Important highlights from upcoming meetings, provided by Glass Lewis’ global research team
Rio Tinto Limited, Santos Limited & QBE Insurance Group Limited
Australian Securities Exchange – May 2 (RIO) and May 3 (STO and QBE)
It appears that the climate change activism in Australia is gaining momentum. Following a series of shareholder proposals on the topic last year, Rio Tinto became the first one in the firing line in 2018. The proposals are similar to those at BHP Billiton in 2017, and relate to Rio’s industry memberships. However, the proponents have changed — while in 2017, it was solely ‘one minute’ shareholders, the proposals at Rio were co-filed by longstanding institutional investors in Australia, UK and Sweden. Rio will also have to defend its remuneration policy yet again, following significant payouts for safety components in another year of fatalities. At its 2017 AGM, over 11% of votes cast were against the company’s remuneration report.
Meanwhile, the agenda at Santos’ AGM also includes a requisitioned item relating to climate change for the second consecutive year. Last year, the topic was climate reporting in general. This time around, the proposal is more specific, targeting methane emissions reporting. It’s a subject of particular interest since methane is considered a far more potent greenhouse gas than carbon dioxide. But it’s not simply an environmental matter: there may also be significant financial incentives for companies to mitigate the losses experienced through fugitive methane emissions. To provide shareholders with context on what Santos is doing to address these risks, the proposal asks for methane reporting to go beyond Australia’s National Greenhouse and Energy Reporting System to include more qualitative information.
These proposals are no longer confined to the natural resources sector, either. Over at QBE, a shareholder proposal is asking the insurer to bring its climate change reporting in line with the Financial Stability Board’s Task Force for Climate Related Financial Disclosure (TCFD) recommendations. The nascent reporting framework, which was released last summer, hasn’t been adopted by any of the company’s peers, and applying it to insurers and financial institutions (whose exposure to climate risk reflects their dealings with hundreds of other entities, rather than their own operations) could prove more difficult than for natural resources companies. QBE has arguably gone further than peers in forming a working group to review its readiness to report against TCFD, but that hasn’t diminished significant shareholder pressure; absent a firm commitment to adopt TCFD in future, it would be interesting to see how the voting turns out.
However, it remains to be seen whether the vote results from these climate-related shareholder proposals will be totaled up or disclosed. That’s because, in line with historical Australian practice, these proposals are conditional on getting shareholder approval of a “gateway” proposal that allows for additional SHPs – without it, the climate resolutions won’t be brought to a vote, and cast proxies aren’t required be counted or disclosed (last year, two companies released them anyway). Given that the gateway proposal requires 75% approval, it’s unlikely that they will pass. But, given that Rio and Santos are now facing such related proposals annually, and in light of the pressure brought on QBE from Australian investors, it’s clear that the topic is the source of growing shareholder concern.
Valeant Pharmaceuticals International, Inc.
New York Stock Exchange – April 30
This year, Valeant’s shareholders are facing a tough decision. For several years, the company’s say-on-pay proposal has generated significant opposition, receiving approximately 31.9% against votes at last year’s annual meeting. The company’s compensation structure hasn’t changed – the “long-term” incentive plan continues to assess return on tangible capital against a series of one-year performance periods and doesn’t include any relative metrics, contributing to a disconnect between pay and performance. But then, it wasn’t necessarily the underlying structure that prompted against votes last year, so much as the scale of outsized one-off payments. In this area, the board has been responsive to investor opposition, with CEO Joseph Papa forfeiting 933,416 PSUs from a sign-on grant. The award was worth approximately $19.4 million – but will that be enough to rally shareholder support for the say-on-pay?
JBS S.A.
B3 – April 30
Operation Weak Flesh, a scandal related to the use of tampered and rotten meat, in which Brazilian food companies JBS and BRF are involved, exploded just a few days before last year’s JBS annual meeting. As such, shareholders didn’t have time to process, and the repercussions of the scandal will only be fully assessed at this year’s meeting. With the Batista family putting out fires on every possible front, the head of state development bank BNDES is now seeking to oust the family from the company’s managerial positions. Concerns regarding their control were further heightened after the company’s founder, José Batista Sobrinho, was installed as CEO after his sons were arrested for allegedly using insider information in financial market transactions. With the independent auditor issuing a qualified opinion on the financial statements, and one of the Batista family members up for individual election, company shareholders will have the opportunity to express their concerns.
Great Elm Capital Corp.
NASDAQ – May 3
Just a month ago, the U.S. Congress passed the Small Business Credit Availability Act. The Act allows business development companies (“BDC”) to reduce their required minimum asset coverage ratio from 200% to 150%, which will in turn allow BDCs to increase their debt-to-equity ratio from 1:1 to 2:1. However, shareholder approval is required for any company to implement this ratio immediately; otherwise, the new ratio requires a one-year waiting period. Great Elm is one of the first BDCs to request shareholder approval for this new ratio, and with approximately 31 publicly traded BDCs operating today and another 14 BDCs currently in registration with the SEC, the results here could be instructive.
Companhia Energetica de Minas Gerais – CEMIG
B3 – April 30
One of the voting options that Brazilian issuers offer in relation to elections, whether of board members or the supervisory council, is cumulative voting (however, it has to be requested by shareholders owning at least 5% of the company’s share capital). Through this method, shareholders are entitled to allocate all of their votes in percentages towards the candidates, whether proportionally among all of them, or by distributing them towards one, two or as many candidates (and in whatever proportion) as they like. While this option is rare, the election of the board directors at Companhia Energetica de Minas Gerais – CEMIG will see one of the rare cases where it is used, for board elections, after being requested by FIA Dinâmica Energia S.A and Banclass Fundo de Investimentos em Ações. The system seems particularly confusing as votes will have to be calculated and cast manually, meaning that the logistics of counting the votes will be significantly harder. This is also one of the very few occasions where shareholders voting remotely will have the opportunity to take part in cumulative voting; it will be interesting to see whether their participation is hampered by the the practical difficulties of the procedure.
KBC Groupe SA
Euronext Brussels – May 3
It’s looking likely to be another year of shareholder protest at KBC Groupe, with prior concerns having fallen on deaf ears. The company is 40%-controlled under a shareholder agreement, and minority shareholders have continuously expressed their discontent with a board dominated by affiliated directors, with over 30% of shareholders opposing their election year after year. Last year this dissatisfaction spilled over into the remuneration report, with a new defined contribution pension plan a particular source of ire. With the company not giving an inch, taking no action, making no changes and offering no justification, the meeting looks to be a showdown between the controlling party and minority shareholders.
Equifax Inc.
New York Stock Exchange – May 3
Equifax’s annual meeting is its first following one of the most severe data breaches in recent memory, in which intruders were able to access sensitive information from approximately 145.5 million U.S. consumers. No cybersecurity-specific shareholder proposals have been proposed to the AGM agenda; this may reflect the company’s extensive shareholder outreach and responsiveness since the breach. The company and the board has undergone significant changes in the past few months, with the appointment of a new CISO, Jamil Farshchi (former CISO at Home Depot, which had its own breach in 2014), the addition of cybersecurity metrics to executive compensation programs, and an update on all committee charters. Shareholders will decide if these changes are enough to pardon culpability when they vote at this year’s meeting.
OTHER NOTABLE MEETINGS:
- The Boeing Company (New York Stock Exchange – April 30)
- Allergan plc (New York Stock Exchange– May 2)
- The Goldman Sachs Group (New York Stock Exchange – May 2)
- PepsiCo Inc. (NASDAQ – May 2)
- Sanofi (Euronext Paris – May 2)
- IMAX China (Hong Kong Exchange – May 3)
- Koninklijke Philips NV (Euronext Amsterdam – May 3)
- Linde AG (Deutsche Börse – May 3)
- UBS Group AG (SIX Swiss Exchange – May 3)
- Unilever NV (Eurnext Amsterdam – May 3)
- Verizon Communications Inc. (New York Stock Exchange – May 3)
- Volkswagen AG (Deutsche Börse – May 3)
- Abbvie Inc. (New York Stock Exchange – May 4)
- Telecom Italia (Borsa Italiana – May 4)