Highlights from the world of Proxy Papers you can’t afford to miss!
Arconic Inc.
New York Stock Exchange – May 25
Arconic’s first annual shareholder meeting following the separation of predecessor Aloca Inc.’s upstream and downstream businesses late last year involves a highly contentious contested election of directors.
Well known activist Elliott Associates L.P. has built a 13.2% economic stake in the company and is pushing for the election of four independent directors in opposition to a slate of candidates nominated by the incumbent board. While Elliott’s many grievances are expressed in a presentation that runs more than 300 pages, the fund’s primary concern at Arconic initially centered around financial performance under the leadership of former chairman and CEO Klaus Kleinfeld, whom Elliott sought to remove and replace. The board initially expressed unanimous support for Mr. Kleinfeld’s leadership and strategy.
The contest took a bizarre turn when the board later dismissed Mr. Kleinfeld in April 2017 after learning he had sent an unauthorized and vaguely threatening letter to Elliott CEO Paul Singer that the board determined showed poor judgement. The board stated that Mr. Kleinfeld’s removal was not for poor performance and it took the opportunity to reaffirm the strategy developed under him. Elliott continues to call for a review of this strategy and the two sides offer competing narratives regarding opportunities to improve efficiency at Arconic’s core Engineered Products and Global Rolled Products segments.
Shareholders should note that the selection of Arconic’s next CEO remains a significant point of focus in this contest and is arguably most important decision that will face the newly elected board. Both sides advocate conducting a wide search process to identify the best candidate, although Elliott argues the incumbent board lacks credibility to oversee this process. Elliott has identified former Spirit Aerosystems, Inc. CEO Larry Lawson as its preferred candidate. The board argues that Elliott is attempting to exert undue influence over the company.
Grammer AG
Deutsche Börse – May 24
Low attendance at general meetings can often allow a major shareholder to have a disproportionate influence over a company compared to its equity stake. Looking back at meeting attendance of far below 50% in previous years, management at Grammer AG were likely feeling a little apprehensive when the Hastor family, owners of fellow automotive component producer Prevent, acquired a 10% stake in early 2016 while remaining tight-lipped as to its intentions. An attempt by Grammer to increase the threshold required to remove supervisory board members at the 2016 annual meeting fell flat; the Hastors have now doubled their stake and plan to replace the board in its entirety at the 2017 annual meeting. However, a last-minute bond issuance to a strategic partner in China may just be enough to thwart the Hastors’ plans. While meeting attendance has been gradually increasing in Germany, due in part to reduced participation restrictions for international shareholders, companies with historically low attendance records are likely to remain a target for investors with an agenda.
Chipotle Mexican Grill
New York Stock Exchange – May 25
In the past year, Chipotle’s board of directors has been hard at work developing a new recipe for success. Setting aside its culinary offerings, the restaurateur has faced criticism in recent years regarding its board’s lack of “freshness”, with certain investment groups highlighting a substantial average tenure and lack of diversity as contributing factors to the company’s struggling financial performance after being linked to several outbreaks of food-borne illnesses in 2015.
When Bill Ackman’s fund Pershing Square Capital Management disclosed in August 2016 that it had acquired a 9.9% stake in the company, making it the second-largest shareholder, the hedge fund specifically noted that it planned to discuss governance and board composition. Subsequently, in December 2016, the company announced that it had reached an agreement with Pershing Square and named four new directors to the board as part of its “Board Refresh Initiative”. At this year’s annual meeting, shareholders will vote on the election of these new directors, including Ali Namvar and Matthew H. Paull, partner and advisory board member, respectively, of Pershing Square; and two media executives, Paul T. Capuccio, and Robin Hickenlooper. Additionally, on March 17, 2017, Chipotle announced in a Form 8-K that directors John Charlesworth, Pat Flynn, Darlene Friedman, each of whom has served on the board for over fifteen years, determined that they (along with the more modestly-tenured Stephen Gillett) will not stand for reelection at this year’s annual meeting. In addition to extensive board refreshment, the company has also made changes to its executive leadership structure in the past fiscal year, with Monty Moran stepping down from his position as co-CEO and founder Steve Ells assuming the role of sole CEO.
It appears that Pershing Square has delivered fresh ingredients; now it’s up to the board and management to get cooking.
Urban Outfitters
NASDAQ – May 23
At the 2016 annual meeting, shareholders expressed their discontent with directors Belair and Cherken serving on the board. For the fourth year in a row, these directors received more than 30% votes against their election. The continued discontent has escalated this year with CtW Investment Group’s “Vote No” campaign urging shareholders to vote against non-executive directors Robert Strouse and Harry Cherken based on their tenure on the nominating and governance committee. Ctw has cited the board’s low independence, long tenure, poor responsiveness to shareholders, board insularity, and broken nomination process as the driving forces of their campaign.
The Southern Company
New York Stock Exchange – May 24
The Southern Company faces an uprising. In advance of its AGM, shareholders including CalSTRS, Local Authority Pension Fund Forum, the Nathan Cummings Foundation and Seattle City Employees Retirement System have launched a campaign to oust compensation committee members Messrs. Specker and Klein from the board and sink the company’s say-on-pay proposal.
The issue at hand is the company’s treatment of the adjusted EPS metric which determines short- and long-term incentives for Mr. Fanning and his cohort of NEOs. The accusation from those leading the “against” campaign claims that the company has and continues to shield NEOs’ compensation from the impact of what the campaign calls the botched execution of an energy diversification strategy through manipulation of the adjusted EPS number. Shareholders will have to consider whether the accounting treatment appropriately smooths out extraneous factors – or serves to insulate management from their own strategic decisions.
Spark Infrastructure Group
Australian Securities Exchange – May 23
At Spark’s 2017 annual meeting, investors will be asked to reconsider the self-nominated candidacy of James Dunphy, leader of a substantially similar, but ultimately unsuccessful campaign in 2016. Not deterred by that outcome, Mr. Dunphy has since pressed forward with a near-continuous critique of the incumbent board, with published materials offering in-depth takes on, among other things, the purported value damage caused by Spark’s acquisition of TransGrid, along with allegations that the company’s distribution policy is overly conservative and its use of leverage inappropriate.
For investors considering whether to lend their support to Mr. Dunphy’s arguments – which are heavy on rhetorical inquiry, tenuous supposition and implication – management has offered a relatively modest response, effectively confined to brief and broadly worded language addressing the board’s candidate evaluation process.
OTHER NOTABLE MEETINGS:
- Amazon.com, Inc. (NASDAQ – May 23)
- BNP Paribas (Euronext Paris – May 23)
- Merck & Co. Inc (New York Stock Exchange – May 23)
- Royal Dutch Shell plc (London Stock Exchange – May 23)
- E. I. du Pont de Nemours and Company (New York Stock Exchange – May 24)
- Glencore plc (London Stock Exchange – May 24)
- United Airlines (New York Stock Exchange – May 24)
- Blackrock, Inc. (New York Stock Exchange – May 25)
- Grifols SA (Bolsas y Mercados Españoles – May 25)
- Sands China Limited (Hong Kong Exchanges and Clearing – May 26)
- Total (Euronext Paris – May 26)