Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:
Unicredit S.p.A.
Borsa Italiana April 15 AGM
The Italian megabank’s AGM follows significant top-level leadership turnover in recent months, possibly indicating a change in strategy — and illuminating splits in the shareholder base. The appointment of Italian finance minister Pier Carlo Padoan as chair last autumn has been reported to signal a stronger focus on the domestic market. Jean Paul Mustier, who maintained that the bank would pursue “no M&A” in Italy, announced his departure shortly after, and is being replaced by one of Europe’s premier M&A dealmakers, Andrea Orcel.
The change reportedly reflected strategic disputes within the boardroom, but may not have put them to rest — activist shareholder Bluebell Capital Partners has built up a stake in recent months and has raised concerns over Padoan’s political affiliations, specifically in connection with a potential acquisition of the embattled Banca Monte Dei Paschi di Siena, which the Italian government bailed out under Padoan’s watch. Bluebell has supported the appointment of Orcel.
Orcel is formerly of UBS, but not formerly of Banco Santander, which announced his appointment as CEO in 2018 but had a change of heart after calculating the full cost buying out deferred remuneration from his prior employer. It’s a fairly common practice within the ever-spinning carousel of finance CEOs, but a costly one for shareholders. Santander’s decision to draw the line may end up costing it even more — Orcel is suing the Spanish bank for €112 million for an alleged breach of contract, with the case expected to be heard just ahead of Unicredit’s AGM.
Julius Baer Group Ltd.
SIX Swiss Exchange April 14 AGM
These days most every financial company has a clawback mechanism, allowing it to recoup executive payouts in case of malfeasance. They’re often required by regulation or local law. But actually using the clawback? That remains rare.
As such, the upcoming meeting of Swiss bank Julius Baer Group is notable. In February 2020, the Swiss Financial Market Supervisory Association (FINMA) finalised enforcement proceedings that required Baer to improve internal controls on money-laundering and revise its executive compensation to shift emphasis from financial results to risk-management. The result is a new compensation framework for below-board managers with a stronger focus on non-financial elements and profitability over growth. That said, looking up, the CEO’s newly rebalanced scorecard actually features a heavier weighting on financial metrics, with the qualitative component (including risk management and compliance) reduced from 20% to 10% of total.
The company has also increased deferral, introduced stricter clawback guidelines — and applied the existing clawback measures on “…certain staff with relevant links at the time to the investigated activities and the outcome of the FINMA proceeding….” Given ongoing legal sensitivity, that’s as specific as the bank is willing to get at this point, but media reports indicate that former CEOs Boris Collardi and Bernhard Hodler could each forfeit roughly $2.8 million in relation to a South-American money-laundering case.
Another wrinkle is that over 20% of shareholders voted against Baer’s compensation report at last year’s AGM. The company has been explicit in addressing that opposition, which may explain the decision to beef up quantitative measures at the expense of qualitative for the CEO. How shareholders respond to the company’s response remains to be seen.
Royal BAM Group NV
Euronext Amsterdam April 14 AGM
Veteran investors likely remember the windfall gains that executives enjoyed coming out of the global financial crisis, as incentive plans were aligned squarely with increasing shareholder returns — and often measured from the absolute bottom of the cycle. What has happened before will happen again. With the post-COVID recovery gaining traction, shareholders should be mindful of equity awards granted with the well-meaning intention of incentivising executive alignment with their interests but structured in way that allows for excessive and unmerited rewards reflecting market movements rather than management performance.
Along those lines, it’s a curious time for Royal BAM Group to propose removing the upper vesting cap on its long-term incentive grants, which had previously been set at 250% of the award value. That’s good news for the new CEO, who shortly after his September 2020 appointment received an award valued at €381,111 based on a share price of €1.25 (near the 2020 low of €1.03). With the price already back up to €2.16, the award is worth considerably more than at grant.
In addition, the company is proposing to remove the TSR ranking circuit breaker that stops any vesting, regardless of performance against other metrics, if TSR is last or second-to-last compared to ten other peers; and replacing one of those other performance metrics, ROCE, with adjusted EBITDA. The board has explained that adjusted EBITDA is a better fit with the company’s revised strategy, and it’s worth noting that the circuit breaker provision, which has been triggered in each of the past three performance periods, is fairly unusual. However, while investors will get to vote on the change in objectives separately, the two structural amendments (removal of circuit breaker and payout cap) are bundled in a single proposal.
Shareholders may have other questions about the company’s pay practices, given that severance and pension payments were made in retrospective implementation of a new policy — all of which occurred in the face of a major restructuring to cut costs.
Airbus SE
Euronext Paris April 14 AGM
After operating under soft targets for years, last month the Dutch House of Representatives approved a quota on board gender diversity, which is expected to come into force in 2021. Under the new rules, companies will be required to ensure that at least one-third of non-executive board seats are held by the underrepresented gender (for boards not divisible by three, go up—so four on a ten-person board). The law has some teeth: once it is passed, any future appointments that do not promote gender balance will be annulled. There are exceptions for incumbent directors (provided their tenure doesn’t exceed eight years, in a nod towards promoting refreshment), and for exceptional circumstances where a non-diverse appointment is deemed necessary to ensure the company’s viability or serve its long-term interests.
Airbus, which has only three women on its twelve person board, provides an interesting case to consider. The company has reiterated its belief in appointing the “best person for the job” regardless of gender, while also committing to “strive to improve the increase of the percentage of women in the future”. Normally, shareholders committed to pushing gender diversity might target the chair of the nomination committee, who happens to be standing for election at this year’s meeting—however in this case, that would mean voting against Maria Amparo Moraleda Martinez, and potentially further undermining the board’s gender balance. With four seats coming open at the 2022 AGM, this may be an issue that gets resolved next year.
Elsewhere on the agenda, it will be interesting to see if increased stakeholder dialogue and transparency regarding regulatory investigations and penalties will be enough to ameliorate shareholder reservations about ratifying the supervisory board’s and executive team’s actions — last year the proposals received 24% opposition.
Getin Noble Bank S.A.
Warsaw Stock Exchange April 16 AGM
Speaking of board ratifications, Polish shareholders get a similar annual vote on the actions of management and supervisory board members. When it comes to Leszek Czarnecki, a supervisory board member and significant shareholder (8% of issued share capital) at Getin Noble Bank, shareholders have a lot of scandalous rumours to consider, and not much in the way of clarity.
Back in 2018, the head of the Polish Financial Services Authority was recorded offering Mr. Czarnecki favourable treatment for Getin in relation to a potential takeover, in exchange for giving an associate a job at the bank with a PLN 40 million salary (roughly USD$10 million). Two years later, the FSA asked the board to remove Czarnecki amidst separate allegations of fraudulent activities at Idea Bank S.A., where he is also a key shareholder and serves as chairman.
For his part, Mr. Czarnecki maintains that he raised concerns about Idea Bank’s activities with authorities and conducted an internal audit, and asserts that he is being used as a scapegoat. While prosecutors including the Polish Minister of Justice have made multiple requests to arrest him, the District Court Warszawa Srodmiescie has declined, finding no reasons to suspect of him of misconduct.
Shareholders have a lot of murky water to wade through before casting their votes. One thing to be sure of: while a vote to discharge may limit shareholders’ rights to take legal action against the board and/or its members, it does not release directors from their fiduciary duties owed to the company and its shareholders.
Ferrari N.V.
New York Stock Exchange April 15 AGM
After a tenure of just two years, former CEO (and a non-executive director before that) Louis Camilleri stepped down in December for personal reasons. Under the company’s remuneration policy, his outstanding equity awards are no longer eligible to get boosted by “over-performance”, but otherwise fully vested in February with no pro-rating for achievement or time served. Based on the share price at the time, that meant a payout of approximately €18 million.
If that sounds like an overly generous remuneration policy — well, a significant proportion of shareholders would agree. Last year 22.7% of votes were cast against the policy, representing 59% of the free-float once you take the controlling party’s shares out of the equation. Indeed, minority shareholders have consistently raised objections to pay plans and equity grants. The company’s response has been limited to improving disclosure, raising the prospect of significant opposition to this year’s advisory remuneration report vote.
Genting Singapore Limited
Singapore Exchange April 15 AGM
Companies in Singapore don’t have to hold say-on-pays, but they are required to include disclosure about director remuneration. In the case of Genting Singapore Limited, that disclosure prompted questions from the Singapore Exchange Securities Trading Limited (SGX) about the company’s remuneration practices.
It’s perhaps unsurprising that the initial breakdown of director remuneration, disclosed in $250,000 bands, raised eyebrows — there is a bit of a gap between the two named executives, with TAN Hee Teck in the $2.75—$3 million band, and executive chair LIM Kok Thay in the slightly higher $21.25-$21.5 million band. That’s more than double what the company disclosed for the prior year despite a significant decrease in net profits and staff cuts, which the company suffered primarily due to the COVID-19 pandemic. Moreover, it came on the heels of a March 2020 pledge to reduce executive and managerial salaries and non-executive director fees.
However, in response to the SGX query, the company has explained that the eye-popping figure is not what Mr. Lim actually received — rather, it represents an accrual relating to $35 million in potential payments, calculated in line with accounting standards. Those payments are contingent on successful completion of an ongoing bid for a Japan integrated resort. Excluding the accrual, Mr. Lim’s remuneration was down more than 50% from the prior year after a 30% salary reduction, with his performance share award cancelled and no annual bonus paid.
It’s a good example of the need for clear and comprehensive disclosure, particularly when the local stock exchange has already taken an interest in your pay practices.
Virtual Governance in Hungary
And finally, a brief note for governance teams covering Hungarian companies: your votes won’t actually count this year, unless you make a special request.
In response to the pandemic, Hungary has perhaps taken the concept of a virtual meeting a bit too far. Like in other markets, no physical meeting will take place. And like in other markets, the board will set the agenda and send proxy cards to shareholders. However, in an unusual approach to corporate governance, only the board members will actually vote. The results will then be released to shareholders, who will have 30 days from the meeting to register any concerns.
Investors are still urged to submit their votes by the standard cutoff dates, if only for reporting purposes — and on the off chance that they are actually counted.