Important highlights from upcoming meetings, provided by Glass Lewis’ global research team

Whitehaven Coal Limited
Australian Securities Exchange – October 25

Whitehaven, one of Australia’s largest coal producers, finds itself the target of ESG activism at its 2018 AGM. The Company has attempted to position itself as being resilient to any shift to a low-carbon world by highlighting its production of HELE (High Efficiency Low Emissions) coal, and long-term contracts with East Asian utilities to supply ultra-supercritical power generators. That hasn’t stopped Market Forces, a domestic activist group, from lobbing three shareholder resolutions at the company.

As submission of non-binding advisory shareholder resolutions is not an automatic shareholder right under Australian law, the first resolution is a constitutional amendment that would, if approved, open the door to further resolutions. One of the other two resolutions seeks for Whitehaven to disclose information on its exposure to climate change-related risks in a format compliant with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), and to follow the TCFD’s Supplemental Guidance for the Energy Sector. The other shareholder resolution is more prescriptive, asking Whitehaven to ensure its strategy and capital expenditure decisions are consistent with the climate goals of the 2015 Paris Agreement. Whitehaven has recommended shareholders vote against all resolutions, but also released a statement on October 5 stating that it “is reviewing the

[TCFD] recommendations for voluntary reporting on climate related financial risks with a view to incorporating these into the Company’s reporting in 2019.”

Moving to remuneration issues, Whitehaven bases part of its long-term incentives on a cost hurdle, FOB cost per tonne, which it does not disclose in advance due to commercial sensitivity. For FY2016 grants, which were tested at the end of FY2018, the payout schedule allowed for significant vesting despite weak cost performance over the performance period, inconsistent with the cost outlook set out when the hurdles were set. Nor is this a legacy issue that will just fade away: Whitehaven’s FY2018 actual FOB cost per tonne performance was weaker than the stated outlook disclosed the beginning of the year, yet the FY2018 STI outcome was ‘between target and stretch’ on that measure. This suggests that ‘on-target’ performance for the purposes of the STI was significantly worse than the guidance Whitehaven gave to the market.

BWX Limited
Australian Securities Exchange – October 31

BWX raised eyebrows amongst the investor community when it announced in May 2018 that it had received an indicative proposal from the Company’s MD/CEO, James Humble, and Finance Director, Aaron Finlay, in partnership with a consortium consisting of Bain Capital Private Equities, L.P. and others.

The company, which produces and markets natural body, hair and skin care products (including Sukin), had embarked on a “growth-by-acquisition” strategy led by Messrs. Humble and Finlay (likely fueled by their EPS and EBITDA-heavy remuneration packages). With the growing “natural-products” craze in mainland China and the potential to expand sales there, it appears both Messrs. Humble and Finlay thought they had found a good thing going.

In response to the unusual circumstances, the board established an Independent Board Committee (“IBC”) to review the offer and embarked on a strategic review of the company. Meanwhile, Messrs. Humble and Finlay took a leave of absence whilst the IBC mulled over the takeover proposition.

On September 17, 2018, the company announced that the executive management team and Bain Capital were not able to submit a binding proposal, and had withdrawn the offer. Following the withdrawal, Messrs. Humble and Finlay humbly resigned from their executive and board roles at BWX. The board is now left to pick up the pieces with their new (internally appointed) executive team.

Tiga Pila Sejahtera Food Terbuka
Indonesia Stock Exchange – October 22

In June 2017, two of PT Tiga’s subsidiaries were found guilty of falsely marketing subpar-quality subsidized rice as premium for double the price. These subsidiaries were later shut down, and the company decided to terminate its rice division, which had contributed nearly half of revenues. Without the money to meet its obligations, the company’s bonds were subsequently rated as default. A year later, the company’s shares were suspended from trading on the Indonesia Stock Exchange (IDX) following its poor financial performance, which also includes its inability to repay debt obligations.

As it turns out, the rice scandal wasn’t the only cause of the company’s cash woes. It was revealed that, despite its apparent debt issues, the company had spent Rp 655.67 billion (equivalent to US$43,197,001.74 on October 12, 2018) during the fiscal year to acquire four of its distributors – each of which were revealed to be beneficially owned by two directors, including founder and president director, Joko Mogoginta.

Following the revelations, at the 2018 AGM two of the company’s commissioners refused to sign the annual report, which otherwise would have acquitted and discharged the directors from their responsibilities. Reportedly, their decision not to sign off was influenced by Jaka Prasetya, a representative of a global investment firm who also serves on the board of commissioners. The board of directors defended their actions, stating that the acquisition was part of the company’s vertical integration strategy. However, Mr. Prasetya moved to seek shareholders’ vote for the termination of the entire board of directors, alleging conflicts of interest. Following a heated discussion during the Open Forum section of the AGM, the proposal seeking changes to the company’s boards was postponed, and following the AGM, the commissioners decided to take over the duties of the directors. That postponed meeting will take place October 22, 2018.

Shareholders looking to review the agenda items may be underwhelmed by the amount of explanatory disclosure that has been set out. Even if the details remain murky, the wider process, including the commissioners’ hesitance to sign off and ultimate postponement of the vote, signals that the involvement of established foreign institution can increase the level of scrutiny paid to a company’s governance practices. It’s the duty of commissioners to supervise the directors, but it remains a rare instance where the board of commissioners actively chooses to confront a board of directors.