Georgeson's 2019 Proxy Season Review

Georgeson’s 2019 Proxy Season Review

UK GERMANY FRANCE SWITZERLAND NETHERLANDS ITALY SPAIN DENMARK

Content

UK > 10 NETHERLANDS > 82

1 | Voting in the United Kingdom > 12 1 | Voting in the Netherlands > 84 1.1 Quorum overview > 12 1.1 Quorum overview > 84 1.2 Rejected resolutions > 14 1.2 Rejected resolutions > 86 1.3 Withdrawn resolutions > 15 1.3 Withdrawn resolutions > 87 1.4 Contested resolutions > 16 1.4 Contested resolutions > 88 2 | Proxy Advisors > 20 2 | Proxy Advisors > 91 3 | Corporate Governance developments > 27 3 | Corporate Governance developments > 94

GERMANY > 30 ITALY > 96

1 | Voting in Germany > 32 1 | Voting in Italy > 98 1.1 Quorum overview > 32 1.1 Quorum overview > 98 1.2 Rejected resolutions > 34 1.2 Rejected resolutions > 100 1.3 Contested resolutions > 35 1.3 Contested resolutions > 100 2 | Proxy Advisors > 39 2 | Proxy Advisors > 104 3 | Corporate Governance developments > 42 3 | Corporate Governance developments > 110

FRANCE > 44 SPAIN > 112

1 | Voting in France > 46 1 | Voting in Spain > 114 1.1 Quorum overview > 46 1.1 Quorum overview > 114 1.2 Rejected resolutions > 47 1.2 Rejected resolutions > 116 1.3 Contested resolutions > 49 1.3 Contested resolutions > 116 2 | Proxy Advisors > 54 2 | Proxy Advisors > 118 3 | Corporate Governance developments > 60 3 | Corporate Governance developments > 124

SWITZERLAND > 64 DENMARK > 127

1 | Voting in Switzerland > 66 1 | Voting in Denmark > 128 1.1 Quorum overview > 66 1.1 Quorum overview > 128 1.2 Rejected resolutions > 67 1.2 Rejected resolutions > 129 1.3 Contested resolutions > 69 1.3 Contested resolutions > 132 2 | Proxy Advisors > 74 2 | Proxy Advisors > 134 3 | Corporate Governance developments > 80 3 | Corporate Governance developments > 136

Georgeson’s 2019 Proxy Season Review > 01

Introduction

We are proud to present a thorough analysis of the seven major markets where Georgeson has a widespread client base, and where we are privileged to work closely with many of the leading issuers. Additionally we have included Denmark, in view of our expanding presence in the region. Our local client support, thorough investor engagement and deep market expertise allow us to highlight the issues and trends which will be of interest to both companies and investors.

As the world’s leading shareholder engagement firm and corporate governance advisor, Georgeson works hard to ensure that our clients understand the critical issues, trends and personalities which affect and motivate their shareholders, so that they do not become a statistic highlighted in this or any other report.

During the 2019 AGM season we have found that, across the seven major markets, the overall proportion of resolutions that received more than 10% opposition has increased by 6.67%. At the same time, proxy advisors continue to hold great influence on voting outcomes with a vast majority of resolutions opposed by proxy advisors receiving high levels of opposition from investors. This highlights how important it is for companies not only to address investor concerns but to proactively engage with proxy advisors as well.

Executive remuneration continues to remain a key focal point for investors, with remuneration-related resolutions being amongst the most contested resolutions in the majority of the markets surveyed by Georgeson.

This focus on remuneration will have further resonance in 2020, when the revised European Shareholder Rights Directive will introduce annual remuneration votes across the EU. Our analysis shows that the major markets that are most unprepared for this change are Germany and the Netherlands (where only a minority of companies held votes on executive remuneration in 2019).

Director elections also continue to attract investor scrutiny and negative votes. Furthermore, the considerable growth in negative votes on discharge resolutions in certain markets shows an increased investor willingness to oppose board members directly when they consider that there have been corporate governance failings.

Lastly, as investor and proxy advisor guidelines become stricter on dilution in continental Europe, proposals to issue shares have also been subject to greater scrutiny by investors, confirming a multi-year trend across European markets.

We hope that our report will give you greater insight into these markets both in terms of the general trends and of the particular issues that have arisen during the last AGM season. Georgeson remains available to help you with any more specific queries. For any support needed at your next general meeting, please do not hesitate to let us apply our market intelligence, which will help you avoid any possible pitfalls raised both by local developments and complex international trends that can affect a dispersed shareholder base.

A special thank you to all our colleagues across Europe who contributed to the production of this document, and in particular Daniele Vitale, our Corporate Governance Manager, who edited the report.

Domenic Brancati

Chief Executive Officer – UK/Europe [email protected]

Georgeson’s 2019 Proxy Season Review > 03 Key Figures

UK GERMANY FRANCE SWITZERLAND NETHERLANDS ITALY SPAIN

UNITED KINGDOM GERMANY FRANCE SWITZERLAND (FTSE 100) (DAX) (CAC 40) (SMI)

5 3.0 68.9 81.0 77.78 0% 7% 8% % ( ( ( (- + - + 1 1 8 2 4 6 . 4 6 1 . . . 0 6 .4 7 9 2 1 . 8 0 0 1 % % 6

% %

% 1 % 2

)

8 )

)

0 )

)

(

- ( .

)

1 %

1 3 1 14 1

9 0 1

0 5

. 9

0 2 ( 8 .

% + ) ( ) % 1 - 5 0

% change in number of % change in number of ISS contested resolutions (vs 2018) negative recommendations (vs 2018)

UK -13.29% UK -43.51%

GERMANY 108.59% GERMANY 84.19%

FRANCE -5.29% FRANCE 6.68%

SWITZERLAND 1.00% SWITZERLAND -12.17%

NETHERLANDS -15.37% NETHERLANDS 105.05%

ITALY -6.52% ITALY -2.70%

SPAIN 21.12% SPAIN -21.56%

04 > NETHERLANDS ITALY SPAIN (AEX+AMX) (FTSE MIB) (IBEX 35)

50 55 71 .0 .88 .43 0% % % Rejected ( ( ( + + -1 1 board proposals 1 7 5 5 . . 3 6 7 . .7 7 1 9 1 6 1 9 . % % 1 %

% 7 Companies with %

)

( )

- )

1 2

( over 10% oppose

4 5 2

0 +

7 . 5 ) . 1

% ( 2 ) - 6

% Resolutions with over 10% oppose

% of resolutions with less than % change in number of Glass Lewis 80% support which had a negative negative recommendations (vs 2018) ISS or Glass Lewis recommendation

UK 16.42% UK 72.22%

GERMANY 40.66% GERMANY 97.92%

FRANCE 11.28% FRANCE 92.05%

SWITZERLAND -51.86% SWITZERLAND 85.71%

NETHERLANDS 36.70% NETHERLANDS 76.92%

ITALY -19.35% ITALY 75.00%

SPAIN 1.55% SPAIN 87.50%

Georgeson’s 2019 Proxy Season Review > 05 EU Revised Shareholder Rights Directive

IMPACT ON REMUNERATION

In March 2017 the European Parliament approved amendments to % of companies which held a vote the 2007 EU Shareholder Rights Directive (Directive 2007/36/EC) on executive remuneration in 2019 with the aim of encouraging “long-term shareholder engagement”. The revised Directive (Directive (EU) 2017/828) was published on UK 100.00% 20 May 2017. The remuneration-related provisions must be trans- posed into Member State law by June 2019 (but some Member States have fallen behind this deadline). GERMANY 13.79% Regarding remuneration, the revised Shareholder Rights Directive will implement a standardised framework of remuneration disclosure and shareholder votes at listed companies across the EU. FRANCE 100.00% Shareholders will have the right to know how much the company’s directors are paid and they will be able to influence this through a vote. According to the European Commission this will guarantee a SWITZERLAND 100.00% stronger link between pay and performance.

According to the Directive, shareholders must be given the option to express their views on remuneration through: NETHERLANDS 33.33% > a forward looking vote on a company’s remuneration policy which lays down the framework within which remuneration can be awarded to directors; ITALY 100.00% > a retrospective vote on the remuneration report describing the remuneration granted during the past year. SPAIN 100.00% The remuneration policy vote can be either advisory or binding, depending on each Member State’s implementation of the Directive, and has to be submitted to shareholders at least every four years (and also if material changes are made to the policy). The vote on the remuneration report is advisory and has to be submitted to shareholders annually.

In March 2019 the European Commission published non-binding draft guidelines1 on “the standardised presentation of the remuneration report” and ran a public consultation on them. Industry participants expect the final guidelines to be issued in the autumn of 2019 and it appears likely that the extent to which companies voluntarily comply with the final guidelines will be closely watched by the investor community.

Below is an overview of the current status of remuneration votes across the major markets covered in this document, as well as an indication of the potential impact of the revised Shareholder Rights Directive versus current practices.

1) https://ec.europa.eu/info/consultations/public-consultation-remuneration-report-guidelines-implementing-shareholders-rights- directive_en

06 > EU Revised Shareholder Rights Directive

UNITED KINGDOM

> Current status: Remuneration policy submitted to binding vote at least every three years; remuneration report submitted to advisory vote annually. > Annual remuneration votes introduced: 2002 > Expected impact: Minimal

GERMANY

> Current status: A remuneration system vote should be submitted to shareholders at regular intervals or in case of material changes. > Annual remuneration votes introduced: n/a > Expected impact: Major

FRANCE

> Current status: Annual binding vote on ex-an- te remuneration policy, and annual ex-post vote on individual executive remuneration awarded in the previous financial year. > Annual remuneration votes introduced: 2013 > Expected impact: Minimal

SWITZERLAND ITALY

> Current status: Annual approval by share- > Current status: Remuneration report sub- holders of the total amount of compensation mitted for annual advisory vote (binding for of the Board of Directors, executive manage- financials) and binding vote to adopt ment and of any advisory board. Voluntary equity-related incentive schemes. annual vote on remuneration report is wide- > Annual remuneration votes introduced: 2011 spread. > Expected impact: Moderate > Annual remuneration votes introduced: 2013 > Expected impact: No direct impact SPAIN

NETHERLANDS > Current status: Remuneration policy is submitted to shareholders for a binding vote > Current status: Shareholders vote only in every three years, and remuneration report case of material changes to the remuneration is submitted to shareholders for an advisory system. vote annually. > Annual remuneration votes introduced: n/a > Annual remuneration votes introduced: 2011 > Expected impact: Major > Expected impact: Moderate

Georgeson’s 2019 Proxy Season Review > 07 NotableKey Trends European Trends

> During the 2019 AGM season (1 July 2018 to 30 June 2019), across the seven major European markets, the overall proportion of resolutions that received more than 10% opposition increased by 6.67%, from 506 (out of 5,182) in 2018 to 546 (out of 5,242) in 2019. > SRD II will introduce annual remuneration votes across the EU from the 2020 AGM season. > The major markets that are most unprepared for this change are Germany and the Netherlands (where only a minority of companies held votes on executive remuneration in 2019). > All other major markets already have mandatory annual remuneration votes. > Executive remuneration continues to be a flashpoint for investors across all major European markets. > Director elections continue to grow as an area of focus and negative votes. This has extended to board discharge votes in some markets. > Authorities to issue shares have also come under greater scrutiny across a number of major markets.

EXECUTIVE REMUNERATION

Executive remuneration continues to be an important area of focus for many investors. > The EU’s revised Shareholder Rights Directive will introduce annual remuneration votes across the EU from the 2020 AGM season. The major markets most unprepared for this change are Germany and the Netherlands, where only a minority of companies (13.79% and 33.33% respectively) held votes on executive remuneration in 2019. All other major markets already have a mandatory annual remuneration vote. > In Spain (IBEX 35), there was a 57% increase in the number of contested (10%+ opposition) remuneration-related resolutions (compared to 2018). Remuneration-related proposals remain the second most penalized topic among investors at AGMs. > In the UK (FTSE 100) there has been a 107% increase (on a calibrated basis) in the dissent over remuneration policy votes, from 6 contested resolutions out of 39 in 2018 to 6 out of 19 in 2019. However, there has been an 8% decrease in contested (10%+ opposition) remuneration report votes compared to the 2018 AGM season. > In France (CAC40), there was a 6% increase in the number of contested (10%+ opposition) remuneration related resolutions. These continue to be the most contested resolution type across the index, representing 39% of the total number of contested resolutions. > In Switzerland (SMI), there was a 10% increase in the number of contested (10%+ opposition) advisory remuneration report votes (compared to 2018). These proposals remain very contentious, with 65% of remuneration report proposals receiving more than 10% opposition. > In Italy (FTSE MIB), remuneration-related proposals continue to be the most contested resolution type (10%+ opposition) for the fifth year in a row within the FTSE MIB. Moreover, since 2015 the number of contested proposals has increased by 88%. > In Germany (DAX), 25% of remuneration system votes were contested (10%+ opposition) during the 2019 AGM season. It should be noted that only 4 companies put forward an executive remuneration vote in 2019. > In the Netherlands (AEX and AMX), 6 remuneration proposals out of 34 were contested (10%+ opposition), representing 18% of the total.

08 >

DIRECTOR ELECTIONS

Director elections continue to grow as an area of focus and negative votes. This has extended to board discharge votes in some markets.

> In Germany, since 2018 there has been a 366% increase in the number of contested (10%+ opposition) proposals relating to the election of supervisory board members. Moreover, investors have expressed their concerns with board members by also opposing the management and supervisory board discharge resolutions, which saw a 614% increase in the number of contested proposals over a three year period (from 7 in 2017, to 15 in 2018, to 50 in 2019). We note that the number of companies putting discharge votes forward for individual board members has increased from 5 in 2018 to 8 in 2019.

> In the Netherlands (AEX+AMX) there has been a 200% increase in the number of contested (10%+ opposition) proposals relating to director elections (from 3 in 2018 to 9 in 2019).

> In Spain (IBEX 35), director elections continue to be the most contested (10%+ opposition) resolution type, representing 41% of the contested proposals brought forward during the 2019 AGM season.

> In Switzerland (SMI), directors receiving more than 10% opposition continues to be the most contested resolution type within the SMI, representing 28% of all contested proposals in 2019.

> In Italy (FTSE MIB), the number of director election resolutions which were contested (10%+ opposition) increased by 400% (from one in 2018 to five in 2019). Directors are only rarely elected outside the slate voting system.

> In the UK (FTSE 100), 33 director elections were contested (10%+ opposition), representing the most contested category of resolution across the index. Contested director elections had reached a four-year peak of 40 in 2018. This represents an 17% decrease between 2018 and 2019.

> In France (CAC40), 13% of the total number of contested (10%+ opposition) proposals was related to director elections, representing the third most contested resolution type across the index. This is the lowest number of contested director elections in three years.

SHARE ISSUANCE

Authorities to issue shares have also come under greater scrutiny across a number of major markets. This reflects a multi-year trend across continental Europe, which has seen investor and proxy advisor guidelines becoming stricter on dilution and many companies making significant adjustments.

> In Spain (IBEX 35) the proportion of share issuance authorities that were contested (10%+ opposition) increased from 30% in 2018 to 59% in 2019. This was the third most contested resolution type across the index.

> In France (CAC 40) there has been a 38.5% increase in the number of contested (10%+ opposition) resolutions related to share issuance authorities, from 26 in 2018 to 36 in 2019.

> In Netherlands (AEX+AMX) share issuance authorities continue to be the most contested (10%+ opposition) resolution type, representing 23% of the contested proposals brought forward during the 2019 AGM season. Moreover, ISS recommended against 13 share issuance authorities up from just one in 2017 and none in 2018.

> n Germany (DAX 30) authorities to issue shares represented the third most contested (10%+ opposition) category across the index, with 18% of these resolutions being contested by shareholders.

> In Italy (FTSE MIB), share issuance authorities represented the third most contested (10%+ opposition) category across the index. Of the 22 authorities put forward, 6 were contested representing 16% of the total.

> In the UK (FTSE 100) 21 authorities to issue shares were contested (10%+ opposition) by shareholders during the 2019 AGM season.

Georgeson’s 2019 Proxy Season Review > 09

United Kingdom (FTSE 100)

REJECTED BOARD PROPOSALS 1

AVERAGE QUORUM 73.80%

RESOLUTIONS WITH OVER 10% OPPOSE 4.40%

COMPANIES WITH OVER 10% OPPOSE 53.00%

Highlights > The average quorum across the FTSE 100 decreased from 74.3% in 2018 to 73.8% in 2019.

> Across the FTSE 100 there was one board-proposed AGM resolution rejected by shareholders. > The number of FTSE 100 companies that had at least one contested proposal (10%+ opposition) was 53. The overall number of contested resolutions decreased from 112 in 2018 to 95 in 2019. Calibrated for the total number of resolutions in each year, this represents a 13.29% decrease compared to the 2018 AGM season. > In the FTSE 100 there has been a 17% decrease in contested director elections (10%+ opposition) since 2018. However, the number of directors who received over 10% oppose votes continues to be higher than in 2017 (33 directors in 2019 compared to 31 directors in 2017). > Dissent over remuneration policy votes has increased significantly, resulting in 32% of such resolutions being contested (10%+ opposition) in 2019 (6 contested resolutions out of 19), compared to 15% in 2018 (6 contested resolutions out of 39). This represents an increase of 107% (on a calibrated basis). > There was an 8% decrease in contested (10%+ opposition) remuneration report votes across the FTSE 100 in 2019 (22 resolutions), compared to 2018 (24 resolutions). > ISS recommended negatively on 21 resolutions in 2019, compared to 38 resolutions in 2018 (a calibrated 43.51% decrease). > Glass Lewis recommended negatively on 41 resolutions in 2019, compared to 36 resolutions in 2018 (a calibrated 16.42% increase). > Proxy advisors continue to have a big impact on the outcome of proposals, and there is a clear correlation between negative proxy advisor recommendations and lower vote results. For instance, in the FTSE 100, the eight remuneration reports with the lowest level of support all received at least three out of four negative recommendations from the main four proxy advisors covered in our analysis.

Georgeson’s 2019 Proxy Season Review > 11 1 | Voting in the United Kingdom

1.1 QUORUM OVERVIEW

Georgeson has reviewed the quorum levels of FTSE 100 companies over the past five years. This year’s review includes the companies that were part of the index as of 31 March 20191, and which held their AGMs between 1 July 2018 and 30 June 2019. In the FTSE 100 the average quorum for the reporting period was 73.8%. This is a slight decrease compared to the average 2018 quorum, and a 2.8 percentage point increase over quorum levels in 2015. Meanwhile in the FTSE 250, the average quorum was 72.6% in 2019, down 1.5 percentage points from the 2018 quorum level.

Graph 1: Average AGM quorum levels in the FTSE 100 and FTSE 250 between 2015 and 2019.

75.0% FTSE 100 FTSE 250

74.5%

74.0% 74.3%

73.5% 74.1 % 73.8% 73.7% 73.0% 73.3% 73.2% 72.5% 72.9% 72.9%

Quorum 72.0% 72.6%

71.5% 71.8% 71.0%

70.5%

70.0% 2015 2016 2017 2018 2019

1) https://content.ftserussell.com/sites/default/files/press-archive/27feb19_ftse_uk_series_index_review_q12019.pdf

12 > UK

Graph 2: Quorum levels at FTSE 100 companies during the 2019 reporting period.

Scottish Mortgage Investment Trust EasyJet Standard Life Aberdeen HSBC Holdings Whitbread Paddy Power Betfair Royal Dutch Shell National Grid CRH International Consolidated Airlines Group Centrica Taylor Wimpey Marks & Spencer Group Aviva Coca-Cola HBC Smurfit Kappa Group Persimmon Vodafone Group United Utilities Group BP Barratt Developments SSE Lloyds Banking Group Ashtead Group TUI BT Group Legal & General Group Severn Trent DS Smith Berkeley Group Holdings GlaxoSmithKline Hargreaves Lansdown Mondi Rolls-Royce Holdings Next WPP Experian Johnson Matthey RSA Insurance Group Barclays Tesco Croda International BHP Group Unilever Smith & Nephew Halma Anglo American Informa Reckitt Benckiser Group Carnival Corporation Burberry Group Phoenix Group Holdings BAE Systems Direct Line Insurance Group Land Securities Group Smiths Group Astrazeneca Ferguson 3i Group The British Land Co. Melrose Industries British American Tobacco Imperial Brands J Sainsbury Prudential Glencore Micro Focus International Wm Morrison Supermarkets RELX DCC The Sage Group Segro Standard Chartered Compass Group Diageo ITV Hiscox Admiral Group Pearson Kingfisher InterContinental Hotels Group Evraz London Stock Exchange Group Rentokil Initial Hikma Pharmaceuticals St James‘s Place Spirax-Sarco Engineering Intertek Group Bunzl Associated British Foods Auto Trader Group Ocado Group Rightmove NMC Health Schroders Just Eat Rio Tinto Royal Bank of Scotland Group

Antofagasta Fresnillo

Quorum 0% 20% 40% 60% 80% 100%

Georgeson’s 2019 Proxy Season Review > 13 1.2 REJECTED RESOLUTIONS FTSE 100 Within the reporting period, Micro Focus International was the only company in the FTSE 100 that had a management-proposed AGM resolution rejected by shareholders.

Micro Focus International On 29 March 2019 Micro Focus International announced2 that the vote on their remuneration report received a 50.4% vote against and failed to pass.

According to media reports3 opposition related to “a move to give bosses an extra year to hit targets which could allow them to share a £268 million bonus bonanza. The FTSE 100 company’s remuneration committee is accused by Glass Lewis of having ‘not fulfilled’ its duties. The influential shareholder advisory body has urged investors to vote against the re-election of committee chairwoman Amanda Brown and the three other members – Darren Roos, Silke Scheiber and Karen Slatford – at the annual meeting on March 29. It has also recommended investors vote against the remuneration report. Micro Focus granted the time extension after the botched integration of its £6.5billion takeover of assets from Hewlett Packard Enterprise made the share price slide”.

The company stated: “We are disappointed that many shareholders who voted in favor of our remuneration policy in 2017 have not supported the advisory vote on the Remuneration Report at this year’s AGM”. Amanda Brown, chair of the remuneration committee, said: “We acknowledge and respect the concerns of our shareholders and have already committed to undertake a thorough review of our reward strategy this year with the objective of putting a new policy to shareholders at the 2020 AGM. The remuneration committee will continue to consult closely with shareholders throughout this process, and reflect very carefully on any issues that they raise”.

We note that ISS, Glass Lewis and PIRC recommended against this proposal while IVIS issued a red top on the remuneration report.

FTSE 250 Across the FTSE 250, two companies saw at least one management-proposed AGM resolution rejected by shareholders since January 2019: Quilter and Shaftesbury.

Quilter At Quilter’s 2019 AGM a proposal relating to share issuances with pre-emptive rights failed to gain sufficient support, with 49.5% of shareholders voting in favour. The Company stated4: “the authority sought by the Company pursuant to resolution 19 is considered routine for UK listed companies and is in accordance with the UK Investment Association’s share capital management guidelines and prevailing voting guidelines of leading corporate governance agencies applicable to UK listed companies. Given this, the resolution received overwhelming support from our UK investors. However, certain overseas institutional investors, mainly in South Africa, have not supported this resolution and thus the resolution has been narrowly rejected”.

We note that ISS, Glass Lewis and PIRC supported the proposal.

2) https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MCRO/14022046.html 3) https://www.thisismoney.co.uk/money/markets/article-6790573/Micro-Focus-faces-shareholder-rebellion-268m-bonuses.html 4) https://www.quilter.com/siteassets/quilter/investor-relations/agm/quilter-agm-results-16-may-2019.pdf

14 > UK

Shaftesbury At Shaftesbury’s 2019 AGM5 two special proposals (requiring a 75% vote in favour) relating to share issuances without pre-emptive rights failed to gain sufficient support, with 70.2% of shareholders voting in favour of issuances without pre-emptive rights in connection with an acquisition, and 70.9% voting in favour of general issuances without pre-emptive rights. Moreover, a special proposal to authorize the Company to call general meetings with two weeks’ notice failed to pass with 68.7% of shareholders supporting it. These resolutions failed following the negative vote of Mr Samuel Tak Lee, owner of 26.15% of the issued share capital of the Company.

Commenting on the results, the Company stated “we are disappointed that Mr Lee has voted against these resolutions and will continue to attempt to engage directly with him. An update will be made in accordance with the UK Corporate Governance Code within six months of the AGM”.

We note that ISS and Glass Lewis were supportive of all the proposals, while PIRC opposed the proposal seeking authority for issuances without pre-emptive rights in connection with an acquisition, while supporting the general issuance and the meeting-notification related proposals.

1.3 WITHDRAWN RESOLUTIONS

Across the FTSE 100, four resolutions were withdrawn within the reporting period.

Taylor Wimpey On 25 April 2018, the resolution to approve the sale of a property to a director (Pete Redfern, Chief Executive) with a £436,000 discount was withdrawn6 by the company. We note that the proposal was criticised in the media7 as a “gratuitous bonus”.

Aviva Aviva announced on 24 April 2019 that Andy Briggs, CEO UK Insurance, stepped down from his role and that “he will remain with the Group until 23 October 2019 to support an orderly transition”8. The Company therefore withdrew the resolution to re-elect him at the AGM on 23 May 2019.

Informa Informa announced on 21 May 20199 that Cindy Rose and David Wei had chosen not to stand for re-election as Non-Executive Directors at the Group’s AGM on 24 May 2019 and would be stepping down from the Board effective from the end of the AGM. The company therefore withdrew two resolutions to re-elect them.

5) https://www.shaftesbury.co.uk/content/dam/shaftesbury/corporate/Investor-Relations/Shareholder-services/AGM- notifications/2019/agm-results-2019.pdf 6) https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TW./14052302.html 7) https://www.thetimes.co.uk/article/taylor-wimpey-plans-to-give-boss-pete-redfern-400-000-discount-on-luxury-flat-rqrqq6gzv 8) https://www.aviva.com/newsroom/news-releases/2019/04/aviva-senior-management-changes/ 9) https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/INF/14082444.html

Georgeson’s 2019 Proxy Season Review > 15 1.4 CONTESTED RESOLUTIONS

Among our sample of FTSE 100 companies that held their AGMs during the reporting period, 53 companies saw at least one management-proposed resolution receive more than 10% shareholder opposition (compared to 58 in 2018). The total number of resolutions that received over 10% opposition amounted to 95 (including the rejected resolution discussed in section 1.2), compared to 110 in 2018.

In the UK resolutions can be either ordinary10 or special11. Ordinary resolutions require a simple majority of votes cast, while special resolutions require a 75% majority. Whether a resolution must be proposed as a special resolution is defined in the Companies Act. However, in some cases institutional investor bodies expect a resolution to be put forward as a special resolution even though this is not required by law12.

In our FTSE 100 sample, the most commonly contested resolutions were director elections. The second most commonly contested resolutions were remuneration report votes. The third most commonly contested resolutions were authorities to issue shares with and without pre-emptive rights. Authorities with pre-emptive rights are proposed as ordinary resolutions while authorities to issue shares without pre-emptive rights are proposed as special resolutions.

Graph 3: Number of resolutions which received more than 10% against votes in the FTSE 100 (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

45 2017 2018 2019

35 3.9%

30 12.8% 13.5% 3.3% 3% 25 9.5%

20 24% 22.2% 7.2% Number of proposals Number of 15

10 18.2%

5 27.5% 13.3% 14.8% 8.5% 7.2%

0 6.1% Director Elections Remuneration Authority to Remuneration Authority to Other Report Issue Shares Policy/LTIPS Call an EGM on Short Notice

10) http://uk.practicallaw.com/4-107-6940 11) http://uk.practicallaw.com/9-107-7287 12) For instance, in relation to authorities to repurchase own shares, the Investment Association states that “companies should seek authority to purchase their own shares whether on market or off market by special resolution and not simply an ordinary resolution as is allowed by Sections 694 and 701 of the Companies Act 2006”. See section 2.1.1 here: https://www.ivis.co.uk/ media/12250/Share-Capital-Management-Guidelines-July-2016.pdf

16 > UK

1.4.1 DIRECTOR ELECTIONS

The five companies with the lowest level of support on director elections among our sample were: > Informa (Stephen Davidson – 64.4% in favour) > Smurfit Kappa Group (Christel Bories – 65.6% in favour) > Berkeley Group Holdings (Adrian Li – 68.6% in favour) > Anglo American (Marcelo Bastos – 73.8% in favour) > Compass Group (Ireena Vittal – 77.6% in favour) We note that ISS recommended against the elections of Davidson and Li, while Glass Lewis recommended against the elections of Bories and Li and to abstain on the election of Davidson.

1.4.2 REMUNERATION

Since 2002 quoted companies in the UK have been required to prepare a Directors’ Remuneration Report and to offer shareholders an opportunity to vote on an advisory ordinary resolution approving this report13. In 2013 regulations were introduced requiring a binding vote on executive remuneration14. Under the regulations, remuneration reporting is comprised of three elements: the Annual Statement; the Annual Remuneration Report; and the Directors’ Remuneration Policy. The Annual Remuneration Report is subject to an annual advisory vote. The Directors’ Remuneration Policy is subject to a binding vote at least once every three years.

Remuneration report During the reporting period a total of 22 companies in our FTSE 100 sample received less than 90% support on their remuneration report, compared to 24 companies in 2018.

The five companies with the lowest level of support on the Remuneration Report among our sample were: > Micro Focus International (49.7% in favour) > Segro (53.3% in favour) > Standard Life Aberdeen (58% in favour) > BT Group (65.8% in favour) > Barclays (70.8% in favour) ISS recommended a vote against each of these resolutions. Glass Lewis recommended a negative vote against Micro Focus International, Segro and Standard Life Aberdeen.

Remuneration policy During the reporting period seven companies in our FTSE 100 sample received less than 90% support on their Remuneration Policy vote, compared to six companies in 2018.

The five companies proposing a Remuneration Policy vote and receiving more than 10% opposition were: > Standard Chartered (63.8% in favour) > Ocado Group (75.8% in favour) > Smiths Group (81.6% in favour) > Segro (82.9% in favour) > CRH (86.7% in favour) Both ISS and Glass Lewis recommended against at Standard Chartered and Ocado Group.

13) Companies Act 2006, s. 439: http://www.legislation.gov.uk/ukpga/2006/46/section/439. 14) The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (SI 2013/1981): http://www.legislation.gov.uk/uksi/2013/1981/contents/made.

Georgeson’s 2019 Proxy Season Review > 17 LTIPs Two proposals received less than 90% support during the reporting period, compared to two companies in 2018.

The two companies in our sample proposing a LTIP proposal with more than 10% opposition were: > Ocado Group (Value Creation Plan – 75.7% in favour) > Segro (Long Term Incentive Plan – 83.9% in favour) ISS and Glass Lewis both recommended against at Ocado Group and for at Segro.

1.4.3 AUTHORITIES TO ISSUE SHARES

Authorities to issue shares with pre-emptive rights15 are proposed as ordinary resolutions (requiring a simple majority), while authorities to issue shares without pre-emptive rights16 are proposed as special resolutions (requiring 75% approval). Many institutional investors and proxy advisors refer to the Investment Association’s Share Capital Management Guidelines17 to assess authorities with pre-emptive rights, and to the Pre-emption Group’s Statement of Principles to assess authorities without pre-emptive rights.

The revised Pre-emption Group Statement of Principles published in March 201518 allows a company to undertake non-pre-emptive issuances of up to 10% of the share capital, as long as the company specifies that 5% of the authority will only be used in connection with an acquisition or specified capital investment. The pre- emption group recommends that this additional 5% should be put forward in a separate resolution19. The graph below shows that the number of FTSE 100 companies seeking only a 5% authority (as the previous Principles recommended) has decreased from 82 in 2015, to 28 in 2019.

Among our sample, the five companies with the lowest level of support on these types of resolutions were: > British American Tobacco (issue equity with pre-emptive rights: 74.4% in favour; and issue equity without pre-emptive rights: 92% in favour). > Anglo American (issue equity without pre-emptive rights: 77.8% in favour; and issue equity with pre-emptive rights: 92.3% in favour). > ITV (issue equity with pre-emptive rights: 81.3% in favour; issue equity without pre-emptive rights in connection with an acquisition or other capital investment: 94.1% in favour; and issue equity without pre-emptive rights: 99% in favour). > Rolls-Royce Holdings (issue equity with pre-emptive rights: 82.9% in favour; issue equity without pre-emptive rights: 95.6% in favour). > Bunzl (issue equity with pre-emptive: 83.8% in favour; issue equity without pre-emptive rights: 92.6% in favour; and issue equity without pre-emptive rights in connection with an acquisition or other capital investment: 94.2% in favour).

We note that ISS and Glass Lewis recommended in favour of each of these resolutions.

15) Companies Act 2006, s. 551: http://www.legislation.gov.uk/ukpga/2006/46/section/551 16) Companies Act 2006, s. 570: http://www.legislation.gov.uk/ukpga/2006/46/section/570 17) https://www.ivis.co.uk/media/12250/Share-Capital-Management-Guidelines-July-2016.pdf 18) http://www.pre-emptiongroup.org.uk/getmedia/655a6ec5-fecc-47e4-80a0-7aea04433421/Revised-PEG-Statement-of- Principles-2015.pdf.aspx 19) http://www.pre-emptiongroup.org.uk/Principles-and-template-resolutions.aspx

18 > UK

Graph 4: Number of FTSE 100 companies who put forward a share issuance requests without pre-emptive rights broken down by 5% or 10% maximum dilution.

90 5% 10% 80

Number of proposals Number of 30

0 2015 2016 2017 2018 2019

1.4.4 SHORT NOTICE PERIOD FOR EGMS

The Companies Act 2006 states20 that a general meeting that is not an AGM may be called on 14 days’ notice if the company “offers the facility for members to vote by electronic means accessible to all members” and if this has been approved by the previous AGM (or a subsequent general meeting) as a special resolution (requiring 75% approval).

Among our sample, the companies with the lowest level of support on these types of resolutions were: > Segro (84.5% in favour) > The British Land Co. (86.1% in favour) > Reckitt Benckiser Group (87.2% in favour) > Smith & Nephew (88.4% in favour) > Persimmon (89.6% in favour) In each of these cases, both ISS and Glass Lewis recommended a vote in favour.

20) Companies Act 2006, s. 307A: http://www.legislation.gov.uk/ukpga/2006/46/section/307A

Georgeson’s 2019 Proxy Season Review > 19 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis, IVIS, PIRC and ECGS for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 INSTITUTIONAL SHAREHOLDER SERVICES (ISS)

Institutional Shareholder Services21 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

Between 1 July 2018 and 30 June 2019, 17 companies out of the FTSE 100 received at least one against or abstain recommendation from ISS (compared to 28 in 2018), for a total of 21 resolutions (compared to 38 resolutions in 2018).

Graph 5: Overview of the number of against/abstain recommendations by ISS at FTSE 100 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

20 2017 2018 2019 18

16 1.7%

12 1.3% 13%

8 Number of proposals Number of

6 8.1% 0.8% 7. 3% 4 7.8% 9.2% 12.5% 2

0 Director Elections Remuneration Report Remuneration Policy/LTIPS Other

21) http://www.issgovernance.com/about/about-iss/

20 > UK

Graph 6: Vote in favour of the Remuneration Report among FTSE 100 companies (ordered by level of support), and colour coded by ISS vote recommendation.

Against For

100%

90%

80%

70%

60%

Level of support of Level 50%

40%

30%

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Georgeson’s 2019 Proxy Season Review > 21 2.2 GLASS LEWIS

Glass Lewis22 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

Between 1 August 2017 and 31 July 2018, 25 companies out of the FTSE 100 received at least one against or abstain recommendation from Glass Lewis (compared to 25 in 2018), for a total of 41 resolutions (compared to 36 resolutions in 2018).

Graph 7: Overview of the number of negative/abstain recommendations by Glass Lewis at FTSE 100 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

30 2017 2018 2019

20 2.4% 28% 1.9% 1.9%

Number of proposals Number of 10 12% 11.1%

5 8.5% 15% 3.7%

0 8.5%

Director Elections Remuneration Report Remuneration Authority to Call Other Policy/LTIPs EGM on Short Notice

22) http://www.glasslewis.com/about-glass-lewis/

22 > UK

Graph 8: Vote in favour of the Remuneration Report among FTSE 100 companies (ordered by level of support), and colour coded by Glass Lewis vote recommendation.

Against For

100%

90%

80%

70%

60%

Level of support of Level 50%

40%

30%

20%

Georgeson’s 2019 Proxy Season Review > 23 2.3 IVIS

The Institutional Voting Information Service23 (IVIS) was founded by the Association of British Insurers (ABI) in 1993. Since June 2014 IVIS is part of the Investment Association. IVIS does not issue explicit vote recommendations. However, it uses a colour coded system which some investors will use as guidance on whether to vote negatively. The colour showing the strongest concern is Red, followed by Amber which raises awareness to particular elements of the report. A Blue Top indicates no areas of major concern, while a Green Top indicates an issue that has now been resolved.

Graph 9: Vote in favour of the Remuneration Report among FTSE 100 companies (ordered by level of support), and colour coded by IVIS alert level.

Red top Amber top Blue top Green top

100%

90%

80%

70%

60%

Level of support of Level 50%

40%

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20%

23) https://www.ivis.co.uk/about-ivis/

24 > UK

2.4 PIRC

Pensions & Investment Research Consultants24 (PIRC) was established in 1986 by a group of public sector pension funds. It provides proxy research services to institutional investors on governance and other ESG issues.

Graph 10: Vote in favour of the Remuneration Report among FTSE 100 companies (ordered by level of support), and colour coded by PIRC vote recommendation.

Against Abstain For

100%

90%

80%

70%

60%

Level of support of Level 50%

40%

30%

20%

24) http://pirc.co.uk/about-us-1

Georgeson’s 2019 Proxy Season Review > 25 2.4 ECGS

Expert Corporate Governance Service25 (ECGS) is a joint venture of independent local market experts which have come together to provide specialist governance assessments and informed proxy voting advice.

Graph 11: Vote in favour of the Remuneration Report among FTSE 100 companies (ordered by level of support), and colour coded by ECGS vote recommendation.

Oppose No Recommendation For

100%

90%

80%

70%

60%

Level of support of Level 50%

40%

30%

20%

25) http://www.ecgs.org/partners

26 > 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

In March 2017 the European Parliament approved amendments to the 2007 EU Shareholder Rights Directive (Directive 2007/36/EC) with the aim of encouraging “long-term shareholder engagement”. The revised Directive (Directive (EU) 2017/828) was published in the Official Journal of the European Union on 20 May 2017. For further information see pages 6-7.

UK regulations implementing into UK law parts of the revised European Shareholder Rights Directive (Directive (EU) 2017/828) were published26 together with an explanatory memorandum27 and transposition notes28.

While most requirements around directors’ remuneration are already implemented in UK law, the UK regulations implementing the remuneration provisions of the Directive transposes into UK law a number of new requirements which “will […] give shareholders new information with which to assess the performance of directors and to form a view on the effectiveness or otherwise of the company’s approach to directors’ remuneration and performance incentives” and “[…] in turn help inform shareholders’ approach to voting on the annual remuneration report and the remuneration policy”.

Among the most notable changes in regard to executive remuneration policy votes and disclosure, it is now provided that: > a rejected vote on remuneration policy will imply that a new remuneration policy will have to be submitted to a shareholder vote at the next AGM; > a remuneration policy will have to clearly set out the decision-making process in regard to its definition, implementation and review; and > a remuneration policy will have to provide details about vesting periods, holding periods, and any deferral in respect of share-based compensation arrangements.

With regard to the directors’ remuneration report disclosure, it is provided, amongst others, that the remuneration report must: > show the split between fixed and variable remuneration for each individual director; > specify any changes to the exercise price and exercise dates for shares or stock options granted to directors; and > provide a comparison of the annual change in directors’ compensation with the annual change of employees’ pay and with the company’s performance over a five-year period.

In addition, the explanatory memorandum specifies that a number of requirements other than those that are remuneration-related will be enacted by different instruments. Namely, this refers to the Directive requirements on disclosure by investors of their stewardship activities, transparency requirements in relation to proxy advisors’ activity, related party transactions and further requirements aimed at facilitating the exercise of shareholder rights.

26) http://www.legislation.gov.uk/uksi/2019/970/contents/made 27) http://www.legislation.gov.uk/uksi/2019/970/pdfs/uksiem_20190970_en.pdf 28) http://www.legislation.gov.uk/uksi/2019/970/pdfs/uksitn_20190970_en.pdf

Georgeson’s 2019 Proxy Season Review > 27 3.2 UK CORPORATE GOVERNANCE CODE MAJOR TRENDS

As we discussed in our 2018 Season Review, the Financial Reporting Council on 16 July 2018 released the 2018 UK Corporate Governance Code29 which applies to accounting periods beginning on or after 1 January 2019.

Two major trends have been linked to the implementation of the new UK Corporate Governance Code during the 2019 AGM Season:

3.2.1 EXECUTIVE PENSION CONTRIBUTIONS

The 2018 UK Corporate Governance Code states under provision 38: “Only basic salary should be pensionable. The pension contribution rates for executive directors, or payments in lieu, should be aligned with those available to the workforce.”

The Investment Association has used this as a starting point to focus on pension contributions during the 2019 AGM season. Their remuneration guidelines for 201930 state that: “IA members consider this to be the rate which is given to the majority of the company’s workforce. Investors expect new executive directors or any director changing role to be appointed on this level of pension contribution. The contribution rates for incumbent executive directors should be reduced over time to the contribution rate available to the majority of the workforce, members expect this to be achieved as soon as possible. Shareholders do not expect that compensation will be awarded for this change”.

Therefore31, “the IA’s Institutional Voting Information Service (IVIS) which provides corporate governance research to shareholders to aid their voting decisions during AGM season, will ‘red-top’ companies who pay newly-appointed directors pension contributions which are not in line with the majority of their employees”.

The Financial Times reported32 that “FTSE 100 chiefs in spotlight over pensions gap”. According to a report by actuarial consultants Lane Clark & Peacock, “FTSE 100 chief executives received pension contributions of 25 per cent of pay last year, compared with an average of about 6 per cent for employees”.

3.2.1 CHAIRMAN TENURE

The 2018 UK Corporate Governance Code states under provision 19 that “the chair should not remain in post beyond nine years from the date of their first appointment to the board. To facilitate effective succession planning and the development of a diverse board, this period can be extended for a limited time, particularly in those cases where the chair was an existing non-executive director on appointment”.

Research conducted by Minerva Analytics33 identified that “almost 40% of the top 350 UK companies have a chair that has served on the board for eight or more years and 31% for nine or more years […] there are 110 companies that are already non-compliant with the tenure provision, and 137 have chairs who have served on the board for more than eight years”.

The Financial Times reported34 that “FTSE 350 chairs will face heightened scrutiny of their position this AGM season because of their long board tenure, including: Robert Childs, who has been on the Hiscox board since 21 years ago, Micheal Dobson, chairman of Schroders, Tim Martin, founder and chairman of Wetherspoons for 36 years and Brian Souter, founder and former chief executive of Stagecoach Group”.

“In developing the tenure recommendation the UK Financial Reporting Council indicated that the change was introduced to encourage boards to think about succession planning, skills and diversity issues in the round rather to create a cliff edge”.

29) https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf 30) https://www.ivis.co.uk/media/13874/Principles-of-Remuneration-Nov-2018-FINAL.pdf 31) https://www.theia.org/media/press-releases/investors-target-pension-perks-and-poor-diversity-2019-agm-season 32) https://www.ft.com/content/6a75aae0-7af7-11e9-81d2-f785092ab560 33) https://www.manifest.co.uk/downloads/minerva-briefing-uk-board-chair-tenure-2019/ 34) https://www.ft.com/content/0894afba-32b8-11e9-bb0c-42459962a812

28 > UK

3.3 AUDIT REFORM

In November 2018 Reuters reported35 that “Britain’s parliament will start an inquiry into auditing in January to ensure that two pending reviews will lead to actual reform of a ‘broken’ sector dominated by the Big Four accounting firms […] Deloitte, PwC, EY and KPMG check the books of 341 of Britain’s top 350 listed companies”.

In March 2019 The Department for Business, Energy & Industrial Strategy announced36 that the audit regime in the UK to be transformed with a new regulator: “the Business Secretary Greg Clark announced a new enhanced regulator to transform the audit and accounting sector in response to the comprehensive Independent Review led by Sir John Kingman. As per the review’s recommendations, the Financial Reporting Council (FRC) will be replaced with a new regulator called the Audit, Reporting and Governance Authority”.

In April 2019, the Financial Times37 reported about “breaking up the Big Four: EY, Deloitte, KPMG and PwC”. The Labour MP’s Rachel Reeves sent a clear message: “the only way to fix the myriad problems that have blighted the sector – including conflicts of interest, weak audit quality and regulatory capture – is to break up the four largest firms […] full legal separation can provide the benefits of unquestionable independence, better quality, a proper audit culture and transparent pricing”.

3.4 NEW STEWARDSHIP CODE On 29 March 2019, the FRC-sponsored consultation on the draft 2019 UK Stewardship Code closed after having received more than 100 responses38. As reported by the Financial Reporting Council, “the FRC has analysed all the responses to the consultation and our engagement with stakeholders during the consultation period. Responses demonstrated strong support for key changes proposed including, consideration of ESG issues, extension to asset classes beyond listed equity, setting expectations of different entities in the investment community and reporting on activities and outcomes”.

However, Reuters reported that: “some of the biggest money managers argue too much disclosure could damage efforts to change corporate behaviour”.

Among the most notable changes to the Code, will be the requirement that investors and asset managers alike consider environmental, social and governance issues in the fulfilment of their stewardship responsibility over investee companies, as well as the requirement for investors to “exercise stewardship across a wider range of assets where they have influence and rights, in the UK and globally”39.

Publication of the new UK Stewardship Code is expected in October 2019.

35) https://uk.reuters.com/article/uk-britain-accounts/britains-broken-audit-sector-must-change-mp-idUKKCN1NH01I 36) https://www.gov.uk/government/news/audit-regime-in-the-uk-to-be-transformed-with-new-regulator 37) https://www.ft.com/content/e0cdfc4c-57b6-11e9-a3db-1fe89bedc16e 38) https://www.frc.org.uk/investors/uk-stewardship-code 39) https://www.frc.org.uk/news/january-2019-(1)/frc-strengthens-stewardship-code

Georgeson’s 2019 Proxy Season Review > 29

Germany (DAX)

REJECTED BOARD PROPOSALS 1

AVERAGE QUORUM 63.90%

RESOLUTIONS WITH OVER 10% OPPOSE 18.87%

COMPANIES WITH OVER 10% OPPOSE 68.97%

Highlights > The average quorum across the DAX increased from 63.2% in 2018 to 63.9% in 2019. > Across the DAX there was one board-proposed AGM resolution rejected by shareholders. Across the MDAX, there were three board-proposed AGM resolutions rejected by shareholders. > The number of DAX companies that had at least one contested proposal (10%+ opposition) was 20. The overall number of contested resolutions increased from 38 in 2018 to 87 in 2019. Calibrated for the total number of resolutions in each year, this represents a 108.59% increase compared to the 2018 AGM season. > The election of Supervisory Board members saw a 366% increase in the number of contested proposals (10%+ opposition), from 6 in 2018 to 28 in 2019 (while the number of total Supervisory Board elections decreased from 90 in 2018 to 86 in 2019). > Proposals relating to the discharge of the Management and Supervisory Board saw a 233% increase in the number of contested proposals (10%+ opposition) compared to 2018. In 2017 there were 7 contested discharge proposals, this increased by 114% to 15 proposals in 2018, and then further increased to 50 proposals in 2019. > While it is common practice to put forward a single resolution to propose the discharge of each Board, the number of companies splitting the discharge into resolutions for each individual has increased by 60%, from 5 in 2018 to 8 in 2019. > Across the DAX, 25% of remuneration system votes received more than 10% opposition. However, it should be noted that only four DAX companies held such a vote in 2019 (down from 9 in 2018). > ISS recommended negatively on 93 resolutions in 2019, compared to 46 resolutions in 2018 (a calibrated 84.19% increase). > Glass Lewis recommended negatively on 88 resolutions in 2019, compared to 57 resolutions in 2018 (a calibrated 40.66% increase).

Georgeson’s 2019 Proxy Season Review > 31 1 | Voting in Germany

1.1 QUORUM OVERVIEW

Georgeson has reviewed the quorum levels of the DAX Index1 and the MDAX Index2 over the past five years. Our survey includes the companies that were part of the index as of 1 May 2018, and which held their AGMs between 1 July 2018 and the 30 June 2019.

In the DAX the average quorum was 63.9%, an increase over the 2018 quorum of 1.1 percentage points, and a 16.4 percentage point increase from quorum levels in 2015. In the MDAX, the average quorum level is substantially higher on average. In 2019 the average quorum was 71.01%, representing a decrease of 1.7 percentage points compared to the 2018 figure and 4.4 percentage points higher compared to the 2015 quorum levels. It should be noted that Deutsche Boerse performed a major index change on 24 September 2018 which also led to the expansion of the MDAX from 50 to 60 companies3 (please also see chapter 3, Corporate Governance Developments).

Graph 1: Average AGM quorum levels in the DAX and MDAX between 2015 and 2019.

DAX MDAX 75%

70% 72.3% 71.5% 71.1% 71.0% 65% 68.0%

60% 63.9% 63.2% 59.9% 60.0%

Quorum 55%

50% 54.9%

45%

40%

2015 2016 2017 2018 2019

1) The DAX Index tracks the segment of the largest and most important companies on the German equities market. It contains the shares of the 30 largest and most liquid companies admitted to the FWB Frankfurt Stock Exchange in the Prime Standard segment. The DAX represents about 80% of the aggregated prime standard’s market cap. See here: https://deutsche-boerse.com/dbg-en/our-company. 2) The MDAX tracks the segment of mid-sized industrials. It contains the shares of the 50 companies listed in the Prime Segment of Deutsche Börse, which follow the 30 DAX companies with regard to market cap and stock exchange turnover. See here: https://deutsche-boerse.com/dbg-en/our-company. 3) https://deutsche-boerse.com/dbg-en/media/deutsche-boerse-spotlights/spotlight/DAX-benchmark-and-barometer-for-the- German-economy-139948

32 > GERMANY

100% Graph 2: Quorum levels at DAX companies during the 2019 reporting period.

90%

80%

70%

60% Quorum 50%

40%

30%

20%

RWE EON SAP BASF Bayer Merck Allianz Henkel Adidas Daimler Siemens Vonovia Wirecard Covestro Fresenius Munich Re Beiersdorf Volkswagen Continental thyssenkrupp Deutsche Post Deutsche Bank Deutsche Boerse Deutsche Telekom HeidelbergCement Deutsche Lufthansa

Infineon Technologies Fresenius Medical Care

Bayerische Motoren Werke

100% Graph 3: Quorum levels at MDAX companies during the 2019 reporting period.

90%

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60% Quorum 50%

40%

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20%

K+S Hella Duerr Metro Puma Evotec AirbusUniper Innogy Becthle Freenet Aurubis Lanxess Symrise Zalando Scout24 Siltronic Hochtief Sartorius Software Brenntag Fielmann Hugo Boss RTL Group MorphoSys GEA Group 1&1 Drillisch Kion Group Aareal Bank Aroundtown Ostram Licht Rheinmetall Norma Group DeliveryGerresheimer Hero Nemetscheck Axel Springer Commerzbank Knorr-Bremse Fuchs Petrolub United Internet LEG ImmobilienRocket Internet Wacker Chemie TAG Immobilien Deutsche Wohnen Hannover Rueck Evonik Industries Alstira Office REIT MTU Aero Engines Carl Zeiss Meditec Deutsche Euroshop Gran City Properties ProSiebenSat.1 Media Dialog Semiconductor Siemens Healthineers

Deutsche Pfandbriefbank

Telefonica Deutschland Holding

Fraport AG Frankfurt Airport Services Worldwide

Georgeson’s 2019 Proxy Season Review > 33 1.2 REJECTED RESOLUTIONS DAX Within the reporting period across the DAX, one proposal was rejected by shareholders. The discharge of the management board at Bayer failed to gain sufficient shareholder support.

Bayer At its 26 April 2019 AGM4 Bayer proposed approval for the discharge of the management board members including the chairman of the management board (i.e. the company’s CEO), Werner Baumann, as a single proposal. The resolution was rejected with over 55% of shareholders represented at the AGM voting against this resolution.

The discharge of the management and supervisory boards are mandatory items at German AGMs and shareholders are given the chance on an annual basis to express their confidence in the management of the company.

Following the AGM, Bloomberg reported5 that investors’ dissent related to “the $63 billion acquisition of Monsanto and the handling of legal challenges linked to the deal […] the company has lost two cases claiming the weedkiller causes cancer and faces 13,400 more suits. While Bayer says Roundup is safe, the legal defeats have wiped more than 35 billion euros ($39 billion) off the company’s market value”.

MDAX Across the MDAX, three proposals were rejected by shareholders. A remuneration system approval proposal at Norma Group, a variable remuneration proposal for the Supervisory Board at Puma, and an authority to repurchase shares at Uniper.

Norma Group At the Norma Group AGM6, on 21 May 2019, a proposal to approve the remuneration system for Management Board Members, failed to achieve the required majority of votes cast and was rejected by shareholders with only 17.6% in support.

Puma At the Puma AGM7, on 18 April 2019, a proposal to approve the adjustment of the Supervisory Board’s success fees failed to achieve the required majority of voting rights cast and was rejected by shareholders with 71.9% in support, failing to reach the required 75% majority to pass. The resolution was proposed in connection with a 1:10 share split, adjusting the success component by mathematically decreasing it by a factor of ten. Even though this would not have changed the payment structure of the Supervisory Board and its overall remuneration, shareholders still rejected the technical change. While variable remuneration linked to annual profits was an acceptable practice in the past, shareholders now generally support fixed remuneration only for Supervisory Board members. The German Corporate Governance code8 also states that “Supervisory Board remuneration should be fixed remuneration. If members of the Supervisory Board are granted performance- related remuneration, it shall be geared to the long-term development of the company”.

4) https://www.bayer.com/en/asm-2019-voting-results-en.pdfx 5) https://www.bloomberg.com/news/articles/2019-04-29/bayer-board-is-said-to-plan-meeting-after-investors-rebuke-ceo 6) https://investors.normagroup.com/en/agm 7) https://about.puma.com/en/investor-relations/annual-general-meeting 8) https://www.dcgk.de/en/code/code-2019.html?file=files/dcgk/usercontent/en/Consultations/2019/Code%202019/190522%20 GCGC%202019%20with%20rationale.pdf

34 > GERMANY

Uniper At the Uniper AGM9, on 22 May 2019, an authority to repurchase shares and reissue or cancel repurchased shares, failed to achieve the required majority of voting rights cast and was rejected by shareholders with only 25.4% in support. In addition, shareholders voted at the AGM to postpone the discharge of the members of the Management Board for the financial years 2017 and 2018. The AGM was overshadowed by an ongoing dispute between Uniper’s largest shareholder, Fortum, relating to a full takeover of Uniper. Fortum holds approximately 47% of Uniper’s outstanding shares.

1.3 CONTESTED RESOLUTIONS

Among our sample of 29 DAX companies that held their AGMs during the reporting period, 20 companies saw at least one management-proposed AGM resolution receive more than 10% shareholder opposition (17 in 2018). The total number of resolutions that received over 10% opposition amounted to 87 proposals (including the rejected resolution discussed in section 1.2), up from 38 proposals in 2018.

The most commonly contested resolutions related to the Management and Supervisory Board discharge. The second most contested resolution was the election of Supervisory Board members, while the third most contested resolution was the general authority to issue shares.

Graph 4: Number of resolutions which received more than 10% against votes in the DAX (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

50 2017 2018 2019

45 21%

25 32.6% 20 Number of proposals Number of 15

10 8.9% 55.6% 29.4% 21.1%

5 8.1% 18.2% 2.6% 25% 2.9% 5.3% 20% 87.5% 0 6.7% Management & Election of Authorities to Issue Remuneration Approve Auditors Other Supervisory Board Supervisory Board Shares System Discharge Members

9) https://ir.uniper.energy/uniper/pdf/hv2019/2019-05-22_Uniper_AGM_Voting_2019_e.pdf

Georgeson’s 2019 Proxy Season Review > 35 1.3.1 DISCHARGE OF THE MANAGEMENT AND SUPERVISORY BOARDS

It is a legal requirement in Germany for companies to propose a discharge vote on the Supervisory Board and on the Management Board. The vote is largely symbolic as the legal position of shareholders and board members do not change based on the results of this vote. As a result, shareholders have been using these resolutions to express their discontent with the current Management and/or Supervisory Board. The reasons for not granting discharge range from corporate governance concerns to investigations into misconduct or fraud. Corporate governance concerns may include the lack of disclosure of individual supervisory board members’ meeting attendance records as well as concerns about the current executive remuneration system. This may include the lack of responsiveness to shareholder concerns on a previously proposed remuneration system which received significant shareholder opposition or the lack of a regular vote on this item.

While it is common practice to propose the discharge of the whole Supervisory Board and the whole Management Board, each as a single resolution, in many cases at the AGM itself the vote is split into individual discharge votes on each board member following a request from a shareholder. Additionally, in a limited number of cases, the company may decide to split this resolution on the proxy card, at the time of the meeting being announced. We note that the number of companies splitting the discharge has increased from 5 in 2018 to 8 in 2019.

In cases where shareholders consider the discharge of a single member (or group of management or supervisory board members) to be controversial, this practice would allow shareholders present at the meeting to grant discharge for the remaining members.

The companies with the highest level of opposition on Management and Supervisory Board discharge were: > Bayer (44.5% in favour of the discharge of the Management Board) > Fresenius Medical Care (52.3% in favour of the discharge of the Supervisory Board) > Deutsche Bank (73.2% on average in favour of 39 individual discharge resolutions) > Fresenius (87.5% in favour of the discharge of the Supervisory Board) > Wirecard (88.4% on average in favour of six individual discharge resolutions)

1.3.2 SUPERVISORY BOARD MEMBER ELECTIONS

During the reporting period 28 supervisory board candidates received more than 10% opposition on their election at 14 companies, compared to six at four companies in 2018.

Based on feedback Georgeson has gathered from investors and proxy advisors, the main reasons to vote or recommend against the election of Supervisory Board members in Germany continue to be concerns relating to the overall independence of the Supervisory Board (including for tenure reasons) and overboarding concerns. Some investors have gradually changed their guidelines to allow fewer external mandates for newly elected or re-elected supervisory board members. The lack of independence on key board committees has also led investors to vote against the re-election of incumbent board members. Extra scrutiny is applied by investors due to the long term length in Germany which can last up to 5 years, compared to an average of 3 years across major European markets.

As up to 50% of the Supervisory Board in Germany is required by law to comprise employee representatives (elected separately by employees of the Company) many institutional investors require at least one-third of the full Supervisory Board and/or half of the shareholder-elected members to be independent.

Overboarding concerns are generally raised for supervisory board candidates who have a significant number of other board seats or serve as executives at other companies. Shareholders also continue to consider poor attendance or undisclosed attendance records for board members as reasons to vote against the re-election of a supervisory board member. In addition, some investors in the domestic market require more transparency on the supervisory board members and candidates, to include full CVs and biographical details, such as when they were first elected and their nationality.

36 > GERMANY

The companies with the highest level of opposition on supervisory member elections among our sample were: > Continental (Georg Schaeffler – 78% in favour) > SAP (Pekka Ala-Pietila – 79.2% in favour) > HeidelbergCement (Fritz-Juergen Heckman – 80% in favour) > Bayerische Motoren Werke (Stefan Quandt – 80.3% in favour) > Beiersdorf (Reinhard Poellath – 80.3% in favour)

1.3.3 GENERAL AUTHORITIES TO ISSUE SHARES

German companies routinely request shareholder authority to issue shares over a period of up to five years, for general purposes, to allow for smaller acquisitions or for the conversion of financial instruments. These authorities are split between “authorised” and “conditional” capital, but are subject to the same overall dilution limits.

There has been a notable reduction in the amount of shares that can be issued without pre-emptive rights, including for contributions in kind. While a threshold of 20% was commonly accepted in Germany, most investors now lean towards a threshold of max. 10%. Based on this, ISS lowered the threshold in its guidelines from 20% to 10% in February 2019, while both Glass Lewis and the BVI (Bundesverband Investment und Asset Management e.V.) still allow for pre-emptive rights to be excluded for up to 20% of issued share capital. By law, the overall amount of shares to be issued under a single authorization cannot exceed 50% of the current issued share capital, which is in line with the guidelines of the major proxy advisors ISS and Glass Lewis. The BVI however applies a stricter 40% limit.

In addition, it had been common practice in the past to disregard any outstanding authorizations from previous AGMs which may have only been used partially, potentially allowing the accumulation of several authorities over a number of years. However, in recent years it has become more common to either cancel any outstanding authorities or to incorporate them as part of the new authority, applying an explicit overall threshold for the max. exclusion of pre-emptive rights for all outstanding authorities.

During the reporting period two proposals relating to share issuance received more than 10% in opposition, compared to four in 2018: > Deutsche Lufthansa (84% in favour for the creation of a pool of capital) > BASF (85.9% in favour for the creation of a pool of capital)

Georgeson’s 2019 Proxy Season Review > 37 1.3.4 VOTE ON THE EXECUTIVE REMUNERATION SYSTEM

With the introduction of the German Act on the Appropriateness of Management Board Remuneration (Gesetz zur Angemessenheit der Vorstandsvergütung – “VorstAG”10) in August 2009, provisions were put into place for the first time in Germany for shareholders to have a vote on executive remuneration. This provision enabled companies to put their executive remuneration system up for a non-binding vote, which was subsequently also included with further details in the German Corporate Governance Kodex.

Since the ratification of the Act it has also been the responsibility of the Supervisory Board to ensure that the Company’s remuneration system is set out in line with shareholders’ expectations, that there be a link between pay and performance and that the system be long-term oriented. While most DAX and MDAX companies held an initial vote on their executive remuneration system following the introduction of the law in 2010, a large number of issuers appear to have avoided holding a vote at regular intervals, considering that this would only be appropriate if major changes to the system were made.

Despite irregular votes, investors and proxy advisors increasingly use this non-binding vote as a way to also show their discontent over the level of disclosure provided in the remuneration report and over the remuneration levels awarded in the previous year. In addition, the German investment funds association BVI (Bundesverband Investment und Asset Management e.V.) clarifies in their voting guidelines11 for German AGMs, that companies should propose a vote on their remuneration system at least every five years, even if no changes have been made. Failure to hold a vote at least every five years or if a change to the system has been made, would result in the BVI recommending its members to vote against the discharge of the Management and Supervisory Boards at the companies in question.

While in the past votes on the executive remuneration system have typically received high approval rates (well over 90%), since 2016 the approval rates for almost all companies has been below that threshold, even though only a limited number of companies have held a vote. In 2017, seven out of eight remuneration system proposals, i.e. 88% of all proposals in this category, received more than 10% against votes. This trend of high opposition continued in 2018 with five contested resolution among nine remuneration system proposals representing 56% on the total. In 2019 only four remuneration related proposals were put forward and just one, representing 25% of the total, received more than 10% against votes (this was Deutsche Lufthansa which only received 57.4% of votes in favour). With the prospect of a compulsory vote on the remuneration system to be introduced with the implementation of the revised European Shareholder Rights Directive (please also see chapter 3. Corporate Governance Developments), the majority of issuers decided not to put this item on the agenda in 2019.

10) https://www.bundesanzeiger-verlag.de/fileadmin/Betrifft-Unternehmen/Arbeitshilfen/Transparenz/VorstAG_Managergehaelter.pdf 11) https://www.bvi.de/regulierung/branchenstandards/analyse-leitlinien-fuer-hauptversammlungen-alhv/index.php?eID=tx_ nawsecuredl&u=0&g=0&t=1564070095&hash=a160a9b023b1d2573ed636848c5ac0c88829c33b&file=/fileadmin/sites/extranet/ Standards/ALHV/BVI_ALHV_2019_en.pdf

38 > 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis and DSW (ECGS), for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 ISS

Institutional Shareholder Services12 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

During the 2019 AGM season, 12 companies out of the DAX index received at least one against recommendation from ISS. The total number of resolutions where ISS recommended its clients to vote against amounted to 93, compared to 46 in 2018. This significant increase in mainly driven by the large number of individual discharge resolutions which ISS recommended against.

Graph 5: Overview of negative recommendations by ISS at DAX AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

80 2017 2018 2019

70 31.1%

30 Number of proposals Number of 20.7% 24.1% 20

10 75% 5.6%

33.3% 15.1% 25% 0 Management & Supervisory Election of Remuneration Other Board Discarge Supervisory Board Members System

12) http://www.issgovernance.com/about/about-iss/

Georgeson’s 2019 Proxy Season Review > 39 2.2 GLASS LEWIS

Glass Lewis13 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

During the 2018 AGM season, eight companies out of the DAX index received at least one against recommendation from Glass Lewis. The total number of resolutions where Glass Lewis recommended its clients to vote against amounted to 88, compared to 57 in 2018. As with ISS, this significant increase in mainly driven by the large number of individual discharge resolutions which Glass Lewis recommended against.

Graph 6: Overview of the number of negative recommendations by Glass Lewis at DAX AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

90 2017 2018 2019

70 32.8%

50 32%

Number of proposals Number of 30

20 23.7% 11.6% 10 62.5% 2.2% 3.3% 11.1% 0

Management & Supervisory Election of Remuneration Other Board Discarge Supervisory Board Members System

13) http://www.glasslewis.com/about-glass-lewis/

40 > GERMANY

2.3 DSW (ECGS)

The Deutsche Schutzvereinigung für Wertpapierbesitz e.V.14 (DSW) is Germany’s oldest and largest shareholder association. It is also a member of the Expert Corporate Governance Service15 (ECGS), a partnership of independent local proxy advisors.

Founded in 1947, DSW now has about 25,000 members, which includes institutional and retail investors. DSW represents its members at approximately 650 annual general meetings per year and aims to publish voting recommendations for all AGM resolutions. The below mentioned recommendations are based on the reports issued by DSW through ECGS whose clients comprise institutional investors.

During the 2019 proxy season, 28 companies out of the DAX index received at least one against recommendation from DSW, compared to 29 companies 2018. The majority of against recommendations related to the discharge of the Management and Supervisory board members, followed by the election of Supervisory board members. The total number of resolutions where DSW recommended its clients to vote against amounts to 136 in 2019, compared to 144 in 2018.

Graph 7: Overview of the number of negative recommendations by DSW at DAX AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative DSW recommendation and the total number of proposals in each category.

2017 2018 2019 70

60 38.5%

50 33.1%

40 47.1%

30 29.5% Number of proposals Number of 82.1%

20 31.1% 64.9% 58.8% 56.3% 88.9% 42.1% 59.4% 87.5% 10 23% 100%

Management & Election of Approve Auditors Authorities to Issue Remuneration Other Supervisory Board Supervisory Board Shares System Discharge Members

14) http://www.dsw-info.de/Englisch.943.0.html 15) http://www.ecgs.org/partners

Georgeson’s 2019 Proxy Season Review > 41 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

In Germany there is currently no mandatory requirement for annual shareholder approval on executive compensation. Current German regulations regulation provides that shareholders may only vote on the remuneration system on a regular basis or where a notable change is implemented.

The draft law for the implementation of the revised Shareholder Rights Directive (ARUG II) is expected to bring about a number of notable changes.

In compliance with the German corporate law and governance structure, the draft implementing law (published on 11 October 201816) sets forth different rules for the remuneration of the management board and that of supervisory board members.

According to the provisions of the draft implementing law, the supervisory board members’ remuneration is to be determined by the shareholders at the AGM while the remuneration of the management board members is to be determined by the supervisory board in compliance with the policy which shall be submitted to a shareholder advisory vote once every four years.

As per the remuneration report, shareholders will be entitled to express an advisory vote every year and the draft implementing law provides that the supervisory board and the management board are jointly responsible for its drafting. It is currently envisaged that the remuneration report must contain retrospective information on the remuneration of both the supervisory members and management board members individually as well as information regarding the ratio of the average remuneration of directors compared to that of employees over a five year period.

3.2 GERMAN CORPORATE GOVERNANCE KODEX

On 22 May 2019, the German Corporate Governance Government Commission adopted a revised version of the German Corporate Governance Kodex. The revised Kodex will come into effect, upon publication in the German Federal gazette, once the draft law for the implementation of the revised Shareholder Rights Directive (ARUG II) comes into force so that any further amendment to ARUG II can be reflected if relevant.

The Kodex has been subject to a thorough restatement with the aim of implementing better standards for the governance of German listed companies. Rolf Nonnenmacher, chairman of the Commission, named it the “most comprehensive reform” in German Corporate Governance since the first set of rules was introduced in 2002.

Among the most important amendments, the revised Kodex will now feature, amongst others, “principles” which will inform “recommendations” and “suggestions” throughout the Kodex, new independence requirements for members of the supervisory board, and a new set of rules applying to the remuneration of members of the management board. In particular, the revised Kodex includes 25 principles which replicate material legal requirements regarding the governance of public companies and which are, in this restatement, the only legal requirements to be included. The choice to delete any minor legal requirement will, in the intention of the Commission, avoid the necessity for any superfluous update due to small changes in German applicable law.

16) https://www.bmjv.de/SharedDocs/Gesetzgebungsverfahren/DE/Aktionaersrechterichtlinie_II.html 17) https://deutsche-boerse.com/dbg-en/media/deutsche-boerse-spotlights/spotlight/DAX-benchmark-and-barometer-for-the- German-economy-139948

42 > GERMANY

To guarantee that the board of a company is, at least, partly independent is a staple of modern corporate governance, both nationally and internationally. With this principle in mind, the Commission has amended the provisions governing supervisory board members’ independence. The revised Kodex provides that at least 50% of supervisory board members elected as shareholder representatives (i.e. without taking into account any employee representative on the board) shall be considered independent. This follows a more detailed definition of independence under the new Kodex. In a move that will align the provisions of the Kodex to those of the main proxy advisor guidelines, the revised Kodex now also provides that any supervisory board member shall not accept more than five mandates at public companies and that any management board member may not accept more than two supervisory board mandates at other public companies.

In addition to, and in line with, the new requirements on remuneration that will become effective once ARUG II comes into force, the revised Kodex provides for a comprehensive restatement of the rules concerning the remuneration of the members of the management board. Furthermore, the new Kodex provides for simplified corporate governance reporting stating that that the two boards shall annually report on corporate governance through a corporate governance statement, therefore harmonizing the Kodex provisions with those of the German Commercial Code.

3.3 GERMAN INDICES ADJUSTMENTS

Deutsche Boerse Group announced changes to the structure of its indices in May 2018, covering the DAX, MDAX, SDAX, and TecDAX, which were implemented during the quarterly index review on 24 September 201917.

The separation of companies into “tech” and “classic” sectors was eliminated, allowing tech companies to also be included in the MDAX and SDAX, while being part of the TecDAX. In addition, DAX companies that are in the technology sectors can now also be included in the TecDAX index. To allow for this change, the MDAX was expanded from 50 to 60 companies, while the SDAX was increased from 50 to 70 constituents. The number of constituents of the DAX and TecDAX remains unchanged, set at 30 companies each.

Georgeson’s 2019 Proxy Season Review > 43

France (CAC 40)

REJECTED BOARD PROPOSALS 14

AVERAGE QUORUM 68.70%

RESOLUTIONS WITH OVER 10% OPPOSE 20.40%

COMPANIES WITH OVER 10% OPPOSE 81.08%

Highlights > The average quorum across the CAC 40 increased from 67.1% in 2018 to 68.7% in 2019. > Across the CAC40 there were 14 board-proposed AGM resolutions rejected by shareholders. > The number of CAC40 companies that had at least one contested proposal (10%+ opposition) was 30. The overall number of contested resolutions increased from 165 in 2018 to 173 in 2019. Calibrated for the total number of resolutions in each year, this represents a 5.29% decrease compared to the 2018 AGM season. > The number of resolutions which received more than 20% opposition from investors was 94 (11% of the total). > The most commonly contested proposals (10%+ opposition) were related to executive remuneration and the number of remuneration proposals that were contested increased by 6% in 2019 compared to 2018. On average, shareholder support for the binding vote on CEO remuneration decreased from 85.9% in 2018 to 85.6% in 2019. > Contested proposals (10%+ opposition) relating to authorities to issue shares (with or without pre-emptive rights) saw a 38.5% increase from 26 resolutions in 2018 to 36 resolutions in 2019. This is also reflected in negative proxy advisors recommendations on such resolutions. ISS negative recommendations on equity issuance proposals increased by 244% (9 to 31) while Glass Lewis negative recommendations increased by 222% (9 to 29). > ISS recommended negatively on 137 resolutions in 2019, compared to 116 in 2018 (a calibrated 6.68% increase). > Glass Lewis recommended negatively on 85 resolutions in 2019, compared to 69 in 2018 (a calibrated 11.28% increase).

Georgeson’s 2019 Proxy Season Review >> 45 31 1 | Voting in France

1.1 QUORUM OVERVIEW

Georgeson has reviewed the quorum levels of the CAC40 index1 over the past five years. This year’s survey includes the 37 CAC40 companies with corporate headquarters located in France and which held their AGM between 1 July 2018 and 30 June 2019. Therefore our analysis excludes Airbus Group, ArcelorMittal, STMicroelectronics and Technip, as their corporate headquarters are located outside France.

The average shareholder vote participation at the AGMs of our CAC40 sample during the 2019 proxy season increased from 67.1% in 2018 to 68.7% in 2019. The below graph illustrates the evolution of the average of CAC40 and SBF1202 quorums over the past five years.

Graph 1: Average AGM quorum levels in the CAC40 and SBF120 between 2015 and 2019.

CAC40 SBF120 74%

72% 73.4% 72.3%

70% 70.0%

68% 70.0% 69.1% 68.7%

Quorum 66% 67.1%

64% 65.8% 65.4% 65.5%

62%

60% 2015 2016 2017 2018 2019

1) The CAC40 is a benchmark French stock market index which comprises the 40 largest and most liquid stocks trading on the Euronext Paris. See here: https://www.euronext.com/en/products/indices/FR0003500008-XPAR/market-information 2) The The SBF 120 is a French stock market index which comprises the 120 most actively traded stocks listed in Paris. It includes all 40 stocks in the CAC40 index and a selection of 80 additional stocks listed on the Premier Marché and Second Marché trading on the Euronext Paris. See here: https://www.euronext.com/en/products/indices/FR0003999481-XPAR/market-information.

46 > FRANCE

Graph 2: Quorum levels at CAC40 companies during the 2019 reporting period.

100%

90%

80%

70%

Quorum 60%

50%

40%

30%

AXA Atos Vinci Valeo Total Accor LVMH ENGIE Sanofi Safran Kering Renault Danone Vivendi Orange L Oreal Sodexo Michelin Legrand Peugeot Carrefour Bouygues Worldline Air Liquide Capgemini BNP Paribas

Pernod Ricard Credit Agricole Publicis Groupe EssilorLuxottica Societe Generale

Schneider Electric Dassault Systemes

Hermes International Veolia Environnement

Unibail-Rodamco-Westfield Compagnie de Saint-Gobain

1.2 REJECTED RESOLUTIONS

Amongst the 37 CAC40 companies in our sample which held their AGM between 1 July 2018 and 30 June 2019, 14 resolutions proposed by the board were rejected by shareholders, at the AGMs of Renault, Kering, Orange and Safran.

BOARD PROPOSALS

Renault At the Renault AGM3, on 12 June 2019, the resolution to approve the compensation of the former Chairman and CEO, Carlos Ghosn, was rejected by shareholders with 88.7% against votes.

It should be noted that the Company recommended an against vote stating that “during its meeting held on April 3, 2019, the Board of Directors, upon recommendation of the Compensation Committee, decided that no compensation shall be paid or awarded for the 2019 financial year to Mr Carlos Ghosn as Chairman and Chief Executive Officer for the 2019 financial year, given his impediment until his resignation from his offices as Chairman and Chief Executive Officer on January 23, 2019”4. Moreover, both ISS and Glass Lewis had recommended an against vote on this resolution.

3) https://group.renault.com/wp-content/uploads/2019/06/combined-general-meeting-june-12-2019_resolutions-voting-results.pdf 4) https://group.renault.com/wp-content/uploads/2019/05/renault-notice-of-meeting-2019.pdf

Georgeson’s 2019 Proxy Season Review > 47 Kering At the Kering AGM5, on 24 April 2019, a proposal to authorize a capital issuance for use in employee stock purchase plans, failed to achieve the required two-thirds majority of voting rights cast and was rejected by shareholders with 68.4% negative votes.

It should be noted that the Company recommended an against vote in the notice of meeting6 stating: “this authorization, which is not recommended by the Board of Directors, would be given for a period of 26 months from the date of this Annual General Meeting”. Both ISS and Glass Lewis had recommended for this resolution, however it received 104,946,196 against votes. The explanation for this result relates to the negative recommendation of the Board, and the fact that Kering’s controlling shareholder (Groupe Artémis, controlled by the Pinault family) holds 103,267,550 voting rights.

Orange At the Orange AGM7, on 21 May 2019, six authorities to increase share capital, which could be used in the event of a public tender offer, failed to achieve the required two-thirds majority of voting rights cast and were rejected by shareholders (with over 41% against votes). It should be noted that ISS and Glass Lewis had recommended an against vote, as they contended that the authorities could be used for anti-takeover purposes.

Safran At the Safran AGM8, on 23 May 2019, six authorities to increase share capital, which could be used in the event of a public tender offer, failed to achieve the required two-thirds majority of voting rights cast and were rejected by shareholders (with over 31% against votes). It should be noted that ISS and Glass Lewis had recommended an against vote, as they contended that the authorities could be used for anti-takeover purposes.

SHAREHOLDER RESOLUTIONS Additionally, six shareholder proposals (which were not supported by the board) were filed at the AGMs of Orange and EssilorLuxottica. All six failed to gather sufficient support from shareholders and were therefore rejected.

Orange Four shareholder proposals9 were filed at Orange’s AGM by the FCPE10 Orange Actions but were rejected with dissent at over 86%. The FCPE Orange Actions proposed: > to approve the allocation of a dividend of €0.55 per Share (Resolution A); > to amend an article of the company’s bylaws regarding overboarding of directors (Resolution B); > to authorize up to 0.04% of issued capital for use in restricted stock plans in favour of employees (Resolution C); > to amend the Employee Stock Plan in favour of employees (Resolution D).

EssilorLuxottica At EssilorLuxottica’s AGM11, two shareholder resolutions were put forward by minority shareholders proposing the appointment of Jesper Brandgaard and Wendy Evrard Lane as directors. Media reports12 explained that “investors led by Fidelity International are seeking to install two independent directors at EssilorLuxottica SA

5) https://keringcorporate.dam.kering.com/m/439825ea9fe22967/original/Voting-results-2019-Kering-Combined-General-Meeting.pdf 6) https://keringcorporate.dam.kering.com/m/2c6594d16ac0e0fd/original/Notice-of-meeting-brochure-.pdf 7) https://www.orange.com/en/content/download/50630/1436946/version/1/file/R%C3%A9sultats%20AGM%20Orange-21-05-2019.pdf 8) https://www.safran-group.com/finance/general-meeting 9) https://www.orange.com/en/content/download/50630/1436946/version/1/file/R%C3%A9sultats%20AGM%20Orange-21-05-2019.pdf 10) An FCPE, which stands for “Fond commun de placement d’Entreprise”, is a collective employee investment fund used in France. 11) https://www.essilorluxottica.com/sites/default/files/ResultatsVote_AGM%2016052019.pdf 12) https://www.bloomberg.com/news/articles/2019-04-21/funds-seek-essilorluxottica-board-seats-amid-fight-for-control

48 > FRANCE

to ‘unblock’ the stalemate at the world’s largest eyewear company as a management clash intensifies between the Italian and French factions”. The resolutions failed to obtain approval from shareholders; the appointment of Wendy Evrard Lane was rejected with a majority of 56.2% while the one to appoint Jesper Brandgaard was rejected with a majority of 65.74%.

It should be noted that both ISS and Glass Lewis supported the election of Wendy Evrard Lane while ISS recommended against the election of Jesper Brandgaard.

1.3 CONTESTED RESOLUTIONS Among the 37 CAC40 companies in our sample that held their AGM between 1 July 2018 and 30 June 2019, 30 companies saw at least one resolution receive more than 10% shareholder opposition (compared to 33 companies in 2018). The total number of resolutions that received over 10% dissent amounted to 173 (including the rejected resolutions discussed in section 1.2), compared to 165 resolutions in 2018.

The most commonly contested resolutions were votes on executive compensation and remuneration policy with 68 resolutions receiving more than 10% negative votes. The second most commonly contested resolutions were share issuance with or without pre-emptive rights.

Graph 3: Number of resolutions which received more than 10% against votes in the CAC 40 (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

2017 2018 2019 80

60 38.9% 46.9% 40%

30 27.1% 25.7% Number of proposals Number of 25.2% 20 18% 25% 39.3% 35.5% 16.4% 27.8% 33.3% 50%

10 33.3% 42.9% 18.2% 22.7% 7.7% 9.1% 11.1%

Remuneration Amendment of CEO/Chairman & Article of Bylaws Other Resolutions Equity Based Plans Pre-emptive Rights Directors’ Elections Severance Payment &

Retirement Agreements Auditors’ Special Report &

Share Issuance with/without

other related-party transactions

Georgeson’s 2019 Proxy Season Review > 49 1.3.1 BINDING VOTE ON EXECUTIVE REMUNERATION AND REMUNERATION POLICY

Since 2014, companies which refer to the AFEP-MEDEF Code have proposed an advisory vote on executive remuneration at their AGM.

Since 2018, pursuant to the enactment of the Sapin II law13, companies are required to propose an annual binding vote to approve the remuneration of executive directors paid or allocated in respect of the previous financial year. The Sapin II law, which was adopted by the French parliament in November 2016, also provides that from 2017 an annual binding vote approving the future remuneration policy is required.

On average, we recorded a slight decrease in the level of support for the vote on CEO remuneration resolutions at 2019 CAC40 AGMs (85.6% on average) compared to 2018 (85.9% on average). The level of support for the vote on the CEO remuneration policy however increased at this year’s AGMs (88.3% on average in 2019 versus 86.7% in 2018). The below graph illustrates the average of the 37 CAC40 companies vote results for the vote on CEO remuneration over the past five years and the vote results on the executive remuneration policy since 2017.

Graph 4: Average level of support for the binding vote on CEO remuneration and remuneration policy among the CAC40 companies surveyed.

Binding vote on the Binding vote on Remuneration Report* Remuneration Policy

89%

88% 88.3% 87% 88.1%

86% 86.7%

85% 85.9% 85.6% 85.4%

Level of support of Level 84%

83% 84.0% 83.7%

82%

81%

2015 2016 2017 2018 2019

*From 2015 to 2017, companies proposed an annual advisory vote on the Remuneration Report. Since 2018, companies are required to propose an annual binding vote on the Remuneration Report.

13) The Sapin II law is aimed at fostering economic transparency, fighting corruption and modernising the economy. As part of this law the French government proposed the introduction of a binding vote on executive remuneration.

50 > FRANCE

This year, at CAC40 AGMs, all executive remuneration resolutions successfully passed except for one at Renault (compensation of the former Chairman and CEO, Carlos Ghosn).

Apart from Renault, which saw the level of support falling from 56.5% in 2018 to 11.3% in 2019, generally the remaining 36 companies surveyed registered a slight increase in the level of positive votes on CEO remuneration, from 86.8% in 2018 to 87.6%. Only two companies saw their executive remuneration resolutions passed with less than 60% in 2019 (Renault and EssilorLuxottica) versus four in 2018.

The below graph shows the levels of shareholder approval for the binding vote on the CEO’s remuneration as well as the CEO’s remuneration policy among the 37 CAC40 companies surveyed.

Graph 5: Level of support during the reporting period for the binding vote on CEO remuneration and remuneration policy among the 37 CAC40 companies surveyed.

CEO Remuneration Remuneration Policy

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

AXA Atos Total Vinci Accor Engie Valeo Kering Sanofi Safran Orange Renault Vivendi L Oreal Danone Sodexo Peugeot Legrand Michelin Carrefour Bouygues Worldline Air Liquide Capgemini BNP Paribas

Pernod Ricard Credit Agricole EssilorLuxottica Publicis Groupe Societe Generale Dassault Systemes Schneider Electric

Hermes International Veolia Environnement

Unibail-Rodamco-Westfield Compagnie de Saint-Gobain

LVMH Moet Hennessy Louis Vuitton

Georgeson’s 2019 Proxy Season Review > 51 1.3.2 AUTHORITIES TO ISSUE SHARES

In France, every two years issuers usually propose an array of resolutions requesting shareholders to authorise the board to issue shares with or without pre-emptive rights. Capital increase authorities are proposed as extraordinary agenda items.

This year, at CAC40 AGMs, 36 authorities to issue shares, including 28 without pre-emptive rights, received more than 10% negative votes.

Among the 37 CAC40 companies surveyed, the companies with the lowest level of support on authorities to issue shares were: > Safran: six of its capital issuance authorities registered less than 60% positive votes and were rejected. This is discussed in section 1.2. Each of these authorisations could be used in the event of a public tender offer. Therefore a number of proxy advisors recommended against them. > Orange: five of its capital issuance authorities registered less than 70% positive votes and were rejected. This is discussed in section 1.2. Each of these authorisations could be used in the event of a public tender offer. Therefore a number of proxy advisors recommended against them.

1.3.3 DIRECTOR ELECTIONS

This year, at CAC40 AGMs, 23 director elections were contested.

The five companies with the lowest level of support on director elections among our sample were: > Atos (Vernon Sankey – 68.8% in favour) > Pernod Ricard (Martina Gonzalez Gallarza – 70.6% in favour) > Carrefour (Abilio Diniz – 71.3% in favour) > Accor (Nawaf Bin Jassim Bin Jabor Al Thani – 75% in favour) > Orange (Alexandre Bompard – 80% in favour) We note that ISS recommended against all of these directors except for Alexandre Bompard, while Glass Lewis recommended against Martina Gonzalez Gallarza, Abilio Diniz and Nawaf Bin Jassim Bin Jabor Al Thani.

11) https://www.reuters.com/article/us-france-business-governance/corporate-france-swims-against-tide-on-chairman-independence- idUSKBN1CZ1QN

52 > FRANCE

Georgeson’s 2019 Proxy Season Review > 53 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis, the AFG and Proxinvest (ECGS) for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 ISS

Institutional Shareholder Services14 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

Between 1 July 2018 and 30 June 2019, 23 companies out of the 37 CAC40 companies surveyed received at least one against recommendation from ISS. The approval of remuneration resolutions (which include executive remuneration and remuneration policy, equity incentive plans, severance pay agreements, pension schemes and non-compete agreements) are the resolutions which have received the highest number of against recommendations (62 resolutions). This is followed by equity issuances (31 resolutions) and director elections (22 resolutions). The total number of against recommendations has increased from 116 in 2018 to 137 in 2019.

Graph 6: Overview of the number of negative recommendations by ISS at CAC40 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

2017 2018 2019 70

60 26.3% 50 30.5% 24.4% 40 28.3% 30 25.4% Number of proposals Number of 22.1% 20% 20 15.7% 10

0 8.6% Remuneration Equity issuances CEO/Chairman & Other Resolutions Directors’ elections

14) http://www.issgovernance.com/about/about-iss/

54 > FRANCE

Below is an overview of the level of support for the advisory vote on CEO remuneration among the 37 CAC40 companies surveyed (ordered by level of support) and colour coded by ISS vote recommendation.

Graph 7: Level of support for the CEO remuneration of the 37 CAC40 companies surveyed (ordered by level of support) and colour coded by ISS vote recommendation.

Against For

100

40 Level of support of Level

For each year, in cases where more than one CEO served during the year, the vote results reflect the resolution relating to the individual who served the longest.

Georgeson’s 2019 Proxy Season Review > 55 2.2 GLASS LEWIS

Glass Lewis15 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

Between 1 July 2018 and 30 June 2019, 20 companies out of the 37 CAC40 companies surveyed, received at least one against or abstain recommendation from Glass Lewis. The approvals of remuneration resolutions are the resolutions that have received the highest number of against recommendations (30 resolutions). This is followed by equity issuances (29 resolutions) and director elections (12 resolutions).

Below is an overview of the number of negative recommendations by Glass Lewis at the 37 CAC40 AGMs we surveyed over the past three years. The total number of against or abstain recommendations has increased from 69 in 2018 to 85 in 2019.

Graph 8: Overview of the number of negative recommendations by Glass Lewis at CAC40 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

2017 2018 2019 35

30 13.1% 20.7% 25 20.7% 13.4% 15.8%

15 12.4% Number of proposals Number of 10 10.4% 8.6%

5 8.6%

Remuneration Equity Issuances CEO/Chairman & Other resolutions Directors' elections

15) http://www.glasslewis.com/about-glass-lewis/

56 > FRANCE

Below is an overview of the level of support for the CEO remuneration among the 37 CAC40 companies surveyed (ordered by level of support) and colour coded by Glass Lewis vote recommendations.

Graph 9: Level of support for the CEO remuneration among the 37 CAC40 companies surveyed (ordered by level of support) and colour coded by Glass Lewis vote recommendation.

Against For

100

40 Level of support of Level

For each year, in cases where more than one CEO served during the year, the vote results reflect the resolution relating to the individual who served the longest.

Georgeson’s 2019 Proxy Season Review > 57 2.3 AFG

The AFG (Association Française de la Gestion financière)16, the French asset management association, represents and promotes the interests of the French asset management industry. The AFG, via its alert programme, issues a report for each AGM in the SBF120 index which either highlights resolutions that do not comply with their code or states that all resolutions are in line with their code.

Between 1 July 2018 and 30 June 2019, 21 companies out of the 37 CAC40 companies surveyed received at least one alert from the AFG. The approval of share issuance authorities has received the highest number of alerts (45 resolutions). This is followed by the approval of remuneration resolutions (26 resolutions).

Below is an overview of the number of alerts raised by the AFG at the 37 CAC40 AGMs we surveyed over the past three years. The total number of alerts has increased from 50 in 2018 to 85 in 2019.

Graph 10: Overview of the number of alerts raised by the AFG at CAC40 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received an alert and the total number of proposals in each category.

2017 2018 2019 50

40 32.1%

30 25.4% 25

20 18.6% 24.1% Number of proposals Number of 15 9.1%

10 8.5%

5 0.7% 5.3% 0 Equity Issuances Remuneration CEO/Chairman & Other resolutions Directors' elections

16) http://www.afg.asso.fr/en/afg/about-us/overview-2/

58 > FRANCE

2.4 PROXINVEST (ECGS)

Proxinvest17 is a French independently-owned proxy advisory firm supporting the engagement and proxy analysis processes of investors. Proxinvest are members of the Expert Corporate Governance Service18 (ECGS), a partnership of independent local proxy advisors.

Between 1 July 2018 and 30 June 2019, all the 37 CAC40 companies surveyed received at least one against or abstain recommendation from Proxinvest. The approval of remuneration resolutions (which include executive remuneration, remuneration policy, equity incentive plans, severance pay agreements, pension schemes and non- compete agreements) are the resolutions which have received the highest number of against recommendations (113 resolutions). This is followed by director elections (70 resolutions).

Below is an overview of the number of negative recommendations by Proxinvest at the 37 CAC40 AGMs surveyed over the past three years. The total number of against recommendations has increased from 287 in 2018 to 292 in 2019.

Graph 11: Overview of the number of negative recommendations by Proxinvest at CAC40 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Proxinvest recommendation and the total number of proposals in each category.

2017 2018 2019 140

120 61.7%

100 47.9% 63.3%

60 50% Number of proposals Number of

40 37.9% 40.3% 35.3%

20 32.7% 20%

0 Remuneration CEO/Chairman & Equity Issuances Other resolutions Directors' elections

17) http://www.proxinvest.fr/?page_id=689&lang=en 18) http://www.ecgs.org/partners

Georgeson’s 2019 Proxy Season Review > 59 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

The Pacte Law (discussed in section 3.2, below) partially transposes the revised European Shareholder Rights Directive into French law. According to international law firm Bird & Bird19 the impact of the Pacte Law on remuneration issues include the following:“ (I) The report on corporate governance must present the remuneration of corporate officers compared to that of employees and the variable components of their remuneration determined on the basis of ESR criteria. (II) Members of the Board of Directors shall be entitled to receive founders’ warrants (incentive instruments). (III) Right to finalize the transposition of the SRD II by means of governmental orders (notably to reform the say or pay principle)”.

3.2 LOI PACTE (PACTE LAW)

On April 11, 2019, the National Assembly adopted the final text of the Pacte Law20 (Action Plan for Business Growth and Transformation) on which the Ministry of Economy and the parliamentarians have been working for more than a year and a half. The Pacte Law’s aim is: “liberated companies that are better funded, more innovative and fairer”.

The main Governance measures of the Pacte law are as follows: > “Rethinking the role companies play in society: The Civil and Commercial Codes will be modified in order to take greater consideration of social and environmental issues in companies’ strategies and activities and provide companies with a true raison d’être; > Board Composition: The law strengthens the position of employee directors on boards of directors. Beyond 8 members, the board must include 2 salaried directors. This rule will come into force in 2020 only to prevent companies that have already held their general meeting in 2019 from having to call them again this year. The new composition of the board will have to be put in place within six months of the general meeting; > Introduction of the equity ratio: The report on corporate governance presented at the general meeting by the Board of Directors must communicate the remuneration of corporate officers compared to that of employees; > Members of the Board of Directors shall be entitled to receive founders’ warrants21 (incentive instruments); > Providing for an amendment to the French Commercial Code on transactions between the company and a related party, it being specified that French law provides that the person concerned by the transaction may not take part in the vote of the general meeting or the board which must approve the transaction”.

19) https://www.twobirds.com/en/in-focus/shareholders-directive/france 20) https://www.gouvernement.fr/en/pacte-the-action-plan-for-business-growth-and-transformation 21) Bons de souscription de parts de créateur d’entreprise (BSPCE) 22) https://www.capital.fr/votre-retraite/voici-les-nouvelles-regles-encadrant-les-retraites-chapeaux-1343925

60 > FRANCE

3.3 RETRAITES CHAPEAUX (SUPPLEMENTARY EXECUTIVE PENSIONS)

On 4 July 2019, the government introduced in the Pacte Law several measures to reform supplementary executive pensions22 (retraites chapeaux). The main measures, which are to be implemented as of 1 January 2020, are as follows: > To remove the requirement of employment with the company at the time of retirement; > To limit the rights ceiling at 30% of the salary of the executive, against 45% currently.

3.4 AFG

In January 2019, the AFG (the French asset management association) published an updated version of their recommendations23 on corporate governance. The main changes of their 2019 edition are as follows: > The AFG recommends that the Board of Directors develop and publicize its monitoring and approval policy for regulated agreements. It specifies that a director in conflict of interest on a regulated agreement cannot take part in the deliberations or the vote. In addition, when the conclusion of a regulated agreement is likely to have a very significant impact, the Board of Directors will have to appoint an independent expert. > Any resolution that has met with significant opposition during its adoption must be carefully examined by the Board of Directors. > The nomination committee must, as soon as a new executive corporate officer takes office, participate in the planning and organization of the succession. This system will have to be reviewed annually by the Board. > In addition to executive corporate officers, members of the executive committee must hold a significant amount of shares of the company at risk, without any hedging mechanism. > The payment of a non-compete indemnity should not be possible if the person concerned remains in a position within the group. > The grant of the options subject to performance conditions should extend over a period of at least 3 years, preferably 5 years. > The non-executive chairman should focus on promoting the stabilization of a significant percentage of shareholding, which is essential for the development of an effective long-term strategy.

22) https://www.capital.fr/votre-retraite/voici-les-nouvelles-regles-encadrant-les-retraites-chapeaux-1343925 23) http://www.afg.asso.fr/wp-content/uploads/2017/01/Recommandations_sur_le_gouvernement_d_entreprise_2019.pdf

Georgeson’s 2019 Proxy Season Review > 61 3.5 AMF

In October 2018, the AMF (The Autorité des Marchés Financiers) announced24 that it will tackle the transparency of AGM votes to prevent mistakes in vote counts as recorded at the 2018 AGM of nine CAC40 companies that published erroneous vote counts: “Following discussions led on an initiative by its Consultative Commission for Retail Investors and pursued by a working group created by the Autorité des Marchés Financiers whose report it publishes today, the AMF updates its policy so as to strengthen the transparency and effectiveness of the votes of shareholders at general meetings”.

On 5 October 2018 the AMF published the report of the working group on shareholders’ rights and the vote in general meeting and its recommendations.

“Through these concrete recommendations, aimed at issuers, securities professionals or shareholders, the AMF is seeking to: > remind issuers of the need to take account of all votes expressed via a voting document or form compliant with legal and regulatory requirements; > recommend to shareholders and issuers using the services of a bailiff at general meetings that they require this last to specify in her/his report the extent and limits of her/his assignment; > make it easier for proxy holders to carry out the instructions received from their clients, by recommending that issuers provide a reasonable number of voting boxes at general meetings to proxy holders requesting such devices; > fight against the billing of fees that dissuade shareholders from voting or registering their shares; > strengthen the trust of market participants in the management of votes, by recommending that the players involved produce a methodological guide on how votes are processed at general meetings”. The AMF is also issuing proposals on legislative or regulatory changes aimed at: > “strengthening the transparency of voting by proxy and by correspondence, by recommending that shareholders may obtain confirmation that their votes have been taken into account at the general meeting or the reason why they have not been taken into account; > strengthening the transparency of rejected votes, by recommending that the total number of rejected voting rights of which the issuer is aware on the day of the general meeting be publicly disclosed when the results of the vote are announced”.

On 28 November 2018, the AMF also published its 2018 report on corporate governance and executive compensation: “For the fifteenth edition of its report, the AMF has chosen a new approach to the assessment of corporate governance practices and executive compensation at listed companies. As it does every year, the report details regulatory changes and areas of focus. However, this year’s report highlights two specific areas of interest in 2018: > Changes in top management and say on pay. This report represented a great opportunity to provide an overview of practices on these two hot topics. Ever since the French Financial Security Act was passed on 1 August 2003, the Autorité des marchés financiers has conducted an annual review of the disclosure of listed companies in the areas of corporate governance and executive compensation”.

24) https://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-2018?docId=workspace%3A%2F%2FSpaces Store%2Fb2e5ea5c-1592-4bac-ae27-efe9a24b42cf&langSwitch=true

62 > FRANCE

Georgeson’s 2019 Proxy Season Review > 63

Switzerland (SMI)

REJECTED BOARD PROPOSALS 1

AVERAGE QUORUM 67.70%

RESOLUTIONS WITH OVER 10% OPPOSE 9.16%

COMPANIES WITH OVER 10% OPPOSE 77.78%

Highlights > The average quorum across the SMI increased from 63.8% in 2018 to 67.7% in 2019. > Across the SMI there was one board-proposed AGM resolution rejected by shareholders. > The number of SMI companies that had at least one contested proposal (10%+ opposition) was 14. The overall number of contested resolutions increased from 45 in 2018 to 46 in 2019. Calibrated for the total number of resolutions in each year, this represents a 1% increase compared to the 2018 AGM season. > Across the SMI the voluntary advisory vote on the remuneration report was contested (10%+ opposition) in 65% of cases (11 out of 17). This is an increase compared to 2018, when these resolutions were contested 59% of the time. > Increased opposition to the mandatory remuneration proposals was observed in the SMI in 2019. The proportion of binding votes on executive remuneration that were contested (10%+ opposition) in 2019 was 32%, representing a 37% increase compared to the proportion in 2018. > 2019 also saw an increase in opposition to compensation committee elections resolutions. In 2019, 7 resolutions were contested (10%+ opposition) compared to 5 resolutions in 2018. This represents a 40% increase year on year. > Decreased opposition to the binding votes on board remuneration was finally observed in the SMI in 2019. Only 2 resolutions were contested (10%+ opposition) compared to 5 resolutions in 2018. This represents a 60% decrease year on year. > ISS recommended negatively on 48 resolutions in 2019, compared to 54 resolutions in 2018 (a calibrated 12.17% decrease). > Glass Lewis recommended negatively on 19 resolutions in 2019, compared to 39 resolutions in 2018 (a calibrated 51.86% decrease).

Georgeson’s 2019 Proxy Season Review >> 65 31 1 | Voting in Switzerland

1.1 QUORUM OVERVIEW

Georgeson has reviewed the quorum levels of the 20 companies which comprise the SMI1 index over the past five years. We have taken into account companies which comprised the index on 31 March 2019 date and held their AGM between 1 July 2018 and 30 June 2019.

The average quorum for the SMI was 67.7% during the reporting period. This represents an increase of 3.9 percentage points compared to 2018 and an increase of 3.5 percentage points over quorum levels in 2015.

Graph 1: Average AGM quorum levels in the SMI between 2015 and 2019.

70%

68%

66% 67.7%

64% 66.7%

62% 64.2% 63.8%

60% 63.0% Quorum 58%

56%

54%

52%

50%

2015 2016 2017 2018 2019

1) The SMI is Switzerland’s most important stock index and comprises the 20 largest equities in the SPI (a selection of companies which includes all Swiss companies listed on the SIX Swiss Exchange). The SMI represents about 80% of the total capitalisation of the Swiss equity market. See here: http://www.six-swiss-exchange.com/indices/data_centre/shares/smi_en.html.

66 > 1 | Voting in Switzerland SWITZERLAND

Graph 2: Quorum levels at SMI companies during the 2019 reporting period.

100%

90%

80%

70%

60%

50% Quorum 40%

30%

20%

10%

SGS Sika ABB

Nestle Geberit Swiss Re Novartis Givaudan Swisscom UBS Group Lonza Group Adecco Group Roche Holding LafargeHolcim.

Swiss Life Holding The Swatch Group Julius Baer Gruppe Credit Suisse Group

Zurich Insurance Group

Compagnie Financiere Richemont

1.2 REJECTED RESOLUTIONS SMI Among SMI companies, one management proposal was rejected by shareholders, at UBS.

UBS At the UBS Group AGM, on 2 May 2019, the discharge of the Board of Directors and Global Executive Board failed to receive sufficient shareholder support, with 41.64% against votes and 16.69% abstain votes.

In February 20192, a French court had ordered UBS to pay a 4.5 billion euro fine as a result of certain alleged activities aimed at French clients. Following the AGM, Alex Weber, chairman of the Board of Directors, stated3: “I interpret your decision as a reflection of your concern about uncertainty surrounding the ongoing court case in France and that you want to keep all possible legal options open. […] In our view, the trial in France did not show in any way that UBS failed to comply with the regulations that applied at the time in France and Switzerland”.

2) https://www.nytimes.com/2019/02/20/business/ubs-france-tax-evasion.html?register=email&auth=register-email 3) https://www.ubs.com/global/en/ubs-news/r-news-display-ndp/en-20190502-agm-results.html

Georgeson’s 2019 Proxy Season Review > 67 SMI MID Among SMI MID companies, one management proposal was rejected by shareholders, at GAM Holding.

GAM Holding At the GAM Holding AGM4, on 8 May 2019, the discharge of the members of the Board of Directors and the Group Management Board was rejected with 41.51% against votes and 9.06% abstain votes.

In a press statement5, GAM commented on the result, stating: “We also acknowledge today’s vote on the discharge for the 2018 financial year. We understand this decision of some shareholders in the context of the continued liquidation of the ARBF funds. As previously announced, the completion of the liquidation is expected by mid-July 2019”.

Sunrise Communications Group At Sunrise Communications AGM6, on 10 April 2019, shareholders rejected with 41.6% against votes the reduction of the authorized share capital pursuant to Article 3a of the Articles of Incorporation from CHF 4,500,000 today to CHF 4,200,000 and renew it until 12 April 2021. News stories7 confirmed that Sunrise’s largest shareholder Freenet, who holds approx. 25% of the issues share capital, had voted against this resolution. The vote came in connection with Freenet’s opposition of Sunrises’ bid to buy Liberty Global’s Swiss UPC cable business. While the rejection by Freenet at Sunrise’s AGM does not block the deal, it has further complicated it. Sunrise will hold a separate EGM later in the year, asking for specific shareholder approval to raise the required $4.1 billion to push the transaction through. At the planned EGM, only a simple majority will be required to pass this resolution.

4) https://www.gam.com/-/media/content/agm/2019/voting-results-ordinary-annual-general-meeting-of-gam-holding-ag-from--8- may-2019.pdf?la=en&hash=7564970DB98A551CC80CF5677C726C2886415405 5) https://www.gam.com/-/media/content/agm/2019/2019_agm-results_press-release_ en.pdf?la=en&hash=7583BDA396F7BC3805DFD19814DD5EF9B3546B07 6) https://www.gam.com/-/media/content/agm/2019/voting-results-ordinary-annual-general-meeting-of-gam-holding-ag-from--8- may-2019.pdf?la=en&hash=7564970DB98A551CC80CF5677C726C2886415405 7) https://www.reuters.com/article/us-liberty-global-m-a-sunrise-comm-grp/sunrises-upc-deal-faces-hurdle-as-top-shareholder- blocks-capital-leeway-plan-idUSKCN1RM0Z3

68 > SWITZERLAND

1.3 CONTESTED RESOLUTIONS

The number of SMI companies who saw at least one resolution receive more than 10% shareholder opposition, increased from 12 in 2018 to 14 in 2019. The total number of resolutions that received over 10% opposition amounted 46 in 2019, compared to 45 in 2018.

It should be noted that all vote results in this section exclude Compagnie Financière Richemont8 and Swatch Group9 which at the time of this writing only confirmed that all their resolutions were approved by shareholders.

In our SMI sample, the most commonly contested resolutions were director elections. The second most commonly contested resolutions related to the advisory vote on the remuneration report, followed by the binding vote on executive remuneration, and compensation committee elections.

Graph 3: Number of resolutions which received more than 10% against votes in the SMI (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

2017 2018 2019 30

25 13.4%

15 18.9% Number of proposals Number of 10 6.7% 6.2% 35.3% 42.9% 64.7% 64.7% 32.3% 58.8% 5 23.5% 10.1% 33.3% 11.1% 11.1% 7.4% 7.4% 27.8% 0 Director Advisory Vote Binding Vote Compensation Binding Vote Discharge Board Other Elections on Remuneration on Executive committee on Board and Senior Report Remuneration elections Remuneration Management

8) https://www.richemont.com/images/investor_relations/agm/2017/com_fin_richemont_sa_minutes_of_agm_13092017.pdf 9) https://www.swatchgroup.com/en/services/archive/2019/ordinary-general-meeting-shareholders-2019

Georgeson’s 2019 Proxy Season Review > 69 1.3.1 DIRECTOR ELECTIONS

As required under the ‘Minder’ Ordinance10, Swiss companies introduced annual director elections in 2014, which led to an increased number of AGM resolutions. Previously, members of the Supervisory Board were usually elected for multi-year terms.

As in prior years, it appears that the main reasons for investors to vote against the election of directors were related to the overall independence of the board and the number of external positions held by individual board members.

The companies with the highest level of opposition on director elections among our sample were: > SGS (Gerard Lamarche – 69.5%; Ian Galliene – 71.2%; August Francois von Fink – 74.3%; Kory Sorenson – 79.3%; Paul Desmarais – 80.8%; Shelby du Pasquier – 81.4%; Luitpold von Finck – 83.2%; and Peter Kalantzis – 89.2% votes in favour) > Lonza Group (Juergenn Steinemann – 78.6% votes in favour) > Nestlé (Ursula Burns – 85.1% votes in favour)

1.3.2 BINDING VOTES ON EXECUTIVE REMUNERATION

Under the provisions of the ‘Minder’ Ordinance, which came into effect starting with the 2015 proxy season, the general meeting of shareholders has to vote on an annual basis on the compensation of the Board of Directors, of the executive management, and of the advisory board.

The articles of association must define the details of the vote and the steps to take in case the proposals are rejected. The votes have a binding effect. The ordinance allows companies to implement either prospective or retrospective binding votes on the quantum of fixed and variable remuneration, while votes on the remuneration report or policy are not required.

In order to comply with the ordinance, most SMI companies opted for a forward looking binding vote on an overall budget covering both fixed and variable executive remuneration, and a forward looking binding vote on a budget for non-executive fees. Many companies consider this to be the least risky option as a failed binding retrospective vote may involve a legal obligation to claw back remuneration to an extent that is not practicable.

However, in order to complement the binding votes required by the ordinance, 17 out of 20 SMI companies have continued to propose a voluntary advisory vote on their remuneration report. This allows shareholders to express a backward-looking view on the way companies have used the budget and the level of disclosure provided on their remuneration decisions.

The companies with the lowest level of support on the binding vote on non-executive board compensation in the SMI were: > UBS Group (85.9% votes in favour) > Credit Suisse Group (86.8% votes in favour) > Swiss RE (90% votes in favour)

The companies with the lowest level of support on the binding vote on executive compensation in the SMI were: > SGS (80.5% votes in favour) > UBS Group (81.4% votes in favour) > Credit Suisse Group (84.5% votes in favour)

10) Verordnung gegen übermässige Vergütungen bei börsenkotierten Aktiengesellschaften (Ordinance against excessive compensation with respect to listed corporations): https://www.admin.ch/opc/de/classified-compilation/20132519/index.htm

70 > SWITZERLAND

Graph 4: Level of support for the binding vote of executive remuneration over three years at the SMI companies surveyed.

2017 2018 2019

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

SGS ABB Sika Nestle Geberit Novartis Givaudan Swisscom UBS Group Lonza Group Adecco Group LafargeHolcim Roche Holding

Swiss Reinsurance Swiss Life Holding Credit Suisse Group Julius Baer Gruppe

Zurich Insurance Group

Georgeson’s 2019 Proxy Season Review > 71 1.3.3 COMPENSATION COMMITTEE ELECTIONS

Until 2014 shareholders were only able to vote on the election of directors, but not on their membership of a board committee. Since the implementation of the ‘Minder’ Ordinance, shareholders have the opportunity to vote on the election of directors to serve on the compensation committee.

As this represents a separate voting item, investors are able (for example) to support the election of a candidate to the Board, but oppose their election to the compensation committee.

The companies with the highest level of opposition on compensation committee member elections in the SMI were: > SGS (Ian Galliene – 71.1%; August Francois von Finck 75.3%; Shelby du Pasquier – 81.6% votes in favour) > Nestlé (Ursula Burns – 85.2% votes in favour) > Lonza Group (Juergenn Steinmann – 86.1% votes in favour)

1.3.4 ADVISORY VOTE ON THE REMUNERATION REPORT

Even though a binding vote on remuneration was introduced under the ‘Minder’ Ordinance, the majority of Swiss issuers continue to voluntarily offer shareholders an advisory vote on the remuneration report. This practice is aligned with the Swiss Code of Best Practice for Corporate Governance11.

This practice allows shareholders to express their satisfaction or dissatisfaction retrospectively over the payments made to executives and non-executives as well as the disclosure provided in the remuneration report of the past financial year.

Of the 20 SMI companies, 17 companies submitted a vote on their remuneration report during the 2019 proxy season. The exceptions were Compagnie Financière Richemont, Roche and Swatch Group, which did not put their remuneration report up for an advisory shareholder vote in connection with their 2019 AGM.

Of the 17 SMI companies which published results for their advisory vote on the remuneration report, eleven received opposition in excess of ten percent compared to ten last year.

The companies with the lowest level of support on the remuneration report were: > Sika (72.3% of votes in favour) > LafarageHolcim (75.8% of votes in favour) > UBS Group (79.4% of votes in favour) > Credit Suisse (82.1% of votes in favour)

11) https://www.economiesuisse.ch/sites/default/files/downloads/economiesuisse_swisscode_e_web.pdf

72 > SWITZERLAND

Graph 5: Level of support for the advisory vote on the remuneration report over three years at the SMI companies surveyed.

2017 2018 2019

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

Sika ABB SGS Nestle Novartis Geberit Givaudan Swisscom UBS Group Lonza Group Adecco Group LafargeHolcim

Swiss Reinsurance Swiss Life Holding Julius Baer Gruppe Credit Suisse Group

Zurich Insurance Group

1.3.5 DISCHARGE BOARD AND SENIOR MANAGEMENT

Issuers in Switzerland are required to place a discharge vote for their board and senior management on the AGM agenda. While there are no immediate legal consequences for failing to pass this resolution, according to Article 758 of the Swiss Code of Obligations12 shareholders who do not vote in favour of the discharge or who have acquired shares following the ratification, have a six month period to file claims against the company. However, the discharge from liability is binding for any shareholder who voted in favour of the proposal, reacting to any misconduct or offences which were known at the time the discharge vote took place. As this may restrict claims against board members, a number of shareholders have decided to routinely vote against the discharge.

A high level of opposition on the discharge vote is often a result of ongoing investigations against a company, concerns about its performance or discontent with a single or multiple members of the board or senior management. The resolution may be presented by the company in a single vote or as individual discharge resolutions by board/senior management member. There have been occasions when the company has decided to postpone the discharge vote to a future AGM date, especially if investitagtions were still ongoing at the time the AGM would have routinely voted on the discharge of the past financial year.

The two companies with the highest level of opposition on the discharge among our sample were: > UBS Group (Discharge of the board and senior management in one bundled resolution – 41.7% votes in favour) > Credit Suisse Group (Discharge of the board and senior management in one bundled resolution – 87.9% votes in favour)

12) https://www.admin.ch/opc/de/classified-compilation/19110009/index.html#a758

Georgeson’s 2019 Proxy Season Review > 73 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis and Ethos (ECGS), for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 ISS

Institutional Shareholder Services13 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

During the 2019 reporting period, 7 companies of the SMI received at least one against recommendation from ISS, compared to 9 in 2018. The total number of resolutions where ISS recommended a vote against amounted to 48 in 2019, compared to 54 in 2018.

Graph 6: Overview of negative recommendations by ISS at SMI AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

2017 2018 2019 35

25 13.2% 12.7% 12.8%

15 Number of proposals Number of 10 16.9% 14.5% 5 11.4% 17.6% 10% 11.8% 11.8% 18.9% 4.5% 5.3% 16.2% 14.6% 0 Director Elections Compensation Binding Vote on Advisory Vote Binding Vote Other Committee Executive on Remuneration on Board Elections Remuneration Report Remuneration

13) https://www.issgovernance.com/about/about-iss/

74 > SWITZERLAND

Graph 7: Level of support for the advisory vote on the remuneration report among the SMI companies surveyed14 (ordered by level of support) and colour coded by ISS vote recommendations.

Against For

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

14) Excludes Swatch Group, Compagnie Financière Richemont and Roche Holding AG as the companies did not put forward a vote on the remuneration report.

Georgeson’s 2019 Proxy Season Review > 75 2.2 GLASS LEWIS

Glass Lewis15 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

During the 2019 reporting period, 7 companies out of the SMI received at least one against recommendation from Glass Lewis, compared to 8 in 2018. The total number of resolutions where Glass Lewis recommended its clients to vote against amounts to 19, compared to 39 in 2018.

Graph 8: Overview of the number of negative recommendations by Glass Lewis at SMI AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

2017 2018 2019 30

25 12.70%

15 8.7%

Number of proposals Number of 10 15.6% 4.1% 5 10.5% 17.6% 8.1% 3.8% 24.1% 9.1% 11.8% 11.8% 5% 12.2% 13.8% 0 10.8%

Director Compensation Binding Vote on Advisory vote Discharge of Binding Vote Other Elections Committee Executive on remuneration Board and on Board Elections Remuneration report Senior Remuneration Management

15) http://www.glasslewis.com/about-glass-lewis/

76 > SWITZERLAND

Graph 9: Level of support for the advisory vote on the remuneration report among the SMI companies surveyed16 (ordered by level of support) and colour coded by Glass Lewis vote recommendations.

Against For

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

16) Excludes Swatch Group, Compagnie Financière Richemont and Roche Holding AG as the companies did not put forward a vote on the remuneration report.

Georgeson’s 2019 Proxy Season Review > 77 2.3 ETHOS (ECGS)

Ethos17, the Swiss Foundation for Sustainable Development was founded in 1997. It is composed of 226 Swiss pension funds and other tax-exempt institutions and aims at promoting socially responsible investment (SRI). They are also members of the Expert Corporate Governance Service18 (ECGS), a partnership of independent local proxy advisors.

Ethos offers a wide range of SRI-funds, provides analyses of general meeting agendas including voting recommendations, a shareholder engagement programme as well as sustainability and corporate governance ratings and analyses of listed companies. All activities of Ethos Services are based on the concept of sustainable development and the Charter of the Ethos Foundation.

During the 2019 reporting period, 17 companies out of the SMI received at least one against recommendation from Ethos, the same as in 2018. The total number of resolutions where Ethos recommended voting against amounts to 75, compared to 84 in 2018.

Graph 10: Overview of the number of negative recommendations by Ethos at SMI AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Ethos recommendation and the total number of proposals in each category.

2017 2018 2019 35

30 15%

20 62.2% 56.8% 48.8% 15 8.7% 22.1% 7.2% 21.1% Number of proposals Number of

10 15.2% 64.7%

5 58.8% 58.8% 38.1% 10% 24.1% 31.8% 33.3% 30% 31.6% 17.2% 0 23.8%

Binding Vote on Director Compensation Advisory vote Approve Binding Discharge of Other Executive Elections Committee on remuneration Auditor Vote Board and Remuneration Elections report on Board Senior Remuneration Management

17) http://www.ethosfund.ch/e/ethos-foundation/ethos-foundation.asp 18) http://www.ecgs.org/partners

78 > SWITZERLAND

Graph 11: Level of support for the advisory vote on the remuneration report among the SMI companies surveyed19 (ordered by level of support) and colour coded by Ethos vote recommendations.

Against For

100%

90%

80%

70%

60%

50%

40% Level of support of Level

30%

20%

10%

19) Excludes Swatch Group, Compagnie Financière Richemont and Roche Holding AG as the companies did not put forward a vote on the remuneration report.

Georgeson’s 2019 Proxy Season Review > 79 3 | Corporate Governance developments

3.1 GENDER QUOTA IN SWITZERLAND

Following the narrow vote by the Swiss Parliament for gender quotas in the boardrooms of large publicly-traded companies in June 2018, the law was approved by the members of the Swiss Senate one year later, in June 201920.

It will now become mandatory to reach a 30% quote of female representation on Swiss boards of directors within 5 years and a minimum of 20% on executive boards within 10 years. The legislation is expected to affect around 200 to 250 companies in Switzerland.

There is currently no plan to impose sanctions on companies that do not fulfil the quotas, instead companies will simply have to explain their reasons for a lower number of female representatives and set out how they plan to rectify the situation.

The vote in the Swiss senate came on the back of a massive turnout for Switzerland’s woman’s strike for gender equality, just days before, which has been described as the largest protest in the modern history of Switzerland21.

The Neue Zurcher Zeitung reported in March 201922 that at the end of 2018, 9% of executive positions were occupied my females, compared to 21% in average on the Board of Directors. To reach the required 30% quota on the Board of Directors by 2022 all vacant seats going forward will have to be occupied by women. In the European average, Switzerland currently ranks number 14 for gender diversity. The UK for example has already reached a 30% quota without any binding legislation in place.

20) https://www.swissinfo.ch/eng/minimum-representation_parliament-approves-quotas-for-women-on-company-boards/45042736 21) https://www.theguardian.com/world/2019/jun/14/swiss-women-strike-demand-equal-pay 22) https://www.nzz.ch/wirtschaft/frauenanteil-in-geschaeftsleitungen-von-schweizer-grossfirmen-steigt-von-sieben-auf-neun- prozent-ld.1465433

80 > SWITZERLAND

Georgeson’s 2019 Proxy Season Review > 81

Netherlands (AEX+AMX)

REJECTED BOARD PROPOSALS 4

AVERAGE QUORUM 72.32%

RESOLUTIONS WITH OVER 10% OPPOSE 7.71%

COMPANIES WITH OVER 10% OPPOSE 50.00%

Highlights > The average quorum across AEX and AMX increased from 71.3% in 2018 to 72.3% in 2019. > Across AEX and AMX there were four board-proposed AGM resolution rejected by shareholders. > The number of AEX and AMX companies that had at least one contested proposals (10%+ opposition) was 21. The overall number of contested resolutions decreased from 49 in 2018 to 39 in 2019. Calibrated for the total number of resolutions in each year, this represents a 15.37% decrease compared to the 2018 AGM season. > Proposals relating to share issuance were the most contested (10%+ opposition), with 23% of the share issuance proposals put forward within the AEX and AMX receiving more than 10% opposition. > Director re-election was a prominent theme at the Dutch AGMs during 2019. Of the 122 Board re-election proposals put forward within the AEX and AMX 7% were contested (10%+ opposition). No director election resolution received an against recommendation from ISS, whilst Glass Lewis recommended against 3% of the director election resolutions. > ISS recommended negatively on 27 resolutions in 2019, compared to 14 resolutions in 2018 (a calibrated 105.05% increase). > Glass Lewis recommended negatively on 18 resolutions in 2019, compared to 14 resolutions in 2018 (a calibrated 36.70% increase).

Georgeson’s 2019 Proxy Season Review > 83 1 | Voting in the Netherlands

1.1 AEX AND AMX QUORUM OVERVIEW

We have reviewed the quorum levels of AEX1 and AMX2 companies over the past five years. Our survey includes companies that were part of the above-mentioned indices on 30 June 2019 and held their AGM between 1 July 2018 and 30 June 2019. This includes 21 companies in the AEX and 21 companies in the AMX3.

Average quorum level in the AEX has increased in 2019 compared to 2018. The average quorum in 2019 for AEX listed companies was 73.40% as opposed to 72.94% in 2018. The average AMX in 2019 was 71.23%.

Graph 1: Average AGM quorum levels in the AEX and AMX between 2015 and 2019.

AEX AMX

75%

70% 73.86% 73.40% 72.94% 72.14% 71.23% 70.49% 65% 70.40% 69.63% 69.68%

60% 62.70%

Quorum 55%

50%

45%

40%

2015 2016 2017 2018 2019

1) The AEX reflects the performance of the 25 most actively traded shares listed on NYSE Euronext Amsterdam. See here: https://live.euronext.com/en/product/indices/NL0000000107-XAMS/market-information 2) The AMX reflects the performance of the next 25 most actively traded shares listed on NYSE Euronext Amsterdam. See here: https://live.euronext.com/en/product/indices/NL0000249274-XAMS/market-information 3) We have included Dutch-incorporated companies only. For the AEX this excludes ArcelorMittal, Galapagos, Relx and Unibail- Rodamco-Westfield. For the AMX it excludes Air France-KLM, Aperam, Fagron and WDP.

84 > NETHERLANDS

100% Graph 2: Quorum levels at AEX companies during the 2019 reporting period (ordered from lowest to highest).

90%

80%

70%

Quorum 60%

50%

40%

30%

DSM KPN IMCD Philips Vopak Adyen AEGON Aalberts Unilever Takeaway Randstad Heineken ING Groep NN Group Akzo Nobel

ASML Holding ASR Nederland Ahold Delhaize Wolters Kluwer

Royal Dutch Shell ABN AMRO Group

Graph 3: Quorum levels at AMX companies during the 2019 reporting period (ordered from lowest to highest).

100%

90%

80%

70%

60%

50%

Quorum 40%

30%

20%

10%

OCI AMG Altice Fugro PostNL Signify Corbion TomTom Basic-Fit ARCADIS Intertrust BAM Groep TKH Group Wereldhave Grandvision Flow Traders SBM Offshore

BE Semiconductor ASM International

Boskalis Westminister

Euro Commercial Propperties

Georgeson’s 2019 Proxy Season Review > 85 1.2 REJECTED RESOLUTIONS

Among the 42 AEX and AMX companies in our sample that held their AGM between 1 July 2018 and 30 June 2019, three companies recorded management-proposed resolutions that were rejected by shareholders. Additionally in the AScX4 three management-proposed resolutions were rejected by shareholders.

AEX

ING At the ING AGM, which took place in April 2019, both the Management and Supervisory Board discharge resolutions were rejected by shareholders with 37.50% and 37.27% support respectively5. Both ISS and Glass Lewis recommended to vote against the resolutions.

According to the media6 the level of opposition was related to a settlement agreement7 ING entered into with the Dutch authorities “relating to previously disclosed investigations regarding various requirements for client on- boarding and the prevention of money laundering and corrupt practices”.

AMX

IMCD At the IMCD AGM in May 2019 one resolution (to authorize the Board to exclude pre-emptive rights from share issuances up 10% +10%) was rejected with 46.82% support8. Glass Lewis supported this resolution whilst ISS recommended to vote against. See section 1.4.1 for further information on trends on share issuance authorities.

Wereldhave At the Wereldhave AGM in April 2019 one resolution (to authorize the Board to issue shares up to 10% of issued capital) was rejected. The resolution received 46.91% support9. Both ISS and Glass Lewis recommended a vote in favour of this resolution. This is likely related to the shareholder base of Wereldhave and investor voting guidelines that may only allow a lower threshold.

AScX

BinckBank At the Binckbank AGM in April 2019 two resolutions were rejected by shareholders: an authority to issue shares up to 10%+10% without pre-emptive rights (prior to being acquired by the bidder10) and an authority to issue shares up to 10%+10% without pre-emptive rights (after being acquired by the bidder). ISS recommended against both of the resolutions whilst Glass Lewis recommended in favour of both. The resolutions received 59.48% and 65.03%11 support respectively. However, as the quorum was below 50% both resolutions required a supermajority of two- thirds of votes in support.

VastNed Retail At the Vastned Retail AGM in April 2019 one resolution (to authorise the Board to issue shares up to 10% and exclude or limit the pre-emptive rights) was rejected. The resolution failed with 55.4% opposition12. Both Glass Lewis and ISS supported this resolution. This is likely to be related to the shareholder base of VastNed Retail and investor voting guidelines that may only allow a lower threshold.

4) https://live.euronext.com/en/product/indices/NL0000249142-XAMS/market-information 5) https://www.ing.com/Investor-relations/Shareholders-meeting/Annual-General-Meeting.htm 6) https://fd.nl/ondernemen/1298486/aandeelhouders-verlenen-ing-bestuur-en-commissarissen-geen-decharge 7) https://www.ing.com/Newsroom/All-news/Press-releases/ING-reaches-settlement-agreement-with-Dutch-authorities-on- regulatory-issues-in-the-ING-Netherlands-business.htm 8) https://www.imcdgroup.com/investors/corporate-governance/general-meeting-shareholders 9) https://www.wereldhave.com/group/meetings/meeting-shareholders/agm-26-april-2019/ 10) https://hugin.info/130685/R/2238216/881921.pdf 11) https://www.binck.com/docs/librariesprovider5/shareholder-meetings/2019/notarisoverzicht-binckbank.pdf 12) https://vastned.com/Upload/2019.04.18-Vastned-AGM-voting-results.pdf

86 > NETHERLANDS

1.3 WITHDRAWN RESOLUTIONS

In comparison to last year we have seen an increase in the number of resolutions that were withdrawn prior to a shareholder meeting. This year four resolutions in the AEX and AMX and two in the AScX where withdrawn as opposed to five resolutions in 2018. In 2019 resolutions were withdrawn from the agenda of: Intertrust, Wereldhave, BinckBank, Wessanen and Vastned. Additionally one shareholder resolution at the Shell AGM was withdrawn prior to the meeting.

AEX

Intertrust On 14 May 2019 Intertrust announced that they would withdraw two resolutions relating to executive remuneration from the 2019 AGM agenda. Their statement explained that: “The Supervisory Board and the Management Board have decided to withdraw items 3b and 3c because of the range of views presented by stakeholders. Following the Annual General Meeting, we will engage with all relevant stakeholders before deciding on the best way forward for a new LTIP for members of the Management Board”.13

Shell (Shareholder Resolution) Shell provided an update on the AGM agenda14 and resolution 22 on 11 of April, following the announcement on 7 of April by Follow This15, stating its intention to withdraw the resolution that they initially had put forward for a shareholder vote on behalf of a group of shareholders. The shift came after Shell adopted its short-term carbon dioxide target, on top of its ambition to reduce its carbon footprint by 50% by 205016, Follow This recognised the steps taken and decided to withdraw the resolution on behalf of the investors”.17

AMX

Wereldhave The resolution to restrict or exclude pre-emptive rights was not put up for a shareholder vote as the resolution to issue shares was rejected by shareholders18 (see above, paragraph 1.2).

AScX

BinckBank BinckBank initially included an amendment of the remuneration policy on the 2019 AGM agenda. The proposed amendment would have entailed the abolition of variable pay for the Management Board members and senior management in exchange for an increase in the fixed pay19. The resolution was later withdrawn20.

VastNed Retail The resolution to issue shares up to 10% for generic purposes (without pre-emptive rights) was rejected by shareholders21. The resolution to issue an additional 10% in case of mergers, takeovers and strategic alliances (without pre-emptive rights) was not put up for a shareholder vote as the first resolution was voted down by shareholders.

13) https://www.intertrustgroup.com/investors/press-releases/pr-story?ResultPageURL=http://cws.huginonline.com/I/171118/ PR/201905/2244398.xml 14) https://www.shell.com/investors/retail-shareholder-information/annual-general-meeting/_jcr_content/par/textimage_d70a.strea m/1558006447365/3b83ed8ba4dfdf6ea87493f428adb55ef6c768a5/190517-proposal-to-withdraw-resolution-22.pdf 15) https://follow-this.org/en/in-the-media/dutch-campaign-group-drops-shell-climate-resolution-after-intensive-discussions-with- big-investors/ 16) https://www.shell.com/media/news-and-media-releases/2019/shell-invests-in-nature-to-tackle-co2-emissions.html 17) https://follow-this.org/en/in-the-media/activist-shareholders-grant-shell-climate-targets-reprieve/ 18) Page 17 of the 2019 AGM minutes https://www.wereldhave.com/siteassets/documents/agm_egm/minutes/agm-26042019-minutes.pdf 19) https://www.binck.com/docs/librariesprovider5/shareholder-meetings/2019/declaration-of-the-agm-and-explanatory-notes.pdf 20) https://hugin.info/130685/R/2242303/884903.pdf 21) https://vastned.com/Upload/2019.04.18-Vastned-AGM-voting-results.pdf

Georgeson’s 2019 Proxy Season Review > 87 Wessanen Wessanen included the amendment of the remuneration policy in the notice of meeting22 for the 2019 AGM. The company stated that based on feedback from many shareholders that they did not support the proposed changes the resolution was withdrawn23.

1.4 CONTESTED RESOLUTIONS

Among our sample of 42 AEX and AMX companies that held their AGM between 1 July 2018 and 1 July 2019, we saw a decrease in the number of companies and number of resolutions that received more than 10% shareholder opposition. The total number of resolutions that received more than 10% opposition amounted to 39 in 2019, compared to 49 resolutions in 2018.

The decrease in the number of contested resolutions is predominantly driven by better compliance with investor guidelines on share issuance without pre-improve rights as a number of companies amended their requested authorities to propose a lower levels of dilution.

The most commonly contested resolutions were authorities to issue shares and authorities to restrict or exclude pre-emptive rights. Board elections were the second most contested resolutions and following were proposals related to remuneration.

Graph 4: Number of resolutions which received more than 10% against votes in the AEX/AMX (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

2017 2018 2019 35

30 36.8% 33.3% 25

15 Number of proposals Number of 22.62% 10

5 4.88% 7.09% 2.3% 5.7% 15.2% 7.1% 6.7% 22.2% 17.65% 0 Share Issuance Director Elections Remuneration Discharge Other

22) https://wessanen.com/wp-content/uploads/2019/02/Wessanen-AR2018-Agenda.pdf 23) Page 3 of the 2019 AGM draft minutes https://wessanen.com/wp-content/uploads/2019/07/190705-concept-notulen-AVA-2019.pdf

88 > NETHERLANDS

1.4.1 SHARE ISSUANCE

Authorities to issue shares with pre-emptive rights are proposed as ordinary resolutions, requiring a simple majority. Authorities to issue shares without pre-emptive rights require a majority of two-thirds of the votes cast when less than 50% of the issued share capital is represented at the meeting. The Dutch general market practice has been to request authorities of up to 20% of issued share capital (10% for general purposes and 10% for mergers and acquisitions) with pre-emptive rights, combined with a separate resolution authorising the disapplication of pre-emptive rights for the full amount.

In 2018 ISS announced a change in its policy on share issuance. This change in the ISS guidelines was driven by the change in attitude from many of their investor clients who had adopted stricter guidelines relating to share issuance. This was already reflected in the increased levels of against votes for share issuance proposals in the Netherlands in the past few years. These changes in ISS’s policy were effective from 1 February 201924. Under the new guidelines ISS would support share issuance authorities with pre-emptive rights up to 50% and share issuance authorities without pre-emptive rights up to 10%. Following the change in ISS’s policy the trend to deviate for the Dutch market practice and to reduce the requested routine authority continued.

This year in the AEX only one company requested 10%+10% without pre-emptive rights. In the AMX 6 companies requested a 10%+10% authority with-out pre-emptive rights. We note that ISS recommended to vote against all the resolutions and all resolution were contested and received more than 10% against votes for their share issuance authority without pre-emptive rights above 10%.

1.4.2 DIRECTOR ELECTIONS

Whilst the re-election of nine directors of companies in the AEX and the AMX were contested two companies stood out in this respect:

Aalberts The re-election of Jan van der Zouw to the Supervisory Board received 23.25% against votes25. The Annual report showed Mr Jan van der Zouw’s attendance level to be 67% for the Supervisory Board meetings26. Institutional investors tend to see attendance as a critical factor for the Board members to fulfil their fiduciary duties and may consider voting against in cases were the attendance level is below 75% or 80% and the company does not provide adequate rationale.

Flow Traders The re-election of Roger Hodenius to the Supervisory Board received 20.74%27 against votes. Flow Traders remains the only company in the AEX and AMX with no female members on either the Supervisory or the Management Board28.

Section 2:166 of the Dutch Civil Code and the Dutch Corporate Governance Code provide a statutory target of at least a 30% of men and 30% women on the Management and Supervisory Boards of Dutch companies. The target ratio lapsed on 1 January 2016 and has been extended until 31 December 201929. If this target is not met, an explanation must be provided in the directors’ report.

24) https://www.issgovernance.com/file/policy/active/emea/Europe-Voting-Guidelines.pdf 25) https://aalberts-website.s3.eu-west-1.amazonaws.com/media/App/Models/Download/000/000/258/attachment/original/ Voting%20behaviour%202019.pdf 26) https://aalberts.com/investors/results-and-presentations 27) https://www.flowtraders.com/sites/default/files/inline-files/Flow%20Traders%20AGM%202019%20voting%20result.pdf 28) https://www.flowtraders.com/investors/corporate-governance 29) https://www.government.nl/latest/news/2016/01/15/statutory-target-again-for-gender-balance-on-company-boards

Georgeson’s 2019 Proxy Season Review > 89 1.4.3 REMUNERATION

Current legislation in the Netherlands requires listed companies to put remuneration up for a vote if there is a change in the remuneration policy. In January 2014 “claw back” legislation30 came into force. One element of this legislation requires listed companies to add the remuneration report as a discussion (non-voting) item to the AGM agenda before the approval of the annual accounts. Unlike most European markets, remuneration is not put on the agenda for shareholder approval and only shareholders that attend the AGM can participate in the discussion of the remuneration report. Additionally, pursuant to the Decree on Restrained Remuneration Policies, which came into effect on 1 January 2011, financial institutions that have received exceptional State support are prohibited from paying variable awards to their directors. Another law which came into force on 7 February 2015 caps the variable pay for financial institutions in the Netherlands at 20% of fixed remuneration.

The following companies received more than 10% against votes for remuneration related resolutions: > Be Semiconductors (33.73% against votes31 on the remuneration policy) > TomTom (17.87% against votes32 on the remuneration policy) > ASR (16.26% votes against33 on the remuneration policy) > Altice (12.08% votes against34 on the remuneration policy) > Takeaway (10.35% against votes35 on the remuneration policy) > Shell (10.07% against votes36 on the remuneration report)

30) http://www.allenovery.com/publications/en-gb/european-finance-litigation-review/northern-europe/Pages/Legislation-on-Claw- Back-of-Bonuses-.aspx 31) https://www.besi.com/fileadmin/data/Investor_Relations/AGM/2019/Voting_Results_AGM_2019.pdf 32) https://corporate.tomtom.com/static-files/5fe6775b-8c57-4045-9bc3-1ece1ab78951 33) https://www.asrnl.com/investor-relations/shareholders/general-meeting 34) http://altice.net/sites/default/files/pdf/AENV%20-%20%20%20AGM%2027.06.2019%20-%20Voting%20results%20form.pdf 35) https://corporate.takeaway.com/investors/general-meeting/ 36) https://www.shell.com/investors/retail-shareholder-information/annual-general-meeting/_jcr_content/par/textimage_d70a.strea m/1558445228324/189cdefe444ff7b8447cea8e06e3a2aa53fcd3c5/2019-shell-agm-results.pdf

90 > 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS and Glass Lewis for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 INSTITUTIONAL SHAREHOLDER SERVICES (ISS)

Institutional Shareholder Services37 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

During the 2019 proxy season, 11 companies out of the 42 AEX and AMX companies surveyed received at least one against recommendation from ISS. The 2019 AGM season saw the highest number of negative recommendations from ISS in the last three years.

Graph 5: Overview of negative recommendations by ISS at AEX and AMX AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

2017 2018 2019 14

12 15.5%

10 40.7%

6 23.5% 15.2% Number of proposals Number of

4 4.9% 2 1.1% 2.4% 1.5% 0

Share Issuance Remuneration Discharge Director Elections Other

37) http://www.issgovernance.com/about/about-iss/

Georgeson’s 2019 Proxy Season Review > 91 2.2 GLASS LEWIS

Glass Lewis38 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

During the 2019 proxy season, 10 companies out of the 42 AEX and AMX companies surveyed received at least one against recommendation from Glass Lewis. The 2019 proxy season saw the highest number of negative recommendations from Glass Lewis in the last three years.

Graph 6: Overview of negative recommendations by Glass Lewis at AEX and AMX AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

2017 2018 2019 14

8 33.3%

6 20.6% Number of proposals Number of 13% 4 3.1% 4.9% 2 0.8% 0.8% 1.2% 3.4%

0 Remuneration Discharge Director Elections Share Issuance Other

38) http://www.glasslewis.com/about-glass-lewis/

92 > NETHERLANDS

2.3 ECGS

Expert Corporate Governance Service39 (ECGS) is a joint venture of independent local market experts which have come together to provide specialist governance assessments and informed proxy voting advice.

Graph 7: Overview of negative recommendations by ECGS at AEX and AMX AGMs over the past year.

Articles of Association

2% 9%

Board Election 13%

Discharge MB/SB 37%

Other

Remuneration 20%

Share Issuance

3% 16% Share Re-purchase

Georgeson’s 2019 Proxy Season Review > 93 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

The Dutch bill40 implementing the revised European Shareholders Rights Directive is currently with the Upper House of the Parliament. While SRD II focuses on a number of areas, Dutch listed companies will mainly be affected by the new legislation on remuneration. The bill states that shareholders will be given the option to express their views on remuneration through two votes:

Remuneration Policy > Binding vote at least every 4 years > To be approved by at least 75% votes cast (unless the company’s articles of association set a lower majority requirement) > Both the Management as well as the Supervisory Board remuneration policy must be voted on Remuneration Report > Advisory vote every year If the bill enters into force on or before 1 January 2020, the remuneration policy and the remuneration report (over the 2019 financial year) must be submitted for a vote at the AGM of 2020.

3.2 EUMEDION

“Eumedion41 is a Dutch corporate governance and sustainability platform operating on behalf of institutional investors. Eumedion currently has about 60 institutional investor participants.

The Eumedion investment committee42, which consists of 25 participants, is responsible for their alert programme which covers the AGMs of all Dutch listed companies. Eumedion members receive an alert to highlight any highly controversial voting item on the agenda of a shareholders’ meeting of a Dutch listed company. These alerts are not intended as a vote recommendation, but are aimed at providing additional information to Eumedion’s participants.”

Between 1 July 2018 and 30 June 2019, 9 companies out of the companies listed on Euronext Amsterdam received at least one alert from the Eumedion. The remuneration and discharge related resolutions have received the highest number of alerts (three resolutions each). This is followed by the resolutions related to re-election of directors.

Another company received an alert for their resolution on remuneration; however, after amendments were made the original resolution, the alert was withdrawn.

Below is an overview of the number of alerts raised by the Eumedion at the AGMs of issuers listed on Euronext Amsterdam we surveyed over the past three years. The total number of alerts in 2019 increased by three in comparison to 2018 and 2017.

40) https://www.eerstekamer.nl/wetsvoorstel/35058_bevorderen 41) https://www.eumedion.nl/en 42) https://www.eumedion.nl/en/abouteumedion

94 > NETHERLANDS

Graph 8: Eumedion alerts issued on shareholder meetings for companies listed in the Euronext Amsterdam.

Articles of Discharge Board Share Remuneration Other Association MB/SB Election Issuance

2017 2018 2019

11% 14% 17%

15% 16% 34% 14% 14% 22% 17%

50%

33% 43%

3.3 REMUNERATION OF FINANCIAL UNDERTAKINGS

In additional to the aforementioned legal changes on remuneration pursuant to the SRD II, the Dutch minister of Finance, Wopke Hoekstra, informed Parliament though a letter43 that he has started a consultation regarding a proposal to amend the Act on Remuneration Policies of Financial Undertakings and include additional measures.

The proposed new measures include: > A mandatory 5 year holding period for directors and other employees who receive shares as part of their fixed pay > The law will also apply to fintech-companies who were previously exempt > Stricter requirements for deviation from the 20% variable pay cap The letter states that initially the intention of the Minister was to also include mandatory claw back provisions for a part of the fixed pay in case of state support. However, current Dutch and European regulation prevent fixed pay being subject to a claw back. Therefore this element will not be part of the potential amendment of the Act on Remuneration Policies of Financial Undertakings.

3.4 INITIATIVE TO LOWER REPORTING THRESHOLD FOR SHAREHOLDERS

The Dutch government is taking new measures to protect Dutch companies against activist shareholders44. The Dutch Minister of Finance Wopke Hoekstra informed Parliament through a letter that he started a public consultation (already closed) with the intention lower the holding threshold investors are required to report from 3% to 2%. Initially the intention was to lower this to 1% however, to reduce the administrative burden for investors this was increased to 2%.

The explanatory note states that the lower reporting threshold would allow a better dialogue between Dutch listed with its important (or activist) investors and believes it is important to provide a counterweight to short- term orientation45.

43) https://www.rijksoverheid.nl/documenten/kamerstukken/2019/07/05/kamerbrief-consultatie-wetsvoorstel-nadere- beloningsmaatregelen-financiele-sector 44) https://fd.nl/beurs/1302712/hoekstra-wil-meldplicht-aandeelhouders-aanscherpen 45) https://www.internetconsultatie.nl/wetsvoorstelnaderebeloningsmaatregelenfinsector

Georgeson’s 2019 Proxy Season Review > 95

Italy (FTSE MIB)

REJECTED BOARD PROPOSALS 2

AVERAGE QUORUM 68.98%

RESOLUTIONS WITH OVER 10% OPPOSE 21.29%

COMPANIES WITH OVER 10% OPPOSE 55.88%

Highlights > The average quorum across the FTSE MIB increased from 67.5% in 2018 to 68.9% in 2019. > Across the FTSE MIB there were two board-proposed AGM resolutions rejected by shareholders. > The number of FTSE MIB companies that had at least one contested proposal (10%+ opposition) was 19. The overall number of contested resolutions decreased from 46 in 2018 to 43 in 2019. Calibrated for the total number of resolutions in each year, this represents a 6.52% decrease compared to the 2018 AGM season. > There was a 5.56% decrease in contested (10%+ opposition) remuneration report votes across the FTSE MIB in 2019 (17 resolutions), compared to 2018 (18 resolutions). > Across the FTSE MIB there has been a 400% increase in contested director elections (10%+ opposition) from 1 in 2018 to 5 in 2019. > ISS recommended negatively on 36 resolutions in 2019, compared to 37 resolutions in 2018 (a calibrated 2.70% decrease). > Glass Lewis recommended negatively on 25 resolutions in 2019, compared to 31 resolutions in 2019 (a calibrated 19.35% decrease). > Proxy advisors continue to have a big impact on the outcome of proposals, and there is a clear correlation between negative proxy advisor recommendations and lower vote results. For instance, in the FTSE MIB, the five remuneration reports with the lowest level of support all received a negative recommendation from the majority of the proxy advisors covered in our analysis.

Georgeson’s 2019 Proxy Season Review > 97 1 | Voting in Italy

1.1 QUORUM OVERVIEW

Georgeson has reviewed the quorum levels of FTSE MIB and FTSE Italia Mid Cap companies over the past five years. This year’s review includes 34 companies that were part of the FTSE MIB index as of 31 May 2019, and which held their AGM between 1 July 2018 and 30 June 2019. In particular, the analysis excluded companies with their headquarters abroad or which do not qualify as joint stock companies (in relation to which specific voting right provisions apply).

Graph 1: Average AGM quorum levels in the FTSE MIB and FTSE Italia Mid Cap between 2015 and 2019.

FTSE MIB FTSE Italia Mid Cap 76%

74%

74.4% 74.1 %

72% 74.0 % 73.9% 73.2%

70%

68%

Quorum 69.0%

66%

67.5% 66.6% 64% 66.3%

65.1%

62%

60%

2015 2016 2017 2018 2019

98 > 1 | Voting in Italy ITALY

Graph 2: Quorum levels at FTSE MIB companies during the 2019 reporting period split between core shareholders and minorities1.

BPER Banca Core

Banco BPM Minority Ubi Banca

Azimut Holding

Intesa Sanpaolo

Assicurazioni Generali

Prysmian

Unicredit

Enel

Leonardo Finmeccanica

Eni

Mediobanca

Terna - Rete Elettrica Nazionale

Unipol

Telecom Italia

Saipem

Snam

A2A

Moncler

Atlantia

Italgas

Banca Generali

Recordati

Buzzi Unicem

Juventus Footbal Club

Poste Italiane

Finecobank

Hera

Salvatore Ferragamo

Unipolsai

Pirelli

Amplifon

Diasorin

Campari

Quorum 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1) Calculation of minorities’ participation has been calculated by subtracting the shares referable to core shareholders from the meeting’s quorum

Georgeson’s 2019 Proxy Season Review > 99 1.2 REJECTED RESOLUTIONS FTSE MIB Within our sample of FTSE MIB companies there have been 2 management-proposed resolutions rejected by shareholders, both during the shareholders’ meeting of TIM S.p.A (Telecom Italia).

Telecom Italia Telecom Italia is the leading Italian operator in telecommunication services. According to company’s website2, the shareholding structure is composed by: > Vivendi, holding 23.94% of ordinary share capital; > Cassa Depositi e Prestiti, holding 9.89% of ordinary share capital; > Elliott Capital Advisors, holding 9.55% of ordinary share capital; > Italian institutional investors, holding 1.91% of ordinary share capital > Foreign institutional investors, holding 43.81% of ordinary share capital; > Other shareholders, holding 9.82% of ordinary share capital Following months of troubled discussions among main shareholders3, on March 29, 2019, the Company held its annual general meeting in order to resolve upon, among other items, the approval of the remuneration report and the amendment to the existing share-based incentive scheme by amending one of the performance criteria.

The AGM was attended by 67.06% of the share capital, including Vivendi (23.94%), Cassa Depositi e Prestiti (9.89%), Elliott (8.81%), institutional investors (23.75%) and retail shareholders (0.62%)4.

Votes on the Remuneration Report and the amendment to the share-based incentive scheme failed to achieve the required majority, with a number of supporting votes respectively equal to5: > 43.74% of voted shares, as per the vote on the approval of the remuneration report; > 41.54% of the voted shares as per the approval of the amendment to the share-based incentive scheme. In both cases Vivendi (23.94% of the share capital, equal to 35.7% of the quorum) abstained6.

FTSE Italia Mid Cap Within our sample of FTSE MIB companies there have been 2 management-proposed resolutions rejected by shareholders, both during the shareholders’ meeting of TIM (Telecom Italia).

2) https://www.telecomitalia.com/tit/en/investors/shareholders/shareholdings.html 3) https://www.bloomberg.com/news/articles/2019-03-23/crunch-time-in-telecom-italia-s-battle-of-the-billionaires-q-a 4) https://www.telecomitalia.com/content/dam/telecomitalia/it/archivio/documenti/Investitori/AGM_e_assemblee/2019/Verbale_ Assemblea_29_03_2019_deposito.pdf 5) https://www.telecomitalia.com/content/dam/telecomitalia/en/archive/documents/investors/AGM_and_Meetings/2019/Report- votes-AGM-29-03-2019.pdf 6) https://www.telecomitalia.com/content/dam/telecomitalia/it/archivio/documenti/Investitori/AGM_e_assemblee/2019/Verbale_ Assemblea_29_03_2019_deposito.pdf

100 > ITALY

1.3 CONTESTED RESOLUTIONS

Among our sample of 34 FTSE MIB companies that held their AGM between 1 July 2018 and 30 June 2019, 19 companies saw at least one management-proposed resolution receive more than 10% shareholder opposition (compared to 23 in the preceding year). The total number of resolutions that received over 10% opposition amounted to 43, compared to 46 resolutions in 2018.

In our FTSE MIB sample, the most commonly contested resolutions were remuneration report votes. The second most commonly contested resolutions were share awards plans (incentive plans providing for the granting of equity instruments and/or monetary incentives based on stock value). Finally, the third most commonly contested resolutions were share repurchase programmes, including those related to long-term incentive plans, followed by elections of individual directors and Chairmen (outside the slate voting system), which in Italy only take place to fill a casual vacancy, or, in the case of a general election, to appoint the Chairman of the Board among the candidates elected through the slate system.

Graph 3: Number of resolutions which received more than 10% against votes in the FTSE MIB (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

2017 2018 2019

20 53%

15 50% 45% 44%

10 Number of proposals Number of 29% 26% 5 29% 27% 28% 16% 22% 9%

0 Remuneration Share awards/ Share repurchase Directors elections Other LTIPs and reissuance (where slate voting n/a)

Georgeson’s 2019 Proxy Season Review > 101 1.3.1 REMUNERATION REPORT

As mentioned above, resolutions pertaining to remuneration matters are those which generated the highest number of contested resolutions. Italian law7 provides that issuers are obliged to publish, at least 21 days prior to the relevant annual general meeting, a remuneration report.

Such a report is comprised of two sections and their contents have been defined by the Italian stock market regulator (CONSOB) with an ad hoc regulation adopted on 23 December 20118. The first section illustrates the general principles guiding the way executives will be compensated in the following year and the applicable procedures; the second section provides for a detailed disclosure on the compensation paid to each board member, the managing director and the top management overall.

The first section must be submitted to a mandatory non-binding vote of shareholders. With regard to financial institutions, a regulation9 issued by the Bank of Italy provides that the vote on the remuneration policy is mandatory and binding10. Similar provisions are applicable to insurance companies that are subject to IVASS11 regulation no. 39 of 9 June 2011, in relation to which, the remuneration policy vote is mandatory and binding.

The companies with the lowest level of support on the Remuneration Report among our sample were: > Telecom Italia (43.8% in favour) > Recordati (67.6% in favour) > Azimut Holding (68.5% in favour) > Atlantia (68.7% in favour) The available proxy advisor reports recommended a vote against the remuneration reports of the companies listed above apart from Telecom Italia, where divergent recommendations were issued.

1.3.2 ADOPTION OF SHARE AWARDS PLANS

According to Italian law12 the adoption of remuneration plans that relate to financial instruments (such as stock options, share awards and/or phantom shares) and aim to remunerate, among others, members of a company’s controlling or supervisory bodies must be approved by shareholders.

The companies with the lowest level of support on the approval of equity related plans among our sample were: > Telecom Italia13 (41.6% in favour) > Banco BPM (76.8% in favour) > Davide Campari (77.2% in favour) > Unipol Gruppo (80.1% in favour)

ISS recommended against three out of the four resolutions mentioned above, while Glass Lewis and Frontis Governance issued a positive recommendation in half of the cases.

7) Article 123bis of the Italian Financial Law, available at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:1998-02-24;58!vig=. 8) http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto.legislativo:1998-02-24;58!vig= 9) https://www.bancaditalia.it/compiti/vigilanza/normativa/archivio-norme/circolari/c285/Circ_285_16_Aggto_testo_integrale_ segnalibri.pdf 10) In particular Part I, Title IV, Chapter 2, Section II, paragraph 1 of Regulation of Bank of Italy n. 285 of 17 December 2013, provides that the Shareholders’ Meeting approves, among others, the remuneration policies of the controlling and supervisory bodies, the applicable share awards plans and the relevant severance payments. 11) Institution for the Supervision of Insurance 12) Article 114-bis of the Italian Consolidate Financial Law, introduced by Law n. 262 of 28 December 2005 13) Proposal to amend an existing equity related incentive plan

102 > ITALY

1.3.3 AUTHORITIES TO REPURCHASE AND REISSUE SHARES

According to article 2357 of the Italian Civil Code, share repurchase programmes and the use of repurchased shares are subject to the approval of shareholders. The law requires issuers to disclose limitations in terms of scope, amount and duration of the authorisation.

The companies with the lowest level of support on the approval of share repurchase programmes among our sample were: > Azimut Holding (73.1% in favour) > Banco BPM (76.8% in favour) > Davide Campari (81.3% in favour) > Unipol Gruppo (87.9% in favour) ISS recommended against all of the proposals mentioned above apart from Banco BPM, while Glass Lewis recommended in favour of all. Frontis Governance issued a negative recommendation at Davide Campari.

1.3.4 DIRECTOR ELECTIONS (WHERE SLATE VOTING WAS NOT APPLICABLE)

Italian law requires the Board of Directors to be elected by a slate voting system. However, when casual vacancies arise (affecting less than 50% of the board elected by the shareholders’ meeting) and directors are co-opted to the Board they are subject to an individual shareholder vote decided by a simple majority14.

With regard to the election of the chairman of the Board, Italian law15 provides that they be appointed by the members of the Board, unless an individual is named by the shareholders. However, appointment by a majority vote of shareholders is the common practice.

The companies with the lowest level of support on director elections and election of the chairman of the Board among our sample were: > Moncler – election of the chairman (62.4% in favour) > Atlantia – election of the chairman (71.4% in favour) > Pirelli & C. – election of the chairman (87.5% in favour) > Pirelli & C. – director election (87.5% in favour)

14) Article 2386 of the Italian Civil Code 15) Article 2380 of the Italian Civil Code

Georgeson’s 2019 Proxy Season Review > 103 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis and Frontis Governance for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the voting outcome of a given resolution.

2.1 INSTITUTIONAL SHAREHOLDER SERVICES (ISS)

Institutional Shareholder Services16 (ISS) is a leading provider of corporate governance solutions for asset owners, hedge funds, and asset service providers.

Between 1 July 2018 and 30 June 2019, 18 companies out of the FTSE MIB received at least one against or abstain recommendation from ISS, for a total of 36 resolutions.

The proposals connected to remuneration (approval of incentive plans and approval of remuneration reports) received the highest part of negative recommendations from ISS. Graph 5 suggests that companies receiving a negative recommendations from ISS generally failed to receive high levels of support from shareholders.

Graph 4: Overview of the number of negative recommendations by ISS at FTSE MIB AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

2017 2018 2019 16

44%

35% 10 36%

32%

38%

Number of proposals Number of 26% 25% 27% 4

16% 2 22%

17% 27%

Remuneration Share awards/ Share repurchase Directors elections Other LTIPs and reissuance (where slate voting n/a)

16) http://www.issgovernance.com/about/about-iss/

104 > ITALY

Graph 5: Vote in favour of the Remuneration Report among FTSE MIB companies (ordered by level of support), and colour coded by ISS vote recommendation.

Against For

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 105 2.2 GLASS LEWIS

Glass Lewis17 is a leading provider of governance services that support engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

Between 1 July 2018 and 30 June 2019, 12 companies out of the FTSE MIB received at least one against or abstain recommendation from Glass Lewis, for a total of 25 resolutions. Also in this case items connected to remuneration themes have been the most sensitive ones.

Graph 6: Overview of the number of negative recommendations by Glass Lewis at FTSE MIB AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

2017 2018 2019 15 41% 35% 10 32%

Number of proposals Number of 5 18% 18% 11% 17% 9% 6% 4% 7% 8% 0 Remuneration Share awards/ Share repurchase Directors elections Other LTIPs and reissuance (where slate voting n/a)

17) http://www.glasslewis.com/about-glass-lewis/

106 > ITALY

Graph 7: Vote in favour of the Remuneration Report among FTSE MIB companies (ordered by level of support), and colour coded by Glass Lewis vote recommendation.

Against For

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 107 2.3 FRONTIS GOVERNANCE

Frontis Governance18 is an Italian proxy advisory firm founded in September 2011. It is member of the Expert Corporate Governance Service (ECGS)19, a partnership of independent local proxy advisors.

Between 1 July 2018 and 30 June 2019, 14 companies out of the FTSE MIB received at least one against or abstain recommendation from Frontis Governance, for a total of 32 resolutions.

Graph 8: Overview of the number of negative recommendations by Frontis Governance at FTSE MIB AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Frontis Governance recommendation and the total number of proposals in each category.

2017 2018 2019 14

57% 63% 10

50%

30% Number of proposals Number of 40% 4

36% 29% 40% 2 15% 27% 25% 25%

Remuneration Share awards/ Share repurchase Directors elections Other LTIPs and reissuance (where slate voting n/a)

18) http://www.frontisgovernance.com/en/ 19) http://www.ecgs.org/partners

108 > ITALY

Graph 9: Vote in favour of the Remuneration Report among FTSE MIB companies (ordered by level of support), and colour coded by Frontis Governance vote recommendation.

Against For No recommendation

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 109 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

On 2019 Italian Government approved the Legislative Decree 49/201920, implementing the revised Shareholders Rights Directive. Legislative Decree 49/2019 amended the Italian Financial Law, by supplementing existing provisions in line with the principles included in the Directive.

In particular: > Existing provision regulating the ability for issuers to identify their shareholders has been reviewed providing for the possibility for issuers to identify shareholders holding more than 0.5% of the share capital; > It has been introduced the obligation for issuers to propose to their shareholders, at least on a three years base, a remuneration policy, subject to a binding vote; in addition, issuers shall also maintain a non-binding vote on the remuneration report; > Related Parties Procedures applied by Italian issuers shall be reviewed in line with the principles that Italian stock market regulator (CONSOB) will have to release, implementing the reinforced framework provided in the subject Legislative Decree; > Asset Managers shall publicly disclose the procedures implemented to fulfil their obligations on voting, engagement with portfolio companies and management of conflict of interests; > Institutional Investors employing external asset managers for the management of their portfolios shall publicly disclose how the principles regulating the external management, with particular regard to the provisions for ensuring alignment with investment strategy and management of financial and non-financial risks; > Proxy Advisors shall publicly disclose, at least annually, a report including information on key procedures and sources of information for providing their research and recommendations. Moreover Proxy Advisors shall communicate to their clients any existing or potential conflict of interests able to influence their analysis, report, or advise.

In conjunction to the above, the European Commission launched on March 201921 a consultation on the draft guidelines on the standardised presentation of the remuneration report under Directive 2007/36/EC, as amended by Directive (EU) 2017/828. Even if the consultation already ended, final guidelines are still to be published.

20) https://www.gazzettaufficiale.it/eli/id/2019/06/10/19G00056/sg 21) https://ec.europa.eu/info/consultations/public-consultation-remuneration-report-guidelines-implementing-shareholders-rights- directive_en

110 > ITALY

Georgeson’s 2019 Proxy Season Review > 111

Spain (IBEX 35)

REJECTED BOARD PROPOSALS 0

AVERAGE QUORUM 72.30%

RESOLUTIONS WITH OVER 10% OPPOSE 11.17%

COMPANIES WITH OVER 10% OPPOSE 71.43%

Highlights > The average quorum across the IBEX 35 increased from 72.2% in 2018 to 72.3% in 2019. > Across the IBEX 35 there were no board-proposed AGM resolutions rejected by shareholders. > The number of IBEX 35 companies that had at least one contested proposal (10%+ opposition) was 25. The overall number of contested resolutions increased from 51 in 2018 to 63 in 2019. Calibrated for the total number of resolutions in each year, this represents a 21.12% increase compared to the 2018 AGM season. > Proposals relating to director elections continue to be the most contested agenda item within the IBEX 35, where 26 resolutions received more than 10% against votes during the 2019 AGM season, 5 more proposals than in 2018 AGM season (representing 17% of the total resolutions in this category compared to 13% in 2018). > Contested resolutions relating to remuneration increased by 57% this year compared to 2018. Namely, 22 resolutions regarding remuneration matters received more than 10% negative votes, representing 27% of the total resolutions in that category, while during the 2018 AGM season there were 14 resolutions, representing 15% of the total. > Proposals relating to capital increases again had the highest ratio of contested resolutions this year with respect to the total (10 resolutions out of 17) representing 59% of the resolutions in this category, versus 30% last year. > ISS recommended negatively on 44 resolutions in 2019, compared to 55 in 2018 (a calibrated 21.56% decrease). > Glass Lewis recommended negatively on 29 resolutions in 2019, compared to 28 in 2018 (a calibrated 1.55% increase).

Georgeson’s 2019 Proxy Season Review > 113 1 | Voting in Spain

1.1 QUORUM OVERVIEW

Georgeson has analysed the quorum levels of IBEX 35 and IBEX Medium Cap companies for a number of years. This year’s review includes the 35 companies that are part of the IBEX 35 and 20 additional companies that are part of the IBEX Medium Cap1 as of 15 June 2019 and which have held their Annual General Meeting (AGM) between 1 July 2018 and 30 June 2019.

In the 2019 proxy season, the average quorum for IBEX 35 and IBEX Medium Cap companies has increased with respect to 2018, showing a positive trend for the sixth consecutive year, standing at 72.3% and 77.1%, respectively.

The three highest quorums among the IBEX 35 companies were recorded by: > Industria de Diseño Textil (88.24%)2 > Endesa (85.75%) > Inmobiliaria Colonial (85.37%) It should be noted that these companies’ free float is below 50%. Additionally, it should be noted that there have been changes in the composition of the IBEX 35 with respect to 2018: Distribuidora Internacional de Alimentación left the index and was replaced by Ence. The IBEX 35 companies that experienced the greatest increase in their quorum with respect to 2018 are: Inmobiliaria Colonial (+6.35), Enagas (+5.41) and ACS (+5.12).

Among IBEX Medium Cap companies the ones with the highest quorums were: > Corporación Financiera Alba (93.01%) > Fomento de Construcciones y Contratas (90.83%) > Prosegur Cash (90.82%) The companies of the IBEX Medium Cap with the highest increase in quorum are Fluidra (+8.79) and Prosegur Compañía de Seguridad (+8.62).

Graph 1: Average AGM quorum levels in the IBEX 35 and IBEX Medium Cap between 2015 and 2019.

IBEX 35 IBEX MC

78%

76% 77.1%

74% 74.7% 72% 72.3%

70% 72.2% 72.2% 71.4% 71.3%

Quorum 68% 70.0%

66% 68.2% 67.8%

64%

62%

60% 2015 2016 2017 2018 2019 1) Neinor Homes has not been included as they have not published their 2019 AGM results. 2) This refers to the AGM held in July 2018.

114 > SPAIN

Graph 2: Quorum levels at IBEX 35 companies during the 2019 reporting period.

100%

90%

80%

70%

Quorum 60%

50%

40%

30%

Repsol Grifols Bankia Enagas Mapfre Endesa Acciona Acerinox Ferrovial Iberdola Viscofan Bankinter Telefonica CaixaBank Aena S.M.E. ArcelorMittal

CIE AutomotiveCIE Automotive Indra Sistemas Cellnex Telecom Banco de Sabadell Tecnicas Reunidas Red Electrica Corp Amadeus IT Group Immobiliar Colonial

Naturgy Energy Group ENCE Energia y Celulosa Merlin Properties Socimi Industria de Diseno Textil Melia Hotels International

Banco Bilbao Vizcaya Argentaria Mediaset Espana Comunicacion

Siemens Gamesa Renewable Energy

International Consolidated Airlines Group

ACS Actividades de Construccion y Servicios

Georgeson’s 2019 Proxy Season Review > 115 1.2 REJECTED RESOLUTIONS

Among the 343 IBEX 35 companies that are part of this review, none had a rejected board proposal during the 2019 AGM season.

1.3 CONTESTED RESOLUTIONS

Among our IBEX 35 sample, 25 companies saw at least one management-proposed resolution receive more than 10% shareholder opposition, for a total of 63 resolutions. During 2018, 51 resolutions were contested.

In the IBEX 35, the highest number of contested resolutions this year again is related to director elections, where 26 resolutions received more than 10% against votes (representing 16.7% of the total resolutions in this category), 5 resolutions more than in 2018. On the other hand, proposals related to capital increases had the highest ratio of contested resolutions again this year with respect to its total, 10 resolutions out of 17, representing 58.8% of the total resolutions in this category. In 2018 proposals related to capital increases represented a 30% (6 resolutions out of 20).

Graph 3: Number of resolutions which received more than 10% against votes in the IBEX 35 (by resolution type). The percentages represent the ratio between the number of proposals that received more than 10% against and the total number of proposals in each category.

2017 2018 2019

25 16.7%

20 15% 26.5% 26.8% 13.2%

15 14.9% Number of proposals Number of 10 58.8% 5 4.4% 30% 28.6%

0 7%

Director Elections Remuneration Share Issuance Amendment of articles Other

3) ArcelorMittal has been excluded in the rest of the document as their corporate headquarters are located outside of Spain and due to its differences with the rest of the analysed companies.

116 > SPAIN

1.3.1 REMUNERATION

Spanish law4 requires companies to submit their remuneration report for non-binding shareholder approval on an annual basis, in addition to a binding remuneration policy proposal at least every three years.

This year, at IBEX 35 AGMs, 22 resolutions regarding remuneration matters received more than 10% negative votes, representing 26.5% of the total resolutions in that category. This represents an increase compared to 2018, when 14 resolutions received more than 10% negative votes, representing 14.9% of the total resolutions in that category.

The companies with the lowest levels of support were the following: > Merlin Properties (57.1% in favour of the remuneration report). > Grifols (60.1% in favour of the remuneration report). > Naturgy (65.1% in favour of the share appreciation rights plan). > Inmobiliaria Colonial (65.9% in favour of the remuneration policy and 70.7% in favour of the remuneration report).

1.3.2 DIRECTOR ELECTIONS

During the reporting period, board elections included 26 resolutions with more than 10% against votes. In line with previous years, the lack of independence was the main motivation for negative shareholder votes. As a novelty from previous years, for the first time in Spanish AGMs, one of the contested resolutions with more than 10% against votes was related to a reputational crisis generated by a failure in the recruitment process of a board member.

This year the resolutions with a support level below 80% were: > ACS (resolutions with support between 51% and 71.6%). > Ence (resolutions with support between 69.8% and 73.6%) > Banco Santander (one resolution with a support level of 78.1%)

1.3.3 SHARE ISSUANCE

According to the Spanish Companies Law5, Spanish companies may seek shareholder approval to issue new shares for a maximum period of five years. Shareholders can delegate to the board the authority to increase the company’s share capital without prior consultation of the general meeting of shareholders. The total increase cannot exceed 50% of the company’s share capital at the moment the resolution was passed. This year, at IBEX 35 AGMs, ten proposals relating to share issuance received more than 10% negative votes compared to six in 2018.

It should be noted that in 2019 ISS modified their Europe Voting Guidelines6 regarding share issuance requests, indicating that they “will vote for issuance authorities without pre-emptive rights to a maximum of 10 percent (or a lower limit if local market best practice recommendations provide) of currently issued capital as long as the share issuance authorities’ periods are clearly disclosed”.

The resolutions with the lowest levels of support in the IBEX 35 index were: > ACS (with a support level of 66.1%) > Inmobiliaria Colonial (with a support level of 75.5%) > Ferrovial (with a level of support of 79%)

4) Article 529 novodecies – Point 1 of Spanish Companies Law: Real Decreto Legislativo 1/2010, de 2 de julio, por el que se aprueba el texto refundido de la Ley de Sociedades de Capital (last update: 4 December 2014) 5) Article 297 - Point 1a and 1b of Spanish Companies Law. 6) https://www.issgovernance.com/file/policy/active/emea/Europe-Voting-Guidelines.pdf

Georgeson’s 2019 Proxy Season Review > 117 2 | Proxy Advisors

Many institutional investors rely on proxy advisory firms, such as ISS, Glass Lewis, and Corporance (ECGS), for meeting agenda analysis and vote recommendations to inform their voting decisions. A negative recommendation from a proxy advisor can have an adverse impact on the vote outcome of a given resolution.

2.1 INSTITUTIONAL SHAREHOLDER SERVICES (ISS)

Institutional Shareholder Services7 (ISS) is a leading provider of corporate governance and responsible investment solutions for asset owners, asset managers, hedge funds and asset service providers.

During the reporting period, the total number of resolutions where ISS recommended its clients to vote against or abstain amounts to 44, compared to 55 in 2018, in the IBEX 35. The highest number of resolutions that received unfavourable recommendations were related to director elections (21), where 13.5% of those proposals received an against or abstain recommendation from ISS. The category that received the highest proportion of negative recommendations from ISS is related to authorities to issue shares, where the ratio of resolutions with an unfavourable recommendation reached 47.1% (8 out of 17 total resolutions). During the 2019 AGM, 9 companies in the IBEX 35 received a negative recommendation related to the remuneration report.

Graph 4: Overview of the number of against/abstain recommendations by ISS at IBEX 35 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative ISS recommendation and the total number of proposals in each category.

2017 2018 2019 30

25 17.6% 18.6%

20 13.5% 24.4%

15 20.2%

Number of proposals Number of 10 14.5%

5 47.1% 4.7% 5%

0 6.7% Director Elections Remuneration Authority to Amendment Other issue shares of articles

7) http://www.issgovernance.com/about/about-iss/

118 > SPAIN

Graph 5: Vote in favour of the Remuneration Report among IBEX 35 companies (ordered by level of support), and colour coded by ISS vote recommendation.

Against For

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 119 2.2 GLASS LEWIS

Glass Lewis8 is a leading provider of governance services that supports engagement among institutional investors and corporations through its research, proxy vote management and technology platforms.

For the reporting period, the highest number of resolutions as well as highest proportion of resolutions with negative recommendations related to remuneration, receiving 13 negative recommendations out of the total 83 (15.7%). Regarding the remuneration report, 7 out of the 35 companies received an unfavourable recommendation from Glass Lewis.

Graph 6: Overview of the number of negative/abstain recommendations by Glass Lewis at IBEX 35 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Glass Lewis recommendation and the total number of proposals in each category.

2017 2018 2019 20

16 22%

14 17%

12 15.7% 10

8 Number of proposals Number of

6 15.7%

4 11.1% 2.5%

2 9.3% 5.6%

0 1.4% Remuneration Director Elections Amendment of articles Other

8) http://www.glasslewis.com/about-glass-lewis/

120 > SPAIN

Graph 7: Vote in favour of the Remuneration Report among IBEX 35 companies (ordered by level of support), and colour coded by Glass Lewis vote recommendation.

Against For

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 121 2.3 CORPORANCE (ECGS)

CORPORANCE Asesores de Voto9 is the first local proxy advisor and provider of advisory services in Spain and Portugal. Since early 2017, it is a member of the Expert Corporate Governance Service (ECGS)10, a partnership of independent local proxy advisors.

For the reporting period, the subject with the highest proportion of negative recommendations, were related to share repurchase proposals (7), where 50% of that category received an against or abstain recommendation from ECGS. Regarding the remuneration report, only 5 out of the 23 companies for which ECGS provided an analysis received a favourable recommendation.

Graph 8: Overview of the number of negative/abstain recommendations by Corporance/ECGS at IBEX 35 AGMs over the past three years. The percentages represent the ratio between the number of proposals that received a negative Corporance/ECGS recommendation and the total number of proposals in each category.

2017 2018 2019 50

45 35%

40 28.8%

35 46.3% 45.8% 30 59%

20 Number of proposals Number of 15 23.5%

10 44.4% 50% 21.4% 38.5% 45.5% 31.3% 23.8% 20% 40%

5 7% 11.1% 11.8%

0 Director Remuneration Share Share Approve Amendment of Other Elections Issuance Re-purchase Auditors articles

9) http://www.corporance.es/en/ 10) http://www.ecgs.org/partners

122 > SPAIN

Graph 9: Vote in favour of the Remuneration Report among IBEX 35 companies (ordered by level of support), and colour coded by Corporance/ ECGS vote recommendation.

Against For No recommendation

100%

90%

80%

70%

Level of support of Level 60%

50%

40%

Georgeson’s 2019 Proxy Season Review > 123 3 | Corporate Governance developments

3.1 IMPLEMENTATION OF THE REVISED EUROPEAN SHAREHOLDER RIGHTS DIRECTIVE (SRD II)

On 24 May 2019 a Draft Law11 was published which was subject to public consultation until June 14. The aim of this Law is the transposition of the revised European Shareholder Rights Directive (Directive (EU) 2017/828) into the Spanish legal system. According to the Draft Law the governance improvements include, among others, investors’ investment policy12, the right of companies to identify their shareholders, proxy advisors transparency, right of shareholders to vote on the remuneration of Directors, and regulation regarding related parties.

However, it is worth noting that in addition to the aforementioned, this Draft Law intends to regulate further aspects, such as the obligation for Directors of Spanish listed companies to be natural persons, the elimination of the, until now, mandatory quarterly financial report and, most importantly from a governance point of view, the introduction of loyalty (multiple voting) shares.

Regarding loyalty shares, according to the Draft Law, long-term shareholders in listed companies would have more voting rights than the rest if approved by a qualified majority, thus breaking the ‘one share, one vote’ principle in Spain. This measure is intended to favour those investors who hold shares for at least two years.

It is also relevant to mention that, with regard to the increased transparency requirements for proxy advisors, according to current text of the Draft Law, the main proxy advisors (ISS and Glass Lewis) would not be affected by these requirements, as they have no establishment in Spain.

3.2 TECHNICAL GUIDE ON NOMINATION AND REMUNERATION COMMITTEES

After issuing in 2017 the Technical Guide 3/201713 on Audit Committees at Public-Interest Entities, the Spanish market supervisor, Comisión Nacional del Mercado de Valores (CNMV) considered appropriate to also create a Technical Guide on Nomination and Remuneration Committees.

As such, in February 2019, the CNMV issued this Technical Guide bringing together a series of principles, criteria and good practices for the functioning of the Nomination & Remunerations committees (or the nomination committee and the remuneration committee, in the case of two separate committees).

Given the diversity of the entities to which this Guide is addressed, CNMV recognizes that issuers must take into account the need to adapt the principles and recommendations contained in the Guide to their particular circumstances and characteristics, depending on their size, complexity and the sectors in which they operate, without prejudice to the possible existence of specific sector requirements.

11) http://www.mineco.gob.es/stfls/mineco/ministerio/participacion_publica/audiencia/ficheros/ECO_TES_190524_AP_APL_fomento_ implicacion_largo_accionistas.pdf 12) This policy should describe how investors monitor the companies in which they invest regarding, among others, strategy, financial and non-financial performance, risks, capital structure, ESG impact. It should also describe how they develop dialogues with the companies in which they invest, exercise voting rights and other rights associated with the shares. 13) http://www.cnmv.es/DocPortal/Legislacion/Guias-Tecnicas/Guiatecnica_2019_1_EN.pdf

124 > SPAIN

3.3 LAW 11/2018 REGARDING NON-FINANCIAL INFORMATION AND DIVERSITY

On December 28, 2018, the Law 11/201814 came into force, incorporating into Spanish Law the Directive (EU) 2014/95, of October 22, regarding the disclosure of non-financial information and information on diversity.

With the transposition of the Directive, the content required in the annual corporate governance report to be published by Spanish listed companies was extended, including the disclosure of the diversity policy applied in relation to the Board of Directors.

Furthermore, with this law coming into force, Spanish companies have become the first European country in which investors can express their selves on ESG matters. As such, since 2019 AGMs, Spanish companies have to submit to their AGM, on a separate basis, the approval of the company’s non-financial information.

With this new law, companies have to include in their Management report information on environmental and social issues, as well as on personnel, health and safety, respect for human rights, due diligence processes in supply chains, the use of renewable energies, water consumption and air pollution, or the fight against corruption, among others.

Worth mentioning that the information included in the non-financial information status must be verified by an external independent provider.

14) https://www.boe.es/buscar/doc.php?id=BOE-A-2018-17989

Georgeson’s 2019 Proxy Season Review > 125

Denmark (OMX Large Cap)

REJECTED BOARD PROPOSALS 0

AVERAGE QUORUM 67.00%

RESOLUTIONS WITH OVER 10% OPPOSE 1.21%

COMPANIES WITH OVER 10% OPPOSE 10.81%

Highlights > The average quorum for the 37 OMX Large Cap companies surveyed has increased significantly from 63.7% in 2018 to 67.0% in 2019. This is a clear sign that the institutional investors have increased their corporate governance activities to exercise stewardship over the assets in their portfolio by proxy voting and exercising other formal shareholder rights. > In our 2019 OMX Large Cap sample, no board resolutions failed to gather sufficient support. > 43% of the OMX Large Cap companies surveyed received at least one against recommendation from ISS or Glass Lewis for a total of 28 management resolutions. > Remuneration continue to be the most contested resolution type. Glass Lewis voted against 16 management resolutions in 13 companies, and ISS voted against 12 management resolutions in 10 companies. 71% of the against votes were related to remuneration. > Four companies saw at least one management resolution receive more than 10% shareholder opposition. > A total of 31 shareholder proposals were filed at the AGMs of A.P. Moller-Maersk, Danske Bank, Copenhagen Airports, FLSmidth & Co., Jyske Bank, Lundbeck, Novo Nordisk, Rockwool, Royal Unibrew and Top Danmark. 30 proposals were rejected due to insufficient support and one shareholder proposal was approved (Jyske Bank). > Shareholder activism continues to increase, and the 2019 season saw increased activity on the AGMs from institutional investors and private shareholders with primary focus on remuneration, overboarding, diversity and transparency.

Georgeson’s 2019 Proxy Season Review > 127 1 | Voting in Denmark

1.1 QUORUM OVERVIEW

We have reviewed the quorum levels of the OMX Large Cap1 companies over the past five years. The survey includes the companies that were part of the index as of 1 July 2019, and which held their AGMs between 1 July 2018 and 30 June 2019.

The average quorum at the AGMs of OMX Large Cap companies has increased from 63.7% in 2018 to 67.0% in 2019.

The average AGM quorum level has increased significantly since 2015, which is a clear indication that shareholders have become increasingly aware of their potential for influence. This trend has been further supported by the implementation of the revised Shareholder Rights Directive (SRD II), which is intended to increase transparency and enhance long-term shareholder engagement.

Graph 1: Average AGM quorum levels of the OMX Large Cap companies surveyed between 2015 and 2019.

70%

65% 67.0%

60% 63.7%

55% Quorum 57.0% 56.1%

50% 53.8%

45%

40%

2015 2016 2017 2018 2019

1) http://www.nasdaqomxnordic.com/index/index_info?Instrument=SE0001776667 not including GS4 and Nordea Bank as they are headquartered abroad.

128 > DENMARK

1.2 REJECTED RESOLUTIONS

1.2.1 BOARD RESOLUTIONS

Among the surveyed OMX Large Cap companies that held their AGMs between 1 July 2018 and 30 June 2019, no board resolutions failed to get sufficient support.

1.2.2 SHAREHOLDER PROPOSALS

In the 2019 AGM season, a total of 31 shareholder proposals were filed at the AGMs of A.P. Moller-Maersk, Danske Bank, Copenhagen Airports, FLSmidth & Co., Jyske Bank, Lundbeck, Novo Nordisk, Rockwool, Royal Unibrew and Top Danmark.

30 proposals were rejected due to insufficient support and one shareholder proposal was passed at the AGM of Jyske Bank.

A.P. Moller-Maersk At the AGM of A.P. Moller-Maersk one shareholder proposal was on the agenda: > Instruct the Company’s management to ensure that vessels owned by the Company or vessels which the Company or the Company’s subsidiaries sell to third parties for the purpose of scrapping or continued operation are not sent to scrapping on beaches.

The proposal was rejected with 98.68% negative votes.