In a highly unusual result, 64% of votes were cast against the re-election of Trevor Schultz as a non-executive director at FTSE 250 gold miner Centamin plc’s 2017 AGM last week. Even more unusually, by the time the voting results for the AGM were released to the market, Mr. Schultz had been reappointed to the board.
This game of musical chairs is fairly common in some markets, including the United States. But in the UK there isn’t much precedent for the treatment of a director who fails to receive majority support. It’s a situation that would seem to call for an explanation.
To the board’s credit, Centamin’s AGM voting results press release (PDF) includes a discussion of shareholder concerns and the rationale for re-appointing Mr. Schultz, a former executive director of the Company (until 2014) who now serves as a non-executive director. It appears that shareholders did not take issue with his presence on the board, per se; indeed, he has received much higher levels of support in prior elections. Instead, the revolt was provoked by the appointment of Mr. Schultz to the remuneration committee following the resignation of independent director Kevin Tomlinson back in May 2016. As a result, the board failed to comply with the UK Corporate Governance Code, which recommends that remuneration committees comprise at least three independent directors.
Having identified the problem, the board decided to bring Mr. Schultz back as a director “in light of the vital role that Trevor plays for the Company, bringing his deep technical knowledge to assist the Board’s oversight of the Company’s operations”, while bowing to shareholders by removing him from the remuneration committee. Problem solved?
Well, maybe not.
Mr. Schultz’s presence on the remuneration committee was the most glaring governance issue at the AGM, but it wasn’t the only thing to prompt shareholder opposition. Concerns regarding the board’s continued failure to appoint even a single female director and its persistence with an executive chair were reflected in the 40% vote against senior independent director and nomination committee chair Gordon Haslam.
Indeed, the broader issue of succession planning appears to be what got the Company into this mess in the first place. Former independent NED Kevin Tomlinson, whose departure prompted Mr. Schultz’s appointment to the remuneration committee, still hasn’t been replaced; moreover no new independent NEDs have been appointed since 2011.
Mr. Haslam also chairs the remuneration committee, and was no doubt the subject of further dissent regarding ongoing pay increments for the CEO, with 23% of shareholders voting against the board’s remuneration report.
Immediately reversing the result of a nominally-binding shareholder vote certainly looks bad. In this case, principled opposition to Mr. Schultz’s re-appointment may be somewhat placated by the reduction to his responsibilities, and the extended rationale set out by the board. Nonetheless, it appears that Centamin’s issues with succession planning and board composition go beyond the presence of a non-independent director on the remuneration committee.