Motorola Solutions, Inc. (MSI) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for Motorola Solutions, Inc. Our host for today's call is Kristin Kruska, Corporate Vice President and Secretary. [Operator Instructions] I will now turn the call over to your host, Kristin Kruska. Please go ahead.

Good morning and welcome, everyone, to the 2020 Annual Shareholders Meeting of Motorola Solutions, Inc. It is my pleasure to welcome you to our first virtual shareholder meeting. In this unprecedented time in the world, we are thankful we are able to connect with you, our shareholders, through this virtual meeting. We will conduct the business portion of our meeting first and answer questions at the end of the meeting. During the meeting and our 10-minute question-and-answer session at the end of the call today, the company may make forward-looking statements based on current expectations and factors that are subject to a variety of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Please refer to the Risk Factors section of our 2019 annual report on Form 10-K and our 2020 first quarter report on Form 10-Q for a detailed discussion of principal risks and uncertainties that could cause such differences. We do not undertake any duty to update any forward-looking statements. On the line with me today is Greg Brown, our Chairman and CEO as well as our Board of Directors and representatives of PwC, the company's external auditors, who are available to answer questions at the end of the meeting. Motorola Solutions has appointed Ms. Rhoda Anderson of Broadridge Financial Solutions to act as the inspector of election. Now for the formal business of the meeting, which I now call to order. The procedures for the meeting can be found on the web portal. As a reminder, the proposals in the proxy statement are the only items of business that can be transacted at this meeting. Please note the meeting is being recorded. However, no one attending the virtual meeting is permitted to use any audio recording device. This meeting is being held pursuant to a notice mailed on or about March 27, 2020, to each shareholder of record at the close of business on March 13, 2020. A list of the shareholders entitled to vote at this meeting has been available to shareholders for the past 10 days and is available via the web portal for inspection during this meeting. I am pleased to report that approximately 90% of the shares outstanding and entitled to vote are represented in person or by proxy at this meeting, which represents a quorum for the purpose of this meeting. It is 9:33 a.m. on Monday, May 11, 2020. I now declare the polls open for all matters of business. If there are any shareholders who have already voted and wish to revoke or change their vote or who have not yet voted and wish to vote, you may do so on the web portal at this time. You may vote until all items of business as set forth in the agenda have been completed. The first matter is the election of directors. I hereby nominate as directors for the ensuing year or until their successors are duly elected and qualified the Board's 8 nominees that were listed in the company's proxy statement. They are: Gregory Q. Brown; Kenneth D. Denman; Egon P. Durban; Clayton M. Jones; Judy C. Lewent; Gregory K. Mondre; Anne R. Pramaggiore; Joseph M. Tucci. Is there a second?

I second the motion.

The next matter to be acted upon is the ratification of the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for 2020. This appointment is now formally submitted for shareholder ratification. Is there a second?

I second the motion.

The next matter to be acted upon is the nonbinding advisory vote to approve the company's executive compensation. The resolution provided in the proxy statement to be acted upon states: resolved that the shareholders approve on an advisory basis the compensation of the named executive officers as described in the compensation discussion and analysis, the 2019 summary comp table and other related tables and disclosures in this proxy statement. Is there a second?

I second the motion.

The next item is Proposal 4 on political spending. This year's proxy statement contains a shareholder proposal, which is titled Political Spending Disclosure. I will now recognize the sponsor of this resolution, Mr. Bruce Herbert of Newground Social Investment, who may introduce this proposal, make a brief supporting statement and make a motion for adoption of this proposal.

Thank you, Mrs. Kruska, and good morning, members of the Board and fellow shareholders. My name is Bruce Herbert of Newground Social Investment in Seattle, and I stand to move Proposal #4, which seeks greater transparency in our company's political spending. But before I do, allow me a word of great accommodation for the employees and management of Motorola Solutions. I hope you each and all whom you care about are well, safe and perhaps finding unique ways to thrive during these unprecedented times. Extraordinary circumstances like these call for extraordinary dedication and effort. And by all reports, the MSI team has risen to the occasion and I wish to acknowledge and thank you for that. Perhaps unlike any other, for most of us alive today, this seems a time for superlatives. These kinds of circumstances call for the best in people and in companies. For that reason, it is very opportune to be voting today on Proposal #4, which calls for the best our company has to offer. Proposal 4 asks Motorola Solutions to turn away from half measures, to stop contenting itself with minimum acceptable behaviors and to instead take a leadership role. However, being a leader does not mean standing alone as the company's statement against this proposal errantly suggests, but to stand with peers like AT&T, GE and HP as well as the 63% majority of the entire S&P 500 who, for years, have embraced transparency and disclosure of their political spending. Now mind you, these companies had done this to the benefit of their reputations and have thereby increased their ability to attract and retain key talent. The lack of potential harm and precedent of manifest benefit has been evident for quite some time and is reason enough for Motorola Solutions to implement these improvements. However, in the face of COVID-19, we have seen risks arise between people, governments and nations across the globe. While times like these call for the best, they often bring out the worst in people, and it is in precisely this climate that unaccountable and nontransparent dark money groups have their most pervasive and enduringly corrosive effect. FEC data shows that outside groups spent $1.4 billion on political campaigns in the 2016 cycle and $1.1 billion in 2018. Together, up sixfold from just $310 million in 2010. All indicators are that the 2020 cycle could exponentially top even this. An important Conference Board article describes the rise of dark money spending and a new threat of extortion by dark money groups that are run by political operatives with improperly close ties to elected officials. This all spells risk for companies that engage in the political process. While MSI's statement sounds reasonable and implies completeness, this creates a mistaken impression. As far back as the Bible, scholars have drawn a clear distinction between the things done and all that has been left undone. What Motorola Solutions has done is commendable, but it is what they have left undone, specifically disclosure of secret money which runs through dark money groups that truly matters. It has always mattered, but especially so in today's climate, when our economy and the democracy that underpins it is stretched to the point of breaking. In closing, with no risk of harm, as demonstrated by the multitude of MSI peers who have heretofore embrace disclosure, with many levels of benefit, including lower payments, enhanced reputation and improved retention and attraction of key talent, and with important social and political systems at risk of irreparable harm, it is manifestly evident that now is the time for our company to implement the requests of this proposal and to join the nearly 2/3 majority of the S&P 500 who disclose today. Therefore, please join me in voting for Proposal #4. Thank you.

Thank you, Mr. Herbert. For the reasons stated in the company's proxy statement, the Board of Directors recommends that you vote against the adoption of this shareholder-submitted proposal. Is there a second for this proposal?

I second the motion.

Please keep in mind, we will address comments and questions at the end of the meeting regarding any proposals. There are no other matters that may properly be voted on before this meeting. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the Voting button on the web portal and following the instructions there. Shareholders who have sent in their proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. [Voting]

I now declare the polls closed at 9:40 a.m. on May 11, 2020. I will now read the preliminary results of the items acted upon at today's meeting, each as reported by the inspector of election. Election of directors. More than a majority of the shares voted in each -- in person or by proxy at this meeting were voted for the election of each director. As a result, the 8 persons who have been nominated for election have been duly elected as the directors of the company, each to hold office for a 1-year term. Approximately 98% of the votes cast were voted for the ratification of the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for 2020. Approximately 92% of the votes cast were voted for the approval of the company's executive compensation. And finally, approximately 46% of the votes cast were voted for the resolution on political spending disclosure. As a result, this shareholder proposal has not been approved by the shareholders. We will report the official results of the shareholder vote with respect to each proposal on a Form 8-K within 4 days of this meeting. I now declare the meeting adjourned. We will now open the meeting for shareholder comments and questions that were entered today on the web portal. Please note, we will attempt to as many -- answer as many questions as time allows, but only questions that are germane to the meeting will be addressed.

The first question that we have online is the -- a question from a shareholder asking whether the company would consider online access to future annual meetings for those shareholders who cannot attend in person. And our response to that would be that we believe this virtual format has worked well and think that it may be a format that we choose to use in the future, and that should help shareholders be able to attend. Second, we've had a couple of questions from individuals on ESG sustainability type matters, including greenhouse gas reductions. First, the very core of our business has a positive impact on our community. We create mission-critical products that save lives and make communities safer. We have a long-standing commitment to operating ethically, and we are dedicated to all of our stakeholders, including our employees, customers, community and our environment. We hold high labor and environmental standards at every stage in the supply chain. We are focused on ensuring our company and our suppliers do not use bonded labor or engage in human trafficking. We engage directly with our Tier 1 suppliers to assess their performance and encourage compliance with our Supplier Code of Conduct. We are in other -- we are an active Responsible Business Alliance, RBA, member, supporting the well-being of workers in the global and electronic supply chain. We conduct regular independent social and environmental risk management audits. In 2019, we completed 218 supplier assessments, covering 96% of direct material supply chain spend. We have limited exposure to environmental risks and opportunities. However, we continue to strive to operate more sustainably. We introduced a new greenhouse gas emissions tracking tool in 2018 to report a more accurate profile of our emissions. We set a target to reduce our Scope 1 and Scope 2 greenhouse gas emissions by 38% by 2027. We have reduced water use by 8% since 2016, and we've reduced waste production by 29% since 2016. We are working towards incorporating more SASB references and introducing the TCFD disclosure framework in our 2019 Corporate Responsibility Report, which will be published this summer. In 2019, we began reporting ESG matters to the Governance and Nominating Committee of the Board. This year, we introduced the Trust Center, an online platform to give our customers more information about how we protect their data. Additionally, we have long-standing policies that ensure we do business the right way, including our Code of Business Conduct, our Supplier Code of Conduct and our Board of Directors' Principles of Conduct. Also, we have developed an antihuman trafficking statement and compliance plan. We routinely conduct internal audits on ethical standards, and our Audit Committee oversees ethics issues. Lastly, we are recognized by ESG rating agencies with top marks for our effort. ISS has awarded us the highest possible score for our environmental and social programs. We have an overall score of outperform from Sustainalytics. MSCI ranks us an A, and we were recently ranked #9 in Barron's Top Sustainable Companies. The next question that we have relates to our response on the COVID pandemic. Motorola is an essential business, and we continue to operate. We are prioritizing the health and safety of our employees. We have implemented work from home if you can guidelines for our employees and contractors as well as travel restrictions, increased sanitation, thermal scanning, and we have provided face masks for our employees to use on the job. We have implemented a company-wide response to ensure customer continuity. Our products team is fulfilling several emergency orders. Our software team is able to complete maintenance remotely, and our field workers are visiting customer sites to keep mission-critical networks operating. We are still reaching our customers remotely through virtual launches and demos, including virtual showcases, our Safe Schools launch and innovation center tours. The Motorola Solutions Foundation has committed 1 -- over $1 million in donations to first responders and health care professionals. We are helping to provide frontline assistance through the Red Cross, emergency child care assistance for health care professionals through the YMCA and emergency funds for families of first responders in need through the First Responders Children's Foundation. The next question that we received is with respect to our views on political spending disclosure. We have a robust policy and an internal political contribution approval process to ensure compliance with current campaign finance and disclosure laws as well as with our Code of Business Conduct. A committee within our Government Affairs Department develops a plan identifying the candidates and campaigns that will receive contributions based on a nonpartisan effort to advance and protect the interest of our company, our shareholders and our employees. The company's Vice President of Government Affairs reviews the plan, and our legal counsel reviews all political contributions in advance. In addition, the Governance and Nominating Committee of the Board periodically reviews the political contribution, and the Chairman of the Board reports to the full Board. We do not support any political side or affiliation, and we are very conscious to take a balanced approach where we are supporting the interest of our communities. We also conduct a constructive and responsible review before we decide to participate in the political process rather than participating just because it is permissible to do so. We are not only monitoring amounts of money and -- contributed, but where the money is going and if that aligns with our values and goals of the company. We believe that unless unilateral disclosure relating to the company's political spending is required across all of our peers and competitors that it would put us at a competitive advantage, therefore, we have recommended an against vote. The -- I believe the final question is from a shareholder, the Carpenter Union Pension Fund, which requested information from our -- they state that as long-term investors, we appreciate the company's actions to address the difficulties being experienced by employees, customers and other important corporate stakeholders related to the COVID-19 pandemic. Many companies are often hesitant to have -- to even entertain a change of audit firms, but the company did make that change last year. Could the representative of PricewaterhouseCoopers speak to how the transition from KPMG has gone? So operator, Paul, if you could please open the line for Dennis Wolff of PwC for him to answer that question, we would appreciate it.

Thank you, Kristin. My name is Dennis Wolff. I'm the audit partner from PricewaterhouseCoopers that is responsible for the Motorola Solutions audit. In my view, the transition went very well from the predecessor auditor. The company was very cooperative and open. I think we had a good process of getting up to speed and executing the audit as planned. So I'll leave it at that, Kristin. I'm happy to elaborate further, if you'd like.

I think that is sufficient. Thank you for your answer. And seeing no more questions, we've covered all of the topics. I declare this meeting closed, and we appreciate your attendance at our first virtual annual meeting.

This now concludes the meeting. Thank you for joining, and have a pleasant day.