After last-minute drama at last year’s annual meeting, OMV’s board has completed a review of whether the former CEO’s deals adhered to company compliance regulations. But are shareholders ready to move on and discharge responsibility for his actions?
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper at the situation at OMV AG. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts May 29 — June 2, 2023
5/31 Axon Enterprise, Inc.; Controversy Alert issued 5/16
5/31 Chevron Corporation; issued 5/16
5/31 Exxon Mobil Corporation; issued 5/17
5/31 Meta Platforms; issued 5/16
5/31 OMV AG; issued on 5/11
5/31 Seagen; issued 5/15
6/1 Mytilineos SA; issued 5/18
6/1 Sturm, Ruger. & Company; issued 5/16
6/2 Alphabet Inc.; issued 5/18
Deep Dive: OMV AG
OMV AG’s 2023 annual general meeting agenda includes some unfinished business.
Prior to the oil & gas multinational’s 2022 AGM, the Austrian association of shareholders (IVA) announced its intention not to ratify the actions of former CEO Rainer Seele, based on concerns regarding his adherence to company compliance regulations. An annual vote on the ratification of supervisory and management board members is required for Austrian public companies; while the legal implications of ratification are not explicitly addressed in Austrian law, in practice, low shareholder support of a ratification vote is a source of embarrassment for a company and can lead to reputational damage.
In particular, the IVA highlighted a side agreement involving the former head of compliance, a murky sponsorship deal with football club Zenit St. Petersburg, and certain transactions involving the Nord Stream 2 gas pipeline and Russian gas fields. However, this was not the first time that Seele’s adherence to compliance rules had been raised. OMV’s supervisory board had previously conducted reviews of private jet usage, that Zenit sponsorship, and a side agreement between Seele and the company’s former head of compliance. That side agreement, in particular, has come under renewed scrutiny after the lawyer who conducted the prior review subsequently indicated that they had not received all of the relevant information.
Back to the 2022 AGM – after initially recommending that shareholders support ratification, shortly before the meeting OMV’s supervisory and management boards recommended that shareholders not ratify Seele’s actions for FY2021, and announced a new external review. As a result of the change in voting recommendation, the agenda included an unusual proposal calling for shareholders to deny (rather than confirm) Seele’s ratification, which received over 70% support. That reportedly included the votes of ÖBAG, the Austrian state holding, and Mubadala, the Emirati sovereign wealth fund, which beneficially own 31.5% and 24.9% of OMV’s issued share capital respectively.
Several months later, in September 2022, OMV announced the findings of the board’s external review. In particular, the special audit covered the side agreement, the Zenit sponsorship, and 2018 amendments to gas supply agreements with Gazprom Export. Although the review identified compliance irregularities with the internal processes, the board found that these irregularities would not provide for a legal basis for actionable misconduct or damages. One of the central issues appears to have been a lack of proper controls, with Seele reportedly making deals without board oversight. Going forward, the company states that strategically relevant contracts will now be subject to supervisory board approval, and sharper compliance guidelines.
With the review having satisfied the board’s curiosity, at the 2023 AGM shareholders will finally get an affirmative vote on ratifying Seele’s actions for FY2021. But that’s not the only remnant of the former CEO’s legacy that shareholders will be considering – there’s also the matter of his termination arrangements, relevant to the advisory Remuneration Report proposal. Notably, Seele earned a total of €5.5 million in FY2021 and €3.6 million in FY2022 (on a pro-rata basis). However, he was also granted LTI awards in FY2022, in an amount equal to 50% of his regular LTI target entitlement, i.e. €750,000. These awards will vest in 2025, subject to the company’s performance, up to a vesting cap of 200% of grant; and it appears that other outstanding LTI awards will also continue vesting in 2023 and 2024. That’s in line with standard market practice for Austrian listed companies, which typically caps severance payments at two years of annual remuneration or the remaining term of the contract, but raises questions about whether the board should have retained additional flexibility given the unusual circumstances.
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