Investment Management Association Adherence to the FRC’s Stewardship Code At 30 September 2013 Detailed practical examples May 2014 Investment Management Association 65 Kingsway London WC2B 6TD United Kingdom Tel: +44 (0)20 7831 0898 Fax: +44 (0)20 7831 9975 www.investmentuk.org May 2014 © Investment Management Association (2014). All rights reserved. No reproduction without permission of the IMA. Detailed Practical Examples Contents Afren plc 3 AngloAmerican plc 6 Barclays plc 10 Bumi plc 15 Carnival plc 18 First Group plc 22 Glencore Xstrata plc 25 Lonmin plc 30 Redrow plc 33 RSA Insurance Group plc 36 1 Investment Management Association 2 Detailed Practical Examples – Afren plc Afren plc Background assurances that no more ‘exceptional’ project-specific bonuses would be paid; understand potential conflicts of At the Annual General Meeting on 11 June 2013, nearly interest for directors as a result of the FHN [First 80 per cent of shareholders voted against Resolution 2, Hydrocarbon Nigeria] transaction”. to approve the Remuneration Report. This followed a series of significant votes against the Report in previous One respondent engaged on strategy and the one years, with 52 per cent voting against in respect of 2011 “other” respondent stated that it generally expresses and 49 per cent in respect of 2010. concerns over corporate governance issues via voting in that it sends a letter to companies when it does not Six of the directors received over 25 per cent of votes support management’s resolutions. against their re-election, reflecting some concerns over independence and executives’ failure to declare an Two of the respondents that engaged changed their alleged conflict of interest 1: holding because of their concerns. One divested its holding for “fundamental reasons and concerns about Resolution 3, to re-elect the Chairman Mr Egbert shareholder returns” and the other significantly reduced Imomoh – 30 per cent its holding from 3 per cent to under 0.5 per cent of the Resolution 4, to re-elect Mr Peter Bingham as a outstanding share capital. director – 44 per cent Resolution 5, to re-elect Mr John St John as a Chart I: Engagement with Afren – No. of respondents director – 28 per cent Resolution 6, to re-elect Mr Toby Hayward as a Other director – 28 per cent 1 Remuneration Resolution 7, to re-elect Mr Ennio Sganzerla as a 2 director – 25 per cent Remuneration and Resolution 8, to re-elect Mr Patrick Obath as a environmental/ director – 25 per cent social issues 1 Chairman Imomoh said: “Since our [flotation] in 2005 we Remuneration have delivered total shareholder returns of 556%. Our Strategy and board remuneration philosophy has reflected the need to retain 1 1 exceptional talent in a highly competitive market, further compounded by the fact that we operate in very challenging areas. However, we have been sent a clear Eight respondents that had a holding in Afren did not message by our shareholders and are committed to engage, the reasons including: ensuring that the results are very different at next year’s 2 AGM ”. too small a holding (four). engagement criteria not fulfilled e.g. engagement Objectives would not be in their clients’ best interests (three). issue not significant to the respondent’s interest in Of the 14 respondents that had a holding in Afren, six the company (one). engaged. Remuneration was the main concern for four respondents, of which one also engaged on succession planning and another on environmental and social issues (Chart I). One respondent’s objective was to: “Understand board succession planning; receive 1 Theguardian.com 11 June 2013 2 Ibid. 3 Investment Management Association Outcome Four of the six respondents that engaged considered Contact was mainly by dedicated specialists with a total their engagement to be partly successful/effective. of nine contacts for four respondents (Table II). Two To quote: respondents contacted Afren via portfolio managers/analysts. “Long standing [remuneration] committee chair stepped down.” Table II: Number of contacts and who by “[Afren] appear to recognise the need to improve but No. of No. of we were disappointed by the continued lack of contacts respondents consultation.” Portfolio managers/analysts only 52 “Over the year we have seen some positive Dedicated specialists only 94 developments around remuneration, leading us to Portfolio managers/analysts support the remuneration report… at the 2013 AGM and dedicated specialists 11 whereas we had previously voted against.” “As a result of the discussions, our views on risk Contact with other investors regarding corporate governance and management priorities were heightened.” Only one respondent collaborated with other investors. This was initiated by an established local authority pension fund group and the respondent considered the The other two respondents considered the engagement collaboration effective. to be of little success. One received no response from the company whereas the other stated that “some assurances were received regarding remuneration 2013 AGM arrangements”. None of the respondents attended the AGM. Resolution 3, to re-elect the Chairman, Egbert Details of engagement Imomoh Contact with Afren Four respondents voted in support of Resolution 3 to re- elect the Chairman (Table III). Three explained the The six respondents that engaged with Afren had a total rationale, to quote: of 12 separate contacts, an average of two each. The Chair of the Remuneration Committee was contacted “The board was adequately independent by our the most overall by half of the respondents. standards. We also chose to express our concerns Management was contacted five times and its Chairman about remuneration by voting against the and Executive Directors twice each (Table I). remuneration report as voting against the directors was considered unnecessarily aggressive at this point.” Table I: Number of contacts and who with No. of No. of “We believe that the company have recognised that contacts respondents improvements are required and believe that the Chairman is working towards these improvements.” Chairman 22 Remuneration Committee Chair 63 Executive Directors 21Two respondents voted against, one stating: “[Manager] Management 52voted against all of the directors due to concerns over potential conflict of interest regarding the recent FHN Company Secretary 11 transaction in Nigeria, where ‘certain directors’ were Investor Relations 11reported as shareholders via a nominee company and 4 Detailed Practical Examples – Afren plc stood to benefit personally from the deal.” The other Two respondents voted in favour of Resolution 4 with respondent explained: “[Owner] will vote against the one explaining that it considered the Board to be election of individual directors if the director is an NED sufficiently independent. who is not considered to be independent per the UK Corporate Governance Code guidelines and board composition does not comply with the code.” Table III: Resolutions 3 and 4 Resolution 4, to re-elect the Non-Executive Director, Resolutions Peter Bingham 34 No. of respondents Four respondents voted against Resolution 4, to re-elect For 42 the Non-Executive Director Peter Bingham. Against 24 Explanations for this decision included: Abstain 00 “The audit committee should be fully independent and this director’s membership could hamper the None of the respondents of those that engaged with committee’s impartiality and effectiveness. The Afren abstained from voting on these two resolutions. remuneration committee should be independent and Moreover, out of the four respondents that voted against this director’s membership could hamper the either Resolution 3 or Resolution 4, or both, three committee’s impartiality and effectiveness. For widely notified Afren of their decision. held companies, the board should include at least 50% independent non-executive directors to ensure appropriate balance of independence and Conflicts objectivity.” “We were concerned by the remuneration and the None of the respondents with a holding had any lack of consultation and therefore voted against the conflicts of interest. [remuneration] report and all members of the remuneration committee.” Service Providers Only one Service Provider engaged with Afren. It had one contact with the company, and did not collaborate with other investors nor attend the AGM. 5 Investment Management Association AngloAmerican plc Background overcome the difficulties facing its Brazilian iron ore project.” At the Annual General Meeting on 19 April 2013, “We had concerns regarding the problems in the AngloAmerican faced protests over controversial mining South African mining industry and delays to Minas projects in Colombia and South Africa, and the climate Rio. The search for a replacement CEO was also key impact of its coal extraction 3. Resolution 17, to give for us. We were seeking assurance that the Board authority to allot shares received 30 per cent of votes and Chairman were implementing the correct against. Special Resolution 18, to give the company the approach to all pressing matters affecting the right to disapply pre-emption rights, did not receive the company and wanted to further understand the necessary 75 per cent of votes in support. The action(s) being taken.” company stated: “although this is a routine resolution for public companies in the UK, the directors had no “We discussed potential candidates for the CEO present intention of exercising the proposed authority, as role.” set out in the Notice of Annual General Meeting. The “Our investment professionals conducted several Company does not therefore anticipate any meetings with AngloAmerican plc over the course of consequences arising from the resolution not being the year to better understand management’s strategy passed. The Company will discuss any concerns with and restructuring efforts.” those shareholders, predominantly outside the UK, who voted against this resolution 4”. Two respondents engaged on remuneration and a further two on environmental and social issues, as well Resolution 16, to approve the Remuneration Report, as health and safety. The latter two explained that: received 21 per cent of votes against – an increase from the 13 per cent of votes against in the prior year 5.