Tuesday, June 28, 2011

Marvell Technology's Annual Shareholder Meeting (2011)

Last year, I attended Marvell Technology Group Ltd.'s (MRVL) annual shareholder meeting and praised President/CEO/Chairman Dr. Sehat Sutardja. Dr. Sutardja is Chinese-Indonesian, one of the most successful entrepreneurs in the world, and seems both calm and dapper at the same time. One doesn't see very many Asian CEOs, even here in Silicon Valley, and I view his success as proof that the American Dream is alive and well. Since last year's shareholder meeting, however, Marvell stock decreased about 14%, even as the NASDAQ increased about 26%. This year, I was looking forward to hearing why the company stumbled. I wasn't expecting epiphanies, but I could not have predicted a lack of direct answers to my questions; the company's VP of Worldwide Legal Affairs essentially cutting me off; and Investor Relations telling me after the meeting that if I published something "incorrect," I would be "liable."

It all began when I walked into the Hyatt Regency Hotel in Santa Clara, California. Like last year, the food was good--granola, yogurt, berries, water, and other healthy options. I appeared to be one of about six people present who were not working for Marvell. Dr. Sutardja handled most of the formal portion of the meeting and sat at a table in the front of the room with the VP of Worldwide Legal Affairs Thomas Savage and CFO Clyde Hosein. There were six shareholder proposals. At no point in time were shareholders given an explicit opportunity to ask questions or make comments about any of them. The polls opened, then closed shortly thereafter, and we were told that all of the proposals passed. (If North Korean government officials were in charge of shareholder elections, I imagine they wouldn't need to deviate much from Marvell's script.)

The lack of comment on the proposals was particularly interesting because several proposals seemed downright Orwellian. Proposal 5 reduces from three years to just one year the time period for a Director's stock/RSUs to fully vest. See pages 63-64, 10K: "[R]emove the requirement that awards of restricted stock, RSUs, and/or performance units/shares granted...shall not be fully vested until a minimum period of 3 years from the date of grant...Section 11(c)(ii) will be amended so that each Annual RSU Award will vest and become exercisable as to one hundred percent (100%) of the shares...on the earlier of the next general annual meeting or the one-year anniversary of the Annual RSU Award grant date." Basically, company Directors get an opportunity to make more money in one year or less, instead of gradually over three years.

Generally speaking, longer vesting periods incentivize longer term outlooks. For example, if you are supervising a company's officers, and you know your shares will fully vest in one year rather than three, you have an incentive to think in terms of one year performance (short term), not three year performance (longer term). The CFO later appeared to defend the shorter vesting period by arguing that the proposal applied only to Marvell's Directors. Presumably, he meant that officers, not Directors, run the day-to-day operations of the company and continued to be incentivized over the longer term. Yet, this change in vesting periods means the Directors are now incentivized differently than the officers of the same company.

Why is any of this Orwellian? Proposal 2 in the same 10K states, "Our primary business objective is to create long-term value for our shareholders." On the same page, Marvell highlights the company's long term focus: "Long-Term Focused: Promote a long-term focus for our named executive officers through incentive compensation." (page 58, 10K) In short, welcome to Newspeak--even as Marvell is changing its compensation policy to incentivize shorter-term performance by its Directors, it claims it cares most about long-term performance.

When the formal portion of the meeting was over, the company CFO, CEO, and attorney in front of the room failed to ask if anyone had questions. They simply got up and started walking off. I piped up--as I am wont to do when I see something unusual--and said I had some questions. I questioned the company's proposal to shorten the vesting period. The CFO said that viewed together with the other shareholder proposals, it was "logical" to shorten the vesting period. I responded that the proposal incentivized the short term over the long term. That's when I got the answer about the proposal only affecting directors, not officers. The CFO also added that stock compensation was not the primary motivator when deciding a company strategy, and stock prices move based on numerous factors--all of which is true, but why incentivize short term performance at all? Why not make directors hold onto options/RSUs/shares as long as possible before being able to cash out? I pointed out that Marvell's stock price had been abysmal compared to both the S&P 500 and the PHLX Semiconductor Index. Page 38 of Marvell's own 10K shows that while the S&P and SOX showed gains, Marvell's stock price declined by almost 50% during the time period shown. (Later, the Investor Relations contact told me I was "cherry-picking" dates--even after I pointed out I was just citing the company's own materials.)

Given the stock's relatively poor performance, I asked about specific plans for the future. I never got an answer that was satisfactory to me. Someone pointed out all the different markets Marvell was involved in. Good for you, I thought, before saying that mere involvement in different markets is different than being able to actually compete in those markets. I again asked for specific plans to turn around the stock price and asked how the company planned to compete. Dr. Sutardja said that Marvell had started out as a small company and had always managed to compete against larger companies and entities. I still hadn't received an answer that was satisfactory to me about specific plans, but Mr. Thomas Savage then told me I had used up my questions and asked if there were other questions from anyone else. No one else raised their hand, so I politely pointed out that no one had answered my question about the company's specific plans to improve the stock price. At this point, Mr. Savage essentially prevented me from asking further questions in the open format and closed the meeting.

Despite Mr. Savage's actions, Dr. Sutardja was kind enough to talk to me after the meeting. The CFO also chimed in, saying that answering my questions could take three hours, i.e., I was not asking questions that could easily be answered in a short period of time. Dr. Sutardja again reminded me that Marvell started out as a small company and was competing against large companies like Qualcomm (QCOM) and would continue to use "efficient implementation" to differentiate itself. Mr. Savage hovered close by while I was listening to Dr. Sutardja and exited the room with him before I could ask him what he meant by "efficient implementation." As I left the meeting, the VP of Investor Relations made a beeline for me and asked me pointed questions, trying to get an idea of who I was and where I was from ("Who do you work for? Are you with the press?"). I said the company's vague responses to my questions about specific plans did not inspire confidence, and I would be writing about my experience. He told me if I published anything "incorrect," I would be "liable." I asked him if he was threatening me, and he said he wasn't threatening me. I then left the meeting.

Marvell's directors, officers, and employees should realize their failure to provide information about specific turnaround plans is unacceptable when their stock price has drastically underperformed the relevant indices. Telling shareholders that the company has little control over its own stock price is no way to win over anyone. I doubt Marvell wants to hear any of this--but I will defer to George Orwell, especially in light of the company's comment that I may be "liable" for incorrect information: "If liberty means anything at all, it means the right to tell people what they do not want to hear."

Disclosure: I own an insignificant number of Marvell (MRVL) shares, and I do not plan on initiating any new positions within the next 72 hours.

Friday, June 17, 2011

Justice Hugo Black on State Secrets

Justice Hugo Black, concurring opinion, joined by Justice William Douglas, New York Times Co. v. United States (1971) 403 U.S. 713, 717:

The guarding of military and diplomatic secrets at the expense of informed representative government provides no real security for our Republic... [P]aramount among the responsibilities of a free press is the duty to prevent any part of the government from deceiving the people and sending them off to distant lands to die...

More here.

Saturday, April 9, 2011

Steinbeck on the Measure of Man

At the end of some of my letters, I sometimes include the following passage from Steinbeck:

“Where does discontent start? You are warm enough, but you shiver. You are fed, yet hunger gnaws you. You have been loved, but your yearning wanders in new fields. And to prod all these there’s time, the bastard Time. The end of life is now not so terribly far away--you can see it the way you see the finish line when you come into the stretch--and your mind says, “Have I worked enough? Have I eaten enough? Have I loved enough?” All of these, of course, are the foundation for man’s greatest curse, and perhaps his greatest glory. “What has my life meant so far, and what can it mean in the time left to me?” And now we’re coming to the wicked, poisoned dart: “What have I contributed to the great ledger? What am I worth?” And this isn’t vanity or ambition. Men seem to be born with a debt they can never pay no matter how hard they try. It piles up ahead of them. Man owes something to man. If he ignores the debt it poisons him, and if he tries to make payments the debt only increases, and the quality of his gift is the measure of the man. -- John Steinbeck from Sweet Thursday

The last two sentences are pure poetry, aren't they?

Monday, April 4, 2011

Funny Stuff My Mom Sez

On voting:

Her: "I don't want my taxes to be raised. Who do I vote for? (showing me Democratic absentee ballot form)

Me: "Then you have to vote Republican."

Her: "No! I won't vote Republican! They take our money and destroy their families. They don't have values or morals. Who was that man who went to Argentina to cheat on his wife?"

Me: "I can't believe Gov. Sanford just raised my taxes."

[P.S. My mom loves Bill Clinton. That man is pure teflon, I tell ya.]

Voting 2010: my mom and I, discussing propositions on the ballot.

Me: Your taxes will go up...

Mom: No!

Me: ...but children's health services will receive more money.

Mom: Wait! This is tricky...

Scolding Me: (English is my mom's second language.)

"You are getting out of the line."

On Pancakes: Saturday morning, 8:00AM.

Me: "Okay, Mom, let's go get some pancakes."

Mom: [excited] "Are we going to IHOP?"

Me: "No, someplace better, called Stacks."

Mom: [incredulously] "Better than IHOP???!!"

Me: [shaking head] "I can't believe you think IHOP is the pinnacle for pancakes."

[Update: she liked Stacks, but didn't think it was significantly better than IHOP.]

On Style:

Me: [On my way out the door, wearing shorts and a t-shirt for my doctor's appointment.]

Mom: "Why don't you wear something nice? People will not respect you dressed like that. Why don't you dress like the Spanish people?"

Me: "Mom, you've never even been to Spain. Sigh."

On Cleanliness:

Mom, checking out my bathroom and unhappy with its uncleanliness:

"How are you going to live with other people? I bet [when it happens] people will complain and the police will come and arrest you."

On X-Mas cards:

Mom: [showing me a proposed holiday card she's written] "Have a blast, happy and wonderful holiday" [sic]

Mom: "So, is it 'holiday' or 'holidays'?"

Me: I can't believe you've written a sentence that is impossible to fix. I bet I can submit this to a record book of some kind.

Dad: It's "holidays."

On X-Mas presents (2010):

Mom: [gives me a mug with the phrase, "Christmas Calories Don't Count."]

Me: I know I collect mugs, so thank you, but this one is for women.

Mom: That's okay, you are getting fat.

On Super Bowl (2011):

Mom: every touchdown is 7 points?
Me: it's 6 points, and if you make a free kick, it's 7.
Mom: you mean if it goes through that thing?
Me: [sigh] Yes. If it goes through the thing, it's an extra point.
Mom: What if it doesn't go through the thing?
Me: Then it's 6 points.
Mom: When is the halftime?
Me: At the half.
Mom: What do you mean the half? The time, or the score?

Bonus:
Mom, on Usher: he stole all his moves from Michael Jackson.

Payback Time, from Mom:

Me, on telephone, leaving someone a message: "I would rather have this [referring to someone who is blunt but passionate] than someone apathetic."

Mom, over-hearing me: "That's not right. It should be 'her,' not 'this.'"

Me: "Unbelievable. You're actually right for once."

Mom, later, texting me: "U should say in face book that I corrected your English. U make fun of my English. now is d pay back time. Let's see what your friends say. I bet they all love me more."

On Nutrition:

Me: "You know how to identify good orange juice, right?"
Mom: "Yes, 'from concentration.'"

On Overeating:

Me: "You're eating too much."
Mom: "Me? What about you? All you do is eat. You're a potato."
Me: "What? A potato?"
Mom: "A potato couch."
Me: [confused] "What's a potato couch?"
Mom: "Someone who sits down and eats all the time."
Me: "You mean 'couch potato'?"
Mom: "Yes, that's what I meant."

On Overeating, Part II:

Mom, unhappy at seeing me eat an entire pint of ice cream: "If there is shortage of food, you will die quickly."

On Idioms:

Repairman [installing kitchen microwave]: "This microwave just needs some elbow grease."

Mom: "Where do I buy that?"

Grandma Edition, shopping together:

Grandma (in Farsi): "Is this blouse good?"

Me (in Farsi): "No. It's terrible. Are you able to see well?"

Grandma: "Yes, I can see very well. I can see all the way over there." (pointing to end of store)

Me: (joking) "Then why can't you see the dress in front of you?"

Grandma: "I am going to hit you."

Not sweet by any name:

Mom: "What smells? Something smells really bad."

Me: [finally noticing a smell]

Mom: "It's a skunk, be careful!"

Me: "Uh, Mom, I think that's marijuana."

Mom: "In the daytime?"

Bonus: why my dad is voting Democrat in 2010: "Bush destroyed America, and now China is going to lead, and most of us will need welfare."

Saturday, April 2, 2011

California Lawyer Magazine on Public Pensions

From California Lawyer, "A Thousand Cuts" by Thomas Brum:

In February 2010 the Pew Center on the States reported that, in the next 30 years, state governments would be on the hook for $3.35 trillion for pensions. Two months later the Stanford Institute for Economic Policy Research reported that California's three main public pension funds had unfunded liabilities of $425 billion. And last October the Milken Institute reported that, by 2013, the combined liabilities of these three funds will be more than 5.5 times larger than total state general fund revenue...

In California, the state constitution protects public pension benefits, like other contracts, from impairment. (Cal. Const., Art. I, § 9.) Described succinctly by the state Supreme Court, "A public employee's pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment." (Betts v. Bd. of Admin., 21 Cal. 3d 859, 863 (1978) (citing Kern v. City of Long Beach, 29 Cal. 2d 848 (1947)).)...

[T]he court noted, "Imprudence...is not unconstitutional." (County of Orange v. Ass'n. of Orange County Deputy Sheriffs, 2011 WL 227711 at *8.)

More here. Unfortunately, the article doesn't discuss how these government benefits were negotiated. Many people don't know that government workers received their compensation packages behind closed doors--away from the average voter's oversight--due to an exception in the Brown Act for labor negotiations. Thus, government union compensation contracts are not the same as ordinary arms-length contracts. Instead, such contracts are the product of union organizing and using superior organization to get better compensation for themselves. But when compensation is negotiated behind closed doors and in a system where residents/voters must pay whatever is negotiated, it is clear that government unions have an advantage that is not necessarily compatible with the interests of the general public.

Private unions are different. If a GM worker is paid a million dollars a year, it does not necessarily concern me, because I do not have to buy a GM product. I have a choice, and if a private union gives themselves overly generous pay packages, they destroy the company and their own work prospects. No such check and balance exists when government unions negotiate overly generous compensation packages. Taxpayers must pay whatever is negotiated behind their backs, no matter how outrageous. If you say the problem is negligent oversight by politicians, I agree, but when the system is designed to favor politicians who cozy up to government unions, it's hard not to blame government unions as well as the voters.
Just my two cents.

Sunday, March 27, 2011

Mark Twain on Patriotism

What is patriotism? To me, it's utilizing the freedom to think for yourself and to comment on matters involving your government without fear of reprisal from government employees. Mark Twain seems to agree:

I said that no party held the privilege of dictating to me how I should vote. That if party loyalty was a form of patriotism, I was no patriot, and that I didn’t think I was much of a patriot anyway, for oftener than otherwise what the general body of Americans regarded as the patriotic course was not in accordance with my views; that if there was any valuable difference between being an American and a monarchist it lay in the theory that the American could decide for himself what is patriotic and what isn’t; whereas the king could dictate the monarchist’s patriotism for him–-a decision which was final and must be accepted by the victim; that in my belief I was the only person in the sixty millions–-with Congress and the Administration back of the sixty million–-who was privileged to construct my patriotism for me.

They said “Suppose the country is entering upon a war–-where do you stand then? Do you arrogate yourself the privilege of going your own way in the matter, in the face of the nation?"

“Yes,” I said, “that is my position. If I thought it an unrighteous war I would say so. If I were invited to shoulder a musket in that cause and march under that flag, I would decline. I would not voluntarily march under this country’s flag, nor any other, when it was my private judgment that the country was in the wrong. If the country obliged me to shoulder the musket I could not help myself, but I would never volunteer. To volunteer would be the act of a traitor to myself, and consequently traitor to my country. If I refused to volunteer, I should be called a traitor, I am well aware of that–-but that would not make me at traitor. The unanimous vote of the sixty millions could not make me at traitor. I should still be a patriot, and, in my opinion, the only one in the whole country.

Stirring words. [As seen in Harper's Magazine, April 11, 2011, pp. 35, "Democracy 101," quoting from The Autobiography of Mark Twain, Vol. 1.]

Bonus: below is Mark Twain's response to a letter regarding a library's removal of Tom Sawyer and Huckleberry Finn from the children's section:

"I am greatly troubled by what you say. I wrote Tom Sawyer and Huck Finn for adults exclusively, and it always distresses me when I find that boys and girls have been allowed access to them.  The mind that becomes soiled in youth can never again be washed clean; I know this by my own experience, and to this day I cherish an unappeasable bitterness against the unfaithful guardians of my young life, who not only permitted but compelled me to read an unexpurgated Bible through before I was 15 years old. None can do that and ever draw a clean sweet breath again this side of the grave."

More here. (November 21, 1905, letter to Asa Don Dickinson)

Bonus II (added September 2016): "If there is any fixed star in our constitutional constellation, it is that no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein." -- Justice Robert H. Jackson, West Virginia State Board of Education v. Barnette, 319 U.S. 624, 642 (1943).  

Monday, March 21, 2011

President Eisenhower on American Pride

President Eisenhower, speech, November 23, 1953:

Why are we proud? We are proud, first of all, because from the beginning of this Nation, a man can walk upright, no matter who he is, or who she is. He can walk upright and meet his friend--or his enemy; and he does not fear that because that enemy may be in a position of great power that he can be suddenly thrown in jail to rot there without charges and with no recourse to justice. We have the habeas corpus act, and we respect it...

It was: meet anyone face to face with whom you disagree. You could not sneak up on him from behind, or do any damage to him, without suffering the penalty of an outraged citizenry. If you met him face to face and took the same risks he did, you could get away with almost anything, as long as the bullet was in the front...In this country, if someone dislikes you, or accuses you, he must come up in front. He cannot hide behind the shadow. He cannot assassinate you or your character from behind, without suffering the penalties an outraged citizenry will impose.

Ladies and gentlemen, the things that make us proud to be Americans are of the soul and of the spirit. They are not the jewels we wear, or the furs we buy, the houses we live in, the standard of living, even, that we have. All these things are wonderful to the esthetic and to the physical senses.

But let us never forget that the deep things that are American are the soul and the spirit.

Full speech here.  Bonus: http://www.eisenhowermemorial.org/