Thursday, September 12, 2013


September 12, 2013

Sustained Underperformance, Executive Pay and Governance Concerns Lead To Support For Independent Board Leadership

David White

(WASHINGTON) -- The country’s two largest proxy advisers, ISS and Glass Lewis, have both recommended that FedEx [NYSE: FDX] shareholders support a Teamster proposal calling for an independent chairman of the board at the company’s annual meeting Sept. 23. Fred Smith, the company’s founder, has served as both chairman and CEO of FedEx and its predecessor entities for more than 35 years.

In its recommendation to shareholders, ISS cites the company’s lackluster performance and continued practice of providing senior executives with tax gross-ups to cover the taxes an executive would incur on restricted stock awards and permitting certain pledging of company shares. Since 2009, Chairman Smith has pledged at least 22 percent of his shares in the company. ISS notes that FedEx has underperformed its global industry peers as well as the S&P 500 in total shareholder return in the 1-, 3- and 5-year periods.

Over the past two years, Smith has received nearly 375,000 shares in the form of stock options valued at more than $14.6 million while the company’s stock lagged behind its peers.

“The FedEx board continues to lavish Fred Smith with stock options worth millions despite the company’s long-term underperformance of its peers,” said Ken Hall, General Secretary-Treasurer of the International Brotherhood of Teamsters. “Shareholders deserve an independent chairman of the board with a vision for the future.”

The Corporate Library, a leader in corporate governance analysis, notes that while it is common for founders who have majority control of a company to serve as both chairman and CEO, Smith owns just 6.7 percent. “Certainly a management structure best representing the holders of the other 93 percent of shares would be more sensible.”

In 2012, FedEx created an independent lead director position to address mounting investor support for an independent chairman of the board. In 2011, the Teamster proposal received 36.32 percent support, or 42 percent with shares held by Fred Smith and his family excluded. Long-tenured director Shirley Ann Jackson was appointed to the position. Jackson was a controversial appointment as an effective “independent” leader as she had served under Smith on the FedEx board for 13 years and was overcommitted with other board obligations.  At the time of her appointment, she served on four other corporate boards, 13 board committees and six non-profit boards in addition to her full-time job as a university president. 

Jackson will be replaced as lead independent director this year by Waste Management CEO David Steiner. But ISS notes in its recommendation that at FedEx, the independent lead director position does not provide the “necessary counterbalance to a combined CEO/chairman.”

No comments: