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Monthly Roundup - January 2019
north america
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Shareholder Activism
  • The Financial Times reports about Investment banking: The battle for Barclays: https://www.ft.com/content/035be220-199a-11e9-b93e-f4351a53f1c3. “The UK lender has wrangled for decades over whether to maintain its investment bank. Now an activist investor is trying to force the issue.”

  • Lazard have published their 2018 Review of Shareholder Activism: https://www.lazard.com/perspective/lazards-annual-review-of-shareholder-activism-2018/. “Key observations from the 2018 report include: 1) 2018 was a record-breaking year for shareholder activism; 2) More investors are using activism as a tactic; 3) Activism Is Reshaping Boardrooms; 4) Activism Has Global Reach; and, 5) Traditional Active Managers Are the ‘New Vocalists’.” See here for the full report: https://www.lazard.com/media/450805/lazards-2018-review-of-shareholder-activism.pdf.  

  • The Financial Times reports that US fund ValueAct forces Olympus to appoint 3 foreign directors: https://www.ft.com/content/65645fa4-1546-11e9-a581-4ff78404524e. “President to stand down as investors make breakthrough in two-year campaign.”

  • Reuters reports that Nestle chairman defends long-term strategy in face of shareholder activist: https://www.reuters.com/article/us-davos-meeting-nestle-idUSKCN1PJ1CK. “Nestle SA chairman Paul Bulcke said on Friday he would not pursue short-term efforts at the expense of long-term success, in the face of scrutiny from shareholder activists who know how to ‘pressure-point you and tease.’ Hedge fund Third Point LLC, run by shareholder activist Daniel Loeb, took a $3 billion stake in Nestle in 2017, and has said that the maker of KitKat bars and Perrier water could double its earnings per share by 2022 if it splits up its businesses.”

  • The Financial News has published an essay by CIAM which contends that Activists are surging in Europe, but there are still plenty of targets: https://www.fnlondon.com/articles/activists-are-surging-in-europe-but-there-are-still-plenty-of-targets-20190110. “Despite some high-profile and successful campaigns, poor corporate governance is all too common across the continent.”

  • Reuters reports that Jana liquidates two hedge funds, to focus only on activism: https://in.reuters.com/article/hedgefunds-jana-idINKCN1P928J. “Jana Partners LLC, founded by Barry Rosenstein, is shutting down two stock-picking hedge funds following losses and will focus instead on its main strategy of investing in a handful of companies and pushing management to improve their performance. The New York-based firm, which managed $11 billion at its peak in 2015, will liquidate its Jana Partners and Jana Nirvana funds, the firm told its investors in a letter seen by Reuters. Instead it will focus solely on its Jana Strategic Investment (JSI) fund, which manages $1.5 billion, and will also launch its Jana Impact Capital fund later this year, which will focus more on social activism.”

  • The Korea Times reports that Shareholder activism unnerves chaebol: http://www.koreatimes.co.kr/www/nation/2019/01/488_262616.html. “Shareholder activism has emerged as the centerpiece of the nation’s capital market. A growing number of shareholders at large Korean companies or chaebol are trying to have a bigger say in their management and to influence the owner families’ behavior by exercising their rights as partial owners. The move is drawing caution in the market as it is regarded as a double-edged sword for companies and their investors. On the one hand, it can provide the impetus for ensuring transparent management and enhancing shareholder value. But, on the other, it could undermine companies’ bottom lines by affecting business decisions through excessive intervention. The new trend is spearheaded by the National Pension Service (NPS), Korea’s largest institutional investor, which introduced a stewardship code in 2018 to strengthen its influence as a major shareholder.”

  • The Financial Times reports that Shareholder activists zoom in on target-rich Japan: https://www.ft.com/content/34dd3424-14f0-11e9-a581-4ff78404524e. “Fund managers lured by lazy balance sheets, idle executives and low stock prices.”
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Pan-European developments
  • The Financial Times reports that Brussels targets large index fund managers on ‘common ownership’: https://www.ft.com/content/0308f2e2-9e4a-34bf-b40b-745e62a536bb. “Lawmakers warn that influence of ‘big three’ could distort competition.”

  • Investment & Pensions Europe reports that according to Amundi: ESG investing ‘has influenced equity performance’: https://www.ipe.com/news/esg/amundi-esg-investing-has-influenced-equity-performance/10028969.article. “The ESG investing wave that is sweeping through Europe has started to affect supply and demand, with a subsequent effect on stock prices since 2014, according to research from Amundi. An Amundi research team studied the performance of 1,700 companies from different regions in the period from January 2010 to December 2017. It said it focused on more recent years to benefit from higher confidence in the ESG data used. Before the 2008 financial crisis, ESG investing had been ‘more of an anecdotal and explanatory investment idea’. The asset manager found that the impact of screening companies on the basis of environmental, social and corporate governance (ESG) criteria had little impact on portfolio risk during the study period, but was crucial in terms of portfolio returns. Amundi claimed 2014 had marked a turning point for how the stock market integrated ‘extra-financial’ metrics.” See here for the Amundi paper: http://research-center.amundi.com/page/Article/2019/01/The-Alpha-and-Beta-of-ESG-investing.  
  • The Financial Reporting Council is consulting on a new Stewardship Code: https://www.frc.org.uk/news/january-2019-(1)/frc-strengthens-stewardship-code. “The Code will focus on how effective stewardship delivers sustainable value for beneficiaries, the economy and society. The new Code aims to increase demand for more effective stewardship and investment decision-making which is better aligned to the needs of institutional investors’ clients and beneficiaries.” The consultation closes on 29 March 2019. The Financial Times reports that New UK stewardship code to look at adoption of ESG criteria: https://www.ft.com/content/86b44c2c-dd32-36bc-aada-4338c60c5b7f “Auditing watchdog consults on principles to dictate how asset managers will police investee groups.”

  • The Times reports that Ashley’s boardroom coup sees off Debenhams chairman and chief: https://www.thetimes.co.uk/article/ashley-s-boardroom-coup-sees-off-debenhams-chairman-and-chief-63vth89bh. “Mike Ashley’s Sports Direct has engineered an audacious coup at Debenhams, voting the chairman and chief executive off the board amid growing concerns about the department store group’s future. The sportswear retailer, which is the largest shareholder in Debenhams, teamed up with Milestone Resources, the third largest investor, to vote against the reappointment of Sir Ian Cheshire and Sergio Bucher. Milestone Resources is controlled by Micky Jagtiani, an Indian billionaire businessman based in Dubai, and with Sports Direct accounts for nearly 37 per cent of the shares in Debenhams.”

  • The Guardian reports that Top UK firms to reveal executive-worker pay gap under new rules: https://www.theguardian.com/business/2019/jan/01/uk-biggest-listed-companies-forced-to-reveal-executive-worker-pay-gap-new-rules. “Britain’s biggest listed companies will be forced to justify the pay gap between chief executives and their workforce as part of rules that come into force on New Year’s Day. The pay-ratio regulations are part of government efforts to improve transparency around executive remuneration. They follow a string of investor revolts in 2018 over high pay for senior executives at companies including Royal Mail, Persimmon and Unilever. Businesses will have to divulge and justify the difference between executive salaries and average annual pay for employees. They will also need to explain how directors take staff and other stakeholder interests into account when they decide on salaries and bonuses.”

  • Investment & Pensions Europe reports that ESG: UK fund management body proposes standard definitions: https://www.ipe.com/countries/uk/esg-uk-fund-management-body-proposes-standard-definitions/10029165.article. “The trade body representing UK asset managers has launched an industry-wide consultation on sustainability and responsible investment in a bid to bring more clarity to the growing area of activity. The Investment Association (IA) is seeking its members’ views on proposals for industry-agreed definitions and a product labelling system for UK retail investors. It also asks managers about their disclosure practices. According to the trade body, asset managers had been practising responsible investment ‘for many years’ with the intention of delivering better long-term returns for clients, but expectations had evolved.” See here for further information: https://www.theinvestmentassociation.org/media-centre/press-releases/2019/ia-launches-first-industry-wide-consultation-on-sustainability-and-responsible-investment.html.   

  • The Financial Times argues that Two reviews have not solved Britain’s audit problem: https://www.ft.com/content/eec9f276-0c2d-11e9-acdc-4d9976f1533b. “There is plenty of evidence that the accounting rules themselves are part of the issue.”

  • The Pensions and Lifetime Savings Association (PLSA) have published their 2018 AGM Voting Review and 2019 Corporate Governance Policy and Voting Guidelines: https://www.plsa.co.uk/Press-Centre/Press-Releases/Article/New-findings-show-over-25-percent-increase-in-significant-shareholder-dissent-across-FTSE-350. “Remuneration-related voting dissent remained a key area of concern in 2018. While the figures for the FTSE 250 remain broadly consistent with those from 2015-2017, the number of resolutions attracting significant dissent on FTSE 100 remuneration-related votes in 2018 versus 2017 has nearly tripled. The 2018 AGM season also saw shareholders become more vocal regarding concerns about ‘over-boarding’ of directors, where directors hold multiple appointments. This investor frustration seems to be borne out in the PLSA report figures. The analysis has been published in PLSA’s AGM Voting Review alongside the updated PLSA Corporate Governance Policy and Voting Guidelines for the 2019 AGM season. The guidelines set out voting best practice for pension funds or their asset managers to use and support positive progress on the issues highlighted in the report. The PLSA guidelines provide practical advice on how to approach common issues such as the conditions under which pension funds should support or oppose the typical resolutions at AGMs, including the approval of the report on executive remuneration, the re-election of directors or the appointment of the auditors.” See here (https://www.plsa.co.uk/Policy-and-Research/Document-library/PLSA-2018-AGM-Voting-Review) for the AGM review and here (https://www.plsa.co.uk/Policy-and-Research/Document-library/2019-Corporate-Governance-Policy-and-Voting-Guide) for the Guidelines.
  • Reuters reports that France presses Renault over executive compensation paid via Dutch holding company: https://www.reuters.com/article/us-nissan-ghosn-renault/france-presses-renault-over-executive-compensation-paid-via-dutch-holding-company-idUSKCN1P00D5. “The French government has told Renault to provide more details on compensation paid to senior executives via a Dutch holding company jointly owned with alliance partner Nissan, Finance Minister Bruno Le Maire said on Sunday. Le Maire made the demand after France’s CGT trade Union voiced concerns over payments made to certain high-ranking executives via the alliance’s Renault-Nissan BV Dutch venture and called for more transparency at the carmaker. Corporate governance inside the alliance has come under tight scrutiny after Japanese authorities arrested its chairman Carlos Ghosn in mid November on suspicion of under-reporting his income at Nissan. The French state is Renault’s biggest shareholder.”

  • The French asset management association (Association Française de la Gestion financière) has published the 2019 edition of their Recommandations sur le gouvernement d’entreprise (“Recommendations on Corporate Governance”): https://www.afg.asso.fr/gouvernement-dentreprise-role-croissant-des-societes-de-gestion-aux-assemblees-generales-2019/ (French only for now). “The main changes in 2019 are as follows: (1) The AFG recommends that the Board of Directors develop and publicize its monitoring and approval policy for regulated agreements. It specifies that a director in conflict of interest on a regulated agreement cannot take part in the deliberations or the vote. In addition, when the conclusion of a regulated agreement is likely to have a very significant impact, the board of directors will have to appoint an independent expert. 2) Any resolution that has met with significant opposition during its adoption must be carefully examined by the Board of Directors. 3) The nomination committee must, as soon as a new executive corporate officer takes office, participate in the planning and organization of the succession. This system will have to be reviewed annually by the Board. 4) In addition to executive corporate officers, members of the executive committee must hold a significant amount of shares of the company at risk, without any hedging mechanism. (5) The payment of a non-compete indemnity should not be possible if the person concerned remains in a position within the group. 6) The grant of the options subject to performance conditions should extend over a period of at least 3 years, preferably 5 years. 7) The non-executive chairman should focus on promoting the stabilization of a significant percentage of shareholding, which is essential for the development of an effective long-term strategy.” The full document (in French) is available here: https://www.afg.asso.fr/wp-content/uploads/2017/01/Recommandations_sur_le_gouvernement_d_entreprise_2019.pdf.

  • Reuters reports that Reinsurer Scor to sue Covea on timing of dropping merger plans: https://uk.reuters.com/article/uk-scor-m-a-covea-lawsuit/reinsurer-scor-to-sue-covea-on-timing-of-dropping-merger-plans-idUKKCN1PN1KM. “French reinsurer Scor said on Tuesday that it would sue rival Covea and its Chief Executive Thierry Derez for announcing it had abandoned merger plans during market hours. The Covea announcement sent Scor shares down 12 percent, erasing almost all the gains it had made since August.”
  • Bloomberg reports that Executive Bonuses in Crosshairs as Denmark Debates Inequality: https://www.bloomberg.com/news/articles/2018-12-11/executive-bonuses-in-crosshairs-as-denmark-debates-inequality. “Denmark’s next government may target executive bonuses as a way to tackle growing inequality. With an election due within the next six months, the head of parliament’s biggest party and the woman who polls show may become prime minister spoke of tougher regulation to target those with ‘fat wallets.’ At a parliamentary debate in Copenhagen, Social Democrat leader Mette Frederiksen said her party is ready to ‘start with the very large bonuses paid by Danish businesses’ as part of a set of measures she says will achieve better income equality. The tone of the political debate in Denmark has shifted as lawmakers react to multiple scandals in the financial industry. Danske Bank A/S has admitted to being at the center of a $230 billion money laundering case, with multiple criminal investigations under way and hefty fines expected. At the same time, Denmark is trying to track down billions of dollars from financiers accused of defrauding the country by claiming tax rebates on false dividends.”
  • Georgeson and Cuatrecasas have published a report entitled El Gobierno Corporativo y los inversores institucionales – Preparando la Temporada de Juntas 2019 (“Corporate Governance and institutional investors – Preparing for the 2019 AGM Season”): https://www.cuatrecasas.com/today/0/2018_proxy_season_focuses_on_composition_and_
    . “Once again, Georgeson and Cuatrecasas have analyzed the behavior of foreign institutional investors and their proxy advisors in the IBEX-35 companies and the top 40 companies on the Spanish continuous market during the proxy season, to help these companies to prepare for their next shareholders meeting and anticipate the investors’ demands. The report, ‘El Gobierno Corporativo y los inversores institucionales – Preparando la Temporada de Juntas 2019,’ was presented this morning at the Cuatrecasas Madrid headquarters. […] The 2018 proxy season has been characterized by the growing effort of Spanish listed companies to engage in dialog with the institutional investors active in the field of corporate governance and with the proxy advisors that have most influence over these shareholders. These engagement activities should be a priority for companies, and it is recommended that they are carried out outside the proxy season, i.e., between November and February. […] In the words of Claudia Morante, corporate governance director of Georgeson in Spain, ‘as foreign investors active in corporate governance are increasingly participative in the share capital of Ibex-35 companies, these companies must adopt a more active role in their dialog with the main foreign shareholders of reference, and align their corporate governance, operational, and information-disclosure structures with the investors’ growing demands’.” See the full document here: https://www.cuatrecasas.com/media_repository/docs/esp/El_Gobierno_Corporativo_2019.pdf. Expansión covered the publication and reported that Los inversores piden nuevos consejeros y más diversidad (“Investors ask for new directors and more diversity”): http://www.expansion.com/empresas/2019/01/22/5c46233722601d4c628b4617.html. “The corporate governance demands of foreign investors that are part of their shareholder base pose new challenges for [Spanish] listed companies.”

  • Reuters reports that Spain’s Santander drops Orcel as next CEO, blames pay gap: https://www.reuters.com/article/us-santander-ceo/spains-santander-drops-orcel-as-next-ceo-blames-pay-gap-idUSKCN1P92AM. “Banco Santander said on Tuesday that Italian banker Andrea Orcel would not take over as chief executive after it could not meet his pay expectations, in a rare and unusual U-turn on such a high-level appointment. Jose Antonio Alvarez will now stay on as CEO instead of Orcel, who previously worked for Swiss bank UBS and was appointed to the role at Spain’s largest bank in September. ‘The cost to Santander of compensating Mr Orcel for the deferred awards he has earned over the past seven years, and other benefits previously awarded to him, would be a sum significantly above the board’s original expectations at the time of the appointment,’ Santander said in a statement. Santander did not mention any figures and did not say how big the pay gap was. But three sources with knowledge of the matter told Reuters the deferred payment amounted to 50 million euros ($56.98 million) or more.” The Financial Times reports that Andrea Orcel plans legal battle with Santander: https://www.ft.com/content/f0867896-232a-11e9-8ce6-5db4543da632.  
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North America
United States
  • The Wall Street Journal reports that More U.S. Companies Separating Chief Executive and Chairman Roles: https://www.wsj.com/articles/more-u-s-companies-separating-chief-executive-and-chairman-roles-11548288502. “A push by corporate governance experts, shareholders and, in some cases, regulators to untangle the chairman and chief executive positions at U.S. public companies is gaining traction. The percentage of S&P 500 companies whose chief executives also serve as chairman reached 45.6% in 2018, compared with 48.7% the year before and the lowest percentage in at least a decade, according to data compiled for The Wall Street Journal by ISS Analytics, the data intelligence arm of proxy adviser Institutional Shareholder Services Inc. The campaign to separate the positions is rooted in the notion a stand-alone chairman can act as a counterweight to a stand-alone chief executive. Recent investigations into high-profile executives have fanned the conversation.”

  • The Financial Times reports that Fund groups face dilemma as Uber, Airbnb and Pinterest set to list: https://www.ft.com/content/dae85994-ca33-3570-8993-c56f83151451. “Asset managers to consider if taking stakes clashes with mandates to invest responsibly.”
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  • The Economic Times argues that Regulators must do the tough bit to boost corporate governance: https://economictimes.indiatimes.com/blogs/Exchequer/regulators-must-do-the-tough-bit-to-boost-corporate-governance/. “Sebi must show zero tolerance to corporate mis-governance, and swiftly probe into complaints alleging any irregularities in companies to prevent destruction of share-holder value. The spotlight has turned to corporate governance following the reported tumbling of shares of India’s largest drug-maker Sun Pharmaceuticals by as much as 13.21 percent as nervous institutional investors sold the scrip after a report revealed excerpts about a whistleblower’s complaint against controlling shareholder Dilip Shanghvi.”
South Korea
  • Today Online reports about Giving a voice to minority shareholders: https://www.todayonline.com/commentary/giving-voice-minority-shareholders. “These incidents highlight a significant gap in Singapore company law – while the board of a company owes a fiduciary duty to shareholders, in practice management powers are vested in the directors. Minority shareholders wanting to impose a check on management are often disadvantaged by the inequality in financial muscle and information access.”
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Daniele Vitale
Corporate Governance Manager > Corporate Advisory
T +44 (0)20 7019 7034 M +44 (0)7747 697 136 F +44 (0)870 702 0158
Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom

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Georgeson - Georgeson is a trading name of Computershare Investor Services PLC. Computershare Investor Services PLC is registered in England & Wales No. 3498808.
Registered office:
The Pavilions, Bridgwater Road
BS13 8AE Bristol
United Kingdom