Good morning. Welcome to our annual stockholders meeting for 2017. [Roberts] on the Deputy General Counsel to Compliance Officer and Corporate Secretary of the company. I have a few announcements to make. Then we'll turn it over to our chairman. Today's meeting is being webcast. If everyone could turn off their cell phones and other electronic devices, that would be very helpful. Cameras, recording devices are not permitted in the meeting more generally. Please note that some of the remarks we make today may be forward-looking statements under the Private Securities Litigation Reform Act. To the extent that they are forward-looking statements, our results may differ, and they may differ materially. Some of the information that we give may be non-GAAP measures. There's more information about our non-GAAP measures and how they reconcile to GAAP in our Securities and Exchange Commission filing.
Please see those if you have any questions. In order to conduct an orderly meeting, we'll be following the order of business in the order of business card that was available at check-in. There are also additional procedures set forth on the card. We plan to follow those as well, as you would expect. Other than the stockholder proposal that's listed on the order of business, we ask that all stockholders wait until the designated question and answer period before asking any questions or participating in the meeting. With that, I am very happy to turn over the meeting to our independent chairman, Ed Hanway.
Thanks, [Carrie]. Good morning. As [Carrie] noted, I'm Ed Hanway, the independent chairman of Marsh & McLennan Companies. On behalf of the company, its directors, and officers, welcome. Thank you for coming to our annual meeting of stockholders. Before we officially begin the meeting, I wanted to offer a word of welcome to Tony Anderson and Debbie Hopkins on the occasion of their first annual meeting of directors of Marsh & McLennan Companies. Tony joined the board last September and was vice chair and Midwest area managing partner of Ernst & Young until he retired in 2012 after a 35-year career there. Debbie joined the board in January and was chief executive officer of Citi Ventures and chief innovation officer of Citigroup until her retirement at the end of 2016.
I think our board will surely benefit greatly from their extensive leadership and management experience, as well as the perspective that they bring from the accounting and technology sectors. I would welcome Tony and Debbie. Now, before turning to today's agenda, I would like to introduce the company's other independent directors. Oscar Fanjul, vice chairman of Omega Capital. Elaine LaRoche, chief executive officer of China International Capital Corporation US. Steve Mills, former executive vice president, software and systems of IBM. Bruce Nolop, the former chief financial officer of E*TRADE Financial Corporation. Marc Oken, managing partner of Falfurrias Capital Partners and former chief financial officer of Bank of America Corporation. Morton Shapiro, president of Northwestern University. Lloyd Yates, executive vice president, market solutions of Duke Energy, and president of Duke Energy's Carolinas region. Dave Yost, who's the former president and chief executive officer of AmerisourceBergen.
Dan Glaser also joins me here on the stage. In addition to being the company's President and Chief Executive Officer, Dan is also a member of the board of directors. Ed Morrissey of Deloitte & Touche is also in attendance. Deloitte & Touche is the company's independent registered public accounting firm, and Ed is available to answer questions during the Q&A session later in the program. I hereby call the 2017 annual meeting of stockholders to order. After proceeding with the formal part of the meeting, we will announce the preliminary voting results. Dan will speak about the company, following which he will open the floor to questions. I do ask you to please save any questions you might have until that time.
We have received affidavits confirming the distribution of the 2016 annual report, the 2017 notice of annual meeting and proxy statement, and voting instructions to stockholders of record as of March 20th, 2017. The list of registered stockholders eligible to vote at this meeting is available for inspection by any stockholder at the sign-in table. Representatives of Broadridge have been appointed to serve as inspectors of election for this meeting and have taken their inspection oath. The inspectors have reported that 457,917,227 shares, approximately 89% of the shares issued, outstanding, and entitled to vote, were represented at the beginning of this meeting. This constitutes a majority of the outstanding shares entitled to vote, therefore, a quorum is present for the transaction of business. We are meeting today to vote on the matters described in the 2017 proxy statement. Voting will take place on these matters after they are presented.
The first order of business is the election of the nominees listed in the proxy statement to serve as directors with terms expiring in 2018. No other nominations were submitted to the company. The company has a majority voting standard in the case of director elections that, like today's, are uncontested. Accordingly, each nominee must receive a plurality, excuse me, a majority of the vote cast with respect to his or her nomination in order to be elected to the board. The second item on the agenda, commonly known as a say on pay proposal, enables our stockholders to approve, by non-binding vote, the compensation of our named executive officers as disclosed in the 2017 proxy statement.
The third item on the agenda, commonly known as a say on pay frequency proposal, enables our stockholders to indicate how frequently they believe we should conduct future advisory votes on the compensation of our named executive officers. The fourth item on the agenda calls for the stockholders to ratify the appointment of Deloitte & Touche as the company's independent registered public accounting firm for the fiscal year ending December 31st, 2017. The audit committee previously approved this appointment. The fifth and last item on the agenda is a stockholder proposal requesting that the board of directors make all possible lawful efforts to implement and/or increase activity on each of the eight Holy Land Principles. Mr. James Boyle is here on behalf of the proponents, Holy Land Principles Incorporated, to introduce this proposal and make a brief supporting statement if he chooses. Mr. Boyle, the floor is yours.
Please keep your statements to three minutes or less. Mr. Boyle here.
Chairman, am I on? Yeah, I think.
Yes, sir.
I rise to move the resolution on the Holy Land Principles. My name is James Boyle. The Holy Land Principles are pro-Jewish, pro-Palestinian, and pro-company. The principles do not call for quotas, reverse discrimination, divestment, or boycotts. The principles do not take any position on solutions to the Israeli-Palestinian issue. The principles do not try to tell the Palestinians or the Israelis what to do. The Holy Land Principles only call for fair employment by American companies in Palestine, Israel. Let me repeat that. The Holy Land Principles only call for fair employment by Marsh & McLennan and other American companies doing business in the Holy Land. Irrespective of what Americans think about the Palestine-Israeli issue, one thing is certain: Americans expect American companies in the Holy Land to practice fair employment.
Yet incredibly, before the Holy Land Principles were launched in 2012, this issue had never been brought before Marsh & McLennan or any other of the 542 American companies doing business in Israel/Palestine. Our resolution calls on Marsh & McLennan, for the second time, to set the standard by signing and implementing the Holy Land Principles, which are based on the very effective MacBride Principles for Northern Ireland. Initially, American companies resisted the MacBride Principles, but now 116 companies, including Marsh & McLennan, to its credit, have signed the MacBride Principles.
Mr. Boyle, two minutes.
Thank you. Do you want me to stop now, or you're just telling me to hurry up?
If you could finish it off in 10 seconds, that would be great.
Okay. It's just that the lighting here is not so great.
Okay.
I want to be exact about this.
No, that's fair.
Okay.
We'll give you an extra 20 seconds.
Thank you. In 2015, GE, Corning, and Intel tried to get the SEC to exclude the Holy Land Principles resolutions. However, the SEC ruled in favor of the Holy Land Principles.
Mr. Boyle, I'm going to stop you there. Okay. That's fine. Thank you very much. Thank you. Thank you.
Thank you, Mr. Boyle. The polls are now open. Stockholders present who have already voted by proxy need not vote again unless they wish to change their votes. If you still have a proxy card, please give it to an inspector of election. Will the inspectors please identify themselves? Raise your hands, please. An inspector will furnish a ballot to any stockholder or stockholder representative who wishes to vote in person. Please raise your hand if you wish to vote in person, and we will provide you with a ballot. Anyone wishing to vote in person? Anybody else? Okay. Thank you. The polls are now closed. Will the inspectors please collect any ballots? I don't believe you have. Excuse me. The preliminary tally, based on the votes cast as of the start of this meeting, shows the following results.
With regard to item 1, a majority of shares voted were voted in favor of each of the director nominees, and thus they have all been elected. For item 2, a majority of the shares present or represented and entitled to vote have voted in favor. Thus, stockholders have approved, on an advisory basis, the compensation of the company's named executive officers. For item 3, a majority of the shares present or represented and entitled to vote have voted for an annual advisory vote on the compensation of our named executive officers. Thus, an annual say-on-pay vote will be considered the advisory vote of the stockholders. For item 4, a majority of the shares present or represented and entitled to vote have voted in favor. Thus, the appointment of Deloitte & Touche as the company's independent auditors for 2017 has been ratified.
Finally, for item 5, the stockholder proposal regarding the Holy Land Principles, a majority of the shares present or represented and entitled to vote were not voted in favor of this proposal. Thus, the proposal has not been approved. The inspectors of election will provide a final certified report of the vote following the meeting. That report will become a part of the record of this meeting and is not expected to affect the outcome of the voting announced today. A summary of the outcome of the vote will be posted to the company's website, and details of the final voting results will be filed with the SEC.
Before I adjourn the formal part of the annual meeting, I would like to announce that earlier this morning, the board declared a dividend of $0.375 per share on outstanding common stock, payable on August 15th, 2017, to stockholders of record on July 11th, 2017. With that, the formal part of Marsh & McLennan Companies' 2017 annual meeting is now adjourned, and it gives me great pleasure to turn the floor over to Dan. Dan?
Thank you, Ed, and good morning to everybody. Thank you for being here today. This is my fifth annual shareholders meeting as CEO of Marsh & McLennan. It is an honor to continue to lead this great company. The essence of Marsh & McLennan is our people. I see my good friend, Jose Carlos Rodriguez, in the audience today. Jose Carlos retired in 2008 after a 27-year career with Marsh in Madrid, and he epitomizes the ideal MMC colleague: smart, hardworking, and tireless in his quest to deliver value to his clients. Welcome, JC. We are fortunate to have the highest quality of colleagues at every level of our organization, including my leadership team. On that note, I would like to introduce you to the members of our Executive Committee. I'm going to ask each of them to stand as I call their name.
Peter Zaffino, Chairman of our Risk and Insurance Services segment and CEO of Marsh. John Doyle, President of Marsh. Julio Portalatin, CEO of Mercer. Scott McDonald, CEO of Oliver Wyman. Peter Beshar, General Counsel. Scott Gilbert, Chief Information Officer. Laurie Ledford, Chief Human Resources Officer. Mark McGivney, Chief Financial Officer. I would also like to welcome our Board of Directors. Thank you for your commitment and for your service, and special thanks to Ed Hanway for his stewardship since taking over as Independent Chairman last year. Marsh & McLennan has the great privilege of helping our clients strategically address many of the most complex business and social issues of our time. Sustainable business growth, cybersecurity, economic instability, and social unrest. Climate change, the health, wealth, and performance of an evolving workforce, the digitization of industry, and the list goes on.
In 2016, as disruption swept the world and global developments in emerging technologies presented new sets of risks and opportunities, one constant held true, as it has for nearly 150 years. The more dynamic and complex the world gets, the more clients look to Marsh & McLennan Companies for our trusted advice in the areas of risk, strategy, and people. These three areas of expertise give our firm a sustainable platform for growth. In looking at the survey of 13,000 executives that informs the 2017 Global Risk Report produced by the World Economic Forum in partnership with Marsh & McLennan and others, the top five concerns of business leaders worldwide were unemployment, energy price shock, fiscal crises, national governance crises, and social instability. All connect to our areas of expertise.
Whatever emerging risks present themselves, we are optimistic that Marsh McLennan will continue to play an integral role in helping clients manage them while advancing society. Insurance is about more than just protection on the downside. It's also about growth. It enables commerce to thrive. As data, distribution, and capital continue to converge in the insurance industry against the backdrop of disruption and innovation, clients will increasingly rely on our strategic advice, solutions, and technologies to manage economic risk, align risk and capital, and create value. Our dynamic and shifting world also places a premium on trusted consulting advice and expertise. Leveraging technology-driven solutions, we are helping organizations and people realize brighter futures as the relationship between employer and employee continues to evolve, and critical decision-making in the areas of health, wealth, and career increasingly shifts to individuals.
We are providing expert guidance as companies embrace digitization to build new competitive advantages while navigating complex regulatory environments. Our firm changes with the times. The more complicated the issue, the greater the opportunity we have to draw on our collective strengths to better serve our clients. No other organization can match Marsh McLennan's breadth of capabilities, depth of specialization, and global reach. We exist to serve our clients and meet our commitments to our shareholders. Our most significant advantage is the common purpose shared by our 60,000-plus colleagues around the world. They relish being there for our clients when it matters most, in moments of decision, in moments of opportunity, and in moments of peril. Our colleagues bring this shared purpose to life each and every day. Our purpose-driven work fuels our performance as a firm. Once again, Marsh McLennan delivered excellent financial results in 2016.
Revenue in 2016 was $13.2 billion, with underlying revenue growth of 3% on a consolidated basis balanced across both operating segments. Adjusted operating income rose 10% to $2.7 billion, up from $1.7 billion just five years ago. Our consolidated adjusted margin increased 140 basis points to 20.5%, our ninth consecutive year of margin improvement. Our adjusted EPS grew 12% to a record $3.42. Since 2009, adjusted EPS has grown at a CAGR of 13.3%, consistent with our long-term target of 13%. We have two annual commitments to shareholders, increase our dividends per share by double digits and reduce our total shares outstanding. In 2016, we returned close to $1.5 billion to our shareholders in the forms of dividends and share repurchases and delivered on our capital return commitments for the third consecutive year. Importantly, we have consistently delivered value over time.
Over the past nine years, our annual EPS growth has exceeded the S&P 500 by an average of seven percentage points per year. Our first quarter financial performance marked a positive start to 2017 as we generated results consistent with our plan to deliver strong growth and adjusted EPS for the year with underlying revenue growth in the 3%-5% range and margin expansion. As we continue to execute against our plan to deliver long-term growth and value to our shareholders, we will always strive to conduct our business consistent with the highest legal, ethical, and professional standards. I would like to thank our colleagues for their energy and commitment, our clients for the trust they place in us each day, and our investors for their continued support.
We are always in the market for investors who support our balanced approach to delivering strong financial performance today while investing for our future. Thank you for your time today. Before I take your questions, I'll turn it over to Carrie for an overview of the Q&A procedures.
Great. Thank you, Dan. For the Q&A period, if you'd like to ask a question, please line up at one of the microphones on either side. There's one in each aisle. After you're recognized, we'd like you to state your name and also whether you're a stockholder or a proxy holder. If you're a proxy holder, please identify the stockholder that you represent. Please limit your questions to two for up to two minutes each, or four minutes or less in total. In fairness to all stockholders, we reserve the right to cut off questions if we think they're out of order, if they're repetitive, if they're unrelated to company business, anything along those lines. With that, I think we'll get started, and I'll start with the question here on my right.
Good morning. My name's Lori Forkis. I'm an MMC shareholder. First, I'd like to thank you for your leadership and your commitment to MMC. My question is about artificial intelligence. How do you think it'll impact MMC, and how are you planning for it?
Well, thank you for your question. It's a really good one. The world is changing fast all around us, and there's many areas, artificial intelligence being one of them, that offer great opportunities to the organization if we approach it properly. I'd start by saying we're a people business. I don't anticipate any time in the foreseeable future where somebody calls Marsh & McLennan, and a robot answers the telephone. I think we're committed to the people who work in our organization, and we're looking at artificial intelligence in a way that can augment our intelligence, that improves our decision-making, makes us faster, better, quicker off the mark, more nimble, but not necessarily as a replacement technology, something to fear as opposed to something to benefit from. We're at the early stages of our experimentation, but we're very alive to the possibilities. Thank you.
Great. I'll move the mic here on my left.
Yes. Good morning. My name is Guy Migliaccio. I'm an MMC shareholder, and I'm a retired Marsh managing director. Thank you for taking my question.
Welcome.
Over the next couple of decades, an unprecedented and enormous amount of wealth is going to pass from baby boomers to Gen X's and millennials. With that in mind, and knowing for the most part that those individuals are not going to be well equipped to deal with all this wealth, they're going to need advice, and then they're going to need guidance. I was wondering whether Marsh would consider getting into the private wealth management business.
You are.
Well, for insurance you are, yes. I realize it's a crowded field, but so is insurance, and the firm does very well.
I'm not suggesting that you get on the broker-dealer transactional side, but the advice and consultative side.
You already have a base of private clients that are wealthy individuals. You could leverage that to jumpstart the venture.
Well, thank you very much, Guy, for your question. You're very right in that we are in parts of the high net worth individual advice-giving business on the insurance side. We periodically review, should we extend that into other areas, and certainly wealth management is one of them. As you say, it's a crowded field. One of the things that we're watching, particularly in Mercer, is the movement from company-provided advice and benefits in areas of wealth, to where individuals have to become more adept at making their own decisions. Examples of that are defined benefit pension plans in many parts of the country have largely moved to defined contribution pension plans, which require more decision-making on the part of individuals, with companies providing educational materials, but individuals still have to make their own decision. It's something that we consider regularly.
It has not been something, obviously, as you've seen, that we have decided to enter into at this stage. Certainly when we look at the adjacencies in our business, it is one of the adjacencies that we look at as a possibility for us into the future.
Thank you.
Thank you, Guy.
I think next question.
I have two questions actually, sir.
Okay.
My name is Glenn Châtel of Arlington County, Virginia, also Warrenton, Fauquier County, Virginia. I have the honor to have worked for Marsh & McLennan for close to 17 years in the group insurance department, specializing in the association area. We got group insurance for the biggest client. AARP was Marsh & McLennan's biggest client at the time. Now, my questions. First of all, sir, it was a wonderful year for Marsh & McLennan. You gave an excellent talk. We are not only the world's biggest insurance broker, I believe we are the best company in the world. Aon is pretty good too, by the way.
Hear, hear.
My friend Marty Grubel is Executive Vice President for Life & Health at Aon. He used to work at Marsh. Now my questions. First of all, we have a lot of money in the defined benefit pension plan. I certainly understand why we're going towards a defined contribution plan. It's good to have the money because it helps support the stock price, which has gone up dramatically. Originally, we thought it might be on the proxy, but it's going to be regular company business. I'm wondering if it's possible for the company, for the directors and the executives to consider a cost of living adjustment for the grandfathered retirees. My second question is We used to advertise before 9/11, we lost 300 employees and 100 consultants on golf tournaments, et cetera. We stopped doing that. We do crisis consulting, whatever. We're better than the State Department. They advertise.
I think first of all, if we make the retirees happy with the cost of living, we'll get more business for the company. If we start advertising, it is very difficult for me. I tell people I work for Marsh & McLennan. They don't know who it is. Mercer is more well-known. I used to work for Restoration Hardware, Inc., Seabury & Smith, Marsh Affinity, Marsh Consumer. Now it's Mercer Consumer. The Mercer name is well-known. I think the Marsh name, we should be proud of it. We should be pushing the Marsh names also, sir. Those are my questions.
Okay. The two questions I understand, one is about the cost of living adjustment on the U.S. pension plan.
Defined benefit.
Defined benefit plan. The second is around advertising.
Correct.
Let me take your first question first.
Thank you, sir.
The U.S. MMC retirement plan does not provide for a cost of living increase.
I understand that, sir.
The company does not currently intend to provide for such an increase in the foreseeable future.
I see. Thank you for answering that question.
You're very welcome. Overall, we do believe that our broad-based benefit programs, including the retirement plans, are competitive in the market.
Well, I get $6,311 a year for the last nine years. It hasn't gone up.
Okay.
Government plans do go up. We set a precedent for the country.
In response to your second question about advertising.
Marketing
We do a fair amount of advertising, but we do it in a different way. First of all, to note that most of our relationships are with corporations and are B2B2C and not B2C. We are not a consumer brand. Broad-based advertising.
Well, I disagree. Mercer Consumer is a one-on-one.
Yeah
to associations, et cetera.
When we look at advertising more broadly, we felt that things like sponsoring golf tournaments, et cetera, were not a good use of company money.
Donald Trump would like it.
We wanted to focus our advertising expenditure more on new ways of reaching consumers and clients, mainly through social media. We're quite active in areas of social media, whether it's LinkedIn, Twitter, website optimization, and that's really been where the focus of the company is. You very rightly cite lots of names of different brands that we have within the company. I would look at us rather than a branded house, Marsh & McLennan Companies, more like a house of brands and where we feel out of alignment, Mercer, Marsh, Mercer Consumer, et cetera, Guy Carpenter, are all powerful brands in their own right. Their greatest levels of connectivity are B2B, and they're quite well-known in that community.
That was a very wonderful answer to my question, sir. Thank you so much.
Thank you, Glenn.
We have a question here on the right.
Hi, good morning.
Hi.
Joe Busick, a shareholder. Given the significant margin improvement that you've shown, do you still see levers for future further margin growth?
I absolutely do, and I do in a couple different ways. I think the philosophy of the firm is that revenue growth should almost always exceed expense growth. Therefore, we will always have some level of margin improvement. I think the difference between now and say five, six, seven years ago is at that point in time, we felt our margins weren't high enough, so we were driving for margin improvement. Now it's more about top-line growth, and I think margin improvement will come as an outcome of growing our revenue at a faster pace than our expense growth. I do think, such as what Lori cited in terms of artificial intelligence, that there will be ways of us working smarter in the future, perhaps more efficiently, and that should also benefit our expense growth and therefore our margin improvement as well.
Thank you.
Thank you, Joe.
Okay. Here.
Good morning. My name's Derek McKenzie. I'm an MMC stockholder. Looking at growth areas, without getting into specific targets, obviously, can you give an assessment of the current M&A environment and perhaps some kind of update on M&A strategy?
Sure. Acquisitions, I know everyone, including us, says M&A all the time. I prefer to look at it as acquisition as opposed to merger because the way we've approached it, we've acquired something like 130 firms since January 1st of 2009. It's an important part of our strategy as a firm, the most important feature is to have a philosophy about it. Our view is we want to look at things that are growing faster than we are, which have the right cultural fit, have a management team that loves the business and wants to stay engaged with the business. We look at it, our pipeline's still very rich. We have a significant amount of opportunities on M&A, but we have to be disciplined. There's a lot of capital in the world chasing every deal.
From that standpoint, we try to avoid auctions. We try to make it to where we cultivate relationships over long stretches of time and come to an arrangement where a seller is really wanting to join the Marsh & McLennan Group as opposed to just looking for the highest bidder. We'll remain disciplined, but I think acquisitions will remain a part of our strategy going forward, and there's plenty of opportunities within all four of our operating companies.
Thank you.
Thank you.
I think, Dan, we have time for maybe one more question.
Okay.
Going to this mic here.
Hi, my name is Leah Pollock Smith, and I'm an MMC stockholder. I was wondering if you could talk a little bit about the impact that you foresee technology, of which AI is one, data and analytics, that's going to have on the business, and also what are some of your efforts to innovate and stay ahead of those changes?
Sure. It's something that we address all the time. In fact, we've put a standing item on the Executive Committee agenda each month in our meetings for innovation and digital in particular, but innovation more broadly. It's going to have a material impact. I don't want to overstate the impact of data and analytics, but the reality is we have very large portfolios of information which will give us opportunities to give insights to clients that we never had before. In its simplest form, it will be enhanced benchmarking. In its more detailed form, it could be predictive analytics about what kind of machine might be more susceptible to loss than another type of machine.
Again, similar to AI, we're a little bit further down the road, but we're still, in my view, at the early stages of being able to use data to provide key insights to clients. It's something that our size and our breadth and our global reach gives us an advantage, and we want to make it a competitive advantage relative to other providers of intermediary services. We're on it. We're investing in data and analytics and innovation more broadly. I think it will capture a lot of value in the spirit of how Marsh & McLennan has always been a pioneer in innovation, in shaping the risk and insurance and HR and strategy areas from a shaping-the-industry perspective. Thank you.
That's it for the 2017 Annual Stockholders' Meeting. Thank you everyone for coming.