Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:

Ormat Technologies, Inc. May 5 AGM
New York Stock Exchange

There’s never a good time to be accused of corruption. In Ormat’s case the allegations, from aptly named short seller Hindenburg Research, came in March just ahead of the annual meeting, and shortly after the company announced that it had resolved an earlier material weakness in its accounting controls and procedure.

Hindenburg released a report claiming evidence of dodgy practices ranging from Guatemala to Kenya, and highlighting the professional history of director Ravit Barniv and general counsel and chief compliance officer Hezi Kattan, who apparently face charges in Israel for bribing officials on behalf of another company, Shikun & Binui. Ormat’s CEO, Doron Blachar, was also hired from Shikun & Binui, where he served as CFO, and his former boss while there has subsequently been arrested.

For its part, Ormat immediately established a Special Committee of independent directors, which is working with outside counsel to review the claims. In addition the company has stated that it would transfer responsibility for compliance away from Kattan, and confirmed that Bariv will not stand for reelection. While the allegations appear to have prompted an initial 10% drop in Ormat’s share price, it has since stabilised and does not look likely to crash and burn.

 

Indivior plc May 6 AGM
London Stock Exchange

It’s not quite true that executives never go to prison — just ask Shaun Thaxter, the former CEO of Individor. After stepping down from that role, he pled guilty to introducing misbranded drugs, namely the opioid ‘treatment’ Suboxone, into interstate commerce under the U.S. Responsible Corporate Officer Doctrine. The RCO allows for executives to be held liable for violations by others in the company, even in the absence of personal wrongdoing or malfeasance by the executive. That was technically the case for Mr. Thaxter, who was nonetheless sentenced to six months in federal prison and significant financial penalties. However, he will not be forfeiting his outstanding long-term incentive awards, which will vest pro-rated for time served (ahem — worked) and performance. Now shareholders will have to make their own judgment, about whether the remuneration committee’s decision to treat Mr. Thaxter as a good leaver was appropriate. On the one hand, Mr. Thaxter’s willingness to offer himself as a sacrificial lamb is about as far as one could take the concept of commitment to the company. On the other, it’s a bit odd to say that the buck stops with the CEO, but not the equity awards.

It’s not the only pay decision to consider in relation to Indivior’s remuneration proposals (both the advisory report and binding proposal are on the agenda). In response to COVID-19, ongoing market underperformance, and significant voting opposition at last year’s AGM, downward discretion was applied to vesting outcomes for 2018 LTIP awards, executives volunteered to forego any 2020 bonus, and both salary increases and 401(k) profit sharing have been scrapped for 2021. Moreover, the proposed new remuneration policy features reduced LTI awards, and new shareholding guidelines that apply after cessation of employment.

 

AMC Entertainment Holdings May 4 AGM
New York Stock Exchange

Shareholders at AMC thought they had successfully declassified the board after a management proposal to that effect received 99% support at the 2020 AGM. But in December, the company reclassified its board at the request of then-controlling shareholder Dalian Wanda Group Co., Ltd., in exchange for Dalian lifting conditions that were complicating the company’s efforts to raise capital, and effectively ceding its control over the company by allowing the conversion of Class B stock, which provided 3 votes per share, into standard Class A. Dalian has subsequently let its ownership decline to under 10%, but still holds two seats on the board. That overrepresentation, along with the reclassification, might not be optimal for governance-minded investors — but they’ll have to consider whether it’s a fair price to pay for removing the prior dual-class share structure, particularly given the company’s urgent need for capital with cinemas especially hard hit by the COVID-related lockdown.

Luckily for AMC’s executives, their pay was largely insulated from those hits thanks to some generous decisions by the compensation committee. The company issued two rounds of special bonuses, with the CEO’s total payout equal to his maximum opportunity under the normal short-term incentive plan; performance targets on long-term equity were waived, with awards paid out at 90% of target; and price targets and service conditions were waived on one-time awards, allowing for immediate vesting.

 

Paycom Software Inc. May 3 AGM
New York Stock Exchange
Surgalign Holdings, Inc. May 4 AGM
NASDAQ

At last year’s AGM, a majority of Paycom shareholders rejected the say-on-pay vote. In response, the board engaged with shareholders and replaced the prior long-term incentive goals, which measured total enterprise value on an absolute, “all-or-nothing” basis, with a new structure based on relative TSR. A win’s a win! Except that the new structure will not apply to the CEO, who received a separate “CEO Performance Award” worth $176 million, based solely on absolute share price hurdles. To be clear the size of the award reflects the fact that he won’t be receiving any standard LTI’s until at least 2025. Nonetheless the size and structure of the grant, which has been front-loaded in two tranches, may be a cause of concern. It is certainly stretching: the first tranche requires the share price to increase by 2.5x, and the second by more than 4x. On the other hand, it only has to reach those levels for any 20-day period in the next decade. Moreover, if market forces outside of the CEO’s control make those targets unattainable, the award could quickly lose any incentive value.

Paycom shareholders should also note the decision to implement a forum selection clause in the company’s bylaws. It’s not necessarily a topic that generates headlines like $176 million CEO awards, but limiting all intra-corporate disputes, such as derivative actions or claims that fiduciary duties were breached, to a single venue can have a dramatic impact on shareholder rights by effectively limiting the opportunity for legal remedy. As such it’s reasonable for shareholders to expect to be offered a vote if the company wants to put an exclusive forum clause into the bylaws. That didn’t happen at Paycom, or at Surgalign, which went so far as to specify different forums for different types of actions.

Surgalign may be anticipating an uptick in shareholder lawsuits, given its disclosure that internal controls over financial reporting were not effective as of December 31, 2021 as a result of material weaknesses identified in its accounting controls and procedures. It appears that the problems relate to a lack of segregation of duties within accounting functions, a lack of expertise in the application of generally accepted accounting principles, and a lack of adequate controls over user access, among other things. The company is taking steps to implement a remediation plan but shareholders will be aware that the problems have been ongoing for at least a year, following an SEC investigation and a financial restatement in early 2020.

 

MGM Resorts International May 5 AGM
New York Stock Exchange

Speaking of 2020 opposition to say-on-pay — last year MGM saw nearly half of shareholders vote against, with opposition stemming primarily from the terms of the company’s leadership transition. Total payments to the outgoing CEO exceeded $30 million, and the newly promoted William Hornbuckle received another 3.4 million in RSUs. Addressing these types of shareholder concerns can be tricky, given the legal difficulty of making changes to agreed contracts, and indeed the protest vote did not change the terms of the transition. However it does appear that the board engaged following the AGM, improving its disclosure and adding an ESG metric to the short-term incentive in response. Moreover in response to COVID, target bonus was cut in half and salary was paid in equity. Whether those measures are enough to address shareholder concerns remains to be seen.

Also on the ballot is a proposal that would authorise the issuance of up to 50,000,000 shares of preferred stock, providing flexibility to pursue a deal quickly without going back to shareholders. The proposal comes a few months after MGM walked away from an $11 billion takeover of Entain, which owns the UK’s Ladbrokes betting shops. Shareholders will need to consider whether giving the board what amounts to a blank cheque is worth the gamble.

 

Koninklijke Philips N.V. May 6 AGM
Euronext Amsterdam

All sorts of companies made news last year for how they adjusted to the changed landscape of the COVID-19 pandemic. In the case of Koninklijke Philips N.V., that appears to have meant raising prices. In August it was reported that the U.S. Department of Health and Human Services was investigating allegations that the company was had increased the price of ventilators from $3,280 per unit under a prior deal with the Obama administration to $15,000 per unit under a new order. The company pushed back, noting production ramp up and allocation and denying any attempt to profiteer from the crisis.

On the subject of adjustments, the outcome under the 2018 LTI plan would have been between threshold and target except that the EPS figure used to determine awards was increased by €0.16, from €1.29 to €1.45, leading to an above-target payout. To be fair the company also delivered STI payouts in restricted equity, rather than cash, and delayed salary increases for six months in response to the pandemic.

 

Duke Energy Corporation May 6 AGM
New York Stock Exchange

Duke’s upcoming AGM is the subject of an exempt solicitation urging shareholders to vote against independent lead director Michael Browning and chair/CEO Lynn Good. The solicitation was filed by Majority Action, a nonprofit organization dedicated to empowering shareholders, and is based on concerns about the company’s oversight of ESG issues and overall board leadership. Majority Action claims there is a lack of expertise in renewable energy technology, a lack of alignment between the company’s climate ambitions and its actual capital expenditures, and a failure to provide disclosure to reassure investors that political advocacy is in line with the company’s stated policy positions. With regard to board leadership, the solicitation notes the continued absence of an independent chair, exacerbated by Mr. Browning’s 15-year tenure and a general lack of diversity and relevant experience. Majority action is also calling for shareholders to support two shareholder proposals which directly relate to several of the concerns outlined above, namely calling on the company to adopt an independent board chair and to provide disclosure regarding political donations and expenditures.

Those are the only shareholder proposals on the agenda thanks to SEC No-Action Relief — separate proposals requesting a 10% threshold to initiate written consent, and to report on how the company’s governance and management systems align with the Business Roundtable’s Statement of the Purpose of a Corporation were excluded, on the bases that the written consent proponent had failed to prove requisite stock ownership, and that the reporting proposal had already been substantially implemented. The AGM also includes a management proposal that would eliminate supermajority requirements — but like at several other companies discussed in our 4/19 PSI, the effort is complicated by the existing bylaws, which require the support of 80% of shares outstanding. Similar proposals in 2017 and 2018 received overwhelming support on a proportional basis — but only from ~60% of shares outstanding.