Highlights from the world of Proxy Papers you can’t afford to miss!
Valeant Pharmaceuticals
New York Stock Exchange, Toronto Stock Exchange – May 2
Congressional inquiries, fraud charges, criminal investigations: it’s not surprising that Valeant Pharmaceuticals has not had an easy time of late. The company continues to face intense public scrutiny surrounding its business practices while struggling to cope with the fallout from its now-terminated relationship with Philidor Rx. The share price also continues to decline, currently trading at under $10, a 95% decline from all-time highs experienced in mid-2015. Most recently, the share price dropped a further 10% following Pershing Square Capital Management LP’s sale of its entire stake in the company. Just two weeks later, former CEO Pearson filed a claim against the company, suing in light of the decision in December 2016 to discontinue any further payments to Mr. Pearson, including 3.1 million outstanding shares worth a cool $33.0 million despite Valeant’s significantly depressed share price. According to the company, Mr. Pearson was not holding even 1.0 million shares just four days before his filing, this despite the fact that, while times grew tough for Valeant as a company, Mr. Pearson was able to exercise more than 4.4 million options for a realized value of $60.5 million in fiscal 2016.
At this year’s annual meeting, shareholders will elect ten directors, of which only two were appointed to the board prior to 2016. Valeant’s entire executive leadership team has also changed since the Philidor scandal first erupted, led by current CEO Joseph Papa. With the company’s management and oversight largely overhauled, questions will likely focus on its ongoing turnaround strategy, which has seen significant recent disposals in an attempt to get out from under a ~$30 billion debt hole.
Santos Limited
Australian Securities Exchange – May 4
Coal seam gas company Santos has had its fair share of attention from activist shareholders over the past few years. In 2014, The Wilderness Society called for a withdrawal of Narrabri Gas Project from the company’s portfolio due to ‘ongoing reputational, regulatory and investment risks’. In 2016, Santos received a notice requesting a similar resolution for consideration at the AGM, which the board dismissed. This year, an activist group Market Forces, is asking Santos both to allow shareholders to submit nonbinding proposals and to bolster its disclosure on climate change with regard to governance, strategy and risk management related to its low carbon scenario planning. While shareholder proposals are not very common in Australia (also because of somewhat stricter regulatory requirements compared to other markets) and generally do not get a high rate of approval, this particular one has caught attention of many Australian and global investors. Despite this attention, the proposal faces significant barriers to being approved; its passage is dependent on the approval of a controversial proposal that would amend the company’s constitution to allow shareholders to submit nonbinding shareholder proposals, similar to those submitted in the United States.
Accor SA
Euronext Paris – May 5
The 2014 Florange Act’s introduction of double voting rights for long-term shareholders caused a stir in France. As Accor’s 2017 AGM approaches, some shareholders are calling for a return to the principle of “une action = une voix”, or one share, one vote – more or less, anyway. PhiTrust and other investors representing 2.3% of share capital have submitted a shareholder proposal that would stop the further accumulation of double voting rights, without removing those already in place as of the date of the meeting. It’s not necessarily just a matter of principle: so far only a small minority of the hotelier’s shareholders have attained double voting rights, totaling 6.5% of the share capital (and 11.8% of the voting rights); however nearly 30% of the share capital is controlled by three parties, meaning that a minority shareholder bloc with a blocking veto is a very real possibility. With an investor base spread across the world, it will be interesting to see if shareholders defend the uniquely French institution of double voting rights, or opt for a more egalitarian approach.
QBE Insurance Group Limited
Australian Securities Exchange – May 3
There has been ongoing debate on the growing complexity of executive remuneration structures within Australian companies and whether they are achieving their purpose. With these discussions in mind, ASX20 company and principal Sydney Swans sponsor, QBE, has been reassessing its incentive structures for 2017 to ensure they remain fit for purpose and aligned with the evolving QBE strategy. As a result, QBE established the new Executive Incentive Plan (EIP) that combines the STI and LTI into a single hybrid scheme. Awards under this scheme will be subject to one-year performance, with 20% of awards vesting after one year while the remaining 80% of awards will be deferred into equity which vests on a staggered basis for a period of five years. Interestingly, and contrary to the belief that some of these changes may push the total incentive opportunity to great heights, Mr. Neal’s incentive opportunity will actually be reduced by 50%.
Zynga Inc.
NASDAQ – May 1
Social gaming developer Zynga Inc has found itself embroiled in an insider trading controversy stretching back to its 2011 IPO. Apparently unable to duplicate the success of its flagship Farmville game, Zynga’s stock price has sagged ever since its initial listing at an offering price of $10 per share (most recently closing at $2.79 on April 21, 2017).
Perhaps the stock price collapse itself is not so unusual, however, an inner tier of certain directors and executives, managed to get exemptions from the IPO-lockup period and jettison their shares at a rather lofty price of $12 per share shortly before the share price tanked in 2012. Allegations in the ensuing lawsuits against these insiders include trading on non-public information and misleading investors. Notably, Mark Pincus, founder, chair and formerly CEO, is a named defendant in a number of these lawsuits. As Zynga’s controlling shareholder, Mr. Pincus stands immune to any would-be pressure to step aside owing to the allegations.
In a sign of decisive action by the board, two new directors were appointed to serve on a newly established “special litigation committee” in February. This new committee has broad investigative powers and has been empowered to unilaterally take binding action in relation to the litigation on behalf of Zynga, without further review by the board. As it currently stands, however, a final resolution to these proceedings remains elusive.
Rolls-Royce Holdings plc
London Stock Exchange – May 4
It’s one of those “draw a line under it and move on” meetings at Rolls-Royce this year, after the venerable engineer posted its biggest ever loss on the back of multi-billion pound writedowns and a £671m fraud settlement. The settlement and associated Deferred Prosecution Agreement, which resolves investigations by the UK Serious Fraud Office, the U.S. Department of Justice, and the Brazilian Federal Prosecution Service, covers alleged bribery in the period 1989-2013 and is payable over five years. The writedowns are much bigger but less notable, per the chief executive, who has stated that the revaluations have “no impact whatsoever on what is really going on in our business or on cash.”
Elsewhere the company appears to have noticed the UK government’s interest in stakeholder relations, pledging to hold an “AGM for employees” later in 2017 as part of an effort to strengthen links between the boardroom and rank and file. The company isn’t totally going with the flow however; despite mounting concerns about the quantum of executive pay across the UK market, the board has proposed significant increases to the long-term incentive opportunity.
Allergan, Inc.
New York Stock Exchange – May 4
Allergan almost failed its say-on-pay vote at the last annual meeting, receiving just 52% support from votes cast by shareholders. After engaging with its shareholders, the company concluded that the key driver to the negative votes was its decision to implement excise tax gross-up arrangements for its executive team in connection with the proposed Pfizer transaction. The Pfizer transaction was ultimately terminated and therefore the excise tax gross-ups were never triggered. Nonetheless, the company assured shareholders leading up to the 2017 annual meeting that it has committed to not implementing change in control excise tax gross-ups in the future.
OTHER NOTABLE MEETINGS:
- The Boeing Company (May 1)
- Allianz SE (Deutsche Börse – May 3)
- Commerzbank AG (Deutsche Börse – May 3)
- Standard Chartered plc (London Stock Exchange – May 3)
- Duke Energy Corporation (New York Stock Exchange– May 4)
- Enel S.p.A. (Borsa Italiana – May 4)
- KBC Groupe SA (BEL 20 – May 4)
- UBS Group AG (SIX Swiss Exchange – May 4)
- Verizon Communications Inc. (New York Stock Exchange– May 4)
- Pearson plc (London Stock Exchange – May 5)