Illumina 2022 annual meeting is May 26, 2022, at 9:00 am 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 Guthart, Dorsa, Epstein, #5 Illusionary Special Meeting Rights. Vote FOR #4 Genuine Special Meeting Rights.
Illumina, Inc. provides sequencing and array-based solutions for genetic and genomic analysis. Its products and services serve customers in a range of markets enabling the adoption of genomic solutions in research and clinical settings for applications in the life sciences, oncology, reproductive health, agriculture, and other emerging segments. Below, is how I voted and why in a much shorter format than I’ve used in prior years since I am pressed for time.
I voted with the Board’s recommendations 46% of the time, so Proxy Score 46 out of 100. 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.
Illumina 2022: ISS Rating
From the Yahoo Finance profile page: Illumina, Inc.’s ISS Governance QualityScore as of May 1, 2022, is 5. The pillar scores are Audit: 2; Board: 1; Shareholder Rights: 6; Compensation: 9.
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.
Illumina 2022: CorpGov Recommendations
| ITEM | CorpGov.net Votes | |
|---|---|---|
| 1. Election of Directors | FOR, except Guthart, Dorsa, Epstein | |
| 2 – Ratification of the Appointment of Independent Auditors | AGAINST | |
| 3 – Advisory Vote to Approve Executive Compensation | AGAINST | |
| 4 – Shareholder Proposal on Special Meeting Rights | FOR | |
| 5 – Board Proposal on Special Meeting Rights | ABSTAIN or AGAINST |
Illumina 2022: Proxy Voting Notes
CEO pay at $14M seems high to me but $23M to the former Chief Operating Officer takes the cake. That is just too much. Additionally, the CEO-to-worker pay ratio was 124:1. I voted AGAINST Executive Compensation and members of the Compensation Committee (Gary S. Guthart, Ph.D. (Chair), Caroline Dorsa, Robert S. Epstein, M.D.).
Ernst & Young LLP has been Illumina’s auditor for 24 years. At some point, auditors can lose their independence if the relationship is too long. I voted AGAINST.
Special Meetings
Shareholder Proposal #4
With regard to proposal #4, asking for shareholders to have the right to call special meetings. The proposal was written by me, so of course, I voted in favor. This is simply good governance, to provide shareholders with 15% of shares the right to call special meetings. Such proposals are routinely supported by proxy advisors ISS, Glass Lewis, and Egan Jones.
Board Proposal #5
The Board’s proposal requires that only shareholders that have continuously held 25% of outstanding shares for one year or more can call a special meeting. Imagine trying to gather and submit all the documentation the company may require for that unusual provision. The Board is attempting to create a logistics nightmare. For example, stock holdings in most portfolios vary considerably from quarter to quarter as funds rebalance or take other actions. Illumina could require those calling a special meeting to document they have held the requisite stock continuously each day for a year.
This is a very unusual provision that companies have recently been adopting to make themselves look good on the surface. Unfortunately, many proxy voting policies do not dig into the weeds and Illumina is likely to fool most of its shareholders.
Unfortunately, many proxy voting policies do not dig into the weeds and Illumina is likely to fool most of its shareholders. 25% ALMOST sounds reasonable but consider that 20% of Illumina’s shareholders may have only held for a year or less. Another 10% of shares aren’t routinely voted. Therefore, Illumina’s 25% requirement should be seen as closer to a 40 or 50% requirement under traditional terms. That doesn’t sound so shareholder-friendly, does it?
Glass Lewis generally favors a 10-15% special meeting right in line with proposal #4’s request for a 15% right. Accordingly, Glass Lewis will generally recommend voting for management or shareholder proposals that fall within this range. When faced with conflicting proposals, Glass Lewis will generally recommend in favor of the lower special meeting right and will recommend voting against the proposal with the higher threshold.
However, in instances where there are conflicting management and shareholder proposals and a company has not established a special meeting right, as is the case here, Glass Lewis may recommend that shareholders vote in favor of the shareholder proposal and that they abstain from a management-proposed bylaw amendment seeking to establish a special meeting right. Abstention is appropriate to ensure that shareholders are sending a clear signal regarding their preference for the appropriate threshold for a special meeting right, while not directly opposing the establishment of such a right. (2022 Policy Guidelines) As you can see, I embrace this approach.
ISS favors an unfettered right of shareholders to call special meetings.
“Unfettered” means no restrictions on agenda items, no restrictions on the number of shareholders who can group together to reach the 10 percent threshold, and only reasonable limits on when a meeting can be called: no greater than 30 days after the last annual meeting and no greater than 90 prior to the next annual meeting.
The Board’s proposal requires that only shareholders that have continuously held shares for one year or more can call a special meeting. That is certainly not an “unfettered” right.
Other Recommendations
In looking up a few funds in our Shareowner Action Handbook, I see several funds have reported their votes. Most voted in favor of both proposals #4 and #5. By failing to take the advice of Glass Lewis, they practically guarantee the Board will adopt their unworkable special meeting “right.” Please don’t make that mistake. Either vote Against or Abstain on #5; FOR #4. Proposal #5 is not “half-a-loaf” or “better than nothing.” It is a dangerous precedent leading to the erosion of shareholder rights, similar to dual-class shares.
Illumina 2022: Issues for Future Proposals
Looking at insightia for anti-shareholder provisions:
- No requirement to separate CEO and Chair
- Shareholders cannot take action by written consent
Illumina 2023: Mark Your Calendar
Under SEC Rule 14a-8, a stockholder who intends to present a proposal at our 2023 annual meeting of stockholders (other than a director nomination) and who wishes the proposal to be included in the proxy statement for that meeting must submit the proposal in writing to our principal executive offices. The proposal must be received no later than December 15, 2022. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.
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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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