Highlights from the world of Proxy Papers you can’t afford to miss!
CSX Corporation
New York Stock Exchange – June 5
CSX’s upcoming meeting presents shareholders with a unique contest, in which the board has neglected to present shareholders with a voting recommendation. A cornerstone of Mantle Ridge’s early 2017 dissenting campaign – now settled in favor of, among other things, a material influx of new directors – was the promoted retention of well-known railroad executive E. Hunter Harrison to serve as CEO of CSX. The subsequent response to Mr. Harrison’s prospective appointment, unambiguously reflected in a 23.4% one-day jump in CSX’s share price, indicates strong support for the application of his precision railroad operational agenda to the company. That appreciation didn’t come cheap: Mantle Ridge gave Mr. Harrison $55 million in upfront cash and promised another $29 million next year to repay awards and benefits forfeited from his previous employer.
Now, his continued service remains contingent upon, among other things, investors supporting an atypical advisory resolution affirming a reimbursement arrangement that would effectively repay Mantle Ridge for fronting the cash, as well as cover a tax equalization payment to Mr. Harrison of uncertain value. To be clear, Mr. Harrison will be paying his income taxes himself – the tax equalization only covers the knock-on costs of the ‘make whole’ payments. That the value of the payments is being delivered in cash rather than equity may also raise eyebrows. However, shareholders probably don’t need to worry about Mr. Harrison’s interests being aligned with theirs – as part of his appointment, he has already received an award of stock options equivalent to 1% of share capital, a provision that is not covered by the proposal or otherwise subject to shareholder vote at the upcoming annual meeting.
Notwithstanding what many (including the market, so far) argue is a critical, value-defining proposal for CSX, the incumbent board has expressly elected for the role of spectator and declined to provide shareholders with a recommendation on the reimbursement and equalization proposal, a dubiously inert approach that has compelled Mantle Ridge to file separate solicitation materials in order to actively garner support and avert a failed vote that could send shares tumbling. Check twice, vote once.
Exor NV
Euronext Amsterdam – May 30
In the first general meeting held after its reincorporation into the Netherlands, it remains to be seen how and if shareholders will express concerns about Exor’s less investor-friendly governance provisions. At a 2016 EGM approving the change of domicile, nearly 20% of shareholders voted against the proposal, largely reflecting concern about the unprecedented provision allowing an accumulation of up to 10 voting rights per share if the shares are held over 10 years. This provision will serve to cement the Agnelli family’s control over the investment firm, which holds stakes in Ferrari, Fiat and the Juventus football club, amongst others. With the entire board up for election for a four-year term, this may be the last chance for shareholders to take a stand against any directors based on this issue before their voting rights are substantially diluted.
Investa Office Fund
Australian Securities Exchange – May 31
Following the mid-2016 termination of DEXUS Property Group’s contentious bid for IOF – which was supported by the existing board, but aggressively opposed by the fund’s manager – all then-serving directors resigned in favor of new candidates also serving in similar capacities with other entities ultimately owned by Investa Commercial Property Fund. Several months on from this turnover, the reconstituted IOF board has emerged with a partial internalization resolution intended to effect split ownership of IOF’s manager, an alternative previously promoted at length by an ICPF subsidiary. While the new board lauds the arrangement’s purported upside – including earnings accretion, improved access to key executives and greater influence on the fund’s strategic direction – investors must consider these prospective benefits alongside an array of potentially material risks, including complex conflict management, limited ability to effect measurable change in the near term and significant NAV dilution. Moreover, the proposed structure could be viewed as a value-dampening deterrent at a time when IOF remains the subject of external interest.
Exxon Mobil Corporation
New York Stock Exchange – May 31
At it upcoming meeting, Exxon’s shareholders will vote on a contentious shareholder proposal requesting that the company publish an annual assessment of the long-term portfolio impacts of technological advances and climate change policies. This proposal, which received over 38% support at the 2016 AGM, comes on the heels of a similar shareholder proposal at Occidental Petroleum Corporation receiving majority support. Although Exxon contends that it currently provides sufficient reporting on this issue, a number of large investors, including Aviva, CalPERS and Legal & General, have already backed this proposal. In addition, a number of Exxon’s international and domestic peers have provided disclosure in line with that requested by the proposal; the boards of BP and Shell recommended shareholders support similar resolutions at their previous AGMs and Chevron had a similar proposal withdrawn from its 2017 AGM after producing a report aimed at addressing the issues raised by the proponent. Given Exxon’s laggard status in this regard and shareholder support for similar proposals, shareholders will be closely watching the support garnered for this resolution.
Elsewhere, the board and compensation committee may face questions regarding the company’s cancellation and exchange agreement with Rex Tillerson, the former chairman and CEO. This agreement derived from Mr. Tillerson’s appointment to the position of U.S. Secretary of State, and the company states that it was developed in close consultation with federal authorities “in order to meet federal conflict of interests standards.” Pursuant to the agreement, Mr. Tillerson surrendered all incentive compensation—restricted stock awards, RSU awards and earnings bonus units—previously awarded to him in exchange for an undisclosed cash payment into an irrevocable trust.
Orange SA
Euronext Paris – June 1
French telecommunications giant Orange SA is no stranger to shareholder proposals, having had at least one on its meeting agenda each year since its 2015 AGM. In the past these proposals have touched on themes as diverse as dividends, double voting rights, employee share saving schemes, and outside directorships. This year, the proposal added to the agenda by the Company’s employee shareholders, through the Cap’Orange savings plan, relates to diversity itself: the gender balance of the board, specifically that of independent directors. If the proposal is passed, the company’s by-laws will be amended so that the board must consider the gender of independent directors when deciding to propose them to the general meeting. While the proponent does not make a case for the resolution beyond the implied desirability of a diverse board, we have observed that to comply with France’s mandatory gender quota of 40%, many companies have seen the male representatives of employees or major shareholders replaced with female representatives. Could this proposal be a response to undue pressure to make up the numbers for female representation on the board? And will it resonate with the wider shareholder body? We will find out at the Orange AGM on June 1, 2017.
Raymond Limited
Bombay Stock Exchange – June 5
After its standalone and consolidated profits after tax dropped by 54% and 69% in the past year, there is a growing urgency for Raymond Limited to find ways to grow its profits. However before discussing business strategy at the company’s upcoming AGM, shareholders are facing a diversion in relation to an undesirable related party transaction proposal. Undesirable, because regardless of the path shareholders choose to follow, it is likely the result will lead to losses. Specifically, Raymond signed an agreement in 2007 with certain promoters and directors to construct the company’s INR 2.7 billion new flagship building, which includes residential flats for members of its promoters (it’s a long time coming — families of the promoters have been living in flats in the old flagship building since 1945). The 2007 agreement contained options for the promoters to purchase the flats at rates which are below current market rates. Now, shareholders must choose one of two possible outcomes: (i) sell the flats at below market rates and therefore take a loss; or (ii) force the company to endure a costly legal battle with its promoters — which could still result in a loss.
Publicis Groupe SA
Euronext Paris – May 31
A change of leadership has been a long time coming at Publicis; the French advertising giant has been seeking to replace its CEO since 2010, but finally found its replacement for its long-time head man Mr Maurice Lévy in Arthur Sadoun, the CEO of Publicis Communication. Mr Lévy’s involvement in the company is not coming to an end, however, as he is being proposed as chair of the supervisory board in 2017. Besides the length of the search, the changeover is also unusual because at the 2017 AGM shareholders will be presented with a bundled proposal to approve both Mr Lévy’s chair fees and his appointment to the board. This proposal may raise eyebrows for several reasons. For one thing, Mr Lévy is being awarded chair fees far in excess of his predecessor; for another, the valuation of the 75-year old’s fees includes consideration for his waived non-compete agreement. Additionally, by bundling the proposals the company has denied shareholders the possibility of assessing his reward independent from his appointment. Whether Mr Lévy’s wealth of experience will be enough to counterbalance any misgivings shareholders may have about his fees remains to be seen. Indeed, given the company’s spotty financial performance and the absence of a lead independent director or vice chair, some shareholders might be sceptical of Mr Lévy’s appointment in the first place.
Activision Blizzard, Inc.
NASDAQ – June 1
At its last annual meeting, Activision Blizzard received approximately 65% support for its say-on-pay proposal, maintaining a trend of lukewarm support from the shareholder community since 2013. To its credit, the company was responsive in instituting changes to its compensation practices. Due to a unique granting structure that is timed with the signing or renewal of employment agreements, the changes have not taken effect for all NEOs. However, they apply to the compensation of Mr. Robert Kotick, the Company’s CEO, as his employment agreement expired in 2016. His new compensation structure features reduced fixed and variable cash compensation levels and the elimination of certain change-in-control benefits. While many of these changes can be viewed favorably, shareholders should be aware that the CEO is still eligible for sizable equity grants; from our estimation, there is a reasonable possibility that his equity awards under the new employment agreement will be well above the $55.9 million grant he received in his most recently expired employment agreement.
OTHER NOTABLE MEETINGS:
- ABN AMRO Group NV (Euronext Amsterdam– May 30)
- Acerinox, S.A. (Bolsas y Mercados Españoles – May 31)
- Chevron Corporation (New York Stock Exchange – May 31)
- Deutsche Telekom AG (Deutsche Börse – May 31)
- Fidelity National Information Services, Inc. (New York Stock Exchange – May 31)
- Facebook, Inc. (New York Stock Exchange – June 1)
- NN Group NV (Euronext Amsterdam – June 1)
- Wal-Mart Stores Inc. (New York Stock Exchange – June 1)