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.
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
Exact Sciences 2020: Board Proposals
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.
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 Proposals
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.
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.