Exact Sciences 2022

Exact Sciences 2022 Proxy Score 38

Exact Sciences 2022 annual meeting is June 9, 2022, at 8:00 am Pacific. It is a virtual-only meeting on the Broadridge platform. Of course, I (James McRitchie) 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 Petrovic, Zanotti, Omnibus Stock Plan; FOR Proxy Access amendments. 

Exact Sciences Corporation provides cancer screening and diagnostic test products in the United States and internationally. Below, is how I voted and why.

I voted with the Board’s recommendations 38% of the time, so awarded a Proxy Score of 38 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.

Exact Sciences 2022: ISS Rating

From the Yahoo Finance profile page: Exact Sciences Corporation’s ISS Governance QualityScore as of May 1, 2022, is 6. The pillar scores are Audit: 5; Board: 3; Shareholder Rights: 4; Compensation: 10.

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.

Exact Sciences 2022: CorpGov Recommendations

Vote

CalvertCorpGov
1.1Elect Director Kevin Conroy

Rationale:  A vote FOR the remaining director nominees is warranted.
ForFor
1.2Elect Director Shacey Petrovic

Rationale: The board comprises fewer than two people of color or is less than 40% diverse overall.
Withhold Withhold
1.3Elect Director Katherine Zanotti

Rationale: On compensation committee.
ForWithhold
2Ratify PricewaterhouseCoopers, LLP as Auditors

Rationale: In the absence of further concerns, a vote FOR is warranted.
ForFor
3Advisory Vote to Ratify Named Executive Officers’ Compensation

Rationale: A vote FOR this proposal is warranted. In response to last year’s low say-on-pay vote result, the company disclosed shareholder engagement details, shareholder feedback, and made meaningful changes to address shareholders’ concerns. Pay and performance are reasonably aligned for the year in review. In regard to the FY21 compensation plan, annual incentives were based on pre-set goals and equity awards were half-comprised of performance-based awards that utilize a multi-year performance period. While disclosure improved, concerns remain about the degree of discretion applied in the annual incentive determination.
ForAgainst
4Amend Omnibus Stock Plan

Rationale: The plan’s dilution exceeds 10 percent.
AgainstAgainst
5Amend Qualified Employee Stock Purchase Plan

Rationale: A vote FOR this proposal is warranted given that the purchase price and number of shares reserved are reasonable, and the offer period is within the limits prescribed by Section 423 of the Internal Revenue Code.
ForFor
6Amend Proxy Access Right

Rationale: A vote FOR this proposal is warranted as the proposed elimination of the 20-shareholder aggregation limit would improve the company’s existing proxy access right for shareholders.
ForFOR

Exact Sciences 2020: Board Proposals

CEO pay at $14.6M is too high for a mid-cap company. CEO-to-worker pay ratio was 114:1. I voted AGAINST Executive Compensation and the only member of the Compensation Committee (Zanotti) up for election this year. I am following advice from Calvert regarding Petrovic, who heads the governance and nominating committee, and also with regard to stock plans.
PricewaterhouseCoopers LLP has only been the Exact Sciences auditor for 2 years, so should be considered independent.

Exact Sciences 2020: Shareholder Proposal on Proxy Access

As my proposal #6 on proxy access states: “the most essential feature requested is that shareholders forming a nominating group not be limited with regard to the number in a participating group.”

As cited in the proposal Proxy Access in the United States, a cost-benefit analysis by CFA Institute, found proxy access would “benefit both markets and boardrooms, raising US market capitalization by up to $140 billion.

The Exact Sciences Board filed a weak form of proxy access bylaws after reviewing my proposal, limiting nominating groups to 20 shareholders. The opposition statement contends our seven largest shareholders acting alone could satisfy the 3% ownership requirement… and any of our top 88 shareholders could form a group of 20 that would satisfy the 3% threshold.

However, such a scenario lacks credibility. Most of our top stockholders have a business model based on low costs. They’ve never filed a shareholder proposal, so are highly unlikely to go through the expense of proxy access.

The Board’s opposition statement also whines that Exact Sciences would be responsible for verifying all procedural requirements. Without group limits, that could be burdensome and costly. However, the real costs would be borne by nominating groups. My proposal is advisory. The Board can easily require that shareholders gather and submit proper documentation and could even require verification by a third party, paid by nominating groups.

The CFA study estimating a $140B rise in market cap was based on proxy access having no limit on the number in participating groups. As the Board’s opposition statement points out, most companies have limited groups to 20 members. As a result, proxy access has only been used once — to return a founder to a board. The anticipated $140B in economic benefits has failed to materialize.

Limiting groups to 20-members does not provide a proxy access right, it provides a proxy access illusion. Vote FOR proposal #6 — real proxy access.

Other Recommendations

In looking up a few funds in our Shareowner Action Handbook, I see several funds have reported their votes.

Exact Sciences 2022: Issues for Future Proposalsinsightia

Looking at insightia for anti-shareholder provisions:

  • No requirement to separate CEO and Chair
  • Shareholders cannot take action by written consent or call a special meeting
  • Supermajority provisions

Exact Sciences 2023: Mark Your Calendar

Shareholder proposals to be considered for inclusion in the proxy statement and form of proxy relating to the 2023 annual meeting of shareholders must be received no later than December 30, 2022. In addition, all proposals will need to comply with Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which lists the requirements for the inclusion of shareholder proposals in company-sponsored proxy materials. Shareholder proposals must be delivered to the Company’s Secretary at 5505 Endeavor Lane, Madison, Wisconsin 53719.

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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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