Important highlights from upcoming meetings, provided by Glass Lewis’ global research team
Deutsche Bank AG Deutsche Börse – May 23
Just over a year into Christian Sewing’s tenure as CEO, Deutsche Bank appears to have made progress on implementing its strategy, with strategic milestones, progress against cost-saving and right-sizing targets, and capital ratios improving ahead of schedule. Moreover, at the bottom of the balance sheet, the bank has posted its first consolidated net profit since 2014.
All the same, shareholders have tough decisions to weigh as they consider the AGM agenda – and the management and supervisory boards will face a range of tough questions when the meeting comes, not least on the format for ratifying their actions. Once again, shareholders voting by proxy have not been offered the ability to ratify the company’s directors and managers on an individual basis; this option is often provided by German companies when concerns regarding the performance of certain members of the corporate bodies have been raised by shareholders. At least one significant investor appears to have specific concerns, with shareholder proposals targeting the removal of supervisory board chair Paul Achleitner and the withdrawal of confidence from three management board members having been added to the ballot.
Beyond the agenda itself, the boards may have to answer questions about the group’s structure going forward. Given Sewing’s background in retail banking, hopes were high that a fundamental restructuring of the investment bank may be high on the list of priorities, and this division’s performance in the past year has amplified calls for change. Nonetheless, recent months have seen extensive speculation regarding potential business combinations, including a tie-up with Commerzbank – which is now off the table – as well as potential merger partners for its asset management division. Other topics that may come up include the bank’s U.S. stumbles, with the Federal Reserve downgrading several subsidiaries based on concerns regarding infrastructure and internal controls, and raising qualitative concerns regarding its capital plan; ratings downgrades; a significant decline in share price; and a morass of legal liabilities, with the company estimating related “more than remote but less than probable” losses at roughly €2.7 billion.
Amazon.com, Inc NASDAQ – May 22
It’s a prime slate at Amazon, where the AGM agenda includes 12 proposals submitted by shareholders. The sheer range illustrates the company’s scope. Some of the proposals cover traditional governance topics, such as the right to call a special meeting and board independence. Others call for additional reporting on subjects as varied as climate change, gender pay equity, food waste, sexual harassment and hate speech. There’s a proposal looking at aligning executive pay with sustainability and diversity; and, there’s a somewhat dystopian proposal regarding the impact of facial recognition technology. Amidst all the agenda items, the proposal seeking additional disclosure on climate change sticks out – not so much for what it’s requesting, which is fairly common, but for who is requesting it, Amazon’s own employees.
There are also several shareholder proposals that didn’t make the agenda: earlier this year, the company received no-action relief from the Securities and Exchange Commission that allowed it to exclude two proposals seeking an analysis of the community impact of the company’s operations, and requesting that the board establish a societal risk oversight committee, in both cases on the grounds that they relate to the company’s normal business operations.
Shikun & Binui Ltd. Tel-Aviv Stock Exchange – May 26
In February 2019, Shikun & Binui’s compensation committee approved a NIS 5.8M compensation package for a new board chair, pegged to rival the former interim, intended full-time CEO. By mid-April the same committee approved a NIS 25 million package for the same person. The reason? The signing on of a new, highly rated and very expensive CEO. The company is also saying a generous goodbye to the soon-to-be former caretaker CEO.
These compensation agreements, alongside a renewed binding policy, should have been voted on at the end of March but were postponed after it was leaked that SKBN was negotiating with Eyal Lapidot to take over as CEO. He’s being poached from one of Israel’s largest insurance companies, which these days are burdened by an executive salary cap. He won’t have to be worried about such things anymore – SKBN is breaking the bank to get its man, even admitting to having requested a benchmarking study comparing its proposed deal to TA-35 (Israel’s large-cap index) standards, of which it is not a constituent. The CEO appointment caused a 28% jump in the company’s share price, despite investors no doubt being aware that Mr. Lapidot wasn’t going to take on a challenging job at a scandal-ridden company like SKBN unless he was promised an extraordinary salary even in the liberal market terms of the Israeli market, something which would allow him to escape the limitations imposed under the Salary Cap Law at insurance companies and banks (which applies to him at Phoenix Holdings).
While Mr. Lapidot’s proposed pay package may be drawing the headlines, onlookers might not have been expecting the rather large side effect which the CEO’s proposed deal had on the offered pay pack of recently appointed board chair Tamir Cohen. What epiphany did the compensation committee members have in the two months between the initial notice of special meeting with the NIS 5.8M offer to Cohen and the filing on April 18 which laid out the offers to Lapidot, outgoing CEO and the chair at more than four times the original package? The main difference is stock options- a lot of them. Notoriously difficult to evaluate accurately, SKBN is proposing to offer a significant chunk of its share capital to attract, retain and motivate its new CEO and board chair.
Xerox Corporation New York Stock Exchange – May 21
Pushback against, and the eventual collapse of, a merger with Fujifilm marked last year’s AGM and continues to have consequences for Xerox. The deal-that-wasn’t prompted activist opposition and a string of lawsuits, with Carl Icahn at the centre, along with concerns that negotiations may reportedly have favored the company’s management over its owners. With the dust settled, five board seats have changed hands, and an Icahn-ite is in the role of chair. It’s not over yet though; Fujifilm is suing for damages exceeding $1 billion, and the company’s motion to dismiss the claim was denied back in February.
This year’s AGM sees the company looking for shareholder approval of a reorganization, into a holding company structure that is intended to provide strategic flexibility. In addition, both management and a shareholder have submitted proposals focused on implementing majority voting standards, or eliminating existing supermajority voting provisions, including the requirement regarding the authorization of a sale, lease, exchange or disposition of company assets. And then there’s the Say-on-Pay. Last year’s vote received over 35% opposition, leading the board to engage with investors and make some favorable changes to the pay structure. However in weighing whether those changes are sufficient, investors will have to consider pay decisions made during the year, including fixed payout levels for portions of 2018 PSUs, reversion away from a relative metric, and substantial sign-on payments to the new CEO.
Royal Dutch Shell plc London Stock Exchange – May 21
For the third year running, Royal Dutch Shell’s AGM features a shareholder proposal regarding the alignment of internal targets with the Paris Climate Change Agreement submitted by Follow This, a group of responsible shareholders in oil and gas companies. That the proposal is still on the agenda is somewhat notable given that Follow This tried to withdraw it back in April. That decision came after the company and investors representing Climate Action 100+ jointly announced that the parties were engaging on setting carbon footprint targets; Shell subsequently adopted and published its first short-term carbon dioxide target, in addition to a commitment to reduce its carbon footprint by 50% by 2050. While the proponent has acknowledged Shell’s leadership in this area, it is still in the process of gathering enough support to withdraw the proposal. As a result, shareholders will likely be casting a vote on a proposal that the proponent has made attempts to remove from the ballot.
Elsewhere on the agenda, the company’s remuneration report is up for vote again after 25% of shareholders rejected it last year. Illustrating the increasing importance of aligning pay with sustainability, opposition stemmed from the remuneration committee’s decision not to reduce payouts related to safety despite a tragic incident in Pakistan involving a sub-contracted road tanker that cost hundreds of lives. While the committee maintains that sub-contractor activities are outside executive scope, excluding another roll-over incident that occurred in 2018 from this year’s payout calculations, it has provided extensive commentary on its rationale. Yet shareholders may be more concerned about this year’s long-term incentive outcomes than the bonus. For the CEO, the payout spiked from €8.9 million to €20.1 million, based on relative TSR, EPS, cashflow and return on average capital – and reflecting a vesting schedule that provides 40% of maximum for threshold performance compared to peers.