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Georgeson Monthly Roundup - July 2019
north america
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Revista Consejeros

Revista Consejeros has published an interview with Carlos Sáez Gallego, Georgeson’s Head of Spain: https://www.revistaconsejeros.com/entrevista/3729/espana-es-un-pais-donde-no-se-ha-notado-la-presencia-de-accionistas-activistas (in Spanish).

“We recommend that Spanish listed companies comply with international standards of corporate governance […] because 47% of their shares lie in international portfolios. This - which is a positive sign of confidence - means that there is more pressure to comply with those standards.”

See the full interview here: https://www.georgeson.com/News/ENTREVISTA%20SA%C3%89Z.pdf; and an English-language excerpt here: http://thecorner.eu/interviews/carlos-saez-gallego-spain-is-a-country-which-has-not-seen-activist-shareholders/81343/.

Shareholder Activism
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  • ISS has opened the ISS Global Policy Survey for 2020: https://www.issgovernance.com/iss-opens-global-policy-survey-for-2020/. “In a change from recent years, this year’s questions will be posed within a single survey, with a more limited number of questions, to help streamline the process for respondents. Topics this year cover a broad range of issues, including: board gender diversity, director over-boarding, and director accountability relating to climate change risk, globally; combined chairman and CEO posts and the sun-setting of multi-class capital structures in the U.S.; the discharge of directors and board responsiveness to low support for remuneration proposals in Europe; and the use of Economic Value Added (EVA) in ISS’ quantitative pay-for-performance, financial-performance-analysis  secondary screen for companies in the U.S. and Canada. The survey will close on August 9, 2019, at 5pm ET.” See the survey here: https://www.surveymonkey.com/r/2019-ISS-Policy-Survey.

  • The Financial Times reports that Rating agencies ratchet up pressure on insurers over ESG risk: https://www.ft.com/content/3c9f4b4e-9dde-11e9-b8ce-8b459ed04726. “Moody’s among those increase their focus on the topic — and warning of looming vulnerabilities for sector.”

  • The Financial Times reports that Big asset managers take boards to task over pay: https://www.ft.com/content/dc219490-9f9b-3220-81a7-b28ce9a34662. “UK funds more aggressive than US counterparts over remuneration at FTSE 350 companies. […] His research also found that big holders of UK stocks were relying less on proxy advisers such as Institutional Shareholder Services and Glass Lewis.”
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Pan-European developments
  • The BPP Group has launched their new 2019 Best Practice Principles for Shareholder Voting Research Analysis: https://bppgrp.info/bpp-group-launches-new-2019-best-practice-principles-for-shareholder-voting-research-analysis/. “The updated 2019 Principles were developed within the framework of a structured Independent Review Process which referred to the ESMA 2015 Follow-Up Report on the Development of the Best Practice Principles for Providers of shareholder voting research and analysis, the requirements of the revised EU Shareholder Rights Directive II and the latest updated stewardship codes globally. The Independent Review Process also referred to the important input of regulators, investors, issuers and other stakeholders received through a Public Consultation by the BPPG (completed in December 2017), 2017 and 2019 Stakeholder Advisory Panels and a June 2019 BPPG Stakeholder Preview Event.” See here for the full document: https://bppgrp.info/wp-content/uploads/2019/07/2019-Best-Practice-Principles-for-Shareholder-Voting-Research-Analysis.pdf.  

  • Investment & Pensions Europe reports that ESMA advises against explicit ESG analysis mandate for credit rating agencies: https://www.ipe.com/news/esg/esma-advises-against-explicit-esg-analysis-mandate-for-credit-rating-agencies/10032390.article. “Credit rating agencies should not be explicitly required to consider environmental, social and corporate governance (ESG) factors when assessing issuers’ creditworthiness, according to the EU financial markets watchdog. Amending the EU regulation governing credit rating agencies (CRAs) in this way would be ‘inadvisable’ because of the specific role credit ratings continued to play within the financial system, said the European Securities and Markets Authority (ESMA), noting that key pieces of sectoral legislation still contained mechanistic references to credit ratings.”
  • The Daily Telegraph reports that Top firms taking 'one and done' approach by appointing token woman to board, review chief says: https://www.telegraph.co.uk/news/2019/06/30/top-firms-taking-one-done-approach-appointing-token-woman-board/. “Some of the UK’s top firms are taking a ‘one and done’ approach to gender diversity by appointing a token woman to their board, a Government-backed review has found. A small number of FTSE companies are ‘intentionally blocking progress;, according to Denise Wilson White, chief executive of the Hampton-Alexander review which was set up by Theresa May in 2016 to close the gender gap at the top of business.” See the Hampton-Alexander update here: https://ftsewomenleaders.com/wp-content/uploads/2019/07/FTSE-350-URGED-TO-KEEP-UP-THE-PACE-TO-MEET-WOMEN-ON-BOARDS-TARGET.pdf.

  • The Wall Street Journal reports that U.K. Regulator Proposes Stricter Standards for Auditors: https://www.wsj.com/articles/u-k-regulator-proposes-stricter-standards-for-auditors-11563295509. “The Financial Reporting Council’s move follows findings of substandard audits of large companies.” Additionally, the Financial Times reports that UK watchdog triples fines on accountancy firms: https://www.ft.com/content/594c8bf2-b2e8-11e9-8cb2-799a3a8cf37b. “Financial Reporting Council issues £43m of penalties in drive to shed soft image.”

  • The FCA has published a consultation paper entitled CP19/21: Proxy Advisors (Shareholders’ Rights) Regulation Implementation (DEPP and EG): https://www.fca.org.uk/publications/consultation-papers/cp19-21-proxy-advisors-shareholders-rights-regulation-depp-and-eg. “The revised Shareholders Rights Directive (SRD II) sets out to strengthen the position of shareholders and to ensure that decisions are made for the long-term stability of a company. It sets out new transparency obligations on proxy advisors. The Proxy Advisor (Shareholder’s Rights) Regulations 2019 implement that part of SRD II which relates to proxy advisors. The Regulations aim to encourage greater transparency in the way in which they carry out their work and provide proxy advisor services.”

  • The Financial Times reports that Grant Thornton to quit as Sports Direct auditor over €674m tax bill: https://www.ft.com/content/f1c08988-b225-11e9-8cb2-799a3a8cf37b. “Split with longstanding client adds to pressure on Mike Ashley over governance.”

  • The Department for Business, Energy & Industrial Strategy has published a report entitled Share repurchases, executive pay and investment: https://www.gov.uk/government/publications/share-repurchases-executive-pay-and-investment. “Research exploring whether share repurchases are used to meet performance targets of senior executives, and whether they displace investment. […] Overall, while we have used a variety of different research methodologies (literature review, qualitative surveys and interviews, and quantitative econometric analysis), they paint a consistent picture. The evidence does not suggest that repurchases are being used systematically to artificially hit EPS targets, or crowd out investment. (Of course, they may still have these effects in isolated cases).Our analysis does reveal some evidence of a more direct link between EPS conditions in the LTIP and investment. In particular, the presence of EPS conditions in the LTIP is correlated with lower investment. This could indicate that the executive pay structures are encouraging investment cuts. Alternatively, firms entering into a period of reduced investment may be more likely to employ EPS measures to encourage profit discipline. Our study cannot determine which way the causality runs, if there is indeed a causal link. Alternatively, the correlation may arise from a common driver of both factors.”

  • The Financial Times reports that Listed UK companies and pensions face mandatory climate reporting: https://www.ft.com/content/59086538-9c24-11e9-b8ce-8b459ed04726. “‘Green finance’ strategy aims to harness City of London in fight against emissions.”
  • The Irish Times reports that Minister pours cold water on lifting of bankers’ pay cap: https://www.irishtimes.com/business/financial-services/minister-pours-cold-water-on-lifting-of-bankers-pay-cap-1.3963696. “Minister of State with responsibility for financial services Michael D’Arcy has insisted a banking pay cap should remain in force in spite of mounting pressure from lenders who want the policy scrapped after blaming it for the loss of top staff. The Department of Finance has been considering expert advice on whether to waive the €500,000 pay cap at State-supported banks, including AIB and Bank of Ireland, the Republic’s two largest lenders. Banks say the pay curb has led to high-profile defections, most recently Andrew Keating, the chief financial officer of Bank of Ireland, who bowed out in late June.”
  • Die Presse reports about Mehr Mitsprache für Aktionäre (“More say for shareholders”): https://diepresse.com/home/wirtschaft/economist/5654170/Mehr-Mitsprache-fuer-Aktionaere. “Shareholders of listed companies will have a say in the remuneration of the Executive Board and Supervisory Board. This is one of the cornerstones of the Shareholders’ Rights Amendment Act, which was passed on Tuesday in the National Council and implements the corporate law part of the second shareholder rights directive (Directive (EU) 2017/828 of the European Parliament and of the Council). The deputies of the ÖVP, the SPÖ and the FPÖ had come out in favor of a joint motion for an initiative, which eventually met with unanimous approval. The parts of the directive to be transposed in the Stock Corporation Act essentially relate to the promotion of shareholder participation. Accordingly, the Supervisory Board must in future establish principles for the remuneration policy for the members of the Executive Board. For the first time in 2020, they will be submitted to the Annual General Meeting for a vote, and then every four years thereafter. In addition, the Management Board and the Supervisory Board must prepare a comprehensive remuneration report each year, which will also be submitted to the shareholders’ meeting from 2021 onwards.”
  • The Swedish Corporate Governance Board has announced that it will present amendments to the Swedish Corporate Governance Code and a new recommendation on remuneration: http://www.corporategovernanceboard.se/news/the-swedish-corporate-governance-board-p__3841. “In September 2019, the Swedish Corporate Governance Board will present proposals for amendments to the Swedish Code of Corporate Governance. In October 2019, the Board will present a new recommendation on remuneration, with a view, following a consultation process, to issuing new rules to come into effect from January 1, 2020. In 2018 and 2019, in addition to the comments that are regularly received by its members, the Board has held five round tables with Code users. The discussions on the Code have dealt with issues such as nomination committees, the independence of board directors, internal controls, and companies' sustainability work in the light of profitability goals, but also touched on various details in the Code. The Board intends to present a proposed revised Code for an open referral process in September 2019. The proposal is not expected to involve any major changes to the Code, apart from on remuneration issues (see below).”
  • Reuters reports that Vivendi urges Mediaset to revoke loyalty share scheme: https://uk.reuters.com/article/uk-mediaset-holding-vivendi/vivendi-urges-mediaset-to-revoke-loyalty-share-scheme-idUKKCN1TX2RR. “Italian broadcaster Mediaset SpA said on Tuesday that hostile shareholder Vivendi SA demanded a new extraordinary shareholders’ meeting to revoke resolutions approved in April, a move that could pave the way to another chapter in a legal dispute between the two companies. Mediaset shareholders’ meeting approved on April 18 a loyalty share scheme that rewards longer-term investors with additional votes under an Italian law that is traditionally used by controlling shareholders to strengthen their grip on companies. Under the new scheme, investors will have two voting rights for each share held for at least 24 straight months. The Italian broadcaster is controlled by the family of former Prime Minister Silvio Berlusconi.”
  • The Instituto Iberoamericano de Derecho y Finanzas has published a paper entitled The Case Against the Implementation of Loyalty Shares in Spain: https://www.law.ox.ac.uk/business-law-blog/blog/2019/07/case-against-implementation-loyalty-shares-spain. “The Spanish Ministry of Economy has recently released a new bill that, among other aspects, proposes an amendment of the Spanish Companies Act to allow listed companies to adopt loyalty shares. These shares will confer additional voting rights to those shareholders staying in the corporation for at least two years. For that purpose, the company only needs to approve the adoption of loyalty shares by a qualified majority. Therefore, following the Italian (rather than the French) model of loyalty shares, the adoption of loyalty shares in Spain will be done as an opt-in rule. According to the Spanish Government, the introduction of loyalty shares seeks to fulfil three primary objectives: (i) preventing short-termism in Spanish capital markets; (ii) promoting the long-term engagement of shareholders in accordance with the European Directive; and (iii) making Spanish capital markets more attractive internationally. In a recent note, entitled ‘A Critical Analysis of the Implementation of Loyalty Shares in Spain’, based on my response to the Spanish Government during the public consultation process, I have argued that the implementation of loyalty shares in Spain not only is unnecessary – since Spanish capital markets do not face a problem of short-termism – but it can also undermine, rather than improve, the long-term engagement of shareholders and the competitiveness of Spanish capital markets.” See the full paper here (full text in Spanish only): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3400708.

  • The Financial News reports that Santander hits back at ‘dubious’ Orcel in €100m court battle: https://www.fnlondon.com/articles/santander-hits-back-at-dubious-orcel-in-e100m-court-battle-20190726. “Spanish bank claims its former adviser secretly recorded private conversations during negotiations over his doomed CEO appointment.”
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North America
United States
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  • Fortune reports about Remember Options Backdating? Nissan Gets Caught Using a Very Old CEO Pay Trick: https://fortune.com/2019/06/11/options-backdating-nissan/. “After more of than a year of one corporate scandal after another – faked emissions tests, claimed improper payments, executive financial misconduct, and even arrests – Nissan may face yet another problem. CEO Hiroto Saikawa reportedly received a bump to a stock-based bonus when the company’s board rescheduled by a week the date it the shares were priced. The result was a $432,382 increase, according to Reuters. The charge, originally from Japanese magazine Bungei Shunju, came from the first interview given by Greg Kelly, a former Nissan director who was an aide to former CEO and chairman Carlos Ghosn, since Kelly was arrested in 2018 and then freed from jail in December.”
  • The Business Times reports that SGX RegCo requires exit offers to be fair and reasonable, shareholder vote to exclude offeror and concert parties: https://www.businesstimes.com.sg/companies-markets/sgx-regco-requires-exit-offers-to-be-fair-and-reasonable-shareholder-vote-to. “The regulatory arm of the Singapore Exchange (SGX RegCo) has announced changes to two aspects of the voluntary delisting rules for listed firms, with immediate effect. The changes come after consultations with market participants and the public last year. Small investors in companies such as Aztech and Vard had previously complained that the existing rules allow issuers to get away with low-ball exit offers. The first change requires voluntary delisting offers to be both ‘reasonable’ and ‘fair’, in the opinion of the appointed independent financial adviser (IFA). Until Thursday, an exit offer was only required to be reasonable but not fair. This amounts to ‘doublespeak’, minority investors have argued before.”
Hong Kong
South Korea
  • The Maeil Business Newspaper reports that Institutional investors under stewardship code reach 100 in Korea: https://pulsenews.co.kr/view.php?year=2019&no=466957. “The number of institutional investors in Korea taking up stewardship mandate reached 100 milestone since the government introduced and encouraged the guideline to enhance participatory role of shareholders in December 2016. According to the Korea Corporate Governance Service (KCGS) on Thursday, there were 100 institutional investors who mandated the code as of June 26, with additional 31 investors planning to adopt it. There were 35 asset management firms implementing the rules, 31 private equity funds, four insurers and four investment advisory firms. The National Pension Service (NPS) is the only pension fund in the country compliant to the code, but Teachers Pension and Government Employees Pension Service is readying to follow suit.”
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  • The ABC reports that APRA proposes seven-year deferral on bank and financial executive bonuses: https://www.abc.net.au/news/2019-07-23/apra-proposes-seven-year-deferral-on-executive-pay/11337516. “Top financial executives may soon have to wait seven years to claim all their bonuses, as the banking, insurance and superannuation regulator moves to align pay with long-term performance. Responding to a key recommendation from the financial services royal commission, the Australian Prudential Regulation Authority (APRA) concluded that existing remuneration practices were ‘not incentivising the right behaviours’ in financial companies. The ‘far reaching’ proposals would see lucrative bonuses for top executives deferred for as long as seven years and give company boards the power to claw back incentives up to four years after they were paid out in cases where poor performance or misconduct became apparent.”

  • The Australian Financial Review reports that BHP to push customers on carbon: https://www.afr.com/business/mining/bhp-to-push-customers-on-emissions-20190723-p529t0. “BHP will push customers around the world to reduce their greenhouse gas emissions as part of a $US400 million ($569.8 million) spend on new technologies and strategies to reduce its carbon footprint. Chief executive Andrew Mackenzie, speaking in London last night, said BHP would set a public goal for its ‘scope 3’ emissions, which include the greenhouse gases created by the steel mills and power stations that burn BHP’s coal around the world. […] Mr Mackenzie’s remuneration is already influenced by the greenhouse gas emissions directly produced by BHP’s operations, dubbed scope 1 and scope 2 emissions, and he said the company would strengthen the link between emissions targets and executive pay. It is believed the link will be strengthened by increasing the weighting of BHP’s emissions performance when calculating pay starting in fiscal 2021. The company would also set a new ‘medium term’ target for its scope 1 and scope 2 emissions, adding to the existing target of ensuring such emissions remained at 2017 levels by 2022.”
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South Africa
  • Bloomberg reports that Ex-Tongaat Official Scrutinized in Echo of Steinhoff Scandal: https://www.bloomberg.com/news/articles/2019-06-27/former-tongaat-official-scrutinized-in-echo-of-steinhoff-scandal. “Tongaat Hulett Ltd. said South African police are investigating an unnamed former executive for his role in an accounting scandal that’s forced the sugar maker to restate financials and ask for its shares to be suspended. […] The crisis at the sugar maker follows an accounting scandal at South African retailer Steinhoff International Holdings NV, which lost 97% of its value after reporting financial wrongdoing in late 2017. The country’s Independent Regulatory Board for Auditors is considering measures to strengthen testing for corporate fraud as a result, IRBA head Bernard Agulhas said this month.”
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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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