Highlights from the world of Proxy Papers you can’t afford to miss: Westpac, ANZ Group, NAB Limited, Commonwealth Bank, Solocal, Mitsubishi Motors and Sims Metal Management
Commonwealth Bank of Australia (CBA); Westpac Bank Corporation (WBC); Australia and New Zealand Banking Group Limited (ANZ); National Australia Bank Limited (NAB)
ASX – November 9 (CBA); December 7 (WBC); December 16 (ANZ, NAB)
In part driven by public outrage over recent banking/financial planning controversies within the sector and media scrutiny on executive remuneration at the big banks, the Australian government and big four banks have been battling out the “bank culture wars” through parliamentary inquiries. This increased scrutiny appears to have led to an “open season” on the big four, with the largest, CBA, receiving a historic first strike on its remuneration report at its November AGM.
CBA was criticised for a lack of clear targets and metrics under its LTI arrangements following the introduction of a new “soft” metric based on people and community (i.e. diversity, sustainability and culture). With murmurs of shareholder hostility towards the change prior to the AGM, the CBA board attempted to appease investors by withdrawing the MD/CEO’s equity grant proposal. Alas, it was to no avail as approximately 49% of votes cast rejected the remuneration report. While the people and community metric appears to be an attempt by the board to “reset” the bank’s culture from the top-down, shareholders appeared to be averse to perceived unquantifiable metrics.
On the other hand, Westpac appears to have taken a bottom-up approach to resetting its internal culture, through a number of customer-service focused initiatives aimed at reform from the “frontlines”. In November 2016, the Company was the first bank to remove all product-related incentives across its 2,000 tellers, and their incentives are now based entirely on the quality of service customers receive. Furthermore, the Company reports that it investigated 234 cases involving 286 people alleged to have breached Westpac’s code of conduct/clawback, including matters involving fraud, theft and bribery. While 63 of these cases led to termination of employment and 27 led to resignation, none of those dismissed were at a senior management or executive level.
Both NAB and ANZ did not explicitly tinker with their remuneration practices to address the growing reputational risk of the banking sector. Instead, the two banks have made minor tweaks – with ANZ choosing to improve disclosure around soft targets outcomes under its short-term incentive scheme, and NAB removing re-testing provisions under its long-term incentive.
All eyes will be on the remaining trio’s AGMs to see if their shareholders are satisfied with the companies’ attempts to strengthen their corporate culture, or if they will succumb to the same fate as CBA’s remuneration report.
Solocal Group SA
Euronext Paris – December 15
Shareholder activism is the order of the day for the upcoming special meeting of Solocal. Formerly Pages Jaunes, or the “Yellow Pages” to those of us who remember the analogous telephone guides that could be found by the home telephones of our childhood homes, Solocal has suffered significantly due to the switch from paper to digital. While the company has worked to adapt to changing market conditions, Solocal has stated that its problems have been compounded by a legacy of debt related to a leveraged buyout of Solocal’s shares in 2006. Those debts have not yet been cleared, despite an attempted refinancing in 2014.
Solocal’s annual meeting was held in October, having been delayed to allow the company to propose a debt restructuring plan to resolve its financial difficulties. This plan was rejected by shareholders, and a flurry of proposals seeking to replace current board members were made by minority shareholders, some acting under the umbrella soubriquet of Regroupement PPLocal, led by one Alexandre Loussert.
At the special meeting, the restructuring plan is being resubmitted for shareholder approval with various changes, and minority shareholders are treating the meeting like a turkey shoot. A bewildering array of shareholder proposals seeking to replace board members, condition the payment of directors fees to dividend payments, and issue warrants have been tabled. Perhaps most revolutionary is a proposal to amend the Company’s articles to make executive pay proportional to employee remuneration.
The experience of Solocal stands as a good example of increased engagement in company affairs on the part of minority shareholders in France, as well as the experiences of French companies with dispersed ownership, vulnerable to the kind of investor activism more common in the Anglo-American financial world. Solocal has blamed activist investors for saddling the company with enormous debt, and minority shareholder opposition looks set to further complicate Solocal’s problems.
Mitsubishi Motors Corp.
Tokyo Stock Exchange – December 14
“Adversity strengthens the foundations”. Or so the popular Japanese proverb goes. Let’s hope this is the case for Mitsubishi Motors as it continues its efforts to regain consumer and investor confidence after the company was found to be falsifying fuel efficiency data of its minicars back in April. Despite additional setbacks when news of further falsifications came to light, on October 20, Nissan Motor officially acquired a 34% equity stake in the struggling company. While Nissan has assured that Mitsubishi Motors will maintain its brand, the company has become a full-fledged member of the Renault-Nissan Alliance. Pursuant to the change in shareholding structure, Mitsubishi Motors will be seeking shareholder approval of a new slate of directors, including four nominee directors representing Nissan, at the upcoming special meeting. Investors will surely be looking to Mr. Carlos Ghosn, who will be appointed as chairman of Mitsubishi Motors, to revive the company as he has done with Nissan. While shareholders will likely embrace Nissan’s involvement, it will be interesting to see whether or not the decision to retain Mr. Osamu Masuko — who saw a significant drop in shareholder support at the 2016 AGM due to the scandal — on the board will be met with similar enthusiasm.
Sims Metal Management Limited
ASX – December 16
At Sims Metal Management’s AGM in early November, over half of the proposals on the agenda received significant opposition. Most of those related to executive pay, with the remuneration report garnering a “first strike” and a retention award for the MD/CEO opposed by 46.56% of voting shareholders. Sims has time to respond to shareholder concerns regarding pay – the equity grants were approved as they only required majority support, and the fallout from the “first strike” will not hit until next year’s AGM. However it has already taken action to address their concerns regarding amendments to the company’s constitution, which was not approved due to the requirement for 75% support on special resolutions.
While most of the constitutional changes that Sims had proposed at the AGM were either aligned with good governance or simply matters of housekeeping, shareholders took issue with provisions relating to the maximum size of the board, and prohibiting the calling of a poll on any resolution concerning the election of the meeting chair or adjournment of the meeting. During the run-up to the AGM, Sims backed off the board size limit by announcing that if the proposal were approved, it would submit further amendments at the 2017 AGM to remove the cap; however these good intentions weren’t enough to placate shareholders, and support for the proposal was 74.17%, just below the required threshold.
Less than a week after the AGM, Sims called a special general meeting to consider an amended set of constitutional amendments. The revised resolution is almost exactly the same as the original, except that the board cap and poll calling prohibitions have been removed. Such a quick turnaround demonstrates a commendable responsiveness to shareholder concerns – which shareholders can only hope will be maintained when the board turns its attention to matters of remuneration.