Key Governance Developments - September 2020

Executive remuneration in shareholders’ sights in light of companies’ pandemic response

Institutional investors and proxy advisers are opposing remuneration packages and bonus payment awards for company executives that they regard as excessive in light of the impact on business of the Covid-19 pandemic. They point to companies' resort to furloughs and redundancy programmes in order to reduce costs, their acceptance of government loans and grants, and the reduction or suspension of dividend payments to shareholders. There is particular concern about remuneration policies in the airline industry, where Ryanair and IAG, parent of British Airways and Iberia, are proposing substantial executive bonuses despite a collapse in business over the first half of the year. Another company facing a shareholders' revolt is educational publisher Pearson, which is planning to pay a large 'golden hello' to its incoming CEO, in addition to a generous salary and housing allowance.

ISS objects to US government proposals to limit pension fund shareholder voting


Institutional Shareholder Services has criticised plans by the US Department of Labor to limit the ability of private pension funds to vote at the annual general meetings of companies in which they invest. The department is seeking to bar funds from voting unless they have made a fiduciary determination that the issue to be voted on has an economic impact on the funds. ISS governance business head Lorraine Kelly says attempts to limit proxy voting and disenfranchise shareholders will weaken oversight of companies by their shareholders. The proposal appears to reflect concern among some US companies about shareholders’ focus on ESG issues and the use of AGMs to put pressure on boards over environmental and other issues.

Best source: Financial Times (subscription required)

See also: ThinkAdvisor


UK fund manager opposes executive pay rises amid Covid-19 cutbacks

UK fund manager M&G has opposed more than 30% of executive pay recommendations at FTSE 350 companies this year, up from 6% in 2019, according to FTI Consulting and data provider Proxy Insight. M&G has objected when executive pay awards do not reflect lower or suspended dividends and the furloughing of staff in response to the Covid-19 pandemic. M&G director of corporate governance Jeremy Punnett says the company is demanding evidence that the economic impact of the pandemic is being shared more equally between all stakeholders.

Best source: Financial Times (subscription required)

See also: FTI Consulting


Investor group demands shorter supervisory board mandates for DAX companies

Institutional investors have criticised corporate governance in Germany, saying the terms of office of supervisory board directors at Dax 30 companies are too long. An investor initiative led by State Street Global Advisors and other asset managers, including Schroders, LGIM, Aberdeen Standard Investments, Aviva Investors and JP Morgan Asset Management, is calling on companies to shorten the maximum mandate of supervisory board members from the current five years to three years.

Best source: Handelsblatt (subscription required, in German)

See also WirtschaftsWoche (subscription required, in German)


Mercer finds majority of European pension funds consider ESG risks

The latest Mercer European Asset Allocation Survey indicates that 89% of pension schemes now consider environmental, social and governance risks, up from 55% last year and 40% in 2018. Climate risk is now taken into account by 54%, a sharp increase from 17% in 2018 and 14% last year. The report says the trend is being driven by EU legislation, especially the updated Institutions for Occupational Retirement Provision Directive.

Best source: Chief Investment Officer

UK regulator checking compliance with fund governance rules on value assessment

The UK's Financial Conduct Authority is holding closed-door sessions with a sample of asset management firms to monitor compliance with new governance rules requiring an annual assessment of value to determine whether fund investors are receiving value for money. The Fund Boards Council says only 4% of the 135 reports submitted so far clearly identify remedial action to improve the value received by investors. The rules stem from a 2017 review that uncovered weak price competition between managers and high fees, and were given increased urgency by the collapse last year of Neil Woodford's fund group. The regulator is expected to provide feedback on its inquiries later this year.

Best source: Financial Times (subscription required)

Se also: Portfolio Adviser

ISS advocates vote against bonuses for airline executives amid pandemic disruption

Institutional Shareholder Services has recommended that investors vote against payment of a £883,000 bonus to International Airlines Group CEO Willie Walsh, part of his total remuneration of £3.2m. IAG, which owns British Airways, Iberia, Aer Lingus and Vueling, has already cancelled its dividend in response to the disruption of flights by the Covid-19 pandemic. ISS also notes that British Airways has drawn funds from the UK job support furlough scheme and the Bank of England Covid Corporate Financing Facility. The proxy adviser has also recommended that shareholders vote against a €450,000 bonus payment for Ryanair CEO Michael O’Leary, 92% of the maximum O’Leary could be awarded, saying the bonus cannot not be justified when the airline has furloughed staff and is making redundancies.

Best source Financial Times (subscription required)

See also: Financial Times (subscription required)

See also: ShareCast


Glass Lewis recommends voting against Pearson CEO golden hello

Institutional shareholder adviser Glass Lewis has recommended that investors vote against the proposed golden hello promised by educational publisher Pearson to its new CEO, Andy Bird. The remuneration package for Bird, who was previously at Disney, totals more than $9m along with an annual $240,000 allowance for a New York apartment.

Best source: The Times (subscription required)


Malaysia’s financial regulator receives new authority over corporate governance

Financial regulator Securities Commission Malaysia has been given new powers to take action against public companies if directors breach their fiduciary and governance duties to shareholders. The Companies Commission of Malaysia also has oversight over corporate governance, but rarely uses its powers to investigate or take action against directors.

Best source: The Edge Markets

Pension funds question Rio Tinto accountability for damage to historic Australian site

The UK Local Authority Pension Fund Forum has joined the Australasian Centre for Corporate Responsibility and pension schemes AustralianSuper and Hesta in expressing concern about Rio Tinto’s testimony regarding the company's destruction of Aboriginal caves at Juukan Gorge in Australia. Rio Tinto CEO Jean-Sébastien Jacques has admitted to having failed to read a critical archaeological report about the site. The investors and associations have questioned Rio Tinto’s commitment to governance and human rights issues as well as due diligence procedures.

Best source: Investment & Pensions Europe (registration required)


Dubai regulator investigating asset valuation and governance at Emirates REIT

The Dubai Financial Services Authority is investigating Equitativa Dubai, manager of Emirates REIT, regarding asset valuation and governance. The real estate investment fund is considering delisting from Nasdaq Dubai to obtain more leeway in closing the gap between the value of assets and its share price, which has declined by 73% this year. The fund's board blames weak UAE equity prices and a downturn in Dubai real estate for the gap, but shareholders have complained about poor performance, high management fees and misrepresentation of asset values.

Best source: Financial Times (subscription required)

See also: International Business Time