InMode’s upcoming AGM sees the Israel-based, Nasdaq-traded medical device innovator undergoing its first board refreshment since its 2019 IPO, with the appointment of a new, ostensibly “independent” director. However, murky disclosure of cozy business relationships raises questions about whether the board is in a position to provide truly independent oversight of its founder-chair-CEO.
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper into the situation at InMode. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts April 1 — April 5, 2024
April 1 Banpu Public Health; Controversy Alert issued March 13
April 1 InMode Ltd.; issued March 20
April 3 The Walt Disney Company; issued March 20
April 4 Raiffeisen Bank International; issued March 17
Deep Dive: InMode Ltd.
As a publicly traded company, InMode Ltd. has exhibited a pattern of concerning governance practices, including stock option repricing, loose compensation policies –— and related party transactions involving the company’s founder, Moshe Mizrahy. Over the years, Mizrahy has reduced his once-15% ownership stake to approximately 2.4%; however, he still appears to have a significant influence on the company. That’s partly a function of his role(s), serving as both CEO and chair of the board, and partly a function of who else serves on the board.
Because InMode is a foreign private issuer, the company is not subject to the same reporting requirements as domestic U.S. issuers. For instance, foreign private issuers are not required to disclose director attendance, or the total number of meetings held by the board of directors and its committees. Similarly, the company does not disclose shareholder voting results. But when it comes to board independence, InMode acknowledges that under Nasdaq governance standards, “a majority of our directors must meet the independence requirements specified in those rules”. InMode says that three of the five directors meet those standards. After reviewing the company’s disclosure, the situation is arguably more complicated.
The company’s annual report Form 20-F provides details of the board’s business relationships involving Mizrahy — some of them, anyway. For example, non-executive director Hadar Ron also serves as a director of a number of Mizrahy-related companies, including Home Skinovations Ltd., which recorded $497,000 in sales to InMode in February 2022, and which, together with its subsidiaries, has billed the company approximately $584,000 over the past two years. Ron’s venture firm was one of InMode’s pre-IPO investors, and has invested in other Mizrahy ventures. Ron is considered “independent” by InMode.
But investors relying on InMode’s disclosures would be surprised to learn about Mizrahy’s relationship with new appointee Nadav Kenneth, the co-founder and former CEO of Qrative Ltd. (aka InventiveIP), where Mizrahy serves as chair. InMode’s proxy statement does not disclose Mizrahy’s involvement in Qrative or the existence of any links between the two, and Kenneth is considered independent by the board.
Kenneth is also joining the board’s audit and compensation committee, another area where governance and transparency may not meet shareholder expectations. Concerns include the lack of disclosure around performance targets, a relatively high fixed pay cap under the company’s policy, relatively high actual pay in practice, and significant incentive opportunities with minimal long-term safeguards. For the most recent year, this structure yielded a 15% increase to the President, North America’s bonus payout, while the share price fell 42%. To be clear, those incentives do not appear to involve Mizrahy — in an unusual setup, the CEO and chair is employed under a consulting agreement. While his $264,000 in 2023 fees are unlikely to raise eyebrows, it’s worth noting that his total pay is not disclosed.
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