Weekly highlights from the world of Proxy Papers you can’t afford to miss: Rolls-Royce Holdings plc, Peugeot SA, General Electric Company, Vale SA, GEO Group, ING Groep N.V., Herbalife Ltd., Bangkok Insurance Public Company Limited, CIMIC Group Limited, Shire plc, Binh Thanh Import Export Production and Trade JSC, Hong Kong Exchanges and Clearing Limited.
Rolls-Royce Holdings plc
London Stock Exchange – May 5, 2016
Rolls-Royce has agreed to give activist investor ValueAct Capital a board seat in exchange for a commitment that it will not publicly lobby for a break-up of the FTSE 100 aerospace business, nor take its shareholding above 12.5% (currently 10%). Consequently, ValueAct’s COO, Bradley Singer, joined the board in March and will be entitled to a seat for so long as ValueAct holds at least 7.5% of the Company’s shares. Such arrangements, more common in the US, are extremely rare in the UK. It remains to be seen whether the deal will open the door for other activists to push for board seats at UK companies.
Peugeot SA
Euronext Paris – April 27, 2016
The 2016 annual meeting will be the first opportunity shareholders have to vote on directors since Peugeot was bailed out by the French government and Chinese firm Dongfeng Motor in 2014, requiring the founding Peugeot family to cede some control. With a board that appears tailored to preserving a delicate three-way balancing act between these three parties, outside shareholders might question whether recent governance developments give equal weight to their interests. For its part, the French state has made no secret of the fact that it opposes the remuneration of top management, perhaps leading to another “revolt” over pay after over 20% of shareholders opposed executive remuneration packages at the 2015 meeting.
General Electric Company
New York Stock Exchange – April 27, 2016
GE’s board seems to have embraced the ‘think like an activist’ approach now being advocated in some corners: during the past year the Company replaced three long-serving directors and adopted a 15-year director tenure limit, completed the spin-off of its Synchrony Financial unit and announced plans to sell up to US$200 billion in financial assets related to GE Capital in its quest to move from a conglomerate to a specialized industrials company. CEO Jeff Immelt’s pay package continues to raise eyebrows– the sum quoted by the Company in its proxy this year is just shy of US$33 million– but shareholders may also take interest in the Company’s new expansive disclosures regarding board tenure, skillsets, diversity and decision-making processes.
Vale SA
Bovespa – April 25, 2016
In November 2015, Vale was involved in one of the most significant environmental incidents in Brazil’s history, when two tailings dams at an iron ore mine owned by Samarco Mineração S.A, part of a joint venture between Vale and BHP Billiton, ruptured and flooded a nearby town. This incident resulted in the death of 17 people, displaced 725 people and resulted in adverse, and potentially long-term, effects on the local ecosystem. Allegations quickly surfaced that negligence played a role in this disaster, leading to intensified scrutiny from regulators. In March 2016, a reparations agreement with the Brazilian authorities was made public, stipulating US$6.2 billion in damages- half of which Vale may be held liable. Moreover, in Brazil, shareholder approval of a company’s financial statements exempts management and supervisory council members from liability for their actions during the corresponding fiscal year, with exceptions in instances of error, bad faith, fraud or misrepresentations of accounting. Given that the final and full economic and environmental impacts of this incident have yet to be determined and that Vale is still subject to numerous legal proceedings on account of the accident, shareholders may question whether it makes sense to approve the accounts with outstanding liabilities still piling up.
GEO Group
New York Stock Exchange – April 27, 2016
As a publicly-traded company that operates prisons for state governments, GEO Group has received significant attention from investors on account of its human rights policies and practices. In 2013, GEO adopted a human rights policy, one year after a shareholder proposal requesting that GEO undertake a review of human rights violations in its prisons received nearly 30% support. However, at this years’ annual meeting, shareholders will vote on a proposal requesting that GEO provide more information concerning how it ensures that its policy is being enforced. GEO has demonstrated a continued pattern of human rights violations, some of which have resulted in government investigations and congressional intervention. However, shareholders may want to look closely at the terms of this proposal, as it requests annual reporting on human rights issues, beginning in May 2016—3 days after the Company’s April 27th meeting. Given this short time frame, shareholders may want to consider whether to hold directors directly accountable for GEO’s pattern of human rights violations or to support the proxy access shareholder proposal being put forward at the same meeting.
ING Groep N.V.
Euronext Amsterdam – April 25, 2017
After dragging its feet for years, ING is finally making good on its promise to remove the controversial depository receipt structure which allowed a trust to vote uninstructed shares at general meetings in accordance with the Company’s interests. As part of this structural overhaul, it is also angling for shareholder approval of some less appealing governance changes, such as an increased ownership threshold for submitting shareholder proposals and the codification of an anti-takeover mechanism. Finally, ING is proposing a share issue authorisation that far exceeds market practice in the Netherlands and includes some unprecedented exclusions on pre-emptive rights that vary by jurisdiction, leaving shareholders to decide whether ING has sufficiently made its case for these deviations from market practice.
Herbalife Ltd.
New York Stock Exchange – April 28, 2016
Herbalife Ltd.’s network marketing strategy has drawn sharp criticism from prominent activist investors, including Bill Ackman–who in 2012 likened Herbalife’s business model to an illegal pyramid scheme and took a significant short position against the Company’s shares–as well as from state and federal regulators. In October 2015, a New York State Senator released a highly critical report attacking the Company’s marketing program and introduced legislation aiming to increase oversight of multilevel distribution companies. With this contentious dialogue in mind, shareholders will evaluate the governance practices of a board that includes directors with numerous outside board commitments, extensive ties to prominent shareholder Carl Icahn and lucrative arrangements for distributor compensation and speaking fees.
Bangkok Insurance Public Company Limited
Stock Exchange of Thailand – April 22, 2016
Bangkok Insurance Plc. (“BKI”) is proposing to re-appoint its board chairman, Chai Sophonpanich, who according to the Securities and Exchange Commission of Thailand (the “SEC”), engaged in insider trading in March 2016 by disclosing details of BKI’s dividend plan to associated persons who purchased shares, days before the plan was publicly announced. Consequently, the SEC fined and prohibited Mr. Chai from working at any companies involved in the capital markets industry for a period of three years, including as a director of Bangkok Life Assurance Plc. However, he was not banned as chairman of BKI, which is not considered to be involved in the capital markets industry. Instead shareholders, not the SEC, will now determine whether to prohibit Mr. Chai Sophonpanich from continuing to serve as BKI’s chairman when he stands for election at this year’s meeting.
CIMIC Group Limited
Australian Stock Exchange – April 21, 2016
Earlier this year the Australian Securities and Investments Commission (“ASIC”) started legal action in the Federal Court of Australia against Hochtief AG, the controlling shareholder of CIMIC, seeking a declaration of contravention and a financial penalty order against the company for insider trading. The ASIC action relates to the early 2014 on-market acquisition of CIMIC’s shares by one of Hochtief’s subsidiaries, while in possession of market sensitive information by directors serving simultaneously on the boards of Hochtief AG and CIMIC. The fact that Hochtief AG admitted wrongdoing does not aid CIMIC whose former name (Leighton Holdings Limited) has become synonymous with alleged bribery and corruption scandals related to its off-shore operations in Iraq and India since 2012.
Shire plc
London Stock Exchange – April 28, 2016
Shire’s AGM comes following a string of ambitious acquisitions, culminating in a pending US$32 billion merger with Baxalta. That deal appears to be going forward even as the U.S. government announced new restrictions on companies seeking to lower their taxes through cross-border tie ups, in part prompted by Shire’s aborted 2014 merger agreement/inversion with AbbVie. Despite a significant increase in debt load the board appears satisfied with the current strategy, and decided to reward CEO Dr. Flemming Ornskov with a 25% salary increase during the year; whether shareholders will be similarly supportive of the deal (and the CEO’s raise) remains to be seen.
Binh Thanh Import Export Production and Trade JSC
Ho Chi Minh Stock Exchange – April 17, 2016
Similar to many Vietnamese companies who keep their nominees and agendas behind closed doors until the eleventh hour, Binh Thanh Import Export Production and Trade JSC hastily released supplemental information — surprising shareholders with a “vote of confidence” proposal where director Nguyen Van Luan is required to gain a majority vote in order to retain his seat at the board. To top it off, the board also submitted an unidentified nominee to replace Mr. Nguyen if shareholders decide to turn their backs on him and condemned Mr. Nguyen for being absent from all board functions, stating that his whereabouts could not be confirmed during the past year. With the Company’s hesitation in removing him and the “mysterious” replacement nominee, shareholders should be forgiven any possible states of bewilderment regarding which side, if any, to take.
Hong Kong Exchanges and Clearing Limited
The Stock Exchange of Hong Kong – April 28, 2016
After pushing out long-serving director Mr. Oscar Wong Sai Hung (“Mr. Wong”) from its board due to a newly implemented 12-year director tenure limit, Hong Kong Exchanges and Clearing Limited is now facing a contested meeting, courtesy of Mr. Wong, at its upcoming 2016 AGM. While the Company’s board nominated Mr. Apurv Bagri for the soon-to-be vacant board seat, Mr. Wong issued an open letter to its shareholders recommending another nominee, Mr. Edward Chin Chi Kin (“Mr. Chin”), whom Mr. Wong believes has the necessary professional investor industry experience. Subsequently, the Company received a requisition notice from a group of shareholders asking the board to appoint Mr. Chin. The board responded with a supplementary meeting notice containing information about both nominees and its assessment of Mr. Bagri’s qualifications to serve as a director. The board is now actively seeking to gain support from shareholders for the election of its preferred nominee, Mr. Bagri.