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Woolworths Limited

Australian Securities Exchange – November 23

Corporate responsibility is the topic du jour at Woolworths’ 2017 AGM. Not only have shareholders requisitioned two proposals, including one seeking additional disclosure regarding human rights after the company admitted it sold prawns processed using slave labour, but the election of directors features a self-nominated candidate looking to put a spotlight on the company’s pokies business, and relationship with society generally. Dr. Susan Rennie notes “established links between poker machine density and family violence” and questions the company’s failure to exit the business or adopt harm minimisation efforts such as the $1 bet limit recommended by the Productivity Commission and used by competitor Coles. In addition, her supporting disclosure notes former CEO and ALH chair Roger Corbett’s opposition to same-sex marriage as a reputational risk (the company has disowned Corbett’s comments, and had previously announced its support for same-sex marriage).

Woolies contends that Dr. Rennie is a one-issue candidate, and that besides, corporate responsibility is not a blind spot. The board highlights Jillian Broadbent and Scott Perkins as holding relevant expertise, along with the work of the sustainability committee, and the publication of a Corporate Responsibility Strategy earlier this year and subsequent follow-up reporting. With regard to human rights, the company similarly notes its disclosure, along with commitments to meet international best practices such as the UN Ethical Sourcing Policy, and efforts to act responsibly and improve the supply chain.

Ardent Leisure Group

Australian Securities Exchange – November 20

Following four fatalities on the Thunder River ride at the Dreamworld theme park on the Gold Coast in late 2016, Ardent Leisure Group has had a tumultuous year. Park closures and a botched company response led the share price to tank, which in turn prompted the CEO to resign, and a strategic shift towards the U.S. market wasn’t enough to give 11% shareholder Ariadne Australia Ltd. confidence in the board: It called an EGM, initially proposing four new directors and the removal of any new board appointments. Ariadne later withdrew two of its nominees, and the company appointed the remaining two, Brad Richmond and Gary Weiss, to avoid holding the meeting.

Both have quickly taken on new responsibilities; Mr. Weiss was appointed chairman in late September and, after Simon Kelly resigned as CEO in November just five months into the job, Mr. Richmond was appointed interim CEO of Main Event, Ardent’s U.S. operation. Mr. Kelly had been due a considerable sign-on award, which has presumably been fully forfeited. Nonetheless, shareholders will need to consider whether improvements to the remuneration structure, including face value LTI awards and improved STI disclosure, outweigh concerns that EPS hurdles are insufficiently challenging.

Microsoft Corporation

NASDAQ – November 29

In the past year, Microsoft Corporation’s board of directors has made strides towards ensuring ongoing board refreshment. Specifically, on July 13, 2017, the company announced an update to its Corporate Governance Guidelines in order to include a board tenure policy. The policy does not specify a tenure limit for individual directors in recognition of the fact that directors who have served on the board for an extended period of time can provide valuable insight into the operations and future of the company based on their experience. However, as an alternative, the board will seek to maintain an average tenure of ten years or less for its independent directors. The revised policy also emphasizes that directors should not expect annual re-nomination; rather, the board’s governance and nominating committee will consider several factors, including the director’s participation, attendance and contributions to the board when determining whether to recommend a director for re-election.

Microsoft also addressed board refreshment more immediately in the past year through the appointment
of several new members to the board. The company appointed Reid Hoffman, co-founder of LinkedIn Corporation, to the board in March 2017, after completing the acquisition of LinkedIn in December 2016; and following the retirement of director Mason Morfit, the company appointed vice chair and CFO of PepsiCo Hugh F. Johnston to the board in September 2017. Finally, two additional new nominees, Penny Pritzker and Arne Sorenson, have been proposed for election at the annual meeting.

Sasol Limited

Johannesburg Stock Exchange – November 17

Nearly a decade ago, Sasol set up the Inzalo Transaction, then the biggest-to-date black economic empowerment (“BEE”) transaction. The structure was intended to deliver dividends and shares to employees and disenfranchised South African blacks, funded by share price appreciation. Except, oil prices tumbled and the shares didn’t appreciate. In the end, most of the dividends went to banks to pay down debt, and it looks like no shares will be issued under the deal. Unfortunately, the company is on the hook, having issued guarantees to cover shortfalls that could now amount to R2.2 billion. To avoid triggering those guarantees, Sasol is proposing to roll over Inzalo into a new BEE transaction, the Khanyisa Transaction.

If approved, Khanyisa would remove share price appreciation from the equation and reduce the company’s level of commitments in case of a shortfall. In addition, over the decade the company’s Sasol South Africa Proprietary Limited subsidiary will achieve roughly 20% direct black ownership, leaving the group well placed to meet BEE ownership credentials. However, Khanyisa has been criticized for its complexity — the deal requires shareholder approval of 23 proposals at the special meeting. In addition, while the motivation to avoid the hefty guarantees required to wind down Inzalo is clear, there are concerns that Khanyisa merely kicks the costs down the road.