Most Significant Votes (w/e 21st June 2024)

Welcome back to Most Significant Votes! We again bring you highlights of the key AGM decisions that matter to asset owners and on which they might wish to hold their fund managers accountable, as selected and discussed by Paul Lee, Redington’s Head of Stewardship & Sustainable Investment Strategy. This run of the MSV blog covers the main Northern Hemisphere voting season.

The car industry provided a number of particularly interesting votes this last fortnight. Japanese giant Toyota Motor (AGM 18th June) has faced scrutiny because of revelations over faked or avoided safety tests in relation to at least seven of its models, as well as falsified emissions results from some of its subsidiaries. Because of these embarrassments, both major proxy advisers, ISS and Glass Lewis, recommended votes against the re-election of long-standing chair Akio Toyoda. More than 27% of shareholders agreed that he should be held to account – or 30% when the shareholdings of sister companies are excluded. Vice chair Shigeru Hayakawa fared somewhat better, with a 9% vote against (or 11% of the broader shareholder base). The company also faced a shareholder resolution seeking an annual report on its lobbying activities in relation to climate; this won support from 9% (or 11%) of investors. Sister company Subaru (AGM 19th June) has not been directly implicated in these scandals and fared somewhat better, but still saw an 8% vote against its chair Tomomi Nakamura, or more like 11% once the Toyota shareholding is set aside. There was also a 13% (or 17%) vote against the appointment of a non-independent individual to the company’s board of auditors (in theory an independent oversight body in Japan’s historic governance model).

Perhaps most highly watched AGM of the year overall was that of electric carmaker Tesla (AGM 13th June), a meeting held in the aftermath a Delaware court decision that set aside the extraordinary 2018 pay deal for CEO (and self-declared ‘technoking’) Elon Musk – a pay deal worth more than $50 billion (yes, billion). The court decision at the end of January declared that this pay deal failed when measured against the standards of the wonderfully named ‘entire fairness doctrine’. The court also found that the board members were either ‘beholden’ to Musk, or ‘acted beholden’ to him in relation to the pay deal. Immediately following that ruling, Musk announced a redomicile of the company from Delaware to Texas; in proposing exactly such a move at the AGM, the board explained (over fully 40 pages of the proxy statement) why this redomicile wasn’t a fit of pique but a thought-through shift made wholly in shareholders’ best interests – while noting that Texas doesn’t yet have a business court system.

Despite this being such a jump into the dark, only 13% of shareholders opposed the move (16% of those other than Musk). The ratification of Musk’s pay deal was also approved, even though part of the market capitalisation that was the main hurdle for the payout has since evaporated – 24% opposed this resolution (29% ex-Musk). The largest vote against was in regard to the re-election of James Murdoch, one of the directors found to be ‘beholden’ to Musk, with 32% against (38% ex-Musk); this was greater than the vote with regard to Kimbal Musk, Elon’s younger brother, which was 21% against (26%). Very unusually, two shareholder proposals were approved – to reduce director terms to one year and to remove requirements that exceed a simple majority to approve governance changes – with 55% (67%) backing for each. Others fared somewhat less well but were still notable. Two on social issues, seeking enhanced approaches to anti-harrassment and non-discrimination, and freedom of association and collective bargaining, won 33% (40%) and 23% (28%) backing respectively. A resolution pressing for the inclusion of sustainability metrics into executive pay was supported by 12% (15%) of shareholders, and one calling for a moratorium on sourcing minerals from deep sea mining gained 10% (13%) support.

US car rival General Motors (AGM 4th June) also faced a deep sea mining resolution, which won 13% backing. More significantly, and perhaps surprisingly, pay at GM faced more opposition than that at Tesla, even though CEO Mary Barra’s pay was under $28 million, several orders of magnitude smaller than Musk’s (though does represent more than 300 times GM’s average employee pay): 42% of shareholders opposed the pay resolution at the company. Two other shareholder proposals also raised questions about risks in the company’s supply chains: one regarding child labour in battery supply chains gained 14% support, while one on broader supply chain sustainability risks, with more of a climate and environmental tilt, was backed by 15% of investors. Meanwhile, transport app firm Lyft (AGM 13th June) faced a 28% vote against its executive pay – or 47% of those who are not its founders (who benefit from shares with 20 votes each).

Spanish healthcare firm Grifols (AGM 14th June) – which makes medicines based on blood plasma – faced a short-selling attack in January, alleging accounting manipulations over a transaction with a related party associated with the Grifols family that controls the business. The shares remain down more than a third since that attack. This seems to lie behind the 12% vote against the discharge of the board – or 27% of those who are not the Grifols-family-related shareholdings (these total at least 31% of the shares). It’s odd though that in this context the report and accounts was approved so overwhelmingly – with 99% support. Pay matters received more attention, with 25% (or 56% non-Grifols family) opposition to the remuneration report and 23% (or 52%) to the remuneration policy. Also in Spain, infrastructure company Acciona (AGM 20th June) faced a revolt on pay, with the 14% headline opposition to the remuneration report looking more like 37% opposition from investors other than the founding Entrecanales family.

Gaudy fashion online retailer Boohoo (AGM 20th June) also roused some unwanted attention with regard to executive pay. Last month it withdrew a proposed new incentive plan following engagement with “certain shareholders”; this would have enabled awards subject to (unspecified) performance criteria of 3 times executive salaries, plus awards subject only to the passage of time, which would start to be released after just one year, of 2 times salary. Neither the structure nor the quantum looks within the bounds of normal schemes in the UK, and seemed particularly poorly thought-through as investors are feeling the bruises of a share price down more than 90% since its peak during the pandemic. The withdrawal of the resolution wasn’t enough to draw the ire of shareholders, who opposed the remuneration report at the level of 15% (23% excluding the founders’ 14% of the shares), and 16% of whom (or 25%) voted against the reappointment of remuneration committee chair Iain McDonald.

Another UK retailer, Kingfisher (AGM 20th June) also saw somewhat of a protest on pay issues, with a 15% vote against its remuneration report (including 6% abstentions). CEO Thierry Garnier was paid ￡5 million in the year, more than ￡3 million from the maturing of a five-year old scheme called the ‘delivering value incentive’ (the shares are largely flat over that time), some 212 times the median pay of staff at the business (which is just under ￡24,000). The issues at US retail behemoth Walmart (AGM 5th June) were rather different, with 15% of shareholders supporting a call for a racial equity audit, or 35% of those not from the founding Walton family, which retains 46% of the shares. Meanwhile, 13% (or 28%) backed the need for human rights impact assessments of the supply chain. There were contrasting results for two proposals seeking protections for Walmart’s workforce: one seeking a living wage won 5% support (or 11%) while another seeking enhanced workplace safety was backed by 19% (or 43%) of investors.

That’s it for this fortnight. We’ll return with Most Significant Votes – for the last time this voting season and with a particular focus on the intense Japanese season, which is now upon us – on July 5th.

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