Vanguard & Blackrock Should Vote “AGAINST” Directors at These April Shareholder Meetings

Directors play an essential role in setting a company’s strategy, selecting management, and overseeing management’s execution. It is the combination of these three roles that should see directors delivering returns for shareholders — which is their primary responsibility. Thus, assessing director track records to understand if they are delivering for shareholders is crucial, and even more important are shareholders who then vote their assessments at the annual shareholder meetings.

Quick Link: Jump to the Companies Where Shareholders Should Vote “AGAINST” Directors in April

Unfortunately, in most cases, directors face minimal repercussions for underperformance unless confronted by activist investors. In the instance of Walt Disney (DIS), would the board and Bob Iger have made so many big changes so fast if Nelson Peltz and Trian weren’t agitating for change? Frequent readers of proxy filings will no doubt be familiar with the hubris of underperforming boards that all too easily say “it is in the best interests of the Company and its stockholders” to reelect all the directors who have overseen material underperformance (see the latest Spirit AeroSystems Holdings proxy filing for one).

This chronic lack of accountability for directors is a result of a variety of factors, but two of the primary drivers are (1) a broken incentive structure that makes it better to “go along to get along” for directors in order to keep their posts and pay and (2) a lack of transparency on a company’s performance during a director’s tenure.

Boardroom Alpha’s director ratings and supporting analytics are helping to provide better transparency and thus drive accountability. Below we look at a number of shareholder meetings coming up in April where we believe that the board’s track record suggests change is needed. In our view, any director with a “D” rating should, by default, be receiving an “AGAINST” vote from shareholders, including from the big index funds that we believe overweight “ESG” type factors in their voting considerations versus performance. Boards with average director ratings of “C-” or below should be answering serious questions from shareholders and in cases of long-term underperformance, should see shareholders voting against them.

For this exercise we’ve chosen to ignore other red flags based on governance such as staggered boards, entrenched boards, overboarding / capacity issues, pledging of shares, and the numerous other problematic issues. But, for those shareholders voting their shares, we’d suggest that boards with bad performance and bad governance are in even more desperate need of the change that will only come from shareholders voting “AGAINST”.

A Note on Boardroom Alpha’s Director Ratings

Boardroom Alpha’s ratings measure a company’s performance on observable, commonly accepted measures of corporate performance (stock price, volatility, revenue growth, etc) relative to peers and relative to a director’s start to provide a synthesized view of that director’s tenure. Those with “A” ratings have seen their company’s performance beat peers and improve over their tenure. Those with “C” ratings are amongst the peer median — fine, not great. And anything less than a “C” shows underperformance.

Quick Reads

• Weekly Activism & Executive Moves Review (April 5)
• Weekly Activism & Executive Moves Review (Mar 29)
• 2024 Activist Cooperation Agreements Through February

Vanguard, Blackrock, and All Shareholders Should Question These Companies and Directors

Notes: Directors with an * next to their name are not standing for re-election at the April shareholder meeting