Tyson Foods to celebrate its 81st birthday, not all shareholders are happy

Shareholders of Tyson Foods have plenty to celebrate when they convene in Springdale Feb. 5 for the company’s annual shareholder meeting which will mark the 81st year the company has been in business.

They will no doubt celebrate the record $41.373 billion in gross revenue realized in fiscal 2015 and the continued synergies they report since acquiring Hillshire Brands in October 2014. Tyson also will report its fiscal first quarter 2016 earnings ahead of that meeting. Wall Street expects a 14.28% increase in profits to start fiscal 2016.

Tyson Foods shares (NYSE: TSN)  have risen in value more than 34% over the past year, closing at $53.12 on Wednesday (Jan. 12). During the past 52 weeks the share price has ranged from a low $37.10 to a high $54.52.

But not all Tyson shareholders are happy with the company’s operations. As it is with many high-profile and global operations like Tyson Foods, various activist groups have filed six shareholder proposals in the meat giant’s recent Proxy filing with the Securities and Exchange Commission.

Proposal No. 1
Shareholders ask Tyson to explain to its shareholders the risks it’s taking in lost revenue by not eliminating the use of gestation crates in its pork supply chain. Stating that more than 60 global pork buyers have publicly announced plans to eliminate gestation crates and Tyson’s unwillingness to follow suit has cost the company business. In 2014, Tyson did speak on sow housing conditions and the company asked some of its contract growers to improve the quality and quantity of space for some of their facilities. Still, shareholders said Tyson neither prohibits gestation crates, nor plans to phase them out.

“We encourage a vote for this modest proposal, which simply asks Tyson to disclose the risks associated with its current position on this issue,”  the filing noted.

Tyson Foods said nearly all of the hogs it buys for slaughter come from approximately 2,200 independent farmers who raise their market hogs in open pens. Tyson said at its urging for hog suppliers to address its sow housing systems 32% of contract sow farmers have used group housing as 2015.

“The company urges shareholders to vote against this proposal,” noted the Proxy.

Proposal No. 2
Shareholders ask the company to address water impacts of business operators and suppliers. The shareholder asked the company to implement a water stewardship policy that will improve water quality for all company-owned facilities and those under contract to Tyson Foods.

The company is asking shareholders to vote against the proposal.

Proposal No. 3
Shareholders asked the board to adopt a policy that would require the board chairman be an independent board member. John Tyson, board chairman, is not independent because he previously served as CEO and is a member of the family that controls the company.

Tyson Foods responded that it already separates the roles of CEO and chairman and in so doing is protecting shareholders. The Tyson board also has a lead independent director who presides over executive sessions of the company’s independent and non-management directors. Furthermore, Tyson states that the leadership and vision of the Tyson family for the last 80 years contributed greatly to the company’s success, and provided a long-term view of the Company’s performance in decision-making, and for those reasons asked shareholder to vote against this proposal.

Proposal No. 4
This proposal strikes at the heart of the dual stock system at Tyson Foods that allows restricted Class B shareholders, the Tyson Family, to get a 10 to 1 voting advantage over the Class A shares. Proposal No. 4 asks the board to give each shareholder an equal vote.

The Tyson family trust owns 99.98% of the class B shares and through the limited partnership controls 72% of the Tyson Foods total votes, according to the Proxy proposal. The shareholders say the family – a select few – controls the company regardless of what might be best for the shareholders at large.

Tyson’s board is against this proposal, saying it does not improve corporate governance or the financial performance for the company. Two of the board members are heirs of Don Tyson.

The company notes that the dual-stock system has been in place since Tyson Foods was incorporated. Tyson said investors are aware this structure is in place and there are no plans to move away from it.

Proposal No. 5
Shareholders request that Tyson provide more transparency into its plants’ working conditions. They want the company to publish annually by April 1  a report that includes incidents of non-compliance with safety and labor laws, remedial actions taken and measures contributing to long-term mitigation and improvements. Among other disclosures, reports should include employee injury causes and rates. The group wants the reports to be publicly released at a reasonable cost, omitting proprietary information and other information protected by privacy and other laws, and using a phased, tiered or other approach that the company deems reasonable and practical.

Tyson again does not support this proposal saying that the company is committed to the health and safety of all of its employees around the globe. The board position is that sometimes injuries and illnesses occur, despite their best efforts to prevent them.
The board adds that this report would play additional costs on the company without producing additional value for shareholders or improving upon its commitment to a safe working environment.

Proposal No. 6
Shareholders has ask Tyson to provide more transparency into its lobbying efforts with accountability for the dollars spent. They want this information to be readily available to the public on its website. The group cites the $4.5 million the company spent between 2012 and 2014 on direct federal lobbying activities, but said state lobbying data is uneven and sometimes not present, which is why they urge the board to implement disclosure requirements related to direct, indirect and grassroots lobbying.

Tyson responded that it does not support Proposal No. 5 because it is not in the best interests of the company or its shareholders. Tyson said the proposal also overstates certain lobbying activities.

RELATED PARTY TRANSACTIONS
The Proxy filing also noted two agreements Tyson Foods had during 2015 that involved insider relationships involving more than $120,000.

Tyson Foods has lease agreements with wastewater treatment plants that service the company’s chicken processing plants in Nashville and Springdale, Ark. The water treatment plants are owned by the Donald J. Tyson Revocable Trust of which John Tyson board chairman is a trustee. The Berry Street Waste Water Treatment plant is owned by the Tyson Limited Partnership benefiting John Tyson and his three sisters, Carla Tyson, Cheryl Tyson and Joslyn J. Caldwell-Tyson.

The Tyson family partnership and trusts were paid $750,000 for the lease in Nashville, with $9,320 paid property taxes on the plant, and $450,000 for the lease in Springdale is 2015.

Tyson Foods also employed CEO Donnie Smith’s daughter for a salary and benefits totaling $121,472 in fiscal 2015. She earned that pay working as director of continuous improvement training.

Tyson has curtailed its related-party activities since the company settled a shareholder lawsuit in 2008 that claimed the company gave preferential contracts and employment to friends and family of Don Tyson. In that settlement with the SEC, Tyson agreed it would not engage in any new related party transactions with the Tyson Limited Partnership, Don Tyson or his family or any non-employee officer unless getting prior unanimous approval from the board’s governance and nominating committee.

OTHER BUSINESS
Tyson shareholders will also elect their board of nine directors at the annual meeting. The directors standing for election are listed below.
• John Tyson, 62, chairman of the board and grandson of the founder.

• Gaurdie Banister Jr., 58, CEO of Aera Energy LLC, a $5 billion oil and gas producer jointly owned by Shell and ExxonMobil.

• Mike Beebe, 68, former Arkansas Governor, from 2007 to 2015. Member of the Governors’ Council of the Bipartisan Policy Center in Washington, D.C. Prior to the governorship, he served as the state’s Attorney General from 2003 to 2007, prior to which he served as a state senator for 20 years. Beebe was appointed to the board Dec. 8.

• Mikel Durham, 52, Chief Commercial Officer of CSM Bakery Solutions, a global bakery supply manufacturer, having served in that capacity since 2014. Prior to joining CSM, she held a number of management positions with PepsiCo, Inc. between 2009 and 2014, finally serving as global growth officer for PepsiCo Foodservice. She joined the board in July.

• Kevin McNamara, 59, CEO of CenseoHealth, a nationwide leader in physician in-home health assessments and is the founding principal of McNamara Family Ventures, a family investment office providing venture and growth capital to health care companies. He’s been a board member since 2007.

• Brad Sauer, 56, retired, served as executive vice president, 3M Industrial Business and a board member since 2008.

• Donnie Smith, 56, president and CEO Tyson Foods appointed to that position in November 2009.

• Robert Thurber, 68, retired, served as vice president of purchasing for Sysco Corporation from 1987 to 2007. Thurber joined the board in 2009.

• Barbara Tyson, 66, served as vice president at Tyson Foods until 2002, after which she became a consultant to the company through 2011. She’s been a board member since 1988 and is John Tyson’s aunt.

Tyson paid its non-employee directors an annual retainer of $100,000 with a $150,000 deferred compensatory stock award as well. Directors earn additional stipends between $25,000 and $15,000 for chairing various committees. Directors who served all of 2015 also received a one-time bonus pay of $25,000 for the extra hours they contributed toward the acquisition of Hillshire Brands.

The board held six meetings and took action by written consent in lieu of a meeting one time during fiscal year 2015. Directors’ attendance rate during fiscal year 2015 for all Board and committee meetings was 99.5%. The Company expects all directors to attend each annual meeting of shareholders. All persons who were then directors attended the 2015 annual meeting of shareholders.