Flowserve Corporation (FLS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Flowserve Corp. Conference Call. I will now turn the program over to Scott Rowe.

Good afternoon. I'm Scott Rowe, President and CEO of Flowserve, and it's my pleasure to welcome all of you to the Flowserve 2020 Annual Shareholders Meeting. I want to start by recognizing the unprecedented times we find ourselves in. We are holding today's annual meeting as a virtual-only meeting for the first time due to various local, state and federal social distancing and shelter-in-place orders and guidelines. As a New York corporation, we are normally required by statute to hold an in-person annual meeting of shareholders so I want to recognize and thank the state of New York for providing us the flexibility to hold a virtual meeting this year so that we can do our part to limit the spread of COVID-19. While the meeting is virtual only, we welcome questions from our shareholders. You are permitted to submit your questions through the online portal. They will be reviewed during the meeting, and assuming they comply with our meeting rules of conduct, will be addressed during the Q&A portion of the meeting. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible, time permitting. At this time, I'd like to introduce Mr. Roger Fix, Chairman of the Board of Directors of Flowserve Corporation. Mr. Fix?

Thank you, Scott. Good afternoon. And welcome to Flowserve's 2020 Annual Meeting of Shareholders. As the Chairman, I call this meeting to order. We're now going to address the matters to be voted on at this meeting. This meeting will be conducted in accordance with the agenda and rules of conduct that have been posted on the virtual meeting website to assure fairness to all shareholders in attendance and an orderly meeting. We ask that participants abide by these rules and thank you in advance for your cooperation. Please also remember that you may vote your shares online at any time during this meeting prior to the closing of the polls. The polls opened at the beginning of the meeting, and we will close the polls on all matters immediately after the presentation and discussion of today's proposals. I'd just start by recognizing that each of the members of our Board standing for election at this annual meeting are attending this meeting virtually. I'd also like to take a moment to recognize Rick Mills and Joe Harlan for their years of service on the Board. Both Rick and Joe have served as Director of Flowserve since 2007. During Rick's 13 years of service, he has served on various committees, including audit, finance and risk, corporate governance and nominating. And through his years of industrial and manufacturing experience, he has brought a unique perspective to the Board, and we appreciate his contributions to the company. Thank you, Rick, for your service to Flowserve. During Mr. Harlan's 13 years of service, he has served on each of our committees. His international experience and familiarity with emerging markets and our customers has provided the company with very helpful insight throughout the years, and we appreciate his contributions to the company. Thank you, Joe, for your service to Flowserve. We're also joined at this meeting by Lanesha Minnix, Chief Legal Officer and Corporate Secretary, who is acting as secretary of this meeting. Also attending is Pat Alford from PricewaterhouseCoopers, Flowserve's independent registered public accounting firm. He'll be available to respond to questions at the end of the meeting. Paul Ramirez of American Election Services will serve as the Inspector of Elections. He has previously taken his oath as the inspector. I'll now move on to the formal portion of this meeting. Lanesha will now report on the mailing of Notice of the Meeting and the presence of a quorum.

Thank you, Roger. With me, I have a list of shareholders entitled to receive notice of and to vote at this meeting. This list is certified by EQ Shareowner Services, the company's registrar and transfer agent as of March 27, 2020, the record date set for this meeting. This certified list of shareholders is also with Mr. Ramirez and is available for review. Additionally, I hold the Notice of the 2020 Annual Meeting of Shareholders of Flowserve Corporation to be held this date and the 2020 proxy statement relating to this meeting, both dated April 9, 2020. Finally, I also hold an affidavit of mailing signed by Broadridge, the mailing agent, dated April 9, 2020, confirming that the company's annual report, Notice of Annual Meeting of Shareholders, proxy statement and proxy card were all made available beginning on April 9, 2020, to each shareholder of record at the close of business on the record date. Today, there are present, in person or by proxy, the holders of at least 120,727,347 shares or 92.78% of the 130,112,671 shares entitled to vote at this meeting. Accordingly, a quorum is present. This meeting is duly convened for the purposes of transacting business properly before it.

Thank you, Lanesha. The next order of business is a brief description of the matters properly brought before this meeting. All the following proposals are listed on the meeting agenda and are described in the proxy materials. We have 5 proposals, which I will briefly describe. The Board recommends you vote for proposals 1, 2, 3 and 4 and against proposal 5. The first proposal is the election of 9 directors to the Board of Directors for a term expiring at the 2021 Annual Meeting of Shareholders. The second proposal is the advisory vote on the compensation of our executive officers identified in the proxy statement or the say-on-pay vote. The third proposal is the ratification of PricewaterhouseCoopers' appointment to serve as Flowserve's independent registered public accounting firm for 2020. The fourth proposal is the approval of an amendment to the certificate of incorporation to allow shareholder action by less than unanimous written consent. The fifth proposal is a shareholder proposal that will be presented by Mr. John Chevedden. We'll now request that Mr. Chevanan's line be unmuted so that he may present the proposal. Mr. Chevedden, please.

Hello. This is John Chevedden. Can you hear me okay?

Yes.

Yes, we can.

Okay, Proposal 5, let shareholders vote on bylaw amendments. Shareholders request that the Board of Directors amending the bylaws require that any material amendment to the governing documents of the company, including the bylaws and articles of incorporation that is approved by the Board, shall be subject to a nonbinding shareholder vote as soon as practical, unless such amendment is already subject to a shareholder vote. The Board of Directors would have the discretion to determine which amendments are material. It is important that bylaw amendments take into consideration the impact that such amendments can have on limiting the rights of shareholders and on reducing the accountability of the directors and managers. For example, directors could adopt a narrowly crafted exclusive forum bylaw to suit the unique circumstances facing the directors. A proxy adviser recently adopted a policy to vote against directors who unilaterally approved bylaw provisions amendments to the articles of incorporation that materially diminish shareholder rights. This proposal addresses the tendency of a board of directors to sneak into the governing documents of a company provisions that limit the rights of shareholders and reduce the accountability of directors and managers. The Agenda Item 4 today is one such example of directors sneaking in a misleading change into our bylaws under the cloak of improving corporate governance. Proposal 4 here today appears to be a version of a shareholder right to act by written consent that makes no sense and appears to be 100% excess baggage. Under the Proposal 4, written consent is -- will take 25% of Flowserve's stock to just get management to look at a calendar and name a date. Why would anyone go through the tremendous effort to gather together 25% of Flowserve's stock to just have management look at a calendar when the same 25% of stock could obligate management to call a special shareholder meeting? This proposed written consent appears to be an inferior second choice to the already existing shareholder right to call a special shareholder meeting. The 2019 shareholder proposal approved by a majority vote that paved the way for the management proposal for today do not have any such excess baggage provision, and shareholders today do not have the opportunity to opt out of the excess baggage provision in Proposal 4. The 2019 Flowserve annual meeting proxy promoted the so-called company commitment to shareholder engagement. This so-called commitment seems to be a flawed commitment because such engagement apparently did not foresee that Flowserve executive pay would be rejected by 19% of shares in 2019 when a 5% rejection is normal for a well-performing company. Please vote yes: let shareholders vote on bylaw amendments, Proposal 5.

Thank you, Mr. Chevedden, for presenting the proposal and your comments. We'll now see if there are any other questions or comments regarding these proposals.

Mr. Fix, at this time, there are no questions from our shareholders regarding these proposals.

Thank you. We'll close the polls shortly. If you previously voted on the Internet or by phone or if you delivered your proxy cards, your shares will be voted accordingly, and you do not need to vote today unless you wish to change your vote. We'll now pause for a moment. [Voting]

Now that everyone has had the opportunity to vote, I now declare that polls are closed. Lanesha, will you please give us the preliminary voting results?

The preliminary report of the Inspector of Elections shows that for Proposal 1, each of our director nominees received at least 96.4% of votes cast on this proposal in favor of his or her election. For Proposal 2, of the shares of common stock voted on this proposal, approximately 95.3% were voted in favor of approving the compensation of our named executive officers. For Proposal 3 of the shares of common stock voted on this proposal, approximately 96.6% were voted to ratify the appointment of PricewaterhouseCoopers. For Proposal 4 of the shares of common stock outstanding, approximately 88.2% were voted to approve the amendment to the certificate of incorporation of Flowserve Corporation. For Proposal 5 of the shares of common stock voted on this proposal, approximately 99.3% were voted against the shareholder resolution.

Thank you, Lanesha. The results indicate that Flowserve shareholders have elected each of the director nominees, approved proposals 2, 3 and 4 and did not approve proposal 5. As there is no further official business, we now adjourn the formal portion of the meeting. We'll now address questions of general interest from our shareholders that comply with our meeting rules of conduct on our virtual meeting website. Each shareholder will be limited to a total of 3 questions. No more than 1 question may be on a single topic. If you've not already submitted your questions, please do so now. Our Assistant Corporate Secretary, Akshar Patel, has been monitoring the submitted questions and will read each question appropriate for discussion at this meeting, and Scott, with support from other members of management as needed, will respond. Mr. Patel, are there any questions from our shareholders?

Thank you, Roger. We have a few questions from shareholders that we will now address. The first question was related to the selection process for Mr. Sujeet Chand on his addition to the Board at the end of last year.

Yes. Thanks, Akshar. So we ran a formal process to elect Sujeet Chand to our Board. We used a third-party executive search, and the process was led by our normal nominating and governance procedures and committee. We did utilize a skills matrix to identify the desired skill set. And in that skill matrix, we're looking for significant experience in technology, products and end markets. We've utilized this to make the selection, and I'd say we're very happy to have Mr. Chand actively contributing to the success of Flowserve.

Thank you, Scott. The second question relates to our last in-person board meeting and when it was held.

Sure. The last in-person meeting was February 18 to February 20 held at our corporate offices in Irving, Texas. Since the COVID-19 crisis in mid-March, we have had regular virtual meetings with the Board, and we did our board meeting virtually on May 20, so Wednesday of this week.

Thank you, Scott. The next question is related to the director votes today and is asking which director received the most votes today.

Yes. So our individual voting for all directors -- individual voting totals for all directors will be provided when we file our 8-K after the final vote is certified. As I indicated in my tally earlier, all directors received at least 96.4% of votes cast.

Thank you, Lanesha. And the final question relates to stock purchases by our directors over the last 2 years and where further information about those can be sound.

Absolutely. We would refer you to our Section 16 filings, which are available on EDGAR for that information.

Thank you, Lanesha. Mr. Fix, at this time, there are no more questions from our shareholders to be discussed at this meeting.

Thank you, Akshar. That concludes our 2020 Annual Meeting. Thank you.

Ladies and gentlemen, this does conclude your call, you may now disconnect your lines.