Welcome to Most Significant Votes! Our regular 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.
In the last issue we discussed the intensity of the Japanese voting season and some of the remarkable votes that have occurred this year. Japan’s corporate titans seem for the first time properly to be being held accountable by their shareholders. Given that, it seems only fitting to pay a brief tribute to Shinzo Abe, the former prime minister crudely assassinated while campaigning in the country’s general election. Abe was in many ways the reinvigorator of Japanese corporate governance, calling it the ‘third arrow’ of his programme to reawaken the Japanese economy after its lost decade [not to be confused in any way with Three Arrows Capital, the crypto hedge fund that, amid much recrimination, has just filed for bankruptcy as one marker of the cryptocurrency collapse].
Abe’s attention led to wholesale changes to the Japanese corporate governance code – among other things changing the approach to board independence and to cross-shareholdings between families of friendly corporations – and the creation of a stewardship code as well. It’s rare for top politicians to think of corporate governance, rarer for them to expend significant political capital on making change happen, and unique to have actually delivered real and valuable reform. Investors globally owe Abe a great deal. He leaves a proud legacy in governance and stewardship.
Having said that, Japan’s abrupt AGM season is already over, and most of the recent activity has been in the UK. Royal Mail (AGM 20th July) is about to face industrial action as the Communication Workers Union reported that its 115,000 workers had almost unanimously voted to strike. The following day, the company faced a less unanimous though still significant protest from its shareholders. Both of its most senior non-executive directors, chair Keith Williams and senior independent director Baroness (Sarah) Hogg, faced sizeable votes against. Williams saw 10% opposition to his re-election (including 2% abstentions); the 11% opposing Hogg’s reappointment is more embarrassing given her position as somewhat of a doyenne of governance – among other things she formerly chaired the Financial Reporting Council, the regulator responsible for the UK’s Corporate Governance Code. Maria da Cunha, the non-executive director charged with engaging on the board’s behalf with the workforce, and incoming remuneration committee chair, faced a much smaller (though still notable) vote against of 4%.
The same union also announced a strike among the 40,000 workforce of telecoms firm BT. At the company’s AGM on the same day (14th July), while the executive directors and the non-executive chair all received strong endorsements, all the other non-executive directors faced votes against of 5% and more. Faring least well were Sir Ian Cheshire, who saw 10% of shareholders oppose his re-election, and Iain Conn, opposed by 5% but with a further 3% abstaining. In both cases, the opposition seems to be driven by investor concerns about the individuals’ delivery as directors at other companies. There was also 7% opposition to the remuneration report.
Two UK companies were among the few to choose to put their climate change plans up for advisory shareholder vote, and also among the very few to receive strong endorsement for those plans from investors. Electricity infrastructure firm National Grid (AGM 11th July) saw its climate transition plan backed by 96% of shareholders, with 2% abstaining and only 1.5% voting against. The net zero transition report from generator SSE (AGM 21st July) fared still better, with 98% backing, 1% voting against and 0.5% abstaining. The company saw some much less supportive votes as well, most notably the vote welcoming new non-executive director John Bason to the board: only 69% of shareholders voted in favour, with 15% opposing and 16% abstaining. This seems another of those concerns about an individual being too busy to carry out their duties effectively: Bason is the finance director of another PLC and already holds one NED role. Against this, the 10% opposition to SSE’s new pay policy and 5% opposition to a new performance share plan seem small.
Luxury goods firm Burberry (AGM 12th July) had a similar experience. There, the reappointment of non-executive director Antoine de Saint-Affrique faced 36% opposition. Again, de Saint Affrique is perceived to be overcommitted, despite the board’s assertions about his diligence in carrying out the role and confidence that he will continue to be able to do so effectively. The 7% opposition to its remuneration report was barely a ripple – especially for a company which has faced serial issues over pay.
Less glossy safety business Halma (AGM 21st July) faced a 36% vote against its remuneration report, and its remuneration committee chair, Jo Harlow, saw 23% opposition. The company hiked executive director pay by 16% in the year, the second year in a process of increases said to be necessary to reflect the growth of the business, which now sits among the largest 50 on the London market (there was around 40% opposition to the new remuneration policy put to shareholders last year). The increase over the two years approaches a 50% rise in pay levels at the top of the company. There’s no indication that the wider workforce will enjoy pay rises of anything like a similar level; the ratio of the CEO’s pay to the median pay among UK employees (around £32,000) is 110:1, and if the CEO’s overall remuneration rises by the 16% increase, this will increase to around 128:1.
Elsewhere, shareholders overwhelmingly approved the merger of Healthcare Trust of America and Healthcare Realty Trust (Special Meeting 15th July), whilst also overwhelmingly opposing the resolution on so-called golden parachutes following the merger. But in the latest episode of the running tale of US executive pay being out of control, this vote by over 71% of shareholders against the payments – of more or less $5 million to each of three individual senior managers – will not stop them being made because the resolution is purely advisory. Last year the pay ratio between the CEO of HTA and the company’s median paid employee was 86:1. It seems unlikely that those staff will benefit from golden parachutes to cushion their fall should they lose their jobs as a result of the merger.
That’s all this voting season. Thanks for joining me on our slightly breathless run through significant votes in the Northern Hemisphere season. We’ll return in October for the Southern Hemisphere season, and in the Spring we’ll return North.