Highlights from the world of Proxy Papers you can’t afford to miss!
Origin Energy Limited; BHP Billiton plc; BHP Billiton Limited
Australian Securities Exchange – October 18 (ORG); London Stock Exchange – October 19 (BLT plc); Australian Securities Exchange – November 16 (BLT Limited)
As the Australian proxy season kicks off, the climate change debate and calls for holding the ongoing rise in global average temperature to well below 2°C above pre-industrial levels have prompted activist shareholders to once again join the conversation. But putting proposals on the AGM agenda is a bit tricky; unlike in the United States or Canada, the regulatory framework in Australia dictates that shareholders are only able to submit shareholder proposals in the form of binding constitutional amendments. Because this limits the flexibility and feasibility of shareholders to request certain disclosures or reporting from companies, there has been a prominent debate in Australia between shareholder proponents and issuers surrounding this issue. In an effort to allow for the submission of precatory (or advisory) shareholder proposals, a number of companies, including BHP Billiton and Origin Energy, have received resolutions that would amend their constitutions to allow for the submission of these nonbinding resolutions.
The board of Origin, an ASX 50 oil and gas company, has also received three further precatory shareholder resolutions, each relating to climate change, which are dependent on approval of the constitutional amendment. The climate change resolutions, proposed by 129 shareholders representing approximately 0.0169% of shares on issue, relate to climate change reporting in accordance with the Task Force on Climate-Related Financial Disclosure (“TCFD”) recommendations, the transition to low carbon technologies, and Origin’s strategy around the short-lived climate pollutants (or fugitive methane emissions).
Things are a bit more complicated at BHP Billiton due to its dual-listed share structure, which will require shareholders of UK-listed BHP Billiton plc to vote along with shareholders of ASX-listed BHP Billiton Limited on a proposal that would amend the constitution of the Australian company. Alongside this proposal, BHP Billiton shareholders will also be voting on a nonbinding proposal (whose approval is contingent upon the proposed constitutional amendment) requesting the production of a report on BHP’s public policy positions regarding energy and climate change and terminate its membership in groups that are inconsistent with these views. The proposal stems from BHP’s membership in the Minerals Council of Australia, a trade association that has received harsh criticism on account of its positions on climate change and energy. While a frequent topic of shareholder proposals at U.S. companies, Australian companies are starting to face increased scrutiny on account of their memberships in politically active trade associations. Given the popularity of this issue in other markets, the proposal at BHP could be a harbinger of a growing global focus on how companies are handling their memberships in and payments to trade associations for political purposes.
Woolworths (November 23) is another example of the new areas of accountability that companies can face from precatory resolutions; in addition to a constitutional amendment, the agenda includes a contingent resolution seeking disclosure on the company’s human rights performance. Meanwhile, shareholders at Downer EDI (November 2) and Commonwealth Bank (November 16) have a similar environmental focus as at BHP and Origin, but are taking a slightly different approach. Rather than proposing a constitutional amendment that opens the door to precatory resolutions, these agendas each include a single requisitioned resolution that would enshrine a goal of “less than 2°C” directly in the companies’ constitutions. It’s early yet, but Australia’s 2017 proxy season is shaping up to be an active one.
Vale SA
B3 – October 18
The election of minority and preferred shareholder representatives at Vale’s 2017 AGM was a bit of a fiasco, with hundreds of votes not accounted for and minority and preferred shareholders left without a representative due to quorum restrictions. Six months later, shareholders who were left bewildered the first time around have a second opportunity to elect independent candidates to Vale’s board. With four candidates for two seats, and all of them being independent, minority and the remaining preferred shareholders have the option to elect either a common representative through a separate election, or vote in the simple majority election to elect two candidates — although in this latter case, preferred shareholders would not have a say. The nominees should be familiar to shareholders, as three of the four stood for election at the ill-fated AGM. All in all, this seems like a good opportunity for minority shareholders to finally assert some control over the board’s composition.
Treasury Wine Estates Limited
Australian Securities Exchange – October 18
Gone are the days of TWE dumping out of date wine due to poor production management. Since the appointment of Michael Clarke as MD/CEO in 2014, the company has continued to grow – riding a wave of demand from China while expanding its presence in the U.S. market. As the company’s financial performance and size has grown, so has Mr. Clarke’s total remuneration package – with minor tweaks in either fixed remuneration or STI opportunities on a year-to-year basis. FY2018 will be no different with an increase in fixed remuneration flagged. However, noticeably, the Company has opted to increase the maximum LTI opportunity, and to move the RTSR vesting schedule off of a straight-line, pro-rata basis, increasing the proportion that vests at the lower end. While providing explanation around the increase in fixed remuneration and some discussion on the tweaking of the RTSR vesting schedule, the Company inexplicitly failed to explain the rationale behind increasing the MD/CEO’s LTI potential by 50% from 200% of fixed remuneration to 300% of fixed remuneration. The compounding impact of the changes is to increase Mr. Clarke’s total maximum remuneration opportunity by 30% from approximately A$9.9 million to A$12.85 million. It’s a bold move by the board when there has been increased scrutiny across Australian media and politics around the levels of executive remuneration in a nation where average wages have remained almost stagnant for the past few years.
CSL Limited
Australian Securities Exchange – October 18
Having received 25.5% of votes against the FY2016 Remuneration Report, CSL received its first strike and has been in damage control to improve remuneration structures and reporting to address significant shareholder concerns. Responding to criticism around disclosure of increases to total remuneration opportunities and the complexity of LTI arrangements (with multiple vesting periods tied to a variety of security types combined with re-testing provisions), the company introduced one pay design system for all senior executives – the Executive Performance and Alignment Plan (“EPAP”). The EPAP replaces multiple forms of executive equity awards with performance share units, subject to seven-year performance periods looking at retrospective ROIC. While semantically CSL sold this plan as a combined incentive structure – which is the new black on the ASX in remuneration terms – on paper it appears to operate like a traditional STI/LTI plan with separate maximum potentials, accruing based on separate short- and long-term performance periods against separate targets. While the company should be commended for responding to legitimate shareholder concerns raised at the 2016 AGM, the disclosure of the new executive performance and alignment plan remains barebones and light in some aspects. Coming off the company’s first strike, it will be interesting to see if shareholder reservations have been sufficiently addressed.