(Amends to correct LongView shareholding to 49,000)
Shareholders are tackling courier company FedEx over its “hedging and pledging” policy, where it’s claimed top executives are allowed to use their company shares as collateral for loans, a practice proxy firm Institutional Shareholder Services says is “not a responsible use of equity.”
A resolution on the issue has been filed for the Memphis, Tennessee-based company’s annual meeting on September 23 by union-owned Amalgamated Bank’s LongView fund, a leading corporate governance advocate.
The fund, which holds 49,000 FedEx shares, wants the board to prohibit directors and executives from being able to engage in hedging or pledging their shares in the New York-listed company. It would “more closely align the interest of directors and senior executives with the interests of shareholders” LongView argues. New York-based Amalgamated Bank is owned by the Workers United and Service Employees International Union (SEIU) organisations.
It defines the practice as “trading in puts, calls or other derivative products whose underlying asset is FedEx’s stock; engaging in hedging or monetization transactions such as prepaid forward contracts; holding shares in a margin account; or pledging shares as collateral for a loan”.
It says that while FedEx generally bars hedging and pledging, its legal team is allowed to grant exceptions – which it has done to company founder, Chairman and CEO Fred Smith. According to filings, Smith has been allowed to pledge over 25% of his holdings in order to collateralize loans that fund his outside business ventures and prior purchases of FedEx stock.
The investor points out that ISS calls hedging and “significant” pledging of company stock by directors and executives “failures of risk oversight”. ISS’s 2012-2013 policy survey found that both investors and companies themselves view pledging of company shares as problematic. ISS says: “Pledging of company stock at any amount as collateral for a loan is not a responsible use of equity.”LongView also refers to a 2012 Wall Street Journal survey which found that the value of Smith’s pledged shares was the largest disclosed. “We urge shareholders to vote for this proposal,” the fund says.
But the company says the proposal is “unnecessary and not in the best interests of our stockholders” because it already bans its officers and directors from engaging in hedging or similar transactions involving FedEx shares. It recently amended its policy to prohibit hedging and monetization transactions “in all circumstances”. But it argues that a complete prohibition of pledging could discourage managers from holding significant amounts of FedEx stock.
Pledging, in this context, was “simply a way for the executive to achieve liquidity without sacrificing stock ownership”. The company argues that as it does not shift or hedge any economic risk or make a bet against FedEx shares it doesn’t create any misalignment between management and stockholders. Smith’s pledging of shares was not a “meaningful risk” to FedEx or its shareholders. FedEx proxy
FedEx is also facing six other governance proposals at the AGM:
- Independent chairman (filer: International Brotherhood of Teamsters General Fund)
- Proxy access (Myra K. Young)
- Limit accelerated executive pay (John Chevedden)
- Political contributions (New York City Comptroller)
- Congruency between corporate values and political contributions (NorthStar Asset Management
- Vote counting to exclude abstentions (Investor Voice)