All above board

Mar 17, 2009
<p>It may be tempting to abandon ship but preparation can help you steer a safe course through the annual meeting season</p>

With investor antipathy at an all-time high, firms are gearing up for the annual meeting period with ever-increasing levels of trepidation. As well as the obvious implications stemming from the financial crisis, political developments will have a significant bearing on the ease with which companies can pass motions at meetings.

The soon-to-be mandatory Shareholder Rights Directive in the EU and US legislation on say-on-pay may also affect the delicate balance of power between companies and their shareholders.

John Garbutt, director and global head of governance at Halbis Capital Management, part of global banking group HSBC, notes that despite efforts to improve European cross-border voting, obstacles remain due to power of attorney and shareblocking requirements. This may change, however, when the EU directive becomes mandatory in August this year. ‘Matters such as the notice period for general company meetings and the ability of nominee companies to vote on behalf of beneficial owners with different voting stances may be especially under scrutiny as a result of the directive,’ he explains.

Iain Richards, head of corporate governance at global insurance group Aviva, predicts an emphasis on company directors this proxy season. ‘One of the most compelling things will be the attitude of directors – if they adopt a bunker mentality and shy away from investors, they should expect to be interrogated,’ he says.

Garbutt and Richards both advise more consultation with major shareholders in the lead-up to the meeting, especially on potentially contentious issues. ‘When setting the dividend policy we’d expect boards to think long term and be conscious of the signals their decisions send to investors,’ Garbutt states. 

Inevitably, however, the spotlight will fall on the CEOs. ‘Investors will be examining their judgment and performance,’ comments Michelle Edkins, managing director of Governance for Owner’s governance and engagement services. ‘Look at the controversy surrounding Apple’s Steve Jobs and how it has affected the firm’s share price. Investors will continue to overreact to uncertainty.’


In Canada – as elsewhere – pressure has mounted for executives to forgo their bonuses. Gord Nixon, the chief executive of Royal Bank of Canada, made headline news when he handed back his C$5 mn ($4 mn) bonus in early February.

‘The major banks released their proxy circulars recently and, in almost all instances, the CEOs gave up their bonuses,’ says Stephen Griggs, managing director of the Canadian Coalition for Good Governance. Interestingly, and in contrast to other markets, the government has not mooted plans for regulation of executive compensation.

‘The option exchange plan has not made its way to Canada and institutional investors there have said any exchange of this nature would be unacceptable,’ Griggs adds.

United States

‘Voting participation in the US may increase if there are further resolutions offering opportunities for investors to vote on issues such as say-on-pay. Other key resolutions include proxy access, the ability to remove directors, and the separation of chairman and CEO,’ says John Garbutt, director and global head of corporate governance at Halbis Capital Management, part of HSBC Global Asset Management.

As several firms embark on an option exchange plan, paying close attention to the guidelines produced by proxy advisory firms will be key to getting shareholder approval. Advisers say plans will have to be a value-for-value transfer in order to be endorsed, and experts speculate that a significant number of issuers are unlikely to get the support of the proxy advisory firms on this issue, something that will force companies to engage with their major shareholders directly.


According to proxy voting agency Manifest, AGM turnout in Spain is among the highest in Europe. But if Spanish firms want to encourage participation from investors outside Spain they will need to be faster in circulating meeting documents prior to the meeting.

‘The key thing will be the production and communication of documents in English in advance of the meeting,’ says Iain Richards, head of corporate governance at global insurance group Aviva. ‘There are some countries where you don’t get the report and accounts until after the meeting, and Spain was particularly bad on this last year.’


In Greece investors can’t vote by proxy and shareblocking still exists, making it a frustrating market. ‘Greece can be problem,’ says Michelle Edkins of Governance for Owners. ‘Companies often don’t announce the name and details of those standing for the board until the day of the meeting.’


Many are expecting higher abstentions on director reelections, and companies such as Barclays and UK retailer Marks & Spencer have taken the step of putting all their directors up for reelection at the AGM in an attempt to appease investors.

This year will see equity-raising issues become paramount, with many firms desperately seeking new capital. Expect investors to be paying close attention. ‘It’s inevitable there will be dilution and issuers and advisers need to be careful in these areas,’ notes Iain Richards, head of corporate governance at global insurance group Aviva. ‘Suggestions from the sell side that you can ignore the rights of existing shareholders are just plain wrong.’

As investors’ frustration increases, Richards think companies could see increasing opposition on remuneration votes. ‘If companies ignore their investors, we could see more instances like building firm Bellway in January, when a majority of shareholders voted against its remuneration report,’ he warns. Bellway had planned to pay out its executive bonuses despite substantial share price falls. The vote was the first defeat of its kind in the UK since 2003.


Swiss firms have not always ingratiated themselves with their shareholders. This year, however, the tide is changing as several major companies have agreed to allow shareholder votes on executive remuneration.

Nestlé, UBS and Credit Suisse have all agreed to an advisory vote on management remuneration that, although not binding, does signal a change in attitude toward investors. The changes are not across the board, however, and two other firms asked by investors to introduce a say-on-pay measure for shareholders – engineering group ABB and pharmaceutical company Novartis – have refused to introduce the measure.

‘Shareholders have been expounding the concept of clawbacks,’ explains Michelle Edkins, managing director of Governance for Owner’s governance and engagement services. ‘The new rewards system at UBS, the so-called bonus and malus (reward or penalize) plan, presents the concept neatly.’


The introduction of Germany’s Risk Limitation Act should increase participation at AGMs. In practice, however, legal experts don’t expect much to change.

The prevalence of bearer shares means it is difficult to identify shareholders in the German market and this opaqueness makes the proxy voting chain more protracted than elsewhere. By improving the transparency of share registers, the legislation has the potential to increase communication and investor participation.

The act allows firms to suspend the voting or dividend rights of investors that don’t disclose their holdings but, as yet, no blue-chip company has taken advantage of the law. Siemens, which had its AGM in January, was one of the first big firms that could have used the law change. ‘It would be a very time-consuming process,’ comments Tina Luderer from Siemen’s IR department.

Roger Kiem, a partner at global law firm Shearman & Sterling, doesn’t expect much to alter. ‘The majority of blue chips have taken the view that it is too complicated and the disadvantages are too high,’ he says.

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