We at Wintergreen Advisers scrutinize each and every annual report and proxy statement published by the companies our clients own. We do this because we are trying to protect your investment with us.

It has been about a week since Coca-Cola announced changes to its equity compensation practices, adopting new policies to address many of the worst excesses of the 2014 equity compensation plan it presented to its shareholders in April. We are gratified that many people have acknowledged Wintergreen’s role in bringing about these changes.

Several people have also asked us what Coca-Cola’s turnabout means for companies and investors. We see four main lessons:

First, you don’t have to be large to have a large impact. Wintergreen’s clients hold approximately 2.5 million shares of Coca-Cola, which is less than 0.1 percent of Coca-Cola’s equity. But regardless of size, a fund manager can have an impact if they are willing to take a stand for what is right. We believe drawing attention to the shortcomings of Coca-Cola’s equity compensation plan was the right thing to do for Wintergreen and its clients given our fiduciary obligation to our clients. We take that obligation very seriously.

Second, hedge funds do not have a monopoly on activism. The definition of shareholder activism is changing. Most people see the word activist and think of a loud-talking, fast-moving hedge fund manager who clamors for a short-term transaction and a quick buck. When successful, the hedge fund nets a big gain for its managers and the wealthy individuals who qualify to participate in the fund.

Wintergreen’s approach is different. We are an active advocate for the interests of our clients’ investors, many of them retirees and other long term savers who would never have access to a hedge fund of any variety.

When we see a situation that threatens their interests, like Coca-Cola’s excessive equity compensation plan, we will speak up – most often privately, but publicly if needed. We are prepared to stay the course to see our efforts come to fruition. Those who know Wintergreen well will recall that our actions at Consolidated-Tomoka Land Co. lasted for several years but ultimately are producing solid returns for our clients and all other Consolidated-Tomoka investors.

Third, equity compensation plans are now going to get closer scrutiny at every large company. Because of Wintergreen’s stand against Coca-Cola, we believe board compensation committees (and the executive-pay consultants they employ) will be more careful about the equity plans they design and present to shareholders for approval. Plans that would give too big a slice of the shareholders’ pie to management should be less likely to be proposed, and may invite more scrutiny from investors of all sizes, which we think is good for shareholders of those companies.

Fourth, our experience with Coca-Cola is a reminder that good governance is a critical element in value investing. A strong underlying business, proper disclosure, accountable management, and a board of directors that is committed to serving the interests of all shareholders – we believe these are the ingredients for long-term value creation. We still own Coca-Cola shares because we believe it’s a great business with fixable problems. With the right management and improved governance, we believe Coke can deliver outstanding returns for its investors. That’s why we’re continuing to urge Coca-Cola to take steps to revitalize its business. Changing the equity compensation plan is a first step in the right direction but much more needs to be done.

We look forward to keeping you informed about further developments on these issues and other matters of interest.

Very truly yours,

David J. Winters
Wintergreen Advisers

Download PDF