Proposal 7: Shareholder Proposal to Require an Independent Board Chairman
The International Brotherhood of Teamsters on behalf of the Teamsters General Fund, 25 Louisiana Avenue, NW, Washington DC 20001, which represents that the Teamsters General Fund is the beneficial owner of 141 shares of common stock, has given notice that it intends to present the following resolution at the annual meeting.
In accordance with proxy regulations, the shareholder proposal and supporting statement presented below appear exactly as submitted. The Company disclaims all responsibility for the content of the proposal and the supporting statement, including sources referenced in the supporting statement.
For the reasons set forth in The Board’s Statement in Opposition, which immediately follows the proposal, our Board of Directors unanimously recommends that stockholders vote AGAINST this proposal.
Resolution Proposed by Shareholder
RESOLVED: Shareholders of Service Corporation International (“SCI” “the Company”), urge the Board of Directors (the "Board") to take the steps necessary to adopt a policy to require that, to the extent feasible, the Chairman of the Board shall be an independent Director who has not previously served as an executive officer of the Company. The policy should be implemented so as not to violate any contractual obligations. The policy should also specify the process for selecting a new independent Chairman if the current Chairman ceases to be independent between annual meetings of shareholders; or if no independent Director is available and willing to serve as Chairman.
In January 2016, CEO Ryan Thomas took over as Chairman from founder and former CEO Robert Waltrip, who continues on the board as Chairman Emeritus. This was a missed opportunity, we believe, to establish true independent board leadership through the appointment of an independent chair. Such leadership is urgently required given that the board bears many of the hallmarks of an insular and entrenched board, including, as of the 2017 annual shareholder meeting:
- An average Director tenure of more than 22 years.
- Four independent Directors with more than a quarter of a century service apiece, including the lead independent director.
- A Nominating and Corporate Governance Committee with an average director tenure of more than 18 years.
- Six out of eight independent board members with professional ties to Houston where the company is headquartered, including the three most recent appointees.
- Two directors from the founding Waltrip family, even though the family holds less than 2% of the Company's stock.
- An MSCI ESG Manager Governance score of 2.9 out of 10.
We believe the combination of these two roles in a single person weakens a corporation's governance, which can harm shareholder value.
It is difficult to overstate the importance of the Board of Directors’ responsibility to protect shareholders’ long-term interests by providing independent oversight of management. In our opinion, the designation of a lead independent Director is not an adequate substitute for an independent Board Chairman. We believe an independent Chairman can enhance investor confidence in our Company and strengthen the independent leadership of the Board.
We urge your support FOR this proposal.
The Board’s Statement in Opposition
The Board has carefully considered the above proposal, and believes that it is not in the interest of the shareholders. Moreover, in May of 2017, our shareholders considered a substantially similar proposal, which was submitted by the same shareholder, and of the shares voted, 63.72% voted against the proposal. Accordingly, our Board recommends that you vote AGAINST the proposal.
Our Board believes that the current structure is effective.
A. Lead Director
Our Board has taken several steps to create a balanced governance structure in which independent directors exercise substantial oversight over management. Effective in January 2016, our Board established the position of Lead Director and the independent members of the Board selected Mr. Coelho to serve as the Lead Director. In 2018, our Board enhanced our Lead Director’s influence by granting the Lead Director the authority to call meetings of the Board. As provided in our Lead Independent Director Charter, the Lead Director has responsibilities that include:
- Calling meetings of the Board;
- Upon request, being available for consultation and direct communication with shareholders;
- Presiding at executive sessions of the independent directors;
- Serving as the liaison between the Chairman and the independent directors;
- Presiding at all meetings of the Board at which the Chairman is not present;
- Being available to consult with the Chairman regarding information sent to the Board, scheduling, and agendas of Board meetings;
- Being available to consult with the chairpersons of the Board committees.
These responsibilities of the Lead Director are substantially similar to many of the functions typically fulfilled by a board chairman, and our Board believes that such responsibilities provide an opportunity for the independent directors to discuss management performance and any other issues with candor and independence. As the Lead Director and formerly as the Chair of the Nominating and Corporate Governance Committee, Mr. Coelho has also directly overseen the composition, functioning, and evaluation of our Board’s committees and has encouraged communication among the directors and between management and the Board to facilitate productive working relationships and promote appropriate oversight.
A. Chairman and Chief Executive Officer
At present, our Board has chosen to have Mr. Ryan serve as both Chairman and Chief Executive Officer and Mr. Coelho serve as Independent Lead Director. Our Board believes that this structure allows the Chief Executive Officer to effectively and efficiently guide the Board utilizing the insight and perspective he has gained by running the Company. In addition, our Chief Executive Officer has the necessary experience, commitment, and support of the other Board members to carry out the role of Chairman effectively. His in-depth knowledge of our Company, our growth and historical development, coupled with his extensive industry expertise and significant leadership experience, make him particularly qualified to lead discussions at the Board level on important matters affecting us. Our Board believes shareholders have benefited from Mr. Ryan’s strategic and operational insights and strong leadership skills across the full range of Company leadership responsibilities, ranging from day-to-day operational execution to long-term strategic direction, including leadership in significant acquisition and capital allocation decision-making, as well as risk management. Our performance under the current leadership structure has been strong, strengthening the position of our Company as the leader in the death care industry.
B. Independent Directors
Eight of our Board’s eleven directors are independent under NYSE rules. If Ms. Jakki Haussler and Ms. Sara Martinez Tucker are elected, ten of our twelve directors will be independent. Our independent directors have robust roles in overseeing our Company and its management. All of the members of each of the Audit, Compensation and Nominating and Corporate Governance Committees are independent. The committees play an important role in our Company’s governance and have unrestrained access to management and the authority to retain independent advisors as they deem appropriate. This means that oversight of key matters-such as the performance and compensation of our executive officers (including the Chief Executive Officer), the integrity of our financial statements, compliance with legal and regulatory requirements, the nomination of directors, and the evaluation of the Board and its committees-is entrusted to independent directors.
The Company’s long-term growth and financial performance reflect the effectiveness of our leadership notwithstanding the expressed concerns of the proposing shareholder.
The Company has achieved long-term total shareholder return of 221% over ten years (as compared to the S&P 500 total shareholder return of 126% over ten years). The Company believes such long-term performance has resulted from the leadership of our officers and directors, including those who have many years of experience and board service with our Company. That experience and tenure has been tempered with exposure to several economic cycles in the death care industry, providing these leaders with a unique understanding for the development and oversight of a sustainable long-term strategy for the Company. Regarding the other concerns of the proposing shareholder, we would like to highlight that although we believe the members of our Board have served the Company commendably, natural succession planning has resulted in the following changes:
- Mr. R. L. Waltrip, our former chairman, stepped down from that position in 2015 and has decided that he will no longer serve as a director at the end of his current term in May of 2018.
- After thirty-five years of service, Mr. Mecom has provided notice that he does not intend to seek another term as director in May of 2019.
- Our succession planning resulted in the election of a new member, Dr. Ellen Ochoa, in 2015 and the nominations of Ms. Jakki Haussler and Ms. Sara Martinez Tucker in 2018.
- These changes will:
- reduce average director tenure to 17 years in 2018;
- reduce average director tenure to 14 years in 2019; and
- reduce the number of independent directors who reside in Houston to three out of nine in 2019.
- Our Board is committed to a succession plan that adds new directors who will enhance our Board with diverse viewpoints, backgrounds, and expertise as demonstrated by all three of its most recent nominees.
Accordingly, we believe our leadership structure is, and has been, effective in the creation of sustainable long-term growth of the Company.
Our Board of Directors believes shareholders are best served by giving the Board organizational flexibility.
Our Board believes that it is uniquely qualified to evaluate the optimal leadership structure for the Board on behalf of our Company and shareholders from time to time. The Board has extensive experience with, and knowledge of, our Company’s strategy, operations, management structure, and culture, as well as the strengths, skills and leadership styles of our directors and management.
Effective corporate governance requires consideration of the dynamics of the Board and senior management and other factors on an ongoing basis, rather than a universal approach with unnecessary constraints on the Board's flexibility.
Based on the foregoing, our Board believes that adopting a policy that requires an independent board chairman is not in the interest of our Company and shareholders.