Welcome to Cintas Corporation's 2024 Annual Shareholders Meeting. At this time, I would like to turn the meeting over to Scott Farmer, Cintas' Executive Chairman.
Thank you, and good afternoon, everyone. It is 1:30 P.M. Eastern Daylight Time, and I'm pleased to call to order the 2024 Annual Shareholders Meeting of Cintas Corporation. On behalf of the entire board, our officers, and our employee partners, I'd like to thank you for attending our 41st Annual Shareholders Meeting. We continue to conduct these meetings virtually to allow our shareholders across the globe to participate regardless of their geographic location.
A recording of this meeting will be available on our virtual shareholder meeting site within 24 hours, and it will remain available until the next shareholders meeting. As a reminder, the conduct and rules for today's meeting are posted on this meeting website. When my remarks are concluded, there will be a brief opportunity for appropriate questions related to the business of the annual meeting, subject to time constraints.
Shareholders' questions may be submitted in the text box field provided on the web portal during this meeting. We're asking shareholders who submit a question to include their name and email address as well. All other questions can be addressed by calling our Investor Relations Department at any time. I'd now like to introduce the members of our Board of Directors. After introducing our board members, we'll move into the formal portion of our meeting.
Our Cintas directors are: Gerald Adolph, John Barrett, Melanie Barstad, Beverly Carmichael, Karen Carnahan, Bob Coletti, Scott Farmer, Marty Mucci, Joe Scaminace, Todd Schneider, and Ron Tysoe. I want to thank my fellow board members for their leadership, guidance, and service to our company as we've navigated all the challenges and opportunities the past year has brought. I also want to acknowledge Gerald Adolph and John Barrett.
Both directors have decided not to stand for re-election to our board and will retire after this meeting. On behalf of Cintas and their fellow directors, I want to thank Gerald and John for years of exemplary service and dedication to our company's success. Present today representing Ernst & Young LLP, the company's independent auditor, is Nathan Wander.
We'd now like to begin the formal meeting where we will handle all of the business matters. Brock Denton, General Counsel and Secretary of Cintas, certified that on September the 19th, 2024, proper notice of the date, time, and meeting purpose, along with the web address for today's virtual meeting, was given to all shareholders of record on September 12th, 2024. I hereby appoint Jim Raitt as an election inspector. I'm pleased to announce that we have enough voting shares of the company that are present by proxy to constitute a quorum.
May I have a motion to dispense with the reading of the minutes of the previous shareholders meeting held on October 24th, 2023?
So move.
At this time, any shareholders who are logged in but who have not already submitted a vote of their shares may do so now by clicking the "Vote Here" button on your screen. Please remember that if you have already voted by proxy, it is not necessary to vote again by online ballot. After voting has been completed on all matters on the agenda, the ballots will be collected and counted.
The first order of business is the election of directors. The following persons have been nominated for election by the nominating committee of the Board of Directors to serve as directors until the next annual meeting of shareholders or until their successors are elected: Melanie Barstad, Beverly Carmichael, Karen Carnahan, Bob Coletti, Scott Farmer, Marty Mucci, Joe Scaminace, Todd Schneider, and Ron Tysoe.
No other persons have been nominated in accordance with the company's governing documents, so the nominations are closed. The Board of Directors recommends voting for the election of each director nominee named in the proxy statement. May I have a motion?
So move.
Jim, what are the results of the election?
While a final tabulation will be made, all directors have been elected.
Thank you, Jim. The nominees are duly elected. The next matter to come before this annual meeting is the advisory vote to approve the compensation for named executive officers. The Board of Directors recommends that shareholders vote for the resolution approving on an advisory basis the compensation of the company's named officers as disclosed in the proxy statement. May I have a motion?
So move.
Jim, what are the results of the election?
While a final tabulation will be made, the resolution approving on an advisory basis the compensation of the company's named executive officers as disclosed in the proxy statement has been approved.
Thank you. The next matter to come before this annual meeting is the vote to approve Cintas Corporation's 2016 Amended and Restated Equity and Incentive Compensation Plan. The Board of Directors recommends that shareholders vote for this proposal. May I have a motion?
So move.
Jim, what are the results of the election?
While a final tabulation will be made, the resolution approving the Cintas Corporation's 2016 Amended and Restated Equity and Incentive Compensation Plan has been approved.
Thank you. The next matter to come before this annual meeting is the ratification of the appointment of Ernst & Young as Cintas' independent auditors for fiscal year 2024. The Board of Directors recommends that shareholders vote for the ratification of the appointment of Ernst & Young as Cintas' independent auditors for fiscal year 2024. May I have a motion?
So move.
Jim, what are the results of the election?
While a final tabulation will be made, the resolution ratifying the appointment of Ernst & Young has passed.
Thank you. If properly presented, the next matter to come before this annual meeting is a vote on a shareholder proposal regarding greater disclosure of key corporate diversity and inclusion metrics. The shareholder proposal, the shareholders' supporting statement, and the company's statement of opposition to the proposal are included in the proxy statement.
The Board recommends a vote against this proposal. We understand that Jalan Spahn is on the phone line. Ms. Spahn, in accordance with the three-minute time limitation and requirements to present the proposal as outlined in the rules of conduct that were provided to you in advance, you may present the proposal now. Please proceed.
Hello, I'm Jalan Spahn. I'm speaking on behalf of the nonprofit advocacy organization As You Sow and the consultancy Whistle Stop Capital. I formally move proposal number five asking Cintas to report on the effectiveness of the company's diversity, equity, and inclusion efforts. The resolution suggests that the company share quantitative metrics for its hiring, retention, and promotion rates of employees by gender, race, and ethnicity.
Investors want to see that their companies are committed to effectively managing diversity and inclusion in their workplaces. Investors want to invest in companies that are true meritocracies, where every employee is the best possible hire, is managed to excel, and sees their success linked to their company's success. Cintas believes that its "systemic approach to diversity, equity, and inclusion cultivates a greater sense of belonging and purpose for its employee partners, which further supports its business results." We think that's likely true.
We looked at the possible links between management diversity and financial performance at 1,600 companies over five years, and we found a positive association to cash flow, net profit, revenue, return on equity, return on invested capital, and long-term share price. These are findings that cannot be ignored. Cintas has held firm in its choice against releasing its EEO-1, a government-mandated form that shows workplace diversity and that almost half of Russell 1000 companies have released or made a commitment to release. Cintas is a significant outlier among its peers. Best practice is to release EEO-1 forms alongside hiring, promotion, and retention rates: the inclusion data.
Best practice is also for companies to, one, make clear their ongoing commitment to ensuring diverse, equitable, and inclusive workplaces, and two, have clear oversight and monitoring systems of their workplace culture that include executive management and the board, and three, share the quantitative data showing their effective human capital management and ability to build a fair workplace. A workplace free of harassment and discrimination allows Cintas the opportunity to optimize its potential for innovation.
The alternative, a workplace where bias and discrimination fester, puts Cintas at risk for lawsuits, employee disempowerment, and consumer concerns. Sharing this data will signal to all stakeholders, including existing and potential employees, that Cintas takes pride in all of its employees and will honor its stated commitment to supporting a diverse, equitable, and inclusive workplace. Thank you.
Ms. Spahn, Ms. Spahn, I apologize for that mispronunciation. Ms. Spahn, thank you very much for your statement. Jim, what are the results of the election?
While a final tabulation will be made, the shareholder request for greater disclosure of key diversity and inclusion metrics was not approved.
Thank you, Jim. If properly presented, a shareholder proposal regarding managing climate risk through science-based targets and transition planning will be the next matter to come before this annual meeting. The shareholder proposal, the shareholders' supporting statement, and the company's statement of opposition to the proposal are included in the proxy statement.
The Board recommends a vote against this proposal. We understand that Mr. Chevedden is on the phone line. Mr. Chevedden, in accordance with the three-minute time limitation and requirements to present the proposal as outlined in the rules of conduct that were provided to you in advance, you may present your proposal now. Please proceed.
Hello, this is John Chevedden. Proposal six: manage climate risk through science-based targets. I advance proposal six on the Cintas proxy statement, which asks Cintas to set science-based greenhouse gas reduction targets and disclose how it plans to meet those targets by developing a climate transition plan. Global emissions must be reduced 50% by 2030 and reach net zero by 2050 to limit planetary warming to 1.5 degrees Celsius and prevent the worst impacts of climate change.
Just over five years remain until 2030, and despite the physical risk posed by severe weather events that Cintas acknowledged in its 10-K report this year, the company has taken limited steps to mitigate its climate impact. While Cintas' work to decrease energy use and its net zero ambition are welcome first steps, it is unclear how Cintas intends to achieve this goal.
The company lacks specific, measurable, and near-term targets necessary to achieve net zero, and this net zero ambition does not account for the Scope 3 emissions that make up the vast majority of the company's overall emissions footprint. In fact, Cintas' total emissions have grown since 2021. In its opposition statement, Cintas claims that this proposal would divert time and effort from its sketchy existing climate efforts as justification for delaying action on comprehensive target setting and climate transition planning.
While it is appreciated that Cintas wants to take a thoughtful approach, I believe it is time for Cintas to reassess its current efforts given that Cintas is failing to reduce total emissions. Further, Cintas lags its peers in setting science-based targets and supporting goals aimed at reducing emissions.
ABM Industries, which Cintas identifies as a peer company in its 10-K report, has committed to setting near-term 1.5-degree-aligned greenhouse gas targets through the Science Based Targets initiative and has transitioned 20% of its light-duty commercial fleet in the U.K. to electric vehicles, in addition to piloting electric vehicles in the United States. Aramark and Ecolab have also joined almost 10,000 other companies globally who have set or committed to set emission reduction targets through the Science Based Targets initiative.
I urge Cintas' board to consider more comprehensive measures that will help Cintas mitigate the material risk from its avoiding climate change mitigation efforts to the Cintas business, other companies in the portfolio of diversified Cintas investors, and the global economy. Please vote yes. Manage climate risk through science-based targets, proposal six.
Thank you, Mr. Chevedden. Thank you for your statement. Jim, what are the results of the election?
While a final tabulation will be made, the shareholder request for managing climate risk through science-based targets and transition planning was not approved.
Thank you. The next item, if properly presented, a shareholder proposal regarding political disclosure, will be the final matter to come before this annual meeting. The shareholder proposal, the shareholders' supporting statement, and the company's statement of opposition to the proposal are included in the proxy statement. The board recommends a vote against this proposal.
We understand that Laura Campos is on the phone line. Ms. Campos, in accordance with the three-minute time limitation and requirements to present the proposal as outlined in the rules of conduct that were provided to you in advance, you may present the proposal now. Please proceed.
Thank you. Hello, I'm Laura Campos, and I'm participating today on behalf of the Nathan Cummings Foundation to move item seven on the proxy. This proposal requests disclosure of the company's policies and procedures for making electoral contributions and expenditures with corporate funds. The proposal also seeks disclosure of these contributions and expenditures, including those made on behalf of candidates, parties, committees, and entities organized and operating under Section 501(c)(4) of the Internal Revenue Code.
Because indirect political expenditures can also pose risks for companies, our proposal seeks disclosure of both direct and indirect political expenditures made by Cintas. It's worth noting that while the board's statement opposing this proposal spends a lot of time talking about the Cintas corporate partners' PAC, this proposal is not concerned with PAC spending. We appreciate the improvements Cintas made to its oversight and disclosure following the receipt of this proposal.
However, Cintas remains a laggard when it comes to oversight and disclosure of political spending. The company now ranks in the fourth tier of the CPA-Zicklin Index rather than the fifth or bottom tier. Notwithstanding this slight improvement, according to the index, more than 330 S&P 500 companies have better oversight and disclosure practices than Cintas. Among other things, Cintas continues to keep investors in the dark when it comes to the company's contributions to political candidates, parties, and committees.
Its payments to 527 groups, including governors' associations and Super PACs, are not disclosed, nor are its independent expenditures. As the Conference Board has observed, political activity can pose increasingly significant risk for companies, including the perception that political contributions and other forms of activity are at odds with core company values.
Without knowing the recipients of our company's political contributions, investors cannot sufficiently assess whether our company's election-related spending aligns with its policies and core values. We urge Cintas to join dozens of other leading companies undertaking the disclosure requested in our proposal. Thank you.
Thank you, Ms. Campos. Thanks for that statement. Jim, what are the results of the election?
While a final tabulation will be made, the shareholder proposal regarding political disclosure was not approved.
Thank you, Jim. I now declare the polls closed and ask that the election inspector complete the tabulation of the votes. This concludes the business portion of the meeting. May I have a motion to adjourn?
So move.
Thank you. The business portion of the meeting is adjourned. I want to thank our shareholders for their investment in Cintas and confidence in our company. We are proud of our employee partners' ability to take great care of our customers and grateful for their dedication as we continue to focus on providing businesses with the products and services needed to help our customers get ready for the workday. We're pleased with our first quarter results and look forward to another successful year.
We now have a few minutes to answer any questions related to the business of the annual meeting. We will pause briefly to see if we received any. We do have a question. The first question is, how does Cintas decide on whether to increase the dividend or buyback shares? Well, this is a larger question than just dividends and share buybacks.
This is about capital allocation, and we look at capital allocation really in four buckets. The first is the money that we need to invest in the business. That would be basic CapEx spending. That would be building new capacity, new plants, buying trucks for growth or replacement trucks, and the type of things that we need to continue to invest in the business.
Next, we look for M&A opportunities, opportunities to buy businesses in one of our different divisions. It's powerful for our business to be able to do this. In certain businesses, it gives us either a new geography to service or strengthens us in a particular geography. So that is a great way for us to allocate our capital. Then we look at dividends.
Dividends, we think, are important for our shareholders, and we're proud to say that we've increased our dividend every year since we went public in 1983 and hope to be able to continue that track record. And then finally, buybacks are things. Share buybacks are things that we would use opportunistically and always within consideration to the other three areas that I've already discussed. So that's how we think of capital allocation.
We have another question. Who are the replacements for the retiring directors? Well, our board size generally flexes between nine and 11 directors as we work through board succession matters. And our current board size has been set at nine. We currently have nine directors, and therefore all of the director spots have been filled. It appears that there are no more questions submitted. So once again, thank you for your time today. If you do have questions at any point, please contact our investor relations department at 513-972-4195. Thank you and have a good day.
The conference has concluded. You may now disconnect.