We’re back! Most Significant Votes returns fortnightly for a short run of our regular update from Paul Lee, Redington’s Head of Stewardship & Sustainable Investment Strategy. Most Significant Votes highlights the key AGM decisions that matter to asset owners and on which they might wish to hold their fund managers accountable. This run is timed to report on the Southern Hemisphere voting season and also sweeps up the small parallel season in the North.
Australia has a number of unique governance and voting features, but some things are the same across the world. Earlier in the year, we saw many banks and insurers in the US and Europe facing shareholder resolutions regarding the financing of new fossil fuel exploration, reflecting the scientific advice that the world cannot afford to burn even the oil, gas and coal that we have already found. Commonwealth Bank of Australia (AGM 12th October) was the first of Australia’s big banks to face a similar resolution. And the result was also similar: no more than single-digit support. Only 6.5% of shareholders backed the shareholder proposal.
A shareholder resolution at Origin Energy (AGM 19th October) calling for clearer sensitivity analysis of the company’s financials to climate scenarios was withdrawn, following Origin’s commitment to deliver such analysis in future. “We support including a climate sensitivity analysis using a 1.5°C scenario in our financial statements and commit to doing so from FY2023,” the company announced. Resolution proponent the Australasian Centre for Corporate Responsibility (ACCR) – no pushover – deemed this enough, even though it didn’t apply to the company’s exploration assets. Of the resolutions that did go before shareholders for consideration, 6% opposed the company’s climate action transition plan. And 8% supported a shareholder resolution regarding access to clean water.
US consumer goods giant Procter & Gamble (AGM 11th October) faced a campaign from among others Friends of the Earth arguing that the company had not done enough to respond to a 2020 shareholder resolution calling for action on deforestation in its supply chain – which had won support from 67% of investors. The campaign argued that board members should be held accountable for this alleged failure, and targeted in particular Jon Moeller (chair and CEO), Angela Braly (chair of the Governance and Public Responsibility Committee and Patricia Woertz (member of that committee). In the end, Moeller and Woertz faced 10% opposition, and Braly 9%. The reappointment of Deloitte – which has been P&G’s audit firm since 1890 [that’s not a typo!] – was opposed by 6% of shareholders.
Australia’s Stock Exchange itself received a bloody nose from shareholders. ASX (AGM 28th September) saw 31% of shareholders vote against its remuneration report. Investors grouched that the rewards for management – including for departing CEO Dominic Stevens – were not reduced sufficiently to reflect significant delays to the replacement for its trade settlement system. This replacement is now not expected to be in place until late 2024, rather than the original early 2021 target. The scale of the vote against is significant as under Australian law a vote against the remuneration report over 25% amounts to a ‘first strike’; if the company receives a ‘second strike’ of 25% or more opposition the following year, it must put forward a ‘board spill’ resolution whereby a simple majority of shareholders can require that all non-executive directors are put up for re-election within 90 days. The aim of this process to give added teeth to the advisory remuneration report votes. ASX non-executive director Peter Nash also faced a 9% vote against.
Infrastructure business Transurban (AGM 20th October) saved itself from a board spill resolution. Having seen a 26% vote against its remuneration report last year, this year’s report vote was a potential second strike. But investors are clearly largely satisfied by the improvements made over the year as the vote against this time around was down at 5%. The board spill proposal was not formally put to the meeting but the company nonetheless released the votes lodged by proxy ahead of the meeting, which were 99% against the board all having to face a re-election vote.
There were significant votes against pay at South Africa’s Impala Platinum (AGM 12th October) too. The backward-looking remuneration report saw 41% opposition, and the forward-looking policy vote 9% opposition. Australian pharma business CSL (AGM 12th October) also faced significant opposition on pay, with 10% of shareholders opposing the remuneration report and 9% against a share incentive award to the CEO. Marie McDonald, a member of the remuneration committee, saw 10% opposition to her re-election, though this seems to be as much about her having been a director for long enough that some investors will be questioning her independence.
At Australian financial services giant Perpetual (AGM 20th October) 11% of shareholders voted against a long-term incentive award to the CEO. While no other vote against reached double figures, there seems to be rumbling discontent among the investor base as not one resolution passed with more than 94% support: the remuneration report suffered 8% opposition, and two other votes on incentives for the CEO saw 9% and 8% votes against. The one member of the remuneration committee facing re-election this year, Greg Cooper, faced 6% opposition. Changes during the year appear to make incentives marginally more likely to vest in the future. Particularly for a company that uses the tagline ‘Trust is earned’, these votes should be taken as flashing warning signs.
In the UK, emerging markets fund manager Ashmore (AGM 14th October) also faced a bruising on pay, with 27% opposition to the remuneration report. Once the significant stake of founder and CEO Mark Coombs is excluded, the vote by independent shareholders was nearer to 43% against. While Coombs himself received no annual bonus, shareholders clearly felt that the significant award for CFO Tom Shippey was not appropriate given the poor performance of the business and its share price. Remuneration committee chair Helen Beck also faced 9% opposition to her re-election, or 15% of the free float. Perhaps as striking was the high vote against the reappointment of the auditor KPMG – usually a resolution that receives overwhelming support. KPMG has faced criticism from the regulator, the Financial Reporting Council, for audits of financial services businesses, but the vote against seems more likely to have been driven by the fact that the audit firm has been in office for more than 20 years, which many investors now take as the limit to independence. 13% of shareholders opposed the reappointment of KPMG, or 21% of the independent shareholders.
Perennial governance basket case, retailer Frasers (AGM 19th October), also saw a striking vote on pay. The unusual pay scheme for the new CEO Michael Murray (and son-in-law of founder and major shareholder Mike Ashley), which could be worth £100 million, clearly raised concerns for many investors. While the headline vote against the remuneration report was 12%, this looks like fully half of the independent shareholders once Ashley’s stake is excluded. Chair of the remuneration committee David Brayshaw faced a 30% vote against his re-election from independent shareholders.
Also in the UK, three further non-executive directors faced very high votes against. At Barratt Developments (AGM 17 October), chair John Allan saw 21% of shareholders declining to support his re-election. This was apparently because of the departure at the AGM of a female non-executive director bringing the gender split below the minimum expectation of 33%. Those investors were apparently not willing to accept the company’s explanation that a further female non-executive’s appointment will be announced imminently – or they voted without being aware of it. Hargreaves Lansdown (AGM 19th October) witnessed busy non-executive director Deanna Oppenheimer face a huge 35% vote against her re-election. Unusually, CEO Christopher Hill (who has announced he will stand down next year) faced high opposition too – presumably driven by concerns about the firm’s association with the Neil Woodford fund scandal. The vote against his re-election was nearly 7%, high in itself, but very high numbers of shareholders abstained, meaning opposition overall was more like 34%. And non-executive director Ireena Vittal at Diageo (AGM 6th October) saw very significant opposition to her re-election, apparently because of the level of her other commitments as director of large companies in both the UK and India. Around 19% of shareholders felt unable to support her, around half opposing outright and the other half abstaining on the resolution.
We’ll return with the next Most Significant Votes in a fortnight, on November 4th.