Date Posted
CWA REVIEW AND RECOMMENDATIONS: VOTING ITEMS ON FRONTIER PROXY STATEMENT INTRODUCTION Frontier Communications has recently had mixed prospects. Frontier has struggled to integrate its recent acquisitions. And with those acquisitions, Frontier is challenged by towering debt. Still, revenues increased 2.6% in 2017 to $9.1 billion and EBITDA stood at $3.6 billion. Largely because of debt servicing, net income was-$1.8 billion--the negative due in part to payment of$0.5 billion in dividends and which led the company to suspend dividend payments in 2018. As a result of these turbulent financial and operational forces, Frontier stock has suffered. It lost 86% of its value (adjusted for dividend) in 2017 although it has since rebounded 33% in 2018 (as of April 18). Adjusted share prices have fallen 86% since January 1, 2016. This year the company has amended its credit agreements which should provide it some running room to get back on track, but questions about its business strategy and financial health remain. Although the company is struggling through some hard times, Frontier Communications remains a major force in landline telecommunications, and CWA’s bargaining units are the foundation upon which the future is being built. CWA members are on the frontlines of Frontier’s challenges, laying fiber, maintaining plant, installing and maintaining equipment, dealing with customers. We are the ones who sustain the networks and those customer relationships, and who create the needed stability for the company to thrive. For that reason, CWA members should engage in the opportunity to exercise their votes as shareholders, helping to shape the direction of the company and to establish principles that will govern the company. CWA has prepared this shareholders voting guide to offer some insight into the shareholder proposals inFrontier’s2018 proxy statement. We encourage you to exercise your right to vote on this company’s future. Please note that all proposals this year are forwarded by management and not by shareholders. MANAGEMENT PROPOSALS ITEM 1. ELECTION OF DIRECTORS The Board of Directors consists of 9 individuals, all of whom are independent, except for Daniel McCarthy, Frontier’s President and CEO. The entire Board has been nominated for re-election. RECOMMENDATION FOR ITEM 1: VOTE YOUR CONSCIENCE. ITEM 2. ADVISORY APPROVAL OF EXECUTIVE COMPENSATION The proposal asks shareholders to approve a compensation program already in place. The vote is only advisory and would not be binding on the company. The proxy statement includes principles for setting pay and a detailed discussion of all aspects of executive pay. Of particular interest to CWA members will be the compensation of CEO Daniel McCarthy. The Summary Compensation Table in the proxy statement reports that Mr. McCarthy received $6.0 million in 2017 in the form of direct salary, perks and an estimated amount of stock grants. Unusual among telecom companies, Frontier publishes what executives actually receive in given years. In 2017, Mr. McCarthy received $3.1 in the form of salary, perks, and vested stock awards. That is a good sign because it shows he is not timing the vesting of his stock awards according to the state of the market. We also note that in the last two years, Mr. McCarthy has not received either a bonus or a short-term incentive award. Nonetheless, we note that from 2016 to 2017 his salary increased 1.9% to $1 million and his stock award increased 11.0%. Raising executive pay on this level during a time of uncertainty for the company is a mistake. RECOMMENDATION FOR ITEM 2: VOTE AGAINST. ITEM 3. RATIFICATION OF THE APPOINTMENT OF KPMG AS INDEPENDENT AUDITOR KPMG LLP has been the auditor for Frontier (and its predecessor companies)since1936. The Board’s Audit Committee has re-appointed the firm for another fiscal year, through December 31, 2018. With this vote, shareholders are asked to affirm the Committee’s decision. The wisdom in corporate governance circles is that such lengthy relationships can blur the independent perspective necessary for an uncompromised review of financial results. RECOMMENDATION FOR ITEM 3: VOTE AGAINST