Welcome to Stryker's Annual Meeting of Shareholders. The meeting is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during the meeting will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non GAAP financial measures.
Reconciliations to the most directly comparable GAAP financial measures can be found in the slides for the meeting posted on striker.com. And now I'll turn the meeting over to Mr. Kevin Lobo, Chair and Chief Executive Officer.
Good afternoon. On behalf of the Board of Directors of Stryker, I would like to welcome you to the forty second Annual Meeting of Shareholders. I am Kevin Lobo, and I have the honor to serve as the Chair and CEO of Stryker. Also participating in this meeting is Sean Etheridge, Vice President, Corporate Secretary. Assisting us with Q and A will be John Zimmer, Senior Director, Communications.
During today's meeting, I will address how Stryker has persevered through COVID-nineteen and how we continue to be well positioned for the future. We did well in keeping our employees safe, serving our customers and displaying strong financial discipline, including delivering a record year of cash flow. The pandemic's impact was dramatic in the second quarter and continued thereafter, resulting in our first annual decline in revenue since going public in 1979. The halting of elective procedures in various geographies around the world was the cause for the sales declines across multiple divisions. Although our performance came in below our normal expectations given the macroeconomic conditions, we maintained our relative strength in the market.
We remain committed to growing at the high end of medtech through M and A and innovation, which I will discuss during my business update later in the program. So that I can officially call the meeting to order, I'll ask Sean to establish that this meeting has been duly called and that a quorum is present.
Thank you, Kevin, and good afternoon. With me, I have an affidavit related to the mailing of the notice of the meeting and proxy materials on 03/24/2021 to all shareholders of record as of 03/08/2021, the record date fixed by the Board of Directors. A certified list of the shareholders of record of the company as of 03/08/2021, and the minutes of the twenty twenty Annual Meeting of Shareholders are available for inspection by any shareholder. Irene Corby, Vice President, Internal Audit and Rachel Molina, Associate Corporate Counsel have been appointed to serve as inspectors of election. Based on the proxies received, the inspectors have reported to me that a majority of the 376,324,529 shares of common stock entitled to vote are represented at the meeting either in person or by proxy.
A quorum of common stock is therefore present, and the meeting may proceed.
Thank you, Sean. On the basis of the Secretary's report, this meeting is duly constituted. The meeting is now open and ready for business. I would like to start by acknowledging Roch Dullivou, who is retiring from our Board after eleven years of exemplary service. Rock provided excellent guidance on strategy, globalization and innovation and always did so in a collegial manner.
He brought passion, energy and constructively challenging mindset, which has all helped to make Stryker better. Thank you, Rock. We are deeply appreciative of your vast contributions. Next, I will introduce the individuals who serve as directors of the corporation and are standing for reelection. They are all in attendance online today.
Alan Golston is President, U. S. Program for the Bill and Melinda Gates Foundation. He is our Lead Independent Director. Mary Brainard is former President and CEO of Health Partners, the largest consumer governed U.
S. Health care organization. Giovanni Caforio was elected as Director effective 12/01/2020. He is Chair and CEO of Bristol Myers Squibb. Srikanth Dattar is the Dean of the Harvard Business School.
Sherry McCoy is a former CEO of Avon Products and also former Vice Chair of Johnson and Johnson. She chairs our Governance and Nominating Committee. Andy Silvernail is Chair and CEO of Madison Industries, one of the world's largest privately held companies. Andy chairs our Audit Committee. Lisa Ski Tatum is Founder and CEO of Landit, Inc, a technology platform created to increase the success and engagement of women and diverse groups around the world.
Rhonda Stryker serves on the Boards of Greenleaf Trust and Spelman College. She is the granddaughter of Doctor. Homer Stryker, the founder of the company and daughter of Lee Stryker, a former President of the company. Rajeev Suri is CEO of Inmarsat, a British satellite telecommunications company. I would also like to recognize two individuals, Swimbody and help shape Stryker's rich culture and history of performance.
John Brown, our Chairman Emeritus, led the company for over three decades, and his imprint is still very visible in our company today. Director Emeritus, Howard Cox, devoted over forty four years of service as a Director and made innumerable contributions to the company's growth and success during his tenure. They both continue to be great ambassadors of Stryker. I am also proud to introduce the Stryker leadership team. Starting at the top of the photo from left to right, Ian Becker is Chief Corporate Affairs Officer and is responsible for public affairs, communications and corporate marketing.
Glenn Boehnlein is our CFO and responsible for the company's financial operations. Katie Fink is our Chief Human Resource Officer Rob Fletcher is our Chief Legal Officer Viju Menon is Group President, Global Quality and Operations Andy Pierce as Group President of our MedSurg and Neurotechnology businesses Tim Scanlon as President and Chief Operating Officer Spencer Stiles as Group President of our Orthopedics and Spine businesses. We are very fortunate to have a talented and experienced leadership team that lives our mission and values every day. In addition, I want to recognize our other corporate officers who are pictured on the slide in front of you. Noted on this next slide is our Corporate Counsel, Rich Whitsall, partner of Scadden, Arps, Slate, Marr and Flom and Chris Larsen, partner of Ernst and Young, our independent accounting firm.
Sean will now introduce the proposals included in the proxy statement.
Thank you, Kevin. There are five proposals included in the proxy statement. Any shareholder of record who is logged in as such on the meeting website may vote online. If you have previously granted a proxy, your vote today will automatically revoke your proxy. Voting will be tabulated after the proposals have been presented.
If anyone during this period would like to ask a question related to a specific proposal, please type your question in the q and a box on the meeting website. Questions submitted in advance of the meeting regarding a specific proposal will also be addressed. General questions will be addressed later in the meeting. The first proposal is the election of 10 directors. The nominees for election as directors are Mary Brainard, Giovanni Cafforio, Tricant Dattar, Alan Golston, Kevin Lobo, Sherry McCoy, Andy Silvernail, Lisa Skeet Tatum, Rhonda Stryker and Rajeev Suri.
As there have been no other nominations during the designated nominating period and in accordance with our bylaws, the nominations are now closed. The second proposal to come before the meeting is ratification of the appointment of Ernst and Young LLP as the company's independent registered public accounting firm for 2021. Under SEC rules, the responsibility for the appointment and oversight of the company's auditors resides with the audit committee. However, today, we continue our practice of asking shareholders to ratify this appointment. The third proposal to come before the meeting is say on pay, an advisory vote to approve the compensation of the company's named executive officers, as disclosed in detail in the proxy statement under compensation discussion and analysis and executive compensation.
The fourth proposal to come before the meeting is a shareholder proposal related to workforce involvement in corporate governance. Amrita Sankar of NorthStar Asset Management Inc. Will present this proposal to the meeting.
My name is Amrita Sankar of NorthStar Asset Management, a socially responsible investment firm based in Boston with clients that are beneficial owners of 58,398 shares of Stryker common stock. Today, I am presenting proposal number four, workforce involvement in corporate governance. One of the many lessons our society learned from the events of 2020 is that a company's workforce is an extremely vital asset. Stryker's ability to recover from the pandemic and flourish in coming decades is in many ways reliant upon its employees' commitment to the company's strategy of focusing on customers, innovation, globalization, and cost transformation. We believe that employee participation on the board or otherwise in company governance would lay the groundwork to strengthen all of those aspects of the company.
Showing employees that their voice is valued and needed at the very highest level of the company could create stronger buy in to the company's commitment to, quote, improve health care responsibly and sustainably, unquote, encourage more diverse talent and improve company retention, and improve efficiencies in the company. Some human resources or governance specialists have encouraged companies to consider adding employees to the board. Some suggest that adding employees to the board would encourage workers to, quote, care more and do more, unquote, because not only would they be employed by the company, but also because they would become more direct stakeholders in the company who have a seat at the table when decisions are being made. Experts also note that employees on the board or in governance would increase the diversity of perspectives and bring realistic viewpoints based on rank and file worker experiences. It's also been proposed that employees on the board would make hierarchies in the company work better.
Stryker's employees could bring valuable input directly to the board about their experiences working with the company's technology, customers, managers, and more. Employees are the driving force of the company, and this shareholder proposal offers the company a clear way to investigate whether and how allowing non management employees to participate in company governance or the board of directors can benefit the company's future profitability. We believe that employee representation on the board is a key way to ensure that employees, a crucial resource, remain fully engaged in the long term growth of the company and help to ensure operational excellence. We urge shareholders to vote for proposal number four.
The fifth proposal to come before the meeting is a shareholder proposal related to the right of certain shareholders to call special shareholder meetings. James McGritchie, representing shareholder Myra Kay Young, will present this proposal to the meeting.
James, your line is open.
Thank you. And thank you, mister Loeb. This proposal comes from my wife, Myra Young, and requests the board of directors take the steps necessary to amend our bylaws in each appropriate governing document to give shareholders with an aggregate 15% net long the power to call special shareholder meeting. Large funds such as Vanguard, TIAA CREST, BlackRock support the right of shareholders to call special meeting. When the proposal was first submitted, Stryker did not allow shareholders to call special meeting.
Since then, the board thankfully has amended the bylaws to allow shareholders with 25% of shares to call a special meeting. However, 25% is too high. Consider that more than 10% of shares typically aren't even voted. So those shares should not be considered as part of the pool that could add up to a possible 25%. The beauty of a good corporate governance proposal like this one is that it is highly unlikely to result in more cost or a special meeting.
The mere presence of a good governance right empowering shareholders serves as a guardrail. It helps ensure that board nominees are the best directors. They will know that if they don't nominate the best directors, shareholders will have a practical remedy with teeth. I presented a similar proposal at Kellogg's last week on April 30 at 161% of the vote. We urge the board to join the good governance mainstream of US companies and establish a right for shareholders owning 15% of our outstanding common stock to call a special meeting.
I hope the board will leave the polls open for a moment or two to allow shareholders to vote this item if they have not or if they have voted against it and now want to change their vote. All too often, I've witnessed virtual shareholder meetings where voting polls are closed immediately after the final proposal is presented. Closing the polls so rapidly renders the presentation meaning. So I'm stalling a bit here to give you a little more time just in case the board intends to close the polls immediately. However, I don't wanna be accused of wasting your time or filibustering.
So I will close now by once again asking you to vote for proposal number five. And I also request that you vote for proposal number four, another very good proposal. Thank you for your attention and your consideration.
Thank you, mister McRitchie. We will be keeping the polls open for a bit here as we go through some additional questions. Our corporate bylaws do not require motions and seconds. All of the proposals on the agenda are now before the meeting. As previously mentioned, any shareholder of record who is logged in as such on the meeting website may vote online.
If you have previously granted a proxy, your vote today will automatically revoke your proxy. John, do we have any questions on the proposals?
Yes. We have one question regarding the proposals from Myra Young. With regard to proposals one through five, how long will the polls remain open to allow shareholders to vote after the final proposal is presented?
Thank you, John. As I just stated, we'll keep the polls open momentarily here and then we will be closing the polls after we get through the questions on the proposals. John, do we have any additional questions on the proposals? We have
no other questions on the voting items at this time.
Okay. Great. Thank you. The voting is now ended and we will close the polls momentarily. The inspectors will complete the vote count and we will announce the preliminary results later in the meeting.
While that is taking place, Kevin will share a review of Stryker's performance and future outlook.
Turning to the business update. I'd like to start every presentation with our mission and values, which we launched seven years ago and are a unifying force across the company, across all our divisions as well as our geographies. Next, our company strategy. You will recognize this slide. It looks very similar.
The statement of strategy at the top is unchanged from prior years, as are the four pillars and then the two foundational elements on the bottom. This year, we have changed some of the words included in the four pillars to emphasize areas like sales and marketing excellence, patient safety, social responsibility related to the planet and cash flow. So these are just refinements, I would say, in some of the wording to emphasize our commitment to ESG and really not changing our fundamental strategy, which, as you've seen, has been working very, very well for us in the past and will continue to serve us well in the future. As we look to the next slide at our makeup of our businesses, you can see that we're very broadly based across three segments of med surg, orthopedics and neurotech and spine, and we have leadership positions in each of these businesses. Looking next at the history of sales growth.
As I mentioned in my opening remarks, this is the first year that we did not grow revenue since going public in 1979 as, obviously, the pandemic had a dramatic impact in 2020. Turning to the stock price. If you look at our stock price performance in 2020 relative to the S and P, we actually were able to outperform the S and P just by a little at the end of the year. You can see we were very negatively impacted as was the entire market when the pandemic came on-site. It did affect our business more than many other businesses given our exposure to elective procedures, but we recovered from a business standpoint, and certainly, the stock held up remarkably well in spite of these challenges.
Turning to the next slide. You can see that Stryker has been very acquisitive, and we remain committed to acquisitions. We were able to close the largest deal in our history, Wright Medical, towards the end of the year and then early in 2021, announced Orthosensor and more recently in our Q1 earnings call, announced TMJ Concept, a new bolt on acquisition in our craniomaxillofacial business. Looking at 2021 financial guidance, You can see based on our Q1 results, we actually raised our adjusted earnings per share to $9.05 to $9.3 We maintained our organic sales growth guidance of 8% to 10%, again, versus 2019. So we are comparing our numbers versus 2019.
Obviously, these will be bigger numbers if you look at this versus 2020, which was a year affected by the pandemic. The middle column talks about our adjusted operating income margin. So we plan to expand our margins by 30 to 50 basis points, excluding the impact of Wright Medical, which, does come with some dilution. But, the fact that we were able to raise our earnings guidance, confirm our sales guidance in spite of the pandemic affecting our business in a pretty dramatic way in January and February tells you how confident we are with the recovery, with the state of our business and our outlook for the rest of the year. Turning to our priorities for 2021.
First is getting back to being a high growth company and delivering growth at the high end of medtech. As you saw, 2020 finished around 14,500,000,000 We plan to surpass $15,000,000,000 16,000,000,000 and deliver approximately $17,000,000,000 of sales in 2021. We will continue the great cash flow performance of 2020, and we need to deliver that cash in order to pay down some of the debt from Wright Medical and to continue to fund future acquisitions. We will continue to drive innovation and technology leadership. And if you saw in our Q1 results, our R and D spending was very healthy, and we are very committed to continued innovation.
And lastly, successfully integrating Wright Medical. And as we mentioned on our Q1 earnings call, we are off to a very good start with the integration of Wright Medical. Next, corporate responsibility. I'm very pleased to announce that we launched our first ever annual corporate responsibility report, and this is available online at striker.com. And you can see here a summary of the commitments that we've made around diversity, equity and inclusion as well as commitments around sustainability, including a carbon emission goal and being carbon neutral in all of our facilities by 02/1930.
So this annual corporate report responsibility report we plan to be doing going forward. And I encourage you, if you haven't already had a chance to see that, to look at that online. Moving ahead to the next slide. We continue to receive global accolades as a great place to work in not just in The United States, but around the world and increasingly as a great place to work for women as well as for minorities. Our culture is unique, and we are all committed to making health care better.
So in summary, 2020 was a very challenging year because of the pandemic. However, our balance sheet remains very strong despite the additional debt from Wright Medical. This is in part due to the great cash flow performance in 2020. And as we announced in our twenty twenty one Q1 earnings call, the cash flow momentum is continuing. The Stryker culture is alive and well, so we weathered the storm of the pandemic, and we are emerging very strong as a result.
Our 2021 guidance assumes that strong recovery and a return to the high performance that you've come to expect from all of us. With that, I will now turn the microphone back to Sean, who will report the preliminary voting results.
Thank you, Kevin. I'm advised by the inspectors of election that each of the persons nominated for director in proposal one received at least 249,916,164 votes in favor of his or her election, and therefore, each has been duly elected a director of the company. I'm also advised by the inspectors of election that shares representing a majority of the total votes cast on proposal two were voted for ratification of the appointment of Ernst and Young LLP as independent registered public accounting firm for 02/2021. I'm also advised by the inspectors of election that shares representing 94.5% of the total votes cast on proposal three were voted in favor of the advisory vote on the resolution relating to the company's named executive officer compensation. I'm also advised by the inspectors of election, the shares representing approximately 4% of the total votes cast on proposal four were voted for the shareholder proposal related to workforce involvement in corporate governance.
Therefore, the proposal was not approved. I'm also advised by the inspectors of election that shares representing approximately 35% of the total votes cast on proposal five were voted for the shareholder proposal related to the right of certain shareholders to call special shareholder meetings. Therefore, the proposal was not approved. The final results of the meeting will be filed on Form eight ks with the SEC shortly and the meeting is now adjourned. General questions will now be addressed.
They will be grouped by topic and answered as time permits. Answers to questions that are pertinent to Stryker and the meeting matters that are not addressed will be published following the meeting on our website.
Thank you, Sean. Sean, will you please read the first question? Thank you, Kevin. We've received several questions related to Board composition and tenure. Specifically, why does Stryker have so many directors?
Why does Stryker allow Board members to hold so many other Board positions? And why does Stryker allow directors to remain on the Board after a period greater than ten years?
Thank you for the question. Currently, we have 10 directors at Stryker, which is in line with the average of S and P 500 companies, which typically have approximately 11 members. Regarding tenure, we like having a mix of tenures, which balances historical understanding of the company as well as fresh thinking and new ideas. Our average tenure is nine years, which is similar to the S and P average of eight years. Also, half of our directors have served on the Board for less than five years, so we think this is actually a very good thing.
Our Governance and Nominating Committee considers directors and other commitments when they are selecting directors to serve on Stryker's Board, And we value the insights that our directors, receive from being on these other boards, and those insights help them contribute, in a great way to our Board.
Thank you, Kevin. Our next question is related to Board of Director compensation. We received several questions related to management and Director compensation and our practice of granting equity to our executive and Director teams. You please comment on that?
Sure. Our director pay program is positioned in the mid range of our compensation peer group. So just like we do with our own employee salaries, we do benchmarks with our peers. We do the same with the Board, and this is validated by a compensation consultant that's independent. And so we basically have competitive pay levels for our directors, which is very important for us to be able to attract and retain key talent just as we do with our own employees.
Thank you, Kevin. Our next questions have to do with voting rights and political issues. We received a number of questions on legislation that has been either passed, debated or enacted covering a range of issues from voting rights in Georgia and Michigan, among others. What is Stryker's position on voting rights and political legislation?
So I prefer to stay focused on our mission rather than commenting on specific legislation in the many states and countries where we operate around the world. We focus our advocacy effort on legislation that directly supports our mission to make health care better, including policies that promote a strong medtech ecosystem and help us to continue to deliver life saving and life improving technologies for our customers and the patients they serve.
Thank you, Kevin. We also received several questions from shareholders about diversity, equity and inclusion, including the composition of our Board of Directors. What is our company doing to promote diversity?
So at Stryker, we absolutely value an inclusive work environment, and you can see that in our corporate report, our annual corporate report. We do the makeup of our employee workforce, and we really feel it's important to reflect the diversity of our customers, patients and communities. As it relates to our Board of Directors, it is very diverse, with women and minorities making up 80% of our Board. You can see those commitments related to diversity, equity and inclusion online with the comprehensive annual report.
Thank you, Kevin. Our next question relates to pay equity. What is being done to ensure that Stryker employees are paid a living wage and that employees are paid equitably across gender, racial and ethnic backgrounds?
So pay equity is really an important topic for Stryker, and we regularly conduct assessments to ensure that we are paying our people equitably. We continuously assess how pay levels per position at Stryker compare to other positions in the company, and we make adjustments where needed to ensure we are paying people fairly based on skills and experience and not disadvantaging anyone based on gender, race or ethnicity. In The United States, the vast majority of our workers are paid more than $15 per hour, and we are committed to having everyone at least at this level by the end of this year.
Thank you, Kevin. Our next question comes in live during the meeting from shareholder, Michael Barnwell. And it relates to, as long term investors, he strongly believes that the company's executive compensation plans should be designed primarily to drive the successful execution of the board's long term strategic plan. Today's public company executive compensation plans are largely formulaic related to peer plans. So would would you or or Stryker be open to better or better served, by an executive compensation plan that is tailored specifically to the company's particular circumstance and long term strategic outlook?
So as outlined in the proxy, we have a very nice mix of incentives, both short term, and long term, which we believe are really designed to help drive long term growth for the company and value creation for its investors.
Thank you, Kevin. Our next question relates to the Mako platform. We received a question regarding Mako sales outlook as compared to Zimmer Biomet's ROSA platform. Specifically, have we heard any feedback about Mako's CT imaging approach and associated radiation?
As you may have seen in our Q1 results, Mako had an outstanding performance, and we continue to be the market leader in robotic assisted solutions. We are confident on the prospect of maintaining our lead versus any of the competing systems on the market. CT imaging specifically enables a personalized plan for each patient, which helps enable precise implant placement. CTs are commonly used across health care.
Thank you, Kevin. Our next question also came in live during the meeting, also from Myra Young. And given our commitment to ESG and customer focus, has Stryker considered converting to a public benefit company or PBC, which is a relatively newer trend that has been noticed this year.
Yes. We are aware of one company that has made the switch. But at the current time, we don't have plans to make such a conversion.
Okay. Thank you, Kevin. Our next question relates to a stock split. Has Stryker considered a stock split to stimulate additional interest and investment?
Yes. This is a topic that we evaluate periodically. We have no plans at this time to split the stock. With the advent of fractional shares and computerized trading, this has become less common, as you've seen across industries. However, any decision to do a stock split in the future would be made by our Board of Directors.
Kevin, our next question relates to corporate responsibility. How do you see our investment in carbon neutrality as core to Stryker's mission?
Yes. We are working to improve health care responsibly and sustainably because we believe the health of the world is as important as the people who live in it. And as I've mentioned already a couple of times, we published our first comprehensive report during the quarter, and that outlines our progress and commitments in areas like diversity, equity and inclusion, environmental impact, including this carbon neutral goal. And we, as a company, are committed to delivering positive results for all of our stakeholders, positive results for our employees, our customers, investors, communities and the planet. So we believe it's entirely aligned with our mission and values.
Okay. Thank you. We received multiple questions about new technologies, two specifically regarding the potential application of blockchain or quantum healing systems, also known as med beds. Is Stryker actively exploring either technology?
Our R and D teams are constantly evaluating all new technologies. We are aware of the two that you mentioned. But for competitive reasons, we don't disclose the types of innovations we're working on in advance of their launches in the market.
Kevin, our next question also came in live during the meeting, and it comes from Myra Young as well. How many shareholders, including employees and Board, attended this online meeting? And how does that compare to a typical, annual shareholder meeting?
So currently, we have about 150 people on the platform and seven on the participant line. And that's roughly in line with the numbers that we were achieving when we were having the meeting in Kalamazoo.
Okay. Thank you, Kevin. Our next question relates to business performance. Last year was an unprecedented year with the pandemic affecting business globally. As we near the end of the pandemic, are there any permanent adverse impacts or opportunities that have developed?
As I've mentioned in my business update and as you've seen in the Q1 earnings results, our businesses are bouncing back as economies open up around the world. The pandemic did not cause any permanent adverse impacts to any of our businesses. And we also learned how to be more efficient through the use of technology, and some of those benefits, I think, will make us stronger in the years to come. And as you saw by our full year guidance, we are well positioned for a strong year in 2021 and beyond.
Great. Thank you. Our next question relates to M and A. The Mako deal was a very strategic acquisition that is now accelerating Stryker's knee and hip sales. Thank you for the great strategic vision.
Aside from the normal bolt on acquisitions, do you see another strategic deal that would potentially ignite any of the current Stryker product line to the next level?
M and A has been and will continue to be a key component of our strategy. Right now, I would say that Wright Medical is going is in the process of igniting our Trauma and Extremities business, and you'll see that much more as elective procedures resume, which are very prominent in the extremities area. Keep in mind, in the short term, we are paying down debt related to Wright Medical and focusing more on bolt on acquisitions, but we are constantly looking for new opportunities such as Mako. And but of course, we will only tell you those after those acquisitions are made.
Okay. Thank you. We have no additional questions at this time.
So thank you all for joining us today. I would like to take a moment to thank all of our employees around the globe for their commitment to ensuring the safety of their colleagues, their families and our customers. Our sales forces across our businesses, who are essential to supporting doctors and caregivers, have demonstrated unwavering commitment during the pandemic. Our manufacturing teams have worked tirelessly to optimize the plant network and to ramp up capacity where needed, and we created rapid innovations in response to the pandemic. We will continue to support our employees and our customers as they work to meet the needs of the many patients that continue to need treatment.
While our many year growth momentum was temporarily derailed, the Stryker spirit is alive and well, and we are well positioned for a strong 2021 and beyond. Thank you for your continued support of Stryker.
Our meeting has now concluded. Thank you for attending, and you may now disconnect.