Welcome to Most Significant Votes! Our update from Paul Lee, Redington’s Head of Stewardship & Sustainable Investment Strategy, highlighting the key AGM decisions that matter to asset owners and on which they might wish to hold their fund managers accountable.
A shareholder resolution was passed with 96% support (at least according to the unofficial preliminary tally) at earth moving equipment manufacturer Caterpillar AGM (AGM 8th June). The resolution called on the Climate Action 100+ company to set out a climate transition plan aligned with the Paris Agreement. However, given that the board encouraged investors to support the resolution, it is surprising that there was even 4% opposition. According to CA100+ benchmarking, the company has a significant distance to go to deliver a convincing climate transition plan, notwithstanding its formal assertion in its proxy statement that “Caterpillar supports the goals of the Paris Agreement to limit global temperature rise, and we are committed to contributing to a reduced carbon future.” We are still awaiting the full results, including another shareholder resolution relating to human rights risks in conflict-affected and high-risk areas.
British Gas owner Centrica (AGM 7th June) fared less well. It was the latest company voluntarily to put its climate transition plan up for shareholder approval. The company has significant gas exploration and production assets, as well as its retail-facing delivery operations and investors, were clearly not wholly convinced by its plan: more than 21% refused to back it. Centrica also faced some strong opposition on remuneration matters; the remuneration policy saw a 17% vote against, and 6% opposed a new long-term incentive. The company is shifting to a restricted share plan rather than a more traditional incentive scheme; while some investors strongly favour these models, they remain controversial for others. Quantum was also a concern for some investors. Furthermore, 7% of shareholders opposed the re-elections of both the remuneration committee chair Carol Arrowsmith and board chair Scott Wheway. UK defence business Ultra Electronics (AGM 10th June) faced some similar disgruntlement, with all five non-executive directors seeing more than 10% of shareholders opposing their re-elections. The company is still in the throes of a takeover by rival Cobham and it seems a number of investors aren’t happy with the way the board has acted (the two executive directors enjoyed more universal support).
Hasbro (AGM 8th June), the US toy and games company, had faced a proxy fight, with activist investor Alta Fox Capital pressing for strategic change and proposing five candidates for the board. Though Hasbro reported in preliminary voting results that it had defeated Alta Fox, with all 13 of its own board candidates achieving re-election by “a substantial margin”, the activist nonetheless claimed some success in terms of the substantial board refreshment that’s happened over the course of its campaign. However, the company intends to retain its gaming division, which Alta Fox was encouraging it to spin off.
Media business Netflix (AGM 2nd June) proved less popular with investors than many of its shows do with subscribers. There was unsurprising support for the management proposals to remove poor features of the company’s governance, including supermajority voting rights and the classified board (which means only a third of the directors are up for election each year), both of which gained almost universal backing. Less favourable for the board was the vote on senior executive pay, which faced fully 73% opposition. The $40 million and $38 million pay for each of the co-CEOs clearly seemed a little high to investors given the disappointing results recently reported (though given the surprising $200,000 median pay at the company, its pay ratio is unusually low for the US, at around 200:1). Timothy Haley, chair of the remuneration committee, faced similar personal opposition, with 68% of shareholders refusing to back his reappointment to the board. Under rules typical at many US companies, this doesn’t stop him being re-elected as all that is necessary is some shareholder support. Since the meeting, the company has adopted a change in its rules so that a director not receiving a majority of votes for will be required to tender their resignation from the board – though the board may choose not to accept it – but this standard does not seem to have been applied retrospectively to Haley. Fellow director Anne Mather fared only slightly better, garnering 56% backing for her re-election. A shareholder resolution seeking disclosure on lobbying activities won 60% support from investors.
Another company facing opposition across a range of resolutions was French software business Sopra Steria (AGM 1st June). In particular, the vote on the CEO’s pay in 2021 saw 35% of shareholders voting against, and the forward-looking policy for him saw 8% oppose. The reappointment of ACA Nexia as auditor garnered 22% votes against, and various resolutions on giving the board authority to issue more shares received opposition in the order of 6-9%. Given that the so-called core shareholders (largely, founding families) hold over 20% of the shares, and because they benefit from extra voting rights available to long-term shareholders – which because of the complexities of institutional shareholding structures are in practice not available to the bulk of institutions, even if they have also been invested for years – these results are even more remarkable. The founding families wield nearly 30% of votes, current managers and others nearly 4% and the employee trust 7.6%. Assuming all of these shares were voted, and they were all voted in support of management, the CEO’s pay was opposed by the majority of the free float, and the vote on the auditor passed only 55%/45% of the free float. French fashion tiddler SMCP (AGM 9th June) – its brands include Sandro and Maje – had a still more uncomfortable time, with every single one of the 34 resolutions it put to shareholders facing more than 20% opposition, though no vote against was greater than 37%. It clearly has an uncomfortable relationship with at least some of its shareholders, having frozen the onsale of 12.1 million shares because the current owner has not been disclosed; it may be no coincidence that the baseline opposition to every resolution was 12.1 million votes.
At the other end of the retail spectrum, the TJX (AGM 7th June), the company behind TK Maxx stores, was the latest US company to face strong opposition on remuneration. Its resolution to approve top executive pay was rejected by a tight margin, with a further 3% abstaining. Total reported pay for the CEO was some $31.8 million, around 2,250 times the median pay at the company of around $14,000. The company suggests that we should instead consider the CEO to have been paid a mere $20 million (so the pay ratio should be seen as under 1,400:1), with the $12 million difference being a regulatory disclosure reflecting the increase in value of prior awards due to decisions in the year. But since these decisions in effect made the CEO whole for the unforeseen consequences of the pandemic – something the company hasn’t clearly done for its workforce – this argument may not have convinced investors. The company also faced a number of shareholder proposals on social matters: one calling for a report on the effectiveness of social compliance in the company’s supply chains garnered 24% support; one concerning the treatment of supplier employees 31%; and one pressing for paid sick leave 33%.
That’s all this week, and because the (Northern Hemisphere) voting season is now quietening down, we are switching the frequency of Most Significant Votes to fortnightly for the time being.