Verizon and audit committee problems, plus Kohl’s, Chevedden premium, and Phillips 66

What this episode covers

Trade Wire - BUY/SELL Top Stories: UnitedHealth Group CEO Sir Andrew Witty has resigned six months after UnitedHealthcare CEO Brian Thompson was murdered in New York City. In his place, former CEO and current Executive Chair Steve Hemsley will boomerang back into a role he originally vacated in 2017. Steve will receive a golden hello again consisting of a one-time $60M option award. While the company claims there will be no additional annual equity awards during the first three years of Steve’s employment, there are no performance hurdles tied to this award meaning Steve could make a boatload of cash even if the stock market goes up independent of his work as CEO. Lots of news at Kohls: First, CEO Ashley Buchanan was terminated after an internal probe found: He directed business to a vendor tied to his romantic partner (Chandra Holt). The vendor received favorable terms and a multimillion-dollar consulting deal, which directly violated Kohls’ conflict-of-interest policy. Ashley has been forced to forfeit his equity awards and must repay part of his $2.5M signing bonus. Meanwhile, Kohl's Director and Compensation Committee Chair Christine Day resigned from the board on May 5, 2025. Kohl’s initially claimed: “Ms. Day’s decision [to resign] was not due to any disagreements with the Company on any matter relating to the Company’s operations, policies or practices.” Day later sent an email (included in SEC filing) saying: I want to stress my concern that this is an inappropriate way to handle this. All shareholders deserve the same access to the same information. [ . . .] and for us to not respond to ISS is not good governance. In the 8K filing, for my departure, it would not be accurate to say I have no disagreements with the board. Unfortunately I have been continually disappointed with the level of governance process. The 8k needs to reflect this.” In another email she called out Board Chair Michael Bender: “There is no delegation to committees or chairs, Michael “handles” everything, maybe speaks to one person or 2, then “tells” everyone what the decision is. Some people know more than others leading to board members feeling alienated, out of the loop, and worse—developing a culture where real discussions rarely occur.” In a meeting held yesterday (may 14), only 5% of Kohls shareholders said NO to Board Chair Michael Bender while 45% said NO on Pay while average director support was 92% YES Tyson Foods named the chicken wings of Board Chair John H. Tyson to the board: that’s Olivia Tyson and John R. Tyson. You might remember John R, Tyson from such #-1 hits as “Pleading Guilty To A Charge Of Driving While Impaired” and “Public Intoxication And Criminal Trespassing After He Was Found Stripped Down To His Boxer Shorts And Sleeping In A Stranger’s Bed” and finally his sleeper hit called “I Lost My Job Last Year As CFO Because I’m a Criminal.” John R. appointed Mr. Tyson to serve on the Strategy and Acquisitions Committee and Technology Committee. The good news here is that Daddy Tyson was smart enough not to put him on the Governance and Nominating Committee which does stuff like “review and recommend to the Board a Code of Conduct applicable to the Company” and ”identify, evaluate, and recommend individuals qualified to be directors of the Company” because in this case, he would not have been able to recommend himself. Despite being part of the controlling family, The Tyson children will be paid $315,000 annually like all other non-employee directors. On May 3, 2025, in a story covered everywhere, Berkshire Hathaway CEO and Chair Warren Buffett decided he didn’t want to be CEO anymore, handing the baton to Vice Chair Greg Abel. The Trump 2.0 Administration is stealing two more directors from the Free Float Analytics database: Fiserv CEO and Chair Frank Bisignano has been confirmed as the Commissioner of the Social Security Administration And FedEx lead independent director David Steiner is the new United States Postmaster General. Steiner is the perfect brand of Trump 2.0 executive as he was somehow called lead “independent” director despite having served on the board for 16 years and amassing $15M of company stock. Moving over to egregious pay: New Entegris CEO David Reeder starts with $410K cash/$11M equity, before even making a single decision other than “yes, I’ll take the job.” Likewise, Western Digital’s new CFO Kris Sennesael starts with $2M cash; $10M equity And MGM Resorts CEO William Hornbuckle gets a special one-time cash bonus of $8M merely for continuing to do his job as he signs a new employment agreement. I guess the old agreement was $8M short? And lastly, in a trend we’ve been following closely called the “down to 2 uninfluential women on the board” trend of 2025, something I”m seeing as a quiet anti-DEI policy: Laela Sturdy steps down at UiPath, leaving only two women on the board with a combined influence of 2%. PROXY CAGE MATCH The big Proxy Cage Match is between Phillips 66 and Elliott Investment Management. In a nutshell, Elliott has nominated four directors, wants to split the CEO-chair role, and mandate annual director elections. This week three proxy advisors who represent over 70% of institutional votes weighed in on the May 21 meeting: ISS and Egan Jones are saying YES to all 4 Elliot nominees: Brian Coffman, Sigmund Cornelius, Michael Heim and Stacy Nieuwoudt. ISS said the nominees would dismantle Phillips 66’s “culture of complacency” and that Phillips CEO Mark Lashier’s dual role as chairman represents a “disconnect from shareholders.” Glass Lewis, on the other hand, is saying yes to the men but not the woman: Stacy Nieuwoudt, a former senior energy and industrials analyst at Citadel Phillips 66 is arguing that Elliott should back down from its push to break up the energy company because the activist investor is conflicted from a separate effort to acquire one of Phillips 66’s rivals, Citgo Petroleum Citgo suitor Amber Energy is led by oilman Greg Goff, who revealed on April 9 that he bought $10M in Phillips 66 shares and was backing Elliott’s campaign. Phillips 66 called the conflict “concerning because Amber Energy’s executives are actively helping support Elliott’s case to undermine Phillips 66’s strategy.” VOTE RESULTS TABLE Here are the highlights from 89 large-cap annual meetings over the past week: Only 54 total SHPs: and from only 41 companies, meaning 48 meetings had zero SHPs. In fact, 39 of 89 meetings had nothing happening: zero shareholder proposals and zero shareholder dissent. Only 6 wins overall. And really, maybe only 5 because of Idexx: Say on Pay n/a Simple Majority vote ICU Medical: (85% YES) Albemarle: (68% YES) Shareholders ability to call a special meeting LKQ Corp: (83% YES) Transparency in Political Spending (Chevveden) Teradyne: (51% YES) Cboe Global Markets: (56% YES) Other Idexx Laboratories: Annual Election of Directors (92% YES); no recommendation from board 20 moral victories (over 30%): Say on Pay Ally Financial: 37% NO Albemarle: 31% NO S&P Global: 31% NO Shareholder approval on excessive golden parachutes Illinois Tool Works: (33% YES) CF Industries Holdings: (44% YES) Capital One Financial: (44% YES) Lockheed Martin: (41% YES) T Price Rowe: (37% YES) Simple Majority vote WEC Energy Group: (41 % YES) AbbVie: (49% YES) Shareholders ability to call a special meeting Prologis: (44% YES) NVR: (30% YES) NiSource: (35% YES) Independent board chair Prudential Financial: (35% YES) Gilead Sciences: (36% YES) Other Baxter International: executives retaining significant stock (37% YES) Don’t see this one too often: John Chevveden: a policy requiring the 5 Baxter named executive officers to retain a significant percentage of stock until reaching normal retirement age Gilead Sciences: requesting a comprehensive human rights policy and human rights due diligence process (36% YES); Sisters of Mercy of the Americas; how? Pope love? Intel: Shareholder Right to Act by Written Consent (31% YES) United Parcel Service: reduce the voting power of UPS class A stock from 10 votes per share to one vote per share (38% YES) Cadence Design Systems: Political Spending (44% YES) The shareholder disconnects: International Flavors & Fragrances: 15% NO on Pay, lowest director 94% YES Ally Financial: 37% NO on Pay, lowest director (Fennebresque) 90% YES, all others 95% or higher Valero Energy: 25% NO on Pay; all directors over 92%; 0 SHP GE: 29% NO on Pay; all directors over 92% Intel: 28% NO on Pay; lowest director (Sanghi) 88% YES, all others 90% or higher Albemarle: 31% NO on Pay; all directors at least 94% S&P Global: 31% NO on Pay; all directors at least 95% YES The directors (over 20%): only 17 higher than 20%, 2 over 30%, and 1 over 40% (about 900 directors: 2% over 20%) CME Group: Nominating Committee Chair Phyllis Lockett (41% NO) Expeditors International of Washington: James M. DuBois (30% NO), Brandon S. Pedersen (36% NO), Olivia D. Polius (29% NO) Paycom Software: Henry C. Duques (21% NO) Danaher Corporation: John T. Schwieters (29% NO), Teri List (22% NO), A. Shane Sanders (25% NO), Raymond C. Stevens (21% NO) Ecoloab: John Zillmer (23% NO) United Parcel Service: W. Johnson (27% NO); Moison (22% NO); Stokes (22% NO); Warsh (21% NO); K. Johnson (20% NO) All 7 others at least 10% Cadence Design Systems: Adams (20% NO) Ford Motor: Kennard (20% NO) Ares Capital: Kelly (29% NO); Siegel (32% NO) CSX: Zillmer (25% NO) The oddities: Auditor dissent?! Edwards Lifesciences: 12% NO on Pay; 10% NO on Auditor Ecoloab: 11% NO on Pay; 13% NO on Auditor Service Corp International: 12% NO on Pay; 12% NO on Auditor Idex Corp: 13% NO on Pay; 13% NO on Auditor Stryker Corporation: 8% NO on Pay; 10% NO on Auditor The bullshit: I’m calling this the Domino’s Pizza competing proposals dirty trick: where the board proposes a version of the shareholder's proposal that is slightly more onerous: in this case, 25% vs. 15% of shareholders having the the ability to call a special meeting: DT Midstream: Management (86% YES) versus John Chevveden (35% YES) Floor & Decor Holdings: Management (96% YES) versus John Chevveden (40% YES) The “require vote of 80% of outstanding shares” management proposal scam: Eli Lilly and Company: eliminate the classified board structure (87% YES of shares voted) eliminate supermajority voting provisions (86% YES of shares voted) AbbVie: eliminate supermajority voting (99% YES) THE BIG VOTE PICKS MATT If you’re voting proxies and you’re a pension fund, you own every one of these companies. Let’s focus on the large cap more than $50bn - about 20 companies Amazon.com, Inc. NASDAQGS:AMZN $1.32T Amgen Inc. NASDAQGS:AMGN $243B DuPont de Nemours, Inc. NYSE:DD $56.8B EOG Resources, Inc. NYSE:EOG $70.3B Honeywell International Inc. NASDAQGS:HON $174B JPMorgan Chase & Co. NYSE:JPM $453B McDonald's Corporation NYSE:MCD $240B Mondelez International, Inc. NASDAQGS:MDLZ $92.3B NextEra Energy, Inc. NYSE:NEE $163B Northrop Grumman Corporation NYSE:NOC $87.5B Phillips 66 NYSE:PSX $51.2B ServiceNow, Inc. NYSE:NOW $121B Southern Copper Corporation NYSE:SCCO $60.8B The Charles Schwab Corporation NYSE:SCHW $150B The Home Depot, Inc. NYSE:HD $374B The Southern Company NYSE:SO $90.2B Thermo Fisher Scientific Inc. NYSE:TMO $324B Verizon Communications Inc. NYSE:VZ $151B Zoetis Inc. NYSE:ZTS $100B The goal here is to focus on outliers: Market 1 Yr TSR - only JPM, MCD, NOW, and SCHW beat the SP500 in 1 year, which makes 5 Yr TSR - JPM, SCCO, NOW, EOG, SCHW Basically everyone is a target - no one really outperforming Which leaves… people I highlighted every director of the group that underperformed on any two measures (earnings, TSR, carbon, controversies) AND TSR + 1 (as in, there are directors who underperform on earnings and carbon and TSR), where underperform is defined as less than .400 on 2 or more boards over 3 or more years Add in connected boards and one company stands out - Verizon Verizon board 11 members, one of whom is Hans Vestberg (CEO) who featured as a big underperformer on the Blackrock board last week Some easy wins: Dan Shulman and Laxman Narasimhan are connected to 64% of the board each - almost entirely through non profit and trade group connections, dark connections between directors Roxanne Austin is on 4 boards actively - and is chair of the audit committee at VZ Inside intel talk time: the audit committee is by far the most time consuming committee - it has two to three times as many meetings and we’ve heard that the board book given to the members is twice as thick (from 100-200 pages to 300-400 pages) The committee is by far the most informed about the financials and works closely with the auditors, but they aren’t influential necessarily for long term strategy - audit committees are usually reserved for the nerds among them Here’s a startling piece of data: in the US, there are 9,970 audit committee members (chairs + members) - 1,113 (11%) of them are on MORE THAN ONE audit committee (multiple boards audit committees) Shockingly, 11 directors are on FOUR audit committees - with an average meeting number of 11 per year, that’s 44 audit meetings per year and probably ~3,300 pages of financial reports Of those, 263 (23%) of them are on multiple audit committees WITH THE SAME AUDITOR Guess who’s on that list: Roxanne Austin, who’s on Verizon, Abbvie, and Crowdstrike’s audit committees - with EY the auditor at both Verizon and Abbvie, CHAIRING Verizon and Crowdstrike Guess who else is on multiple audit committees - TWO of the other VZ audit members, Clarence Otis and Shellye Archambeau Shellye is another of the 263 audit committee members on two audit committees with the same auditor - VZ and Okta use EY Otis has been on the board for 19 years, as well - and was Lead “Independent” director until this year, when he was replaced by Dan Shulman, the most connected director with the current CEO Vestberg CEO Vestberg we covered at Blackrock as: Vestberg [...] flatly underperform[s] Verizon’s board has returned a .388 in TSR as a group, and .264 controversies - this is a deeply underperforming board with ZERO directors batting above .500 on TSR or controversies despite only TWO of the directors being on just the Verizon board - this is pattern and consistent 70% of the Verizon board has a background in economics - and only 40% have communications backgrounds? Included in the 70% are… Dan Shulman, Hans Vestberg, Clarence Otis, Laxman Narasimhan, and Roxanne Austin If we look at pure performance? Vittorio Colao and Laxman Narasimhan are the two worst on TSR, and Clarence Otis is the most expensive - he cost Verizon shareholders $508 per .001 in TSR batting average There is a case to be made that you could vote against MOST OF THIS BOARD, but your layups: Clarence Otis Dan Shulman Laxman Narasimhan Roxanne Austin Alternate: Hans Vestberg