KEY MANAGEMENT PROPOSAL VOTES IN 2021
COMPANY: Berkshire Hathaway Inc. MEETING DATE: May 01, 2021 PROPOSAL: Director Elections (members of the Governance, Compensation and Nominating Committee) OUR VOTE: Against VOTE RESULT: 95.9% COMPANY: General Electric Co. MEETING DATE: May 04, 2021 PROPOSAL: Executive Compensation OUR VOTE: Against VOTE RESULT: 42.0%
OUR RATIONALE: The board lacked a leadership role held by an independent director. In cases where the chair of the board is not independent, it is best practice to appoint a lead independent director. Since the chair of the board was not independent and a lead independent director had not been appointed, we withheld support from members of the Governance, Compensation and Nominating Committee. OUTLOOK AND OUTCOMES: In addition to opposing the directors, we sent a letter to the board outlining our concerns with the lack of independent leadership. In September 2021, the independent directors named Susan L. Decker as lead independent director. We believe the appointment of a lead independent director is a meaningful improvement and demonstrates responsiveness to a shareholder concern. OUR RATIONALE: GE was significantly impacted by COVID-19, with significant portions of its business tied to Aviation, Power and Renewables, all of which experienced notable declines in 2020. This resulted in significant share price declines with the stock dipping below $6 for the first time since the 2008-09 financial crisis. We believe the disruption of COVID-19 also delayed the turnaround that GE’s Chairman and CEO, H. Lawrence Culp, Jr. has been trying to accomplish in the business since his appointment in 2018. Given this delay, the board chose to extend Mr. Culp’s employment agreement to secure his retention for two additional years beyond the original agreement. We see Mr. Culp’s leadership as the lynchpin to GE’s successful turnaround and as such are delighted that the Board has extended Mr. Culp’s contract. We have known Mr. Culp for many years and think highly of his leadership capabilities and track record of delivering shareholder value. We are confident that under Mr. Culp’s leadership GE will return to being one of the best large cap multinational companies. We look forward to Mr. Culp’s continued focus on creating long-term sustainable value for our clients that are shareholders. However, while we support the contract extension, we have concerns with adjustments made to compensation-related performance targets included in the contract. Although the environment was very uncertain in the midst of the pandemic, we generally believe that when performance targets are reduced, potential payout levels should also be lowered. We expect boards to establish performance targets that are sufficiently challenging and believe doing so is of heightened importance for awards granted outside of regularly scheduled compensation plans. We also note that boards at many other companies that were also negatively impacted by Covid-19 did not significantly reduce long-term compensation-related performance targets. For this reason, we intend to vote against the advisory vote on executive compensation consistent with our views on compensation best practices. OUTLOOK AND OUTCOMES: The plan failed to receive majority support. We engaged with the company after the vote to further discuss our concerns and understand the changes the board was considering implementing. We will continue to monitor the plan structure for future changes. OUR RATIONALE: Neuberger Berman believes that companies should allocate capital to maximize long-term, risk-adjusted shareholder value. In this case, we have been long-term shareholders of Daibiru and have been engaging management primarily on capital management and board independence issues, as well as other material ESG issues more recently. Our discussions related to capital management have focused primarily on improving both the return and equity components of return on equity (ROE). On the former, we have asked management to deliver on its commitment to grow its real estate portfolio according to its mid-term plan to ensure long-term growth of its core leasing business. On the latter, we have shared our belief that the company address what we see as a poorly managed balance sheet by considering capital efficiency improvement measures such as selling some commercial real estate to a REIT and to utilize the capital gains to finance growth investments and/or return the surplus back to shareholders. We believe addressing these issues in a constructive manner would help to significantly improve its capital efficiency and strengthen the real estate portfolio that would ultimately lead to sustainable long-term growth of the business. While we acknowledge and view positively the company’s decision to buy back its shares for the first time last fiscal year, we do not believe it sufficiently addresses our concerns. For these reasons, we intend to oppose the reelection of President Sonobe as we see little indication that the company is making tangible progress to addressing its capital efficiency issues. OUTLOOK AND OUTCOMES: In addition to our votes against management, we continue to engage with the company on capital allocation strategy. We will monitor for improvement and consider withholding support from management at next year’s meeting if the company is not responsive.
COMPANY: Daibiru Corporation MEETING DATE: June 24, 2021 PROPOSAL: Elect Director Toshiyuku Sonobe OUR VOTE: Against VOTE RESULT: 90.6%
2021 ESG ANNUAL REPORT
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