RBS Pay Report Receives 90% Dissent
Submitted by: Ted Allen, Publications, and Karoline Herms, U.K. Research
In a symbolic protest, the British government joined many other investors in voting against the Royal Bank of Scotland’s past remuneration practices on April 3.
The company’s remuneration report received 90.4 percent opposition from the votes cast—the most ever during an advisory vote on executive compensation. Most of the opposition came from the government, which obtained a 57.9 percent voting stake after rescuing the failed banking firm in October. The company recently posted the largest quarterly loss in British history, and the government now has a 70 percent interest after investors approved a rights offer/preference share redemption on April 3.
Before the RBS shareholder meeting in Edinburgh, most of the news coverage and investor outrage focused on the pension package received by the former CEO, Sir Fred Goodwin. He is to get an annual pension of 700,000 pounds ($1.02 million); Goodwin received an initial payment of 2.8 million pounds and the company paid his taxes. RBS has acknowledged that the payments were not “standard practice” but told the Treasury that they were “considered appropriate arrangements for [the company] to make in discharge of his contractual obligations.”
The government’s vote against the remuneration report can be seen as a public relations move, since the company has already worked with Treasury to bring its pay policies closer to best practices. For instance, RBS agreed to pay no 2008 bonuses for executive directors; provide no increases in basic salaries in 2009; defer 2009 annual incentives for three years (with a “claw back” provision); make no payments under a profit-sharing plan; and reduce long-term incentive awards below 2008 levels. In addition, 12 directors, including the remuneration committee chair, have stepped down since October.
U.K. Financial Investments (UKFI), which manages the government’s stake, said it voted against the retrospective pay report because it objected to the board’s decision to allow Goodwin and Johnny Cameron, the former head of the investment banking unit, to retire early and thus take undiscounted pensions. In a press release, UKFI chief executive John Kingman said the government “fully supports the approach the present RBS board is taking to remuneration matters, including in relation to the remuneration arrangements for the present chairman and chief executive.”
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Wednesday, March 4, 2009 |
 |
Three Canadian Banks Agree to Hold Pay Votes
Submitted by: Ted Allen, Publications, and Michelle Tan, Canada Research
The Canadian Imperial Bank of Commerce (CIBC), the Royal Bank of Canada (RBC), and the National Bank of Canada (NBC) all have agreed to hold an annual advisory vote on executive pay in 2010, becoming the first Canadian companies to do so.
CIBC and RBC announced the policy changes after shareholder proposals on the subject received majority support from investors--which rarely happens in Canada--at their annual meetings on Feb. 26. Bill Etherington, chairman at CIBC, said the bank would work with the proponents--MEDAC (Mouvement d’éducation et de défense des actionnaires) and Meritas Financial--as well as “other governance” organizations, and any other interested banks, in determining how a management pay-vote proposal would be drafted. At RBC, chairman David O'Brien said the board “will now be considering how best to give shareholders a vote on this important issue, and we commend those who brought the 'say on pay' proposals forward,” according to The Globe and Mail newspaper. NBC agreed to provide a compensation vote in 2010, one day before its Feb. 27 meeting, where investors were to vote on the MEDAC request for an advisory vote. “In so doing, the bank is acknowledging the developments of the past few weeks relating to this matter and fulfilling a wish expressed by many of its shareholders,” the Montreal-based bank said in a statement.
The moves by three of Canada's largest banks come as bank executives face investor criticism over bonuses. The banks, which hold their annual meetings early in the Canadian proxy season, traditionally have had a significant influence on the corporate governance practices at other firms.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Tuesday, March 3, 2009 |
|
Malaysian Exchange Extends Comment Period
Submitted by: David Smith, Co-Head, Asia-Pacific Corporate Governance Research
As we noted on Feb. 24, Bursa Malaysia last month released a consultation paper inviting comments on proposed amendments to several Listing Requirements. Following “numerous requests by industry participants,” the original deadline for comments of Feb. 27 has been extended to March 15.
Notably, Proposal 7.3, if adopted, would increase the permitted size of general mandates that could be requested by companies for the issuance of new shares on a non-pro rata basis from the current 10 percent of issued share capital to: 20 percent of issued share capital for an issue of shares on a non-pro rata basis to shareholders; or 50 percent of issued share capital for an issue of shares on a pro rata basis to shareholders.
This particular proposal follows similar changes in others part of Asia, including neighboring Singapore, which recently amended rules on share issuances to allow companies to issue up to 100 percent of issued share capital via a pro-rata rights issue, up from the 50 percent limit previously in place.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, February 27, 2009 |
|
Improved Compliance in Hong Kong, Survey Shows
Submitted by: David Smith, Co-Head, Asia-Pacific Corporate Governance Research
The Stock Exchange of Hong Kong recently released its third annual survey of compliance with the Code on Corporate Governance. The results show some improvement in levels of compliance with Code provisions:
1. Compliance improved across most provisions - around 98 percent of issuers complied with at least 41 of the 45 code provisions (up from the 96 percent that complied with 41 out of 44 code provisions in the second review).
2. However, only 43 percent of issuers had established a nomination committee (2006: 40.9 percent).
3. Moreover, only 10.8 percent of issuers reported on a quarterly basis (2006: 15.6 percent).
The review looked at disclosures of corporate governance practices made by 1,213 publicly traded issuers (listed as of Dec. 31, 2007) in their 2007 annual reports. The universe is a slight increase over last year when the second review looked at disclosures made by 1,114 listed issuers in their 2006 annual reports.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Tuesday, February 24, 2009 |
|
Malaysian Exchange Seeks Comment on Proposed Governance Changes
Submitted by: David Smith, Co-Head, Asia-Pacific Corporate Governance Research
The Malaysian stock exchange, Bursa Malaysia, released earlier this month a consultation paper inviting comments on proposed amendments to several Listing Requirements. Included in these proposals are changes to the minimum public shareholding spread and the removal of the minimum number of public shareholders required (both at listing and as an ongoing requirement), and proposals for a higher general mandate for the issuance of new securities. Respondents should note that the closing date for comments is Feb. 27, 2009. Comments can be e-mailed to Bursa Malaysia using the appendices provided.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Wednesday, January 21, 2009 |
|
Shareholders Rebuff Bellway’s Discretionary Bonuses
Submitted by: Tom White and Karla Silva, RiskMetrics' London
At its Jan. 16 annual meeting Bellway plc announced it would review future remuneration policy in conjunction with shareholders after an overwhelming 59% vote against the remuneration report. The revolt by shareholders was in response to the bonuses of 55% of basic salary recently paid to Bellway’s three top executives for their performance during a year when sales, profits and share price fell considerably.
Bellway plc is a UK housebuilding company that builds homes throughout England, Scotland and Wales. UK company meetings offer shareholders an advisory vote to approve the Company’s remuneration report for the year under review. The arrangements at Bellway created a revolt among shareholders after it did not base its bonus payments of more than GBP 630,000 (US $945,000), or 55% of their basic salaries, to its three Executive Directors on pre-set targets, but rather used discretion to make an assessment at year end. The payments, just below half of the ‘normal’ maximum available, were made despite a sharp fall in Bellway’s financial performance compared to the previous year.
The company’s financials deteriorated markedly from fiscal 2007 to 2008, according to its annual report, and the annual report did not clearly explain the rationale for the awards; neither did the company in extensive discussions with RiskMetrics.
In these discussions, the company maintained that external events were changing so rapidly it was not “sensible” to preset targets, although the 2007 remuneration report had stated that targets would be set for the 2007/08 financial year (as part of a general exercise in tightening up the key terms of the bonus). The Remuneration Committee instead decided to take a broader view of performance over the year as it did not want management to strive for arbitrary targets at the expense of taking the necessary actions required to deal with the rapidly developing crisis in the mortgage and housing markets.
In making its assessment at the year end, the Committee said it considered a number of factors, most notably the performance of management in positioning the company to focus on debt control, cash conservation, and the performance of management against that of other housebuilders struggling under enormous debt burdens and having to re-negotiate their bank facilities and associated covenants. The company is proposing to pay a final dividend to shareholders, resulting in a total dividend of 56% of the previous year’s level.
The Committee decided to pay bonuses to the three executive directors because it considered that they had performed well during the year in “hostile” circumstances and the Committee saw a direct link between their bonus and their performance.
The opacity of the Remuneration Committee’s discretionary process for assessing a bonus, however, raised concerns as to whether the Committee’s judgement reflected a proportionate response to: (i) the company’s significant deterioration in financial performance for 2007/08; (ii) the significant exceptional charge arising from the writedown of land and property assets; and (iii) the future outlook for the housebuilding sector given the difficulties that have continued to hamper lending by the major mortgage providers and for the recessionary outlook for the global economy as a whole.
Various shareholder representatives’ unease over the payment were reported in the media. The Financial Times reported that the Association of British Insurers (ABI), for example, had expressed concern that provisions of best practice have been violated and this matter should be taken into consideration by shareholders as they vote at the AGM. Peter Montagnon, the ABI’s Director of Investment Affairs, said, “Management had targets and abandoned them when it became clear they were not going to meet them. They decided to pay bonuses anyway.” Accordingly, the ABI issued a rare “red top” alert, signifying concern of the highest level for the pay-outs.
The Regulatory News Service revealed that, at the AGM, Chairman Howard Dawe told shareholders that the Board has noted shareholders' views on the Report of the Board on Directors' Remuneration and believes it was wrong in not consulting with major shareholders earlier. It therefore proposes to review future policy on this matter, in consultation with them, in the coming months.
Shareholders expressed their opposition to the bonus payments by registering a 59% vote against the remuneration resolution, which RiskMetrics had recommended its clients oppose.
This revolt shows that remuneration matters are under the intense scrutiny of shareholders in the current downturn. The response to the use of discretion by Bellway may be seen as an example of what is yet to come for the 2009 voting season.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Tuesday, December 9, 2008 |
|
RiskMetrics Group Research: Brazilian Corporate Governance Trends
Submitted by: Sarah Cohn, Communications
RiskMetrics Group has just published a new piece of research this week titled, Brazilian Corporate Governance Trends. The report findings found that corporate governance practices in Brazil have improved significantly in recent years, but great strides must still be made to bring the country in line with international best practices. To access the research piece, please visit here.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Tuesday, November 4, 2008 |
|
Japanese Investors Step Up Opposition to Pills
Submitted by: John Taylor, Japan Research Group
Corporate Japan may have a tougher time deploying “poison pills” as opposition to the use of such defenses mounts. In the latest signal that financial market participants have grown wary of the use of pills, shareholders of the Japanese payroll management company Works Applications were able to halt management efforts to install the defense. In September, the company became the first known to RiskMetrics Group to drop a poison pill takeover defense plan from its annual meeting agenda, acknowledging that votes posted in advance of the meeting had “fallen well short of anticipated support” for the measure.
Notably, the company sports just 15 percent foreign ownership, underscoring that domestic institutions are joining their foreign counterparts in opposing takeover defenses.
Works Applications’ recent retreat received scant media attention in Japan beyond a brief article in the Sept. 23 on-line edition of business daily Nihon Keizai Shimbun. According to the article, management told shareholders at the company’s Sept. 24 annual meeting that it had decided not to seek renewal of the plan in view of the paucity of shareholder support. According to a company statement released on the eve of the meeting, the company had “concluded that more careful study of the proposal content [was] required, and that it was resolved to delete these items from [the] annual meeting agenda.”
The move may be the latest manifestation of growing pushback to the growing prevalence of pills at Japanese companies. According to RiskMetrics data, more than 500 Japanese firms have adopted the defense since 2005 when legal experts deemed the defense to be legitimate under Japanese corporate law.
But by August 2007, Japan’s influential Ministry of Economy, Trade, and Industry began to publicly voice concerns over the use of pills. In its annual white paper on economic and finance issues, the agency singled out managements using pills as a means to entrench their positions, noting “hostile takeovers can boost productivity and corporate value by removing inefficient executives and improving management (the efficiency effect on management).”
METI’s pronouncement, coupled with increasing skepticism of pill usage from Japan’s business press, officials at the Tokyo Stock Exchange, and others, has decidedly altered views on defenses and helped dampen a feared explosion of poison pill adoptions during Japan’s 2008 annual meeting season. Although shareholder approval is increasingly treated as a prerequisite, if not legal requirement, for pill deployments, the incident at Works Applications would suggest that pill adoptions will decline heading into 2009, and firms may be increasingly reluctant to seek plan renewals.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, October 24, 2008 |
|
Sweden Proposes Bank Rescue Plan
Submitted by: Martin Wennerström, Research Team Lead (Nordic Region)
The Swedish government is fast-tracking a bailout package that could impact the executive and non-executive director compensation plans of the country’s banks and financial institutions.
Under the proposal, participating banks would have to “restrict salary increases, bonuses, board fee increases, and executive severance payouts.” While the restrictions would nominally expire at the end of the guarantee period on Dec. 31, 2009, it is as yet unclear whether the restrictions would in practice persist beyond this date.
The government plans to guarantee up to 1.5 trillion Swedish kronor ($205 billion) in borrowing by the banks. Sweden joins the United Kingdom, Germany, the Netherlands, and other European nations in taking action to shore up financial institutions. Also this week, France said it would spend 10.5 billion euros ($13.9 billion) to buy subordinated-debt securities from six major banks.
The guiding principle of the Swedish legislation would be for the brunt of any losses to be born by the financial institutions themselves and their shareholders, rather than taxpayers. Participation would be on an ostensibly voluntary basis, and participating institutions would be assessed a risk-based guarantee fee in the form of either cash or super-voting shares.
The proposed legislation, which has just cleared a comment period without major comment from Sweden’s financial authorities, states that executive compensation restrictions are needed to mitigate the moral hazard inherent in the bailout package. The government asserts that variable compensation could namely exacerbate risk-seeking behavior arising from guaranteed investments. Indeed, the principle that banks not profit from any risks born by the Swedish taxpayer is a central component of the proposed legislation.
The reaction to the bailout package among the major Swedish banks has been mixed. While Swedbank welcomes the plan, Svenska Handelsbanken (SHB) believes itself stable enough to remain outside the framework. Financial Markets Minister Mats Odell has nevertheless stated that he expects all banks to participate eventually, and attributes all statements to the contrary to private individuals rather than the institutions themselves.
The political and media response to SHB’s decision has been similarly mixed. Prime Minister Fredrik Reinfeldt has stated that participation should be purely voluntary, while both Finance Minister Anders Borg and Shadow Finance Minister Thomas Östros stress that all major banks should participate. Given that the program would lower the risk of the Swedish financial sector in general, Borg argues that anything less than full participation would allow some banks a free ride at the expense of others.
Beyond SHB, many banks have been lukewarm to the proposal, owing to the vagueness of the legislative text. The financial terms of the guarantee and credit fees, as well as the executive compensation restrictions, are as yet undefined and will be determined by the Swedish National Debt Office, which will administer the plan. The lack of interest has been reflected in the fact that the interbank loan rate reportedly fell less than expected following news of the bailout package.
Conversely, the government would formally have leeway to drop the executive pay restrictions entirely when negotiating with banks. Depending on the terms offered as well as the bargaining positions of the banks, executive pay considerations may be taken off the negotiating table. Time will tell, as negotiations will presumably begin immediately after the new legislation comes into force on Oct. 28. Top Swedish banking talent have in the past jumped ship as a result of pay cuts, meaning that the terms of the bailout package, as well as the final roster of participating institutions, could potentially impact the banks’ leadership structures.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Wednesday, September 17, 2008 |
|
Proxy Season Preview: Australia
Submitted by: Martin Lawrence, Head of Research, Australia and New Zealand
The 2008 Australian proxy season, which gets underway at the end of September, promises to be dramatic. As has happened in a number of global capital markets over the past year, the credit crisis has exposed shortcomings in the risk management practices and business plans of Australian companies, while a slowdown in the world economy also has focused investor attention on links between executive pay and company performance.
Three key issues look set to dominate the proxy season: Director quality, executive pay, and the fate of listed, externally managed vehicles trading at significant discounts to director valuations.
The 2008 season is likely to be the first in several years where executive pay will not be the primary focus; Australia has since 2005 had a mandatory annual non-binding vote on company remuneration reports, and the 2007 season saw two major companies, AGL Energy and Telstra, have their remuneration reports defeated by large margins.
Director quality, however, is likely to trump pay as the key issue for 2008 after the credit crisis caught many Australian companies seemingly unprepared. Many of these companies will face annual meetings between September and November and some of their directors may be at risk of losing their seat in the face of shareholder anger. Notably, Australia mandates a majority vote standard for director elections.
A prime casualty of the credit crisis and key focus of investors will be Centro Properties Group and its listed subsidiary, Centro Retail. The twin entities’ inability to refinance their debt has left them at the mercy of bankers for nearly a year, and directors of both entities will be facing a host of questions from investors over what they perceive to be inadequate disclosure and poor risk management.
Also facing scrutiny will be directors of Allco Finance Group, the investment and finance firm that has since early 2008 relied on bankers to stay afloat when a collapse in its market value triggered debt covenants. Directors of Allco who approved the disastrous December 2007 purchase of property manager Rubicon, a business in which Allco’s former executive chairperson and another Allco director had major shareholdings, are also likely to face scrutiny, not only at Allco but at other companies at which they are directors.
Incumbent directors of ABC Learning Centre, the child-care operator that has been forced to delay the publication of its 2008 results as its new auditor reviews its accounting practices, are also likely to be under the microscope. The company announced significant changes to its board earlier this year in a bid to address investor concerns after a loss of market confidence around disclosure issues following its interim 2008 results. Still, the firm’s inability to finalize its 2008 accounts suggests investors will still have questions for the remaining directors.
Aside from these high-profile victims of the credit crisis, directors of companies such as IAG, Foster’s, Transurban, Challenger, and Mirvac are likely to face stormy meetings as investors question them over failed acquisitions, substantial payouts to departed executives, and faltering performance.
The decline in the Australian equity market over the past 12 months is also likely to lead to renewed interest in executive pay. As noted above, large payouts to departing CEOs are likely to again be a focus, and signs are emerging that some boards will be seeking to “compensate” executives for the impact of external economic factors on company performance. This is unlikely to be received well by investors, given many company executives have enjoyed windfall gains stemming from increased bonus payments over the past five years as the Australian economy boomed.
Part of the fallout from the credit crisis is the steep decline in the value of externally managed listed entities investing in infrastructure or similar assets. These funds, many of which will face investors at meetings over the next three months, have generally carried high levels of debt, leading to investor anxiety as debt has become more expensive and harder to find. Such worries were heightened when one entity, Babcock & Brown Power, announced a shortfall as it attempted to refinance debt following acquisitions in late 2007.
Governance features of these entities, especially the fees paid to external managers and the level of power they enjoy, have also come under scrutiny as security prices decline. Several entities managed by Babcock & Brown are seeking to renegotiate management agreements with that firm, while investors in some other funds have called for the entities to be wound up. The market’s corporate regulator, the Australian Securities & Investments Commission, has already signaled that these entities, and in particular their attempts to reduce the discount between director valuations and security prices, are likely to be a major area of focus as the watchdog deals with the post-credit crisis market environment.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, July 11, 2008 |
|
2008 Proxy Review: France
Submitted by: Guillaume Tassin, French Market Analyst
With the majority of annual shareholder meetings past, the French proxy season this year was notable for a greater focus on executive pay, and more pressure from activist investors.
The Law for the Promotion of Employment, Labor, and Buying Power (TEPA), which went into effect this year, reflects the growing shareholder discontent with executive severance pay. The law was adopted partly in response to the 2006-2007 insider trading scandal at European Aeronautic Defence and Space. TEPA requires that all executive pay at listed companies--except that related to supplemental retirement benefits or non-competition agreements--must be performance-based. Performance targets must also be verified by the board of directors, according to the law, which specifically targets retirement and severance benefits.
The law expands on a 2005 measure that stipulated that the terms of any new employment agreements with company presidents, CEOs, managing directors, and deputy managing directors be subject to approval by the board and by shareholders, according to a release by Soulier, a Paris-based law firm.
According to RiskMetrics Group data, 11 of 17 companies in the CAC 40--a major French stock index--that have submitted employment agreements to a shareholder vote this year have limited total severance benefits to two times an executive’s last total pay package. Though no pay measures failed to win majority shareholder support this year, a significant number of investors opposed severance packages with a salary multiple greater than two. For instance, 20 percent of shareholders voted against an employment agreement at Alcatel-Lucent’s May 30 meeting that would provide CEO Pat Russo with a €6 million ($9.5 million) severance package. Shareholders may have disapproved of the performance targets, which allow the severance payout if the company achieves 90 percent of its target revenue and/or 75 percent of target operating profit if Russo retires in 2009. Despite this high-profile instance, such agreements are rare in France.
Despite the passage of TEPA, companies can still choose a broad range of performance criteria--ranging from easily measurable shareholder returns to such benchmarks as internal business unit performance or client satisfaction. As the law still exempts payments in the case of a change in control or provided by a non-compete agreement, French executives and directors may still walk away with large severance packages.
Continue reading "2008 Proxy Review: France
Submitted by: Guillaume Tassin, French Market Analyst" »
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Tuesday, June 3, 2008 |
|
Proxy Season Preview: Japan
Submitted by: Marc Goldstein, Director of Governance Research-Japan
“Poison pills” and other takeover defenses will once again dominate the agenda at Japan’s corporate meetings this year.
The vast majority of Japanese companies hold their shareholder meetings over a two-week period in late June. This year, the largest number of annual meetings will take place on June 27--when companies such as beauty products firm Kao, electronic manufacturer TDK, and Mitsubishi UFJ Financial Group will hold meetings--although many will be held on June 18-20, and June 24-26. A few meetings, such as those at electronics firm Idec and construction toolmaker Trusco Nakayama, will be held as early as the week of June 9.
The most controversial issue this year will again be the introduction and renewal of various types of anti-takeover measures. In the wake of takeover attempts at Hokuetsu Paper, Bull-Dog Sauce, and Sapporo Holdings, and the belated legalization in May 2007 of stock-swap acquisitions by foreign firms (called “triangular mergers”), many Japanese firms are in a state of near-panic over the possibility of being acquired.
Their fears may be overblown, however. Triangular mergers are used overwhelmingly for friendly acquisitions, not hostile takeovers; and the difficulties of successfully managing a company after a hostile acquisition will help to ensure that the number of such cases will be limited. Also, some of the firms implementing pills are not especially vulnerable, because founding families, business partners, or other insiders own more than a third of outstanding shares. This is enough to veto any special resolution, such as an article amendment or a merger, severely limiting what a hostile bidder could hope to accomplish.
Nevertheless, several hundred companies will introduce or renew pills this year. One in seven Japanese companies likely will have a pill in place by the end of June. Since 2006, the vast majority of poison pills have been so-called “advance warning-type” plans. With these pills, the board announces a set of disclosure requirements it expects any bidder to comply with, plus a waiting period between receipt of information and the bid, before any offers are made. Advance warning defenses do not require shareholder approval, but in most cases, companies are choosing to put them to a shareholder vote, believing that doing so will put the company in a stronger position in the event of a lawsuit. As long as the bidder complies with the rules, the company “in principle” will take no action to block the bid, but will allow shareholders to decide.
Exceptions are usually allowed when the bid is judged to be clearly detrimental to shareholder interests. These include cases involving “greenmail” (when the bidder buys enough shares to threaten a takeover and forces the company to buy the shares back at a premium to avoid a buyout), a possible stripping of company assets by the bidder, or coercive two-tier offers. Usually, judgments on shareholder harm are made by a “special committee” or “independent committee,” which may or may not include members of the board, but the committee’s decision is usually subject to being overruled by the board. At some companies, the decisions are made by the board with no committee input at all.
Many of the poison pills introduced in the past few years will be up for renewal in 2008. Shareholders at Shin-Etsu Chemical and Sharp, for example, will vote on takeover defense renewals this year. Some companies, while not putting a poison pill on the ballot, will seek to pave the way for the eventual introduction of a pill through measures such as increasing authorized capital. Investors also will be asked to approve other article amendments designed to ward off hostile takeovers, such as the elimination of vacant board seats that could be filled by shareholder nominees, and the tightening of procedures for removing a director from office.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, May 9, 2008 |
|
Proxy Update: E. Europe/Russia
Submitted by: Aneta McCoy, International Analyst
The 2008 proxy season in Russia and Eastern Europe has been notable so far for hostile takeover activity and shareholder power struggles. A number of Eastern European countries--such as Poland and Bulgaria--have adopted new codes of corporate governance, which will take effect this year.
The Hungarian proxy season peaks in late April and early May, while annual meetings in the Czech Republic, Poland, and other Eastern European markets occur with more frequency in late April and May. The majority of Russian meetings take place in late May and early June.
Some of the most closely watched shareholder meetings--such as the annual meeting at MOL Hungarian Oil and Gas, and the special meeting at Russian mining firm MMC Norilsk Nickel--took place early in the season.
At the MOL meeting on April 23, 80 percent of investors approved a proposal submitted by OMV, an Austrian energy firm that has been trying to take over MOL since making an initial $15.7 billion bid in 2007. The resolution asked MOL to commission a special audit of management activities since 2005, including a number of share-lending agreements aimed at insulating MOL from a takeover.
When OMV increased its stake in MOL from 10 percent to 18.6 percent in June, MOL had already been building defenses against a possible hostile takeover for two years. Since December 2005, MOL has repurchased $4.8 billion in shares, as well as initiating a number of share lending agreements with companies such as Dutch banking firm ING and the Czech nuclear power company CEZ Group that were considered “friendly” to MOL’s interests. The company also adopted a 10 percent cap on voting rights. In September 2007, OMV raised its offer to around $20 billion, but MOL dismissed the offer again as not in the company’s best interests, according to the International Herald Tribune. MOL officials said a merger would destroy shareholder value, lower competition, and create a regional monopoly.
At the MOL meeting, a management-sponsored resolution for another share buyback program was opposed by approximately 20 percent of shares voted. Share repurchase programs at the company have typically not run into much opposition. A repurchase plan won 99.9 percent shareholder support in April 2007, and similar proposals in 2006 and 2005 were majority-supported, though the company did not disclose results.
The Hungarian government is under investigation by the European High Court of Justice regarding its response to OMV’s takeover bid. In October, the administration of Prime Minister Ferenc Gyurcasny adopted a law called the “Lex MOL,” which applies only to companies like energy firms that are “assets of strategic importance.” The law specifically eliminates the 10-percent voting cap on treasury shares--repurchased shares held by the company--and allows shareholders to approve a limit on the voting rights of an individual or group of shareholders if company bylaws permit it. The law also requires potential bidders to submit a business plan to Hungary’s financial market regulatory agency for approval. As soon as the law was passed, the European Commission announced it would open an investigation and would bring the case before the high court.
OMV’s bid also faces scrutiny. In March, European Union regulators voiced antitrust concerns, saying a merged company may decrease competition in Central Europe. The European Commission plans to rule on the transaction by July 22.
Continue reading "Proxy Update: E. Europe/Russia
Submitted by: Aneta McCoy, International Analyst" »
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, April 25, 2008 |
|
Governance Reforms on the Rise in Spain
Submitted by: German Vargas, Global Research Analyst
Spanish companies have begun committing to greater board independence and the unbundling of director elections because of a new corporate governance code that comes into effect this year. Though Spanish companies do not often disclose their efforts to recruit independent directors or detail their executive pay practices, more firms likely will seek to improve their governance in 2008.
In 2006, a number of Spanish corporate governance experts--including the Comisión Nacional del Mercado de Valores (CNMV or National Stock Market Commission)--published the Código Unificado de Buen Gobierno (Unified Good Governance Code). In crafting the code, Spanish authorities were also influenced by the European Union, which is putting pressure on all member and prospective-member nations to have companies in their markets comply with corporate governance best-practice guidelines. The EU does not employ a unified set of governance guidelines, but many member nations, like Spain, follow recommendations like those in the Organisation for Economic Co-Operation and Development’s Corporate Governance Principles and the principles of the International Corporate Governance Network.
Spanish companies could begin complying with provisions of the code when it was introduced in 2006. Although the recommendations in the code are not legally binding as it becomes effective this year, it states that companies should “comply or explain,” that is, each company must provide a corporate governance report stating whether has adopted the tenets of the code, and, if not, the reason(s) for noncompliance. Companies began to add resolutions to implement code provisions last year, but in 2008 the rate of voluntary compliance likely will rise, especially in the areas of board composition and shareholder rights. The Spanish proxy season begins in late April and peaks in May.
The code covers board composition, operation, and reporting to shareholders. Recommendation 15 of the code highlights the importance of women in Spain’s economy, particularly in managerial positions, and emphasizes the need for companies to seek out female candidates to fill vacancies on their boards of directors. Though the code specifies that gender diversity is a managerial responsibility, so far, no companies have put forward specific proposals on director diversity issues.
Recommendation 13 calls for at least one third of a company’s board members to be independent of management and major shareholders. However, it will be difficult to assess how many companies are actively pursuing greater board independence as opposed to those that end up with more independent boards this year because of the departure of an executive or shareholder representative from the board. Spanish companies largely do not announce to shareholders their intent to bring on more independent directors.
Under Recommendation 5, all directors should be elected with a separate resolution, rather than bundled together as one slate. Although this recommendation still falls under the comply-or-explain guideline, the unbundling of director elections reflects a new emphasis on shareholders’ right to vote on proposals individually. There is a similar trend among Spanish companies to present article and bylaw amendment proposals as separate requests. As of the end of 2007, most Spanish companies put forward individual resolutions. Some of the companies that have unbundled include telecom provider Telefónica, Banco Santander, and utility company Iberdrola--which first offered separate resolutions in 2007. Firms that still have bundled resolutions in 2008 include insurance company Mapfre, construction materials firm Grupo Uralita, and electric utility Red Eléctrica de España.
Finally, Recommendation 40 suggests that a “Director Remuneration” report be put up for shareholder approval annually. This year, the first year in which Spanish companies have put remuneration reports before shareholders, about eight have gone to a vote.
According to the code, an ideal report would include details of the remuneration for board members, the remuneration suggested by the board/compensation committee for the company’s executives, and changes to the company’s remuneration policies in the past year. A report would also include, when appropriate, planned remuneration policies for the future. Although the shareholder vote to approve this report is not binding, the level of disclosure and the possibility for shareholders to express their discontent with a company’s compensation policies are both significant steps toward improved governance, in line with changes made in other markets over the past few years. The United Kingdom and Australia have implemented mandatory annual non-binding votes on executive pay, while such votes are binding in the Netherlands and Norway. The issue is also receiving a great deal of attention in the United States (where seven companies have agreed to put an advisory vote on executive pay on the ballot) and Canada.
Spanish companies include director pay information in their annual reports, but the disclosure standard varies by firm. Most include general information that is focused on director as opposed to executive compensation. However, a few companies, like Banco Español de Crédito (BANESTO), this year provided detailed information on performance criteria, share-based compensation plans, and peer groups.
Advisory pay vote resolutions have differed greatly so far this year. Investors were asked to vote on a general remuneration report at BANESTO on Feb. 26, and at recycling company Befesa Medio Ambiente and commercial bank Bankinter on April 17. Pay reports for directors only went to a vote at Mapfre on March 8 and television production firm Gestevisión Telecinco on April 9--and will be voted on at paper manufacturer Iberpapel Gestión on June 6.
It is still unclear as to how Spanish companies would react if a majority of shareholders were to reject a remuneration report proposal. All resolutions have received majority support thus far, according to company reports.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, March 14, 2008 |
|
Nordic Proxy Season Report
Submitted by: Karin Lindh and Markus Seppala, International Analysts
A number of regulatory changes and emerging trends will have investors focusing on incentive plans and variable pay in the Nordic markets this year. While Danish companies will begin to see the effects of new regulations on shareholder ratification of pay plans, Swedish firms are expected to diversify their methods of director pay to better tie compensation to performance.
The Nordic proxy season usually peaks around mid-March to April, but many meetings will be held early this year because companies want to meet before first-quarter reports are due. The Easter holiday, which is early this year, has prodded many Danish and Swedish firms to move up their meetings.
Denmark
This is the first proxy season since an amendment to the Danish Companies Act (lov om aktieselskaber) established a vote on executive pay. The legislation stipulates that, at all listed companies, the board must establish guidelines concerning variable pay to members of the supervisory and executive boards before making agreements on bonuses or stock compensation. Before they are implemented, the guidelines are put to a binding shareholder vote. Unlike in Norway and Sweden, which have binding annual shareholder votes on some aspect of executive pay, the guidelines at Danish firms only need to be approved when the board makes a material change, not annually like many pay votes.
Since the law was enacted in July, 13 proposals to approve guidelines for incentive-based compensation have gone to a vote. Eight of those proposals were approved by shareholder vote; the results at the other five firms have not been disclosed. According to Danish law, the complete proposals for the general meeting do not have to be made available until eight days prior to the general meeting. Market analysts are still concerned this year that the level of disclosure included in the proxy documents is not adequate to allow shareholders to make an informed decision on the pay guidelines. Large-capital Danish companies are expected to provide greater disclosure than mid- and small-cap firms, which may see more opposition to their proposed pay guidelines, analysts say.
Even under the new law, Danish shareholders will still have to separately ratify any incentive pay and bonus plans based on issuance of new shares.
Sweden
After shareholders of electronics firm Ericsson voted down the company's long-term incentive plan last year, focus on incentive plans has intensified in Sweden. Specifically, two new initiatives are drawing both analyst and shareholder attention this year.
In the past, Swedish directors have been compensated via fixed fees for board and committee work, and, in rare cases, attendance fees. Proposals for board remuneration are usually prepared by the company's nominating committee and approved by shareholders every year at the annual meeting.
During the 2008 proxy season, nominating committees at a significant number of companies, such as Ericcson, plan to propose that part of director pay be made up of variable elements. Specifically, some Swedish firms are considering offering board members phantom shares. In the Swedish system, a phantom share constitutes a cash equivalent of the share price on the grant date. Swedish companies propose to pay a certain portion of director remuneration--such as 25 percent--in phantom shares, which will be deferred for five years then paid in cash. Phantom shares differ from options in that there is potential of both upward and downward movement of the share price and therefore the value of the phantom shares. Depending on the share price, the director could receive either a higher or a lower level of remuneration when compared to fixed fees.
Swedish pension fund Alecta and Stockholm-based investment firm Investor, which have representation at many Swedish firms, urged the change in order to make board compensation more responsive to company performance. Unlike many other markets, where board nominating committees are composed of board members only, Swedish nominating committees typically consist of representatives for the company’s largest shareholders, sometimes with the addition of the board chairman. Both Alecta and Investor have representatives on numerous nominating committees because of their large holdings in the Swedish market.
The use of phantom shares is intended to replace the prevalent Swedish company practice of recommending that directors own stock corresponding to 25 percent of their net pay. Although this approach worked in the sense that most directors followed the recommendation, strict holding requirements are not legally enforceable in Sweden. Furthermore, insider trading regulations place restrictions on when directors can acquire shares. These restrictions do not apply to phantom shares, which are technically just promissory notes.
In February, the Swedish Securities Council (Aktiemarknadsnaemnden), a body that promotes good practice in the Swedish stock market, endorsed the use of phantom shares, as long as general principles on incentive plans are followed. The securities council outlined these general principles--including the need for disclosure of planned incentives, anticipated stock dilution, and reasons for adopting the incentive plans--in a 2002 statement. Swedish law dictates that the board cannot make changes to, or adopt, a plan affecting share transfer and issuance to company employees without the approval of nine-tenths of the shares present at the annual meeting.
At the moment, share-based remuneration for non-executive directors is extremely rare in Sweden. SKF Group, a ball-bearing manufacturer, pays its directors the value of a certain number of SKF shares, in addition to a fixed fee, every year. Before this proxy season, only a few companies--such as security products firm Gunnebo, medical equipment company Sectra, and pharmaceutical firm Orexo--granted stock options to non-executive directors.
In Sweden, all share-based incentive plans require the support of 90 percent of both the votes cast and the shares represented at the meeting where the plan is proposed, which means that minority shareholders have a real opportunity to influence the vote.
Sweden is a well-developed market in terms of incentive plans, with a multitude of different types of schemes. There are no signs of a decrease in either the number of plans or their complexity. Share matching plans, where participants make an initial investment in company shares in order to receive free or discounted shares after a vesting period, continue to be popular. Unlike some other markets, the initial investment has traditionally not been a portion of the employee's annual bonus. This year, however, analysts expect that a few deferred bonus plans will be seen in Sweden.
The 2008 proxy season could also see an increased number of plans in which incentive awards are adjusted for dividends accrued between the grant date and the exercise date. A method commonly seen in Finland, namely the lowering of the strike price of options by the amount of accrued dividends, is rarely found in Sweden. However, the number of shares per options will most likely be adjusted in a few plans, and in some share matching plans, accrued dividends on the matching share will be paid out at the end of the vesting period.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Thursday, March 6, 2008 |
|
Finnish Market Removes Barrier to Proxy Voting
Submitted by: Gary Hewitt, Marketing
The necessity for multiple copies of a Power of Attorney (POA) signed by the beneficial owner is seen by many to be a deterrent to vote, given the additional complexity, cost and administrative burden – particularly for cross border votes. We're pleased to announce some positive developments in this area in Finland.
On 27 February 2008 the major Finnish sub-custodians announced that power of attorneys (POAs) signed by the beneficial owner will no longer be required to vote at shareholder meetings in Finland. This positive market practice change, which is effective immediately, is the result of discussions between market participants that have been ongoing for several months. These discussions culminated in several sub-custodian banks obtaining a legal opinion confirming that there was no legal obstacle for removing the requirement for PoAs.
While we agree that this is a great step forward for corporate governance, there remains a possibility that an Issuer will not accept the new practice with immediate effect and will demand to see a signed POA. All participants will be monitoring the situation to ensure that the Issuers accept the new process.
About 15% of markets, many of them European, still require that beneficial owners sign a power of attorney (POA) in order to be eligible to vote. It remains to be seen if other markets will follow the Finnish example and remove existing barriers to cross-border proxy voting.
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Friday, February 29, 2008 |
|
Proxy Preview: South Korea
Submitted by: Daniel Oh, Korea Market Analyst
The 2008 Korean proxy season will be marked by the effects of a number of high-profile regulatory reforms, as well as a greater number of contested director elections.
The majority of South Korean annual meetings will take place on three consecutive Fridays this year: March 7, 14, and 21. Korean companies are required to publish official agendas only 14 days before the meeting date. Though some companies have begun to disclose agendas as much as 20 days beforehand, the short release window remains a significant obstacle for proxy voting by foreign investors in the Korean market.
Meeting agendas and proxy statements are released online via the Korean Financial Supervisory Commission’s (FSC) Data Analysis, Retrieval, and Transfer system (DART) Web site. Like the U.S. Securities and Exchange Commission’s EDGAR site, DART is a searchable repository for all Korean company filings. Most companies continue to file in Korean, though a small percentage of firms have co-released their proxy information in English. The agendas are often less detailed than U.S. proxy statements, containing the time and place of the meeting and brief biographical information on director and auditor nominees.
It is unlikely that the 14-day release requirement will be extended, according to market regulators, because the country’s Parliament believes that an extension would benefit foreign investors more than domestic investors. Such a measure would need the approval of two-thirds of the Parliament to pass into law, which is historically hard to achieve.
Last year, Korean regulators did make a number of legislative changes that will affect the way companies interact with their shareholders and do business in 2008. The first was a series of amendments to the Securities-related Class Action Act (SCA Act), which took effect Jan. 1, 2007. Prior to 2007, shareholders could only bring suits against companies holding assets of more than KRW 2 trillion ($2.1 billion), and a group of at least 50 investors owning at least 0.01 percent of the company was required for the suit to be valid.
The 2007 amendments allow investors as a class to sue smaller companies. However, no lawsuits have been filed under the new rule yet because the costs are high for individual shareholders. In August of last year, press reports indicated there may be a class-action suit filed against Youngjin Pharmaceutical, which had admitted earlier to the FSC that it falsified accounting records from 2004 through 2006, according to the Joongang Daily News.
In a 2007 paper, University of California at Berkeley Law School Professor Stephen J. Choi suggested that a functioning class-action system in Korea may still run into hurdles even after the new amendments because the country has comparatively very few attorneys--and those attorneys are relatively inexperienced in litigating class-action cases.
Continue reading "Proxy Preview: South Korea
Submitted by: Daniel Oh, Korea Market Analyst" »
| Permalink | Comments (0) | TrackBacks (0) | Print Article | Back To Top |
Monday, February 25, 2008 |
|
European Voting Policies--What You Need to Know for 2008
Submitted by: Christel Dumas, Marketing
RiskMetrics Group welcomes three governance expert speakers in its next online forum : John Garbutt of HSBC in the UK, Kris Douma of MN Services in the Netherlands, and David Diamond of Crédit Agricole Asset Management in France. All three have developed their own voting policies which they will apply during this proxy voting season. All three have chosen to focus on different issues which they believe are important when exercising shareholder rights: be it differentiated requirements per market; labor issues; social issues and more.
They will share their experience and focus tomorrow February 26 at 3.30 PM CEST; 2.30 PM GMT; 9.30 a.m. EST, as part of RiskMetrics Group's ongoing What You Need to Know series. Join these leading European Asset managers and discover how they address key topics that arise in general meetings. Compare their approach to yours and learn more about RiskMetrics’ European updates on proxy voting policies. To register for the webcast, please visit here.
| Permalink | Comments (0) | TrackBacks (0) | |