Proxy advisor backs activist Politan in scathing Masimo report: ‘damage to shareholder value’

Proxy advisory firm Glass Lewis on Thursday recommended that shareholders of Masimo, the medical technology firm best known for its Apple Watch patent litigation, elect dissident Politan’s two nominees, Bill Jellison and Darlene Solomon.

Glass Lewis wrote in a scathing report, which was viewed by CNBC, that Masimo’s legacy directors had allowed basic corporate tenets to “take a back seat to the espoused preferences of” CEO Joe Kiani.

Politan is targeting founder Kiani for removal from the board, but the billionaire executive has said that would trigger a $400 million change-in-control package and result in his departure. Glass Lewis did not buy that argument, writing that “Masimo’s more alarmist commentary notwithstanding, the current campaign is not about removing or replacing the Company’s CEO.”

Masimo’s board includes Kiani, former Disney CEO Bob Chapek and Politan managing member Quentin Koffey, who overwhelmingly won the election last year.

The report describes Kiani as an executive who “continues to run roughshod over a largely self-selected board seemingly disinterested in basic accountability and effective oversight.”

Kiani has been criticized in some corners for running Masimo, which has been publicly traded since 2007, as though it was a privately held company. Glass Lewis tacitly endorsed that criticism in its report, writing that the company displayed “de minimus responsibility” and “poor governance.”

Masimo’s current directors — including Kiani — had failed to address “profound damage to shareholder value,” Glass Lewis wrote.

Proxy advisory firm recommendations are not binding. Alongside its larger peer Institutional Shareholder Services, though, Glass Lewis reports are considered highly important to passive investors. Politan won support from both Glass Lewis and ISS last year, and went on to win two board seats in a landslide victory which, similar to this year, hinged on corporate governance failures.

The proxy advisory firm also took a dim view of some of Masimo’s efforts in the fight, pointing to “less than persuasive efforts to denigrate” Jellison and Solomon. Significantly, Glass Lewis also noted a July letter from Politan to Masimo’s board which alleged that a unnamed Masimo shareholder close to Kiani may have violated SEC regulations by running up its stake to nearly 10%, voting in favor of Kiani, and then selling off shares.

Glass Lewis explicitly said it could not verify whether those claims were true, nor could it speak to Politan’s July 3 allegation that the investor had shorted the stock to negate its economic exposure. It did note that Masimo shareholder RTW, an $5.9 billion firm, had privately reached out for a meeting with Glass Lewis and said it was a 9.9% shareholder supportive of Kiani and management nominee Christopher Chavez.

Glass Lewis responded to RTW with an offer to meet on July 8, shortly after Politan’s allegations were publicized in an SEC filing. RTW never responded to that offer, Glass Lewis said.

The proxy advisory firm said that RTW’s publicly reported position versus the 9.9% position it privately disclosed to Glass Lewis “appear to align with certain of the concerns raised by Politan in the letter.”

Kiani, in a testimonial on RTW’s website, described the fund as a decades-long “trusted partner.” RTW did not immediately return a request for comment.

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