0001377739-13-000016.txt : 20130701
0001377739-13-000016.hdr.sgml : 20130701
20130701145427
ACCESSION NUMBER: 0001377739-13-000016
CONFORMED SUBMISSION TYPE: PX14A6G
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20130701
DATE AS OF CHANGE: 20130701
EFFECTIVENESS DATE: 20130701
SUBJECT COMPANY:
COMPANY DATA:
COMPANY CONFORMED NAME: MCKESSON CORP
CENTRAL INDEX KEY: 0000927653
STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122]
IRS NUMBER: 943207296
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: PX14A6G
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13252
FILM NUMBER: 13944196
BUSINESS ADDRESS:
STREET 1: ONE POST ST
STREET 2: MCKESSON PLAZA
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94104
BUSINESS PHONE: 4159838300
MAIL ADDRESS:
STREET 1: ONE POST ST
CITY: SAN FRANCISCO
STATE: CA
ZIP: 94104
FORMER COMPANY:
FORMER CONFORMED NAME: MCKESSON HBOC INC
DATE OF NAME CHANGE: 19990115
FORMER COMPANY:
FORMER CONFORMED NAME: MCKESSON CORP
DATE OF NAME CHANGE: 19950209
FORMER COMPANY:
FORMER CONFORMED NAME: SP VENTURES INC
DATE OF NAME CHANGE: 19940728
FILED BY:
COMPANY DATA:
COMPANY CONFORMED NAME: CtW Investment Group
CENTRAL INDEX KEY: 0001377739
IRS NUMBER: 203688367
FILING VALUES:
FORM TYPE: PX14A6G
BUSINESS ADDRESS:
STREET 1: 1900 L STREET NW
STREET 2: SUITE 900
CITY: WASHINGTON
STATE: DC
ZIP: 20036
BUSINESS PHONE: 202 721 6060
MAIL ADDRESS:
STREET 1: 1900 L STREET NW
STREET 2: SUITE 900
CITY: WASHINGTON
STATE: DC
ZIP: 20036
PX14A6G
1
mckltr.txt
SHAREHOLDER LETTER
U.S. Securities and Exchange Commission
Washington, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the Registrant:
JP MORGAN CHASE & CO.
___________________________________________________________________________
2. Name of the person relying on exemption:
CTW INVESTMENT GROUP
___________________________________________________________________________
3. Address of the person relying on exemption:
1900 L STREET, NW, SUITE 900 WASHINGTON, DC 20036
___________________________________________________________________________
4. Written materials. Attach written materials required to be submitted
pursuant to Rule 14a6(g)(1):
CTW INVESTMENT GROUP
July 1, 2013
Re: Please Vote AGAINST the Re-election of Directors Shaw, Irby and Hammergren.
Dear McKesson Shareholder:
We urge you to vote AGAINST the re-election of directors Jane Shaw, Alton F.
Irby and John H. Hammergren at McKesson Corporation's (NYSE: MCK) annual
meeting on July 31, 2013. Urgent changes are essential in the key leadership
positions currently held by these directors - the chairs of the Governance
Committee, Compensation Committee and board chairman, respectively - if
McKesson is to seriously address its well documented governance shortcomings:
- Ongoing excessive and poorly structured CEO pay despite significant
criticism from large investors;
- An entrenched and insular board, most recently displayed by the refusal to
act on last year's vote by a majority of shareholders for an independent
chairman and the decision to block a similar vote this year;
- A string of multi-billion dollar compliance and internal control failures
under the watch of the Audit Committee; and
- A CEO and chairman whose record in performing his role as an outside
director of Hewlett-Packard caused shareholders to deliver a vote of no
confidence that forced his resignation earlier this year.
Accordingly we urge you to:
- VOTE AGAINST THE RE-ELECTION OF JANE SHAW. As a 21-year veteran of the
board, a longstanding member (and the former chairman) of the Audit
Committee, and the current chairman of the Directors and Corporate
Governance Committee, Shaw has been present throughout the company's
governance failings: the failure to protect investors from the costly and
financial regulatory failures - both the original accounting scandal that
led to the imprisonment of our former chairman and over $1.2 billion in
charges, and the ongoing price fixing scandal which has already led to $900
million in charges; the failure to act on last year's call by a majority of
investors to have an independent board chairman, rather than have one person
serve as chairman and CEO; and the failure to appropriately address the
board's overall governance deficit.
- VOTE AGSINST THE RE-ELECTION OF ALTON F. IRBY. After 14 years on the
Compensation Committee, McKesson finds itself having one of the most
exorbitant CEO pay practices in the S&P 500, including an unmatched $159
million pension benefit and potentially more than $300 million in exit pay
(both as of FY-end 2013), amongst the highest realized pay at payout over
the past three years ($122 million)/1/, and an incentive structure that
routinely pays above target, is grossly ill-suited to the company's growth
model and strips out key risks and costs of doing business.
- VOTE AGAQINST THE RE-ELECTION OF JOHN H. HAMMERGREN. Irrespective of his
skills as CEO, Hammergren's ability to lead our board is called into
question by last year's majority-supported vote to split the roles of
chairman and CEO and his resignation from Hewlett-Packard's board this year
after shareholders revolted against his role in the company's series of
multi-billion dollar missteps.
Shaw and Irby, who collectively represent more than four decades of board
service (inclusive of Irby's tenure at HBOC), must step down from the board to
make room for fresh talent, while Hammergren should relinquish the chairmanship
to a director who can provide the board with the independent leadership
shareholders have demanded.
____________________
/1/ Based on Equilar, Inc. P4P Profile.
1900 L Street NW, Suite 900, Washington, DC 20036 - 330 West 42nd Street, Suite
900 New York, NY 10036
202-721-6060
www.ctwinvestmentgroup.com
Page 2 of 3
The CtW Investment Group works with pension funds sponsored by affiliates of
Change to Win - a federation of unions representing over six million members -
to enhance long-term shareholder value through active ownership. These funds
have over $250 billion in total assets under management, and are substantial
McKesson shareholders.
JANE SHAW - AUDIT, GOVERNANCE FAILIURES. During her 21-year tenure on the Audit
Committee (including as the chair from 1996 to 2004) McKesson has suffered a
string of costly regulatory and financial failures that point to severe
weaknesses in the company's internal controls and compliance:
- HBOC ACQUISITION: in 1999, following the acquisition of HBOC and discovery
of accounting fraud at the healthcare IT/software firm, McKesson restated
earnings, immediately erasing nearly half its market value. In 2005, the
company took a $1.2 billion charge to settle shareholder litigation
surrounding the debacle, and four years later, former McKesson Chairman
Charles McCall was sentenced to 10 years in prison for his role at HBOC.
- PRICE FIXING ALLEGATIONS: To date, McKesson has booked over $900 million
in legal costs - including $483 million in fiscal 2013 - relating to
allegations that it artificially inflated the average wholesale price
(AWP) of certain drugs between 2001 and 2009. The 10-K warns of potential
further costs and the risks of losing business; indeed, the State of
California cautioned in its settlement agreement that legal and regulatory
failures put McKesson at risk of exclusion from government healthcare
programs essential to its business.
As Governance Committee Chairman (since 2006), Shaw bears responsibility for
the failure to act on last year's majority-supported shareholder proposal
calling for an independent chairman, and the decision to omit a similar
proposal from this year's ballot on technical grounds. With proposals to split
the positions of CEO and chairman a widely accepted governance reform, well
understood by investors, the board's actions betray the extent of its
entrenchment. Aside from anything else, having a two decade plus veteran of
the board chair the Governance Committee reveals a blind spot in the board's
approach to best practices in governance, not least the recognition that l
engthy tenure dilutes independence. Shareholders deserve refreshed and more
effective leadership from this key committee.
ALTON IRBY - EXECUTIVE PAY FAILURES. Irby joined the board in 1999 as part of
the merger with HBOC, where he had served as a director since 1990. Under Irby's
ten-year chairmanship of the Compensation Committee, Hammergren has become one
of the most handsomely paid CEOs in the S&P 500, receiving unmatched pension
benefits ($159 million), lucrative fringe benefits (such as personal aircraft
use and financial counseling services), and compensation that routinely
outstrips performance. Over the past three years more than 30% of shareholders
have voted against either the re-election of Compensation Committee members or
the advisory vote on pay - a clear sign that shareholders are losing faith in
the Committee's decision making. Yet efforts to mollify shareholders with
modest changes to senior executive pay targets and the addition of several new
metrics amount to little more than tinkering around the edges which fail to
move the dial or address profound flaws in the incentive structure:
- PAY INFLATION CONTINUES: Hammergren's total compensation is up 30% year-over
-year to $51.7 million and at $122 million his three-year realizable pay at
payout is 4 times the peer median based on Equilar's P4P (Pay "for"
Performance) peer analysis.
- ADJUSTED EPS IS INBCOMPATIBLE WITH MCKESSON'S BUSINESS CYCLE MATURITY:
Long- and short-term incentives continue to rely extensively on "adjusted
earnings per share (EPS)", which excludes, among other things, M&A
expenses, goodwill amortization and litigation costs. Yet with almost all
growth over the past 5 years stemming from acquisitions, the use of a
metric that strips out the costs of acquisitions is wholly
This is not a proxy solicitation. Please do not send us your proxy card.
Page 3 of 3
inappropriate, particularly when evaluating the efficacy of management to
run the business, and risks creating perverse incentives. Given the
company's compliance record, stripping out litigation and settlements costs
is equally concerning, especially considering those costs are equal to 24%
of total reported net income since 2005. Moreover, with EPS accretion widely
viewed as a poor indicator of a deal's long-term ability to generate a
return on investment, the extensive reliance on any EPS-metric seems
problematic for a highly acquisitive company.
- SIX STRAIGHT YEARS OF ABOVE TARGET PAYOUTS MAY HAVE MORE TO DO WITH LOW
HURDLE RATES THAT OUTPERFORMANCE: Considering that under the 2010-12 LTIP
plan, the EPS and operating cash flow (OCF) targets were $13.23 and $4.91
billion, respectively, and that actual performance was $15.30 and $7.94
billion - a sizeable beat - it is likely that by the time the 2011-13 award
was designed, the committee was aware that the prior year's award targets
were going to be significantly exceeded. Nevertheless, it set an OCF target
of $5.4 billion, while the EPS target was set at $15.95, which the company
once again blew through - with EPS of $17.55 and OCF of $8.35 billion.
- EPS MEASURES VULNERABLE TO BUYBACK IMPACT: It is well known that by
shrinking the denominator, share repurchases are among the tools of
financial engineering available to executives to meet EPS targets. The
committee insists that projected buybacks are factored into the adjusted
EPS; yet, given that buybacks should, as Warren Buffet insists, only be
undertaken when shares are trading below intrinsic value (even if the goal
is to return excess cash or offset option dilution), it is implausible that
buybacks can be accurately factored into target setting ex-ante. Executives
should not be rewarded for simply buying back the company's own stock or
incentivized to do so regardless of whether it creates value for long-term
shareholders.
JOHN HAMMERGREN. McKesson needs a new chairman; that was the unequivocal message
of a majority of shareholders voting last year, and the twin decisions to ignore
the will of investors and to prevent a similar proposal from appearing on this
year's ballot, only underscores the need for new independent board leadership.
His record at Hewlett-Packard, including presiding, as the chairman of the
Finance & Investment Committee, over a string of unsuccessful acquisitions -
the costs of which are in the tens of billions - speaks not only to his poor
judgment and lack of accountability, but more critically for McKesson, to his
general vision of director deference to the CEO. McKesson's ongoing compliance
and legal challenges from its core business lines redoubles the need for a board
structure that facilitates rigorous oversight of management.
We urge you to join us in restoring accountability to McKesson's board by voting
AGAINST DIRECTORS JANE SHAW, ALTON IRBY AND JOHN HAMMERGREN. If you would like
to discuss our concerns directly with us, please contact my colleague Michael
Pryce-Jones at 202-721-6079 or michael.pryce-jones@changetowin.org.
Sincerely
/s/
Dieter Waizenegger
Executive Director, CtW Investment Group
This is not a proxy solicitation. Please do not send us your proxy card.