Evaluation of the 2016 Agm Season
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EVALUATION OF THE 2016 AGM SEASON Introduction Every year Eumedion1 prepares an evaluation of the season of annual reports and shareholders meetings, the AGM season. The main substantive findings concerning the annual reports for the year 2015 and the regular shareholders’ meetings held in 20162 are considered below. Summary The number of votes cast at the AGMs retained its upward trend and was more than 70% at the AGMs of AEX companies and around 62% at the AGMs of AMX companies. Three voting items were rejected by the AGM (2015: 6), four voting items were withdrawn prior to the AGM and one voting item was amended prior to the AGM. In particular, shareholders protested against proposals to grant special bonuses to executives, such as synergy, transaction and retention bonuses, and to proposals to change the remuneration policy when these were inadequately explained. Two AEX companies cancelled an anti-takeover mechanism: ING Group abolished its depositary- receipts structure and Boskalis abolished the voluntary application of the so-called structure regime. Shareholders of DSM used the voting item on the determination of the dividend percentage to be paid on preference shares to advocate alignment between the voting rights and capital contribution on these shares. Royal Brill announced that it will review its corporate governance structure, which includes three anti-takeover mechanisms. The proposal to amend and extend the existing call option agreement between Royal Ahold and its anti-takeover foundation was withdrawn from the agenda. Shareholders seem to be more flexible with respect to authorisations to issue new shares when the pre-emption rights will not be excluded. For example, shareholders and holders of depositary receipts of ING Group agreed to an authorisation to issue new shares of no less than 50%; 40% with pre-emption rights and 10% with or without. Shareholders of Gemalto agreed to an authorisation to issue to issue new shares up to 30% of the issued capital. 20% would be with pre- emption rights for current shareholders and 10% with or without pre-emption rights. An increasing number of listed companies are providing their investors insight into the tax policy and the level of the effective tax rate. Many listed companies do not yet wish to provide detailed public information on their payments made to the governments of the countries in which they have operations (‘country-by-country-reporting’). 1 Together, the Eumedion participants represent approximately 25% of the shares of the Dutch listed companies. 2 This evaluation report covers the AGMs of companies that have its registered office or headquarters in The Netherlands and are listed on Euronext Amsterdam. 1 The number of listed companies that published an ‘integrated annual report’ tripled – from 6 in 2015 to 18 this year. An integrated report provides investors better insight into the long term value creation model of the company and the accompanying risks. 1. Increasing shareholder participation rate persists Shareholders and holders of depositary receipts were able to vote on 873 proposals, one of which was a shareholder’s proposal. Follow This, a collective of Shell shareholders that wants to make the world sustainable quicker by making Shell a renewable energy company, placed a proposal on the agenda to make Shell a renewable energy company by investing the profits from fossil fuels in renewable energy. Shell would have to adapt its strategy accordingly within one year. The proposal was voted down by the Shell AGM with 97.2% of the votes cast. Delta Lloyd major shareholder Highfields Capital Management also requested that an item be placed on the agenda, namely the discussion of the agreements between Delta Lloyd and 7.1% shareholder Fubon Financial Holding. This request for placement on the agenda was denied by the board of the insurer because it had been submitted too late. Moreover, Delta Lloyd stated that the most important elements of the agreements had already been made sufficiently public so that shareholders would be able to ask questions about them at the AGM in any case. In the end – besides the shareholders’ resolution for Shell – only two proposals were rejected by the AGM, namely the authorisation of the board of Tie Kinetix to issue up to 20% new shares in the forthcoming 18 months and the extension of the appointment term of the supervisory directors of Core Laboratories from 3 to 4 years. Four proposals – the authorisation of the Fugro and Heijmans board to issue new shares and the accompanying proposals to exclude or limit the pre-emption rights – could only be adopted with the support of their Trust Offices (see also appendix 1). Four proposals were withdrawn (granting synergy bonuses to the Ahold executives, extension of call option agreement between Ahold and its anti-takeover foundation, changing the dividend percentage on the DSM preference shares and the appointment of a supervisory director at Brill), and also one part of the proposal submitted by BESI to change the remuneration policy (possibility to grant transaction bonuses to the board). This is explained in more detail in paragraphs 2 and 3 and in appendix 2. The number of votes cast at the AGMs of the AEX and AMX companies maintained its increasing trend (graph below). 2 2. Shareholders criticise special bonuses and unclear remuneration policies Thirteen listed companies (AkzoNobel, Ahold, Vopak, Altice, BinckBank, BESI, Flow Traders, Sligro Food Group, Beter Bed, Wessanen, Kiadis Pharma, Kardan and Curetis) had placed a change in the remuneration policy or the granting of a special bonus on the agenda of the AGM. The proposals only led to controversy with the shareholders when the policy included the possibility to grant a special bonus, such as a synergy, transaction or retention bonus, or was inadequately explained. The first was the case at Ahold, BESI and Wessanen. The proposals for granting synergy bonuses to the Ahold executives and for the possible granting of a transaction bonus to the executive of BESI were eventually withdrawn as a result of pressure from shareholders. The proposal to grant the CEO of Wessanen a retention bonus in the middle of his first appointment term could only be adopted by the AGM with the help of the majority shareholder, who is also represented in the supervisory board of Wessanen. At Flow Traders and Beter Bed a lack of clarity on the proposals resulted in a substantial number of votes against (more than 20%). For example, it was hardly possible to deduce precisely what changes were being proposed in the proposal to change the remuneration policy of Flow Traders. From the proposal to change the option scheme of Beter Bed it was impossible to deduce which companies were included in the performance peer group, the number of options that would vest when certain performance targets are met and confusion on the possibility to adjust the option exercise price downwards during the term of the options. The supplemental relevant information was provided to the AGM, but this information arrived too late for the shareholders who could not attend the meeting and who had to issue their voting instruction well in advance of the meeting. Eumedion therefore urgently appeals for the proposals to amend the remuneration policy to be well-explained in writing and not only presented at the AGM. In order to head off dissatisfaction amongst shareholders and possibly also society at large a number of supervisory boards have made use of their discretionary authority to adjust bonuses downwards. 3 For example, the supervisory board of Aegon decided to reduce the short term bonus for the management board for the 2007 financial year by almost 7% “after incorporating model validation updates and assumption changes for the 2015 financial performance of the Group”. The non- executives of Unilever also applied a reduction of almost 7% to the short term bonus of the Unilever executives because further progress needed to be made in winning market share, agility and cost control. The non-executives of Shell reduced the annual bonus of the executives of Shell by almost 10% in connection with a number of safety incidents and the discontinuation of a project. The supervisory board of Delta Lloyd decided to not grant any bonus to the executives of the insurer “due to the development of the solvency and the response to this in the share price of Delta Lloyd in 2015”. Only the supervisory board of IMCD used upwards discretion in connection with the high score in one of the performance criteria for the short term bonus for the executives. In a number of cases, chairmen of the management boards took the initiative to moderate the remuneration package. For example, the CEO of Unilever refused an increase in his fixed salary, while the chairman of the management board of Fugro refused to accept a bonus for the 2015 financial year, although a number of goals prompting payment of the bonus had been achieved. Three of the four executives of Curetis also voluntarily refused to accept a bonus for the 2015 financial year. After fourteen listed companies increased the remuneration of the supervisory directors in 2014 and no less than 24 in 2015, this was followed by another eleven companies in 2016 (DSM, ING Group, Wolters Kluwer, Arcadis, Brunel, KAS BANK, Kiadis Pharma, Batenburg Techniek, Van Lanschot, Tie Kinetix and Curetis). The increase was usually motivated by the increase in work and liability for the supervisory directors and a ‘remuneration gap’ in comparison with other, comparable companies. These were convincing reasons for the shareholders. All proposals to increase the remuneration of the supervisory directors were adopted by the AGM with significant majorities. By the way, Curetis was the only company that proposed henceforth rewarding its supervisory directors (partially) with (share) options.