Most Significant Votes (w/e 10th June 2022)

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 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 from 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.?