Share activism – shareholders vote No!
Socially responsible investment is not just about investing in companies and investments that are positive or avoiding companies that are negative. Shareholder activism is a growing trend for clients of Ethical Investment Advisers Pty Ltd, a Brisbane based specialist in ethical financial planning.
Qantas
Recent examples include clients of Qantas voting a resounding NO for the remuneration report that includes a 71% pay rise for Qantas CEO Alan Joyce.
Clients also voted against Qantas director Richard Goodmanson who presided over the Remuneration Committee between 2008-2009, when Geoff Dixon was paid $22 million. Meanwhile shareholders haven’t had a dividend for 2 years and the share price is at an historic low.
ASIC require directors to provide a Remuneration report detailing all the payments and bonuses to directors and non executives directors as well as the benchmarks at each AGM.
Many remuneration reports show low benchmarks for short term and long term incentives
Billabong
Billabong had a shareholder revolt last AGM (Annual General Meeting) on their remuneration report which they have since improved for 2011, but it still is not satisfactory according to the Australian Shareholders Association (ASA). Free shares will go to 2 directors worth about $776,000 if they achieve average performance (6% EPS growth) from a low base.
The share price has plummeted 51% for the year to 13/10/11, compared with the sharemarket, which dropped 9.6% during the same period (All Ords Index).
Ethical Investment Advisers provide shareholder clients with information on the resolutions at AGM’s and details on the reasonableness of the resolutions compared with best practice and share peers’ director remuneration.
Corporate governance concerns shareholders. Directors should be fairly paid but in many cases have low hurdles for large bonuses. It appears that some companies are taking heed from shareholder backlash. CBA’s remuneration report has been given a tick of approval from the ASA this year. CBA met with the ASA to ensure that its report was clear and reasonable.
Telstra
Clients in Telstra recently voted against such payments as a 1.6million “sign on” bonus for new directors and short term incentive payments to directors of $8.9 million including cash of $6.4million during 2011at a time when total shareholder return was negative and all major financial metrics moved backwards.
Louise Edkins, director of Ethical Investment Advisers Pty Ltd and a financial planner since 1994 says “It is also important to keep companies accountable. Bendigo Bank has a very good environmental and social agenda record.
However corporate governance appears to be at odds with this. A resolution at their coming AGM will ask shareholders to vote on a 47% increase in non executive directors fee cap, despite no plans to increase the number of non executives directors on the board.”
Similarly sized banks in Australia have fee caps well below these levels.
Institutional shareholder activism
The largest shareholders are superannuation funds and fund managers. Increasingly there is more shareholder activism, particularly from superannuation funds.
Recently some of the world’s biggest investor groups including the Australian Council of Superannuation Investors protested against the News Corporation board at its general meeting.
The result of the meeting showed the votes against or withhold for the directors were: James Murdoch (35 per cent), Lachlan Murdoch (34 per cent), Natalie Bancroft (33 per cent), Andrew Knight (32 per cent), Arthur Siskind (30 per cent) and Rupert Murdoch (14 per cent)
Without the vote of the Murdoch Family and Prince Al-Waleed bin Talal, it was a two thirds majority against the directors.
A recent report “Institutional share voting and engagement” compiled by the Australian Institute of Company Directors, found that 24% of their members agreed that there would be a significant increase in voting against company resolutions in the next 10 years and 38% agreed there would be increased voting against company resolutions by superannuation funds. The results were similar for fund managers. Therefore company directors and executives believe there will be a 59 -62% increase in institutional voting and engagement from superannuation funds and fund managers against companies that do not provide transparency and reasonable accountability on their performance.
Two strikes and the board is out
Under new ASX rules effective July 2011, shareholders of ASX listed companies have the ability to vote on whether to ‘spill’ all positions on the board of directors, except the managing director.
The spill vote occurs if strikes are made against a company’s remuneration report two years in a row.
If a 50 per cent or more of AGM votes then favour the spill vote or ‘Board Spill Resolution’, a fresh election of all directors must occur within 90 days.
A number of companies have already has their first strike
Recent JP Morgan research looked back at Australian companies who have had at least 2, 50%+ shareholder voting against remuneration reports over the past 3 years.
Thirty companies have has at least one strike over the last 3 years and Companies that have received a strike in each of the last three years include: Cabcharge Australia (ASX: CAB), Challenger Financial Services Group (ASX: CGF) and Transurban Group (ASX: TCL).
Companies that have received two strikes in the last three years include: Abacus Property Group (ASX: ABP), Asciano Group (ASX: AIO), Austar United Communications (ASX:AUN), Downer EDI (ASX: DOW), FKP Property Group (ASX: FKP), Hillgrove Resources (ASX: HGO), Qantas Airways (ASX: QAN), Rio Tinto (ASX: RIO), UGL (ASX: UGL) and Valad Property Group (ASX: VPG).
Underperformance by companies with poor executive pay remuneration records
Public companies that have received a shareholder ‘strike’ against their remuneration have underperformed, on average, the ASX200 a month after the event by 3.1 per cent according to J.P. Morgan research.
The research by Garry Sherriff examined the last three years and identified 43 companies that received a strike, defined as a 25 per cent or more of shareholder votes being cast against a company’s remuneration report at the annual general meeting.
Environmental shareholder activism
Shareholder activism doesn’t have to be just along corporate governance lines.
S and B Cooke, clients of Ethical Investment Advisers and shareholders of Woodside Petroleum requested to sell all but $1,000 of their shareholding. They are against the proposed LNG plant near Broome in Western Australia. S & B Cooke wish to retain a small holding so that they can vote on any extraordinary resolutions in respect to this plant and carbon risk/environmental policies of the group in general.
Mrs Cooke says “I suppose I want to keep those shares (and shares in other big corporate entities) so that I can have a say as a shareholder in advocating for strong ecological stewardship and against any of their action and policy that is 'ecocidal'”.
(Polly Higgins, a UK environmental lawyer is arguing in the UN to have actions that may make shareholder profit in the short term, but that are irreparably damaging the earth, killing our home on which we depend for everything for our survival and well-being - declared ecocide - a crime against peace, alongside genocide etc. An example would be the Deepwater Horizon BP oil spill).