies cut off voting as soon as proposals have been presented. To enhance corporate governance and long-term value, vote Against Coretha Rushing and Pay. Vote FOR #5  & #6 to declassify the Board and require a majority vote for unopposed directors.

2U, Inc. operates as an education technology company in the United States and internationally. The company operates through two segments, Degree Program and Alternative Credential. Below, is how I voted and why in a much shorter format than I’ve used in prior years.

I voted with the Board’s recommendations 75% of the time, so I awarded a Proxy Score of 75 out of 100. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

2U 2022: ISS Rating

From the Yahoo Finance profile page: 2U, Inc.’s ISS Governance QualityScore as of May 1, 2022, is 7. The pillar scores are Audit: 3; Board: 8; Shareholder Rights: 8; 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.

2U 2022: CorpGov Recommendations

The following table compares the votes of Calvert and CorpGov.net.
CorpGovCalvert
1.1

Elect Director Timothy M. Haley

Rationale: WITHHOLD votes are warranted for governance committee member Timothy (Tim) Haley given the board’s failure to remove, or subject to a sunset requirement, the supermajority vote requirement to enact certain changes to the governing documents, which adversely impacts shareholder rights. CorpGov: I’m voting For Mr. Haley, given that shareholders have not (to my knowledge) submitted a proposal asking for the supermajority standard to be removed.

ForWithhold
1.2

Elect Director Earl Lewis

Rationale: A vote FOR the remaining director nominees is warranted.

ForFor
1.3Elect Director Coretha M. Rushing

Rationale: A vote FOR the remaining director nominees is warranted. CorpGov: Since I voted against Pay, I also voted against members of the Compensation Committee.
WithholdFor
2Advisory Vote to Ratify Named Executive Officers’ Compensation

Rationale: CEO pay exceeds the 75th percentile of peers and the company’s performance is below the 75th percentile of the peer group.–A vote AGAINST the proposal is warranted. Although the annual bonus is entirely based on pre-set objective metrics and appears to utilize rigorous financial target goals, a number of concerning changes were made in the LTI program. The portion of the annual equity grant that utilizes performance criteria was decreased from 75 percent to 50 percent in FY21. The company added a multi-year performance period to a portion of the performance award but this portion merely targets 50th percentile performance. The rest of the performance grant, which is based on annualized performance of undisclosed financial targets, utilizes an identical metric to the annual bonus program.
AgainstAgainst
3Advisory Vote on Say on Pay Frequency

Rationale: We support an annual shareholder advisory vote on compensation.
One YearOne Year
4Ratify KPMG LLP as Auditors

Rationale:  In the absence of further concerns, a vote FOR is warranted.
ForFor
5Declassify the Board of Directors

Rationale: Calvert supports resolutions to declassify the board. CorpGov: Our advisory proposal to declassify the board won 97.7% of the vote last year.
ForFor
6Require a Majority Vote for the Election of Directors

Rationale: A vote FOR this proposal is warranted as it would give shareholders a more meaningful voice in the election of directors and further enhance the company’s corporate governance. CorpGov: This is our proposal. The Board takes no position.
For

2U 2022: Proxy Voting Notes

CEO pay at $3.4M seems high to me for a small-cap. The CEO-to-worker pay ratio was 56:1. I voted AGAINST Executive Compensation and the only member of the Compensation Committee up for reelection, Coretha M. Rushing.
KPMG LLP has been the auditor for 11 years. At some point, auditors can lose their independence if the relationship is too long. I voted For but may vote Against next year if there are no changes.

2U 2022: #6 Require a Majority Vote for the Election of Directors

Calvert voted For; I just can’t seem to get that into the table.

Proposal #6 was submitted by me (James McRitchie), so of course, I voted in favor of this proposal, which 91% of S&P 500 companies have adopted. In 2018 a similar proposal was submitted by CalPERS. Our Board opposed, the proposal writing because they did not want to risk a “failed election” where a vacancy is possible:

The Company may face legal uncertainty as to satisfying certain Nasdaq listing requirements or other corporate governance regulations, such as those relating to the independence of directors, committee composition or the maintenance of an audit committee financial expert.

Of course, such as event would be unlikely. However, if it happens, the Board can quickly fill the vacancy with an appointment. Wisely, this year the Board has decided not to oppose the proposal and to make no voting recommendation to stockholders.

If a director cannot get elected by a majority vote when running unopposed, something is obviously wrong. In my experience, most Boards simply agreed to implement the proposal without putting my proposal on the proxy.

In 2019 and 2020 majority shares voted FOR similar proposals at TG Therapeutics, Lipocine, Abeona Therapeutics, Alico, Guidewire Software, Stemline Therapeutics, Caesars Entertainment, RadNet, Gannett, New Residential Investment, Safety Insurance Group, First Community Bancshares, Greenhill, and Advaxis.
Vanguard, one of our largest shareholders, includes the following in their proxy voting guidance: “If the company has plurality voting, a fund will typically vote for shareholder proposals requiring majority vote for election of directors.” BlackRock’s proxy voting guidelines include the following: “Majority voting standards assist in ensuring that directors who are not broadly supported by shareholders are not elected to serve as their representatives.” Many other large shareholders have similar proxy voting policies.

Please vote For proposal #6. Zombies should have no place on our Board.

2U 2022: Issues for Future Proposalsinsightia

Looking at insightia for anti-shareholder provisions:

  • No requirement to separate the CEO and Chair
  • Classified Board
  • Shareholders cannot take action by written consent or call a special meeting
  • Supermajority requirements to change bylaws
  • Proxy access is nonexistent

2U 2023: Mark Your Calendar

Any proposals that our stockholders wish to have included in our proxy statement and form of proxy for the 2023 annual meeting of stockholders pursuant to Rule 14a-8 under the Exchange Act must be received by us no later than the close of business on December 22, 2022 and must otherwise comply with the requirements of Rule 14a-8.

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