Welcome to a brief Proxy Governance update as we enter full on proxy season.
April's Proxy Governance Update provides an insight in to our observations from the 2022 proxy season to date.
Head of Corporate Governance
After the fantastic CGPro Network event held in March, we quickly switched our focus to the here and now. No longer predicting what the future would hold but seeing it unfold.
So, whilst we know that everyone is busy, we thought we’d offer a few insights into what we’ve seen so far. Perhaps some of you will nod your heads, some will raise your eyebrows, and some will smile, in an understanding kind of way, at what we have to share with you for the next few minutes. Whatever the case, please do take a quick break and have a read.
Issuers often ask what we’re seeing, hearing and experiencing. We’re fortunate and privileged here at Boudicca to be working with many clients, supporting their AGMs, so there’s not much we haven’t seen. I remember one client stating that managing an AGM once a year was more than enough, and they couldn’t imagine how we worked on AGMs continually! Of course, that’s what we are here for, and whilst we completely immerse ourselves in supporting our clients, we also know that together, we will successfully complete an AGM. Then moving on to our ongoing, less intense, advisory support role until the next year-end processes begin.
Remuneration you ask?
There is nothing new here.No matter how creative the proposal, or the particular issues being addressed, we have actually seen most scenarios before. Retention issues now we are coming out of COVID-19? Aligning Executive pay with market practice in the US whilst being UK listed? Changing from an LTIP to RSP (don’t you just love all the acronyms?!)? All are things we have seen and heard on a number of occasions. Aligning executive remuneration with stakeholder experience remains, though we do think the lines have somewhat softened.
Diversity – is it really a red-line issue?
At Board level, against the Hampton-Alexander targets, yes, it is. Are investors really going to vote against the Nomination Committee Chair (usually the Board Chair)? Well, perhaps if they have other governance concerns, but as yet we have seen all Chairs re-elected. Make no mistake, diversity expectations are reflected in investor policies and the pressure to increase female representation at the Board and Senior Management levels has not diminished. It has been increased with the drive for FTSE Women Leaders target of 40% by 2025, with 33% now seen as a minimum level to be maintained. And we can now see this specifically stated in the PLSA 2022 Guidelines.
We’ve had a few cases of advising on tenure going over nine years this year. As always, rationale and disclosure are king. We do wonder if the last two years have meant that ordinary board succession planning and refreshment has, understandably, been disrupted, and there is a need to retain the skills and experience as we emerge from the pandemic and deliver a new or changed strategy.
Perhaps linked to tenure, the interesting point is that we have had more requests for advice linked to overboarding concerns. So perhaps, as we see movement and change with UK plc Boards, the pool of available talent means there is high demand for a relatively short supply of candidates? There will be many factors, but it is easy to see that the drive for gender and ethnic diversity should increase the available pool, which could address overboarding concerns of investors and proxy advisers.
And of course, climate change is an area everyone needs to become more familiar with in terms of investor expectations of Issuers. We see reporting against TCFD, with clients employing external advice to assist with this. TCFD disclosures are providing the basis for more meaningful conversations around climate change and carbon emissions reduction, though lingering differences of opinion concerning Scope 3 emissions mean that there is likely to be some debate on this subject going forwards. Are we seeing more Say On Climate resolutions? Well, a few to mention would be Natwest, Barclays and Standard Chartered. We’ll be coming back to this subject later in the season.
And moving away from particular themes, how about how Issuers are holding AGMs? We had a question about location and whether to hybrid or hold a physical meeting. In this case, shareholders were driving the agenda, interestingly enough, and decided on a physical meeting.
Shall I Say It Out Loud?
Another highlight, towards the end of 2021, occurred when we were working on a number of AGMs where multiple governance matters were not landing well with proxy advisers or institutional investors, leading to some major concerns over the re-appointment of Chairs (nail-biting stuff!) and in the middle of this we heard the words of Tim Martin of Wetherspoon’s. Here is a link in case somehow you missed this. Not often do you hear such public statements, but we certainly were feeling some similar frustrations felt by clients at the time.
When The Known Becomes The Unknown?
Do you understand your shareholder base, and would they really support you? How do you know who owns your shares? Who really owns your shares? It wasn’t long after the invasion of Ukraine that we started to have questions seeking further understanding of the underlying beneficial holders of shares. Here at Boudicca, it’s something we’re very familiar with, needing to understand who the decision-makers are, who has the power and right to vote.
Interestingly, we’ve just seen an announcement by Glass Lewis on their Research Approach in the Context of Russia’s Invasion of Ukraine. It answers the question – how do you recommend on a director election on an individual who is or may be the subject of sanctions?
It only takes a scan of BBC news (or whatever news channel you favour) to know that themes begin to make the news, either across sectors or particular to one sector. One current theme we have noticed in a specific sector is employee pay. As well as observing different stakeholder groups supporting one another and raising their voices, what is interesting to note here is the sector-specific pressure being applied. We’re currently working with a client asking for our support to monitor what is happening with their peers. An example of the theme being 'Say on Climate resolutions'. So our advice is to keep abreast of what is happening with your peers and within your sector.
What’s true to say is that anyone working in corporate governance will know there is never a dull moment! Every day we hear and support on different matters, but what is always the constant is that we all have an interest in corporate governance, ESG, stakeholders.They are woven into the fabric of our working days, and we look forward to what tomorrow brings.
Until the next update, we wish you all success, in whatever role you play.
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