The McKesson Board Battle

NEW YORK (TheStreet) -- This reads like another page from the annals of what makes publicly traded companies tough to govern. When the shareholders (or a group of them) get fed up, the feathers can really start flying.

That's apparently what's going on at McKesson ( MCK), a company as old as the hills.

According to the company's historians, "Over the past 180+ years we have played a fundamental role in helping to shape the design and direction of health care: helping to set standards for the health care supply chain and playing a large role in our industry's technology revolution."

Now the company faces another historical showdown. A rather powerful union investment group is opposing the reelection of MCK's chairman and two other board directors. Among other complaints -- CtW Investment Group, which represents this investors group, says the chairman and CEO is paid too much.

They also claim Chairman and CEO John Hammergren has ignored a directive from a shareholder advisory vote calling for his dual roles to be split in two. The union investment group doesn't want two other board members who head the compensation and governance committees to be re-elected either.

You may recall that CtW was the group that led a campaign earlier this year that opposed Hammergren's outside activity as a longtime director of Hewlett-Packard ( HPQ). It led to his eventual resignation from the HPQ board of directors.

CtW, a group representing the labor federation Change to Win, advises union pension funds. CtW said recently that its fund owns a total of 1.4 million of MCK shares. MCK has about 228.5 million shares outstanding and a market cap of nearly $26 billion.

As the one-year chart below illustrates, it has been a banner year for MCK shares even though its dividend of 80 cents per share offers a paltry yield of only 0.70%. Not exactly what you'd call "shareholder-friendly."

MCK Chart MCK data by YCharts

I've included its trailing 12-month (TTM) payout ratio that is heading higher albeit it's not well reflected in the dividend yield. As of March 31, MCK had total cash of $2.46 billion.

MCK's operating cash flow (TTM) as of the same date stood at $2.48 billion with levered free cash flow of $1.61 billion. Its year-over-year quarterly earnings fell by more than 50% in the first quarter of 2013.

Analysts are looking for the company to report around an 8.4% increase in the current quarter's earnings per share. The report is scheduled for around the time of the upcoming annual meeting on July 31.

On June 26, MCK reaffirmed its earnings guidance for the fiscal year ending March 31, 2014, and the underlying key assumptions provided in its press release of May 7.

McKesson hosted its Investor Day on June 26 in Boston. A webcast of the presentations is available at McKesson's informative Web site.

In defense of Hammergren, according to MCK the company's value has tripled to more than $25 billion during his 14-year tenure, and he has a "...track record of creating sustained shareholder value" that a company statement claims " the best test of our corporate governance."

Meanwhile, CtW's executive director, Dieter Waizenegger, has publicly stated concerning MCK, "This is one of the worst-governed companies out there."

Waizenegger claimed the campaign to oust Hammergren as chairman isn't a judgment on his track record as CEO but a vote against "the failed leadership of the board."

Last year shareholders approved a nonbinding vote to split the roles of CEO and chairman. The board of directors decided instead to make its own changes, which to some looked like a refusal to comply.

All kinds of allegations have gone back and forth between CtW and the company ever since. It's not within the scope of this article to articulate them, but they're not hard to find using a good search engine.

If you like to keep tabs on slugfests involving big public companies and their most agitated shareholders the situation at McKesson is worth keeping on your radar screen. As the stock chart above seems to indicate, it hasn't hurt the price per share and the majority shareholders seem to be hanging tough.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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