Important highlights from upcoming meetings, provided by Glass Lewis’ global research team:
New York Stock Exchange May 21
When the board of McDonald’s fired former CEO Steve Easterbrook for violating the company’s fraternization policy, the goal was to demonstrate decisive action – and that nobody gets an exception. While Easterbrook’s relationship with a subordinate was reportedly consensual, it was nonetheless not a good look for a company that has repeatedly been asked to address issues related to sexual harassment, particularly given rising investor focus on issues relating to human capital oversight.
However, the terms of Mr. Easterbrook’s departure have ruffled feathers. By a strict reading, a violation of company policy could have resulted in him walking away with next to nothing in severance or equity. Instead, the board gave Easterbrook partial benefits, including “without cause” treatment of outstanding equity awards, in consideration for adding an additional six months to his non-compete and agreeing not to write a book or give an interview on the topic – essentially the same treatment that he’d receive in a benign layoff.
Easterbrook’s departure package reflects a departure from parallel practice at firms like Intel, which stuck to established terms in exiting the CEO for a breach of company policy. It also prompted CtW Investment Group to file an exempt solicitation urging shareholders to vote against (1) this year’s advisory vote on executive compensation, (2) the election of board chair Enrique Hernandez and (3) the election of compensation committee chair Richard Lenny.
Compensation isn’t the only area of governance oversight that directors will face questions about at the company’s AGM. In addition, this will be the first annual meeting since McDonald’s adopted a provision designating courts in the state of Delaware as the sole and exclusive forum for derivative actions or claims of breach of fiduciary duty, amongst other legal actions. The AGM agenda also includes two shareholder proposals, covering the level of ownership required to call a special meeting, and additional disclosure on the company’s sale of sugar products marketed to consumers, especially those targeted to children and young customers.
Uniqa Insurance Group AG
Wiener Börse May 25
You might already be familiar with the concepts of unconscious bias and perception filters – but it’s rare for them to come up in company filings. The context is a diversity initiative by Uniqa asking its top managers to “reflect on their unconscious thinking patterns”. With approximately 30% of the board composed of women and a comprehensive diversity concept currently in development, it’s fair to say that the insurance company is unique amongst Austrian issuers and the wider DACH market.
Austrian regulations require “large and diverse companies” to have a diversity concept, but many companies simply adopt boilerplate language; by contrast, despite still being a work in progress, Uniqa’s concept has already implemented initiatives and outlined meaningful priorities, including women in management.
The company’s AGM takes place following a €1 billion acquisition of AXA subsidiaries in the Czech Republic, Poland and Slovakia. That deal went down in February, preceding the impact of coronavirus, which has prompted the company to revise its guidance down strongly, and reduce its 2019 dividend from €0.54 per share to €0.18 per share, and suspend its 2020 dividend. Shareholders will get a vote on the allocation of profits, as well as the company’s remuneration policy.
Enel S.p.A., Eni S.p.A., Leonardo S.p.A., & Poste Italiane
Borsa Italiana May 13 (Eni & Leonardo), 14 (Enel) and 15 (Poste Italiane)
Succession planning and board renewal are challenges for any company – identifying relevant skills and experience gaps, recruiting appropriate candidates, and balancing the opinions of investors, management, regulators etc… requires constant attention.
For state-owned companies in Italy, the process of determining director nominees goes beyond the traditional stakeholders – instead of institutional investors, it’s the subject of intense debate among the ruling political parties. As such, in 2020, the selection of board candidates at Enel, Eni, Leonardo and Poste Italiane has resulted in a political showdown involving the Five Star Movement, the Democratic Party (PD), the Italia Viva party led by former Prime Minister Matteo Renzi, and the Free and Equal party. At each company, shareholders will have to choose between the slate of nominees submitted by the government, and an alternative slate submitted by institutional investors.
One of the most heated discussions concerned the Five Star Movement’s strong opposition to the reappointment of Eni’s CEO Claudio Descalzi, due to his alleged involvement in a Nigerian corruption scandal dating back to 2011. Descalzi, who has denied any involvement, is backed by the Minister of Treasury, which controls 30% of the Company’s share capital – but going forward he’ll have to work with Luisa Calvosa, director of the newspaper which had started a campaign against his re-election, and the board’s new chair.
JPMorgan Chase & Co.
New York Stock Exchange May 19
Financing fossil fuels has JPMorgan Chase in deep water this year, receiving two shareholder proposals and a vote-no campaign tied to the topic on its 2020 ballot. The bank has been the subject of a number of activist campaigns in recent years drawing attention to the firm’s fossil fuels-related banking. Also, in February, an economic report from JPMorgan implicitly condemning its own investment strategies and acknowledging the threats and implications of climate change was leaked. The bank has taken a number of steps to mitigate its climate-related risks, such as announcing plans to stop financing oil and gas developments in the Arctic and to phase out its financing of coal mining. It will also complete its 2017 commitment to facilitate $200 billion in financing for projects that meet the UN SDGs five years earlier than its original commitment. Nevertheless, the bank has still faced ongoing protests regarding its lending practices.
Trillium Asset Management is asking the bank to report on its reputational risks related to involvement in oil sands and Arctic oil and gas exploration. Regarding the Arctic, JPMorgan states that it will not provide project financing or other forms of asset-specific financing where the proceeds will be used for upstream, midstream, or downstream greenfield oil and gas development in the Arctic, including the Arctic National Wildlife Refuge. Further, irrespective of sector, transactions and new greenfield development within the broader Arctic region will be subject to enhanced review. Regarding oil sands, JPMorgan states that any transaction with a client involved in oil sands development will be subject to enhanced review, which will focus on the client’s management of water discharge, use of freshwater, impacts to biodiversity, interactions with First Nations communities, the type of technology deployed (and its environmental footprint), and the client’s compliance with Canadian permitting requirements (pp.5-6). The bank also addresses a range of climate-related risks in its most recent annual report.
As You Sow also has a proposal on the ballot, asking JPMorgan to issue a report on how it intends to reduce the GHG emissions of its lending activities in alignment with the Paris Agreement’s 1.5 °C target. The proponent names JPMorgan the largest source of financing globally and compares the bank’s climate-related commitments to its European peers.
Separately, the New York City Comptroller has launched a vote-no campaign targeted at JPMorgan’s lead independent director, Lee Raymond. The Comptroller is highlighting Raymond’s 33-year tenure on the board as a potential independence concern as well as the fact that the bank has consistently waived the 72-year age limit policy for the 81-year old director. In addition to these issues, the Comptroller cites concerns regarding a lack of “climate competency” from the director, who used to serve as the CEO of ExxonMobil.
Oversea-Chinese Banking Corporation Limited
Singapore Exchange May 18
The board chair of Oversea-Chinese Banking Corporation Limited (“OCBC”) is classified by the company as an independent director. However, shareholders may have questions about the terms of his relationship. In particular, the chair receives remuneration that is more akin to that of a CEO than a non-executive chair: for the financial year 2019, his cash-based fees came in above the cash salary of OCBC’s CEO, and exceeded the average pay of fellow non-executive directors by an order of magnitude. However, the company’s remuneration committee (of which the board chair is a member, perhaps not unsurprisingly) has not explained how his pay is set. At the company’s upcoming meeting, shareholders will get the opportunity to vote on both the chair’s re-election, and the schedule of non-executive fees for 2020 – which includes $1,400,000 for the board chair.
Royal Dutch Shell plc
London Stock Exchange May 19
Royal Dutch Shell’s shareholders are set to vote yet again on a shareholder proposal from Follow This requesting that the energy company set and publish GHG emissions targets that are aligned with the Paris Agreement’s 2 °C target. The proponent, which frequently targets the company, requests that the targets cover both the GHG emissions of its operations and the use of its energy products (Scope 1, 2, and 3).
Although Shell has set significant new climate goals, these came after the proposal was submitted. Specifically, Shell announced in April an ambition to be net zero on all emissions from the manufacture of its products, Scope 1 and Scope 2, by 2050 at the latest. It also states that it will reduce the net carbon footprint of the energy products it sells to customers by 30% by 2035 and 65% by 2050, while pivoting towards serving businesses and sectors that also adhere to net-zero emissions by 2050. Additionally, Shell has set short-term targets to reduce its net carbon footprint and ties these targets to executive remuneration.
According to Shell, its short-term targets and medium and long-term ambitions were calibrated against a range of earlier action IPCC 1.5 °C scenarios and are thus designed to be consistent with the Paris Agreement’s goal of limiting the increase in global average temperature to well-below 2 °C and the stretched goal to limit it to 1.5 °C compared to pre-industrial levels. These targets have received significant shareholder support, including from the lead engagers from the investor coalition Climate Action 100+.
Meanwhile, ShareAction, an NGO, is asking shareholders to vote against Shell’s compensation plan, calling to attention an alleged misalignment between the firm’s public climate messaging and the focus of its executive remuneration plan on continued fossil fuels growth.
In light of the dynamic nature of the ongoing crisis, we have compiled additional resources to help navigate the proxy season, including:
- a tracker collecting all shareholder meetings that have been delayed or postponed; and
- a market-by-market roundup of the impact on proxy voting. The most recent updates are below; for the full roundup, see our blog post.
Given the continued efforts to address the spread of Covid-19 in India, the Ministry of Corporate Affairs (“MCA”) announced on May 5, 2020, that all companies will be able to hold their AGMs during the calendar year 2020 by way of video conferencing of other audio visual means. The holding of an AGM electronically may also be done in-person at a company’s registered office, or elsewhere, thereby allowing for a hybrid meeting. The MCA included in its announcement the rules that would need to be followed for a company to conduct a virtual or hybrid meeting. New rules expanded the ability for companies to hold their AGM electronically, which was previously limited only to companies with a financial year that ended on December 31, 2019.
Federal law 115 on amending certain laws of the Russian Federation to harmonise the content of annual reports of state corporations (companies), public companies, and also to determine the specifics of regulations on corporate relations in 2020, and on suspending provisions of certain laws of the Russian Federation extends the deadline for holding annual general meetings in 2020 from June 30, 2020 to September 30, 2020. In addition, the law extends the deadline for publishing of standalone and consolidated financial statements for the financial year 2019 to 210 days from the year end. i.e. until July 28, 2020. Currently, the general rule is that these accounts must be disclosed not later than 120 days from the year end. Similarly, the Central Bank of Russia extended the deadline for holding annual general meetings of banks and financial institutions to September 30, 2020. The Central Bank also recommends that companies defer dividend payments to a further date since, in the current circumstances, more time will allow for more objective assessment of the company’s ability to pay out dividends. To this end, the Bank of Russia suggests that financial institutions schedule annual general meetings for the end of August and September 2020. Companies that have already called the annual meeting by June 30, 2020 and intend to distribute dividends to shareholders are recommended to consider changing the date of the meeting.
Responding to the urgent need of many companies to raise capital as a result of the COVID-19 pandemic, Nasdaq has temporarily exempted, through June 30, 2020, certain private placements from its shareholder approval rules.
Nasdaq Rule 5635(d) requires shareholder approval prior to an issuance, other than a public offering, of common stock (or securities convertible into or exercisable for common stock) which equals 20% or more of the common stock or voting power outstanding before the issuance, at less than the “Minimum Price,” defined as the lower of (i) the official closing price immediately preceding the signing of the binding agreement or (ii) the average official closing price of the common stock for the five trading days immediately preceding the signing of the binding agreement. While there is an exception where the delay in securing stockholder approval would seriously jeopardize the financial viability of the company, Nasdaq recognized that it may not be available in the current environment. For example, a company may need additional cash to pay employees during a period of decreased or no revenue, but its viability may not be in jeopardy.
Nasdaq therefore adopted rule 5635T, to provide additional flexibility to raise capital without shareholder approval. To rely on the new exception, the company must execute a binding agreement governing the issuance, submit the required notices and obtain Nasdaq approval (if required) by June 30, 2020, and issue the securities within 30 calendar days of the date of the binding agreement. The exception is limited to circumstances where the delay in securing shareholder approval would (i) have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan; (ii) result in workforce reductions; (iii) adversely impact the company’s ability to undertake new initiatives in response to COVID-19; or (iv) seriously jeopardize the financial viability of the enterprise. The company must also demonstrate that the need for the transaction is due to circumstances related to COVID-19 and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. The exception is not available for the shareholder approval requirements related to equity compensation (except to allow senior management to participate in the transaction in limited circumstances), changes of control and acquisitions of stock or assets of another company.
The temporary Nasdaq rule goes further than the New York Stock Exchange’s recent waivers to its shareholder approval rules, by allowing private placements that exceed the 20% threshold even if they do not meet the Minimum Price requirement. The new rule should facilitate time-critical capital raising by Nasdaq-listed companies affected by the COVID-19 pandemic.