For a second year, we are facing a proxy voting season with meetings held virtually across the world. However, even though the meetings are held online, we retain our rights as shareholders to vote, appoint directors, approve remuneration plans, and encourage companies to report on a range of environmental and social issues.
Publicly pre-declaring our vote intention is an important tool for our engagement activities. We decide to pre-declare our vote intention for a number of reasons, including as part of our escalation strategy, where we consider the vote to be contentious, or as part of a specific engagement programme.
This year, we will be updating this blog on a regular basis – with the most recent announcements at the top of the page – to highlight the companies, meetings and resolutions which we believe may be of particular interest or require additional scrutiny by the market.
Meeting: AGM, 18 June 2021
Summary of resolutions:
Shareholder Resolution 5 – Amend Articles to Disclose Plan Outlining Company’s Business Strategy to Align Investments with Goals of Paris Agreement
Having reviewed Sumitomo Corporation’s disclosures and engaged in dialogue with the company, LGIM has decided to vote in favour of Shareholder Resolution 5, as described above.
We note the company’s efforts on the climate transition, in particular the enhanced commitments announced over the past couple of months. However, we continue to have concerns regarding the alignment of interim pathways with a 1.5 degree scenario.
We believe our support for the shareholder resolution will help signal the importance of the climate emergency for us as a large investor and our expectations for companies to align urgently with the goals of the Paris Agreement.
We look forward to engaging further and hope to see the company provide increased transparency around its short and medium-term targets and expedite its efforts to give shareholders comfort that it is on track to achieve its 2050 carbon neutrality commitment.
LGIM’s Vote Intention: For Shareholder Resolution 5 (against management recommendation)
JDE Peet’s NV*
Meeting: AGM, 17 June 2021
Summary of resolutions:
Item 2b – Approve Remuneration Report
Item 2c – To adopt Financial Statements
JDE Peet’s NV provides various coffee and tea products and solutions to serve consumers around the world. It has been listed on the Amsterdam Euronext exchange since May 2020.
Item 2b – Approve Remuneration Report
The company introduced its remuneration policy for a shareholder vote in November 2020. LGIM voted against the pay policy because it was essentially asking shareholders to support the company adopting a non-transparent approach to executive remuneration. This extended to allowing the company to provide sign-on awards without having to provide insight into the terms of the award and without placing any restrictions on such awards.
LGIM has identified several concerns with the policy:
• Lack of sufficient information regarding bonus targets to enable investors to consider whether payments are justified. There is no disclosure about the weighting attached to each of the three performance measures; no information is provided about the actual targets under these measures or the level of achievement under each target.
• The buy-out award given to the incoming CEO. While LGIM is supportive of offering compensation for awards lost (so long as they are on a like-for-like basis to what has been forgone at the previous employer), there is a lack of disclosure to demonstrate that the compensation payment of €10 million was appropriate. Furthermore, the CEO’s previous role was as partner of JAB Holdings Company, which is JDE Peet’s controlling shareholder; this raises concerns about the need for the payment. In addition, the €10 million compensation payment was invested into a share plan that doubles its value without any additional performance requirements, thus falling short of our expectation that executive pay should be linked to performance.
We also have a concern in relation to the treatment of the departing CEO’s compensation payment, amounting to €1.75 million, due to a lack of disclosure to assess whether it was fully justified.
Item 2c – Adopt the Financial Statements
JDE Peet’s NV is captured under LGIM’s Climate Impact Pledge engagement programme. The company has failed to meet our minimum standards and therefore we would normally sanction the chairman of the company. But as no directors are up for re-election, we are voting against the annual report to voice our concerns on the company’s management of climate risks.
We are pre-declaring these votes as we believe the remuneration practices at this company demonstrate a clear disregard for minority shareholder views when it comes to executive pay. Furthermore, this disregard and the lack of policies and procedures to tackle climate change could potentially be an indicator of poor governance at the company.
LGIM’s Vote Intention: Against both Item 2b and Item 2c (both against management recommendation).
Meeting: AGM, 3 June 2021
Summary of resolutions:
Resolution 3 – Re-elect Stephen Davidson as Director
Resolution 5 – Re-elect Mary McDowell as Director
Resolution 7 – Re-elect Helen Owers as Director
Resolution 11 – Approve Remuneration Report
The company’s prior three Remuneration Policy votes – in 2018, June 2020, and at a General Meeting that was called in December 2020 – each received high levels of dissent, with 35% or more of votes cast against. At the December 2020 meeting, the Remuneration Policy and the Equity Revitalisation Plan (EVP) received over 40% of votes against. The EVP was structured to award the CEO restricted shares to a value of 600% of salary.
LGIM has noted our concerns with the company’s remuneration practices for many years. Due to continued dissatisfaction, we again voted against the proposed Policy at the December 2020 meeting. However, despite significant shareholder dissent at the 2018 and 2020 meetings, the company implemented the awards under the plan, a few weeks after the December meeting. Additionally, the Remuneration Committee has adjusted the performance conditions for the FY2018 long-term incentive plan (LTIP) awards while the plan is running, resulting in awards vesting where they would otherwise have lapsed.
Due to consistent problems with the implementation of the company’s Remuneration Policy and the most recent events as described above, LGIM has voted against the Chair of the Remuneration Committee for the past three years. Given the company has implemented plans that received significant dissent from shareholders without addressing persistent concerns, LGIM has taken the decision to escalate our vote further to all incumbent Remuneration Committee members, namely Stephen Davidson (Remuneration Committee Chair), Mary McDowell and Helen Owers.
LGIM’s Vote Intention: Against Resolutions 3, 5, 7, and 11 (against management recommendation).
Arrow Global Group plc*
Meeting: AGM, 2 June 2021
Summary of resolutions:
Resolution 2 – Adoption of Remuneration Report
Resolution 3 – Approval of Remuneration Policy
Resolution 7 – Re-election of Lan Tu as director
The company’s 2020 long-term incentive plan (LTIP) award – which was originally delayed due to COVID-19 uncertainties last year – was later (in June 2020) awarded at the normal percentage salary levels (200% of salary to the CEO). As the award was delayed, information was not included in the 2019 Annual Report, but was provided via RNS announcement to the market at the time of award.
Given the substantially lower share price at the time of the grant, this led to a significant increase in the number of shares under award. As the share price has since recovered, the CEO’s 2020 LTIP award of 1,016,805 shares (at 2.6x the 2019 award of 390,780 shares) stands to incur substantial windfall gains, resulting from COVID-driven share-price movements over the award period. Investors will also note concerns about full LTIP awards being made while shareholders had to forgo their dividends, which are yet to be reinstated.
While this award is clearly not in line with evolving market expectations in this area, additional concern is warranted as the company – following approval at its shareholder meeting in May – will be taken over via a cash offer, thus likely resulting in an early crystallisation of the windfall gain upon the scheme becoming effective. At the offer price, the CEO’s 2020 LTIP award would be worth in excess of £3 million despite the shorter vesting period. We strongly encourage the Remuneration Committee to apply appropriate pro-rating of the award for time served over the shorter period.
Investors expect companies to take into account substantial declines in their share price when deciding on the size of LTIP awards. For further details on LGIM’s stance on the topic, please consult our 2020 Active Ownership report and our UK Principles of Executive Pay.
Accordingly, LGIM will be voting against the adoption of the Remuneration Report for FY2020. In addition, given that we have noted concerns with the company’s pay practices for a number of years, we will also vote against the re-election of the Remuneration Committee Chair, Lan Tu. Separately, LGIM also rejects the new Remuneration Policy proposal, which is not in line with our Principles of Executive Pay, as post-exit shareholding guidelines are not sufficiently strong.
LGIM’s Vote Intention: Against Resolutions 2, 3 and 7 (against management recommendation).
Meeting: AGM, 20 May 2021
Summary of resolution:
Resolution 5 – Report on Antibiotics and Public Health Costs
We intend to vote in favour as we believe the proposed study will contribute to informing shareholders and other stakeholders of the negative externalities created by the sustained use of antibiotics in the company’s supply chain and its impact on global health, with a particular focus on the systemic implications.
Antimicrobial resistance (AMR) is a key focus of the engagement strategy of LGIM’s Investment Stewardship team. We believe that, without coordinated action today, AMR could prompt the next global health crisis, with a potentially dramatic impact on the planet, its people, and global GDP.
Whilst LGIM applauds the company’s efforts over the past few years on reducing the use of antibiotics in its supply chain for chicken and beef as well as pork, we believe AMR is a financially material issue for the company and other stakeholders, and we want to signal the importance of this topic to the company’s board of directors.
LGIM’s Vote Intention: LGIM is voting in favour of the resolution.
Meeting: AGM, 19 May 2021
Summary of resolutions:
Resolution 2 – to approve the remuneration report
Resolution 3 – to re-elect Bill Berman as Director
Resolution 9 – to re-elect Mike Wright as Director
Resolution 10 – to re-appoint KPMG LLP as Auditors
Resolution 2 (to approve the remuneration report): The remuneration committee approved a bonus payment to executives that we do not consider a fair reflection of the stakeholder experience. The committee reset the bonus calculation and set a performance target that only assessed performance for the second half of the financial year, which was met in full. Although the remuneration committee did halve the bonus opportunity, it still delivered a bonus equal to 75% of salary for the executives (£382,500 for the CEO). We question the appropriateness of paying a bonus during a year when the company took advantage of government help via the job-retention scheme, rates holidays and VAT deferral. In July 2020, the company announced 1,800 UK job losses; although the company states this was part of a strategic review of operations, it is still a significant level of job losses that does not appear to have been taken into consideration. Finally, no dividend was paid to shareholders during the year. It should be noted that the company received a high vote against its pay policy in 2020, with over 40% of shareholders voting against; the company has responded to the IA Public Register on this matter.
Resolution 3 (to re-elect Bill Berman): We will vote against this resolution due to his dual role as joint chairman and chief executive. After the former chairman stepped down in October 2019, the CEO became executive chairman and then interim chairman/joint chief executive from February 2020. However, the board stopped the search for a new chairman, using the pandemic as a reason, and there has been no update on when a new chairman will be appointed. LGIM does not support joint chairman/CEO roles as these are distinctly different roles that we believe should be held by different directors. Other companies made senior appointments during 2020 despite the pandemic and therefore in this case, in the absence of more clarity on when a new independent chairman may be appointed, LGIM cannot support the re-election of the joint chairman/CEO this year.
Resolution 9 (to re-elect Mike Wright): As the chairman of the remuneration committee, he is therefore accountable for the decisions made relating to executive remuneration. LGIM has had cause to vote against the company’s executive remuneration for two years, and this vote against is an escalation of our concerns with executive pay at the company. While we acknowledge some improvements were made to the pay policy in 2020, it wasn’t enough to gain our support. The payment of bonuses during the year is a further subject of ongoing concern.
Resolution 10 (to re-appoint KPMG LLP): We will vote against due to the tenure of the auditor. LGIM expects the role of the external auditor to be put to tender on a regular basis in the UK market, at least every 10 years. We believe it is important for the external auditor to be refreshed to ensure that the audit continues to be rigorous and without any conflicts caused by familiarity with the teams. KPMG has been the company’s external auditor since 1997 – 24 years. The company has not indicated that it is in the process of carrying out a tender process and has claimed that it may continue with KPMG until 2023, when the company is required by law to change its external auditor.
LGIM’s Vote Intention: Against Resolutions 2, 3, 9, and 10. All are against management recommendations.
Meeting: AGM, 26 May 2021
Summary of resolutions (White Proxy Card):
1.1 Elect Director Gregory J. Goff - FOR
1.2 Elect Director Kaisa Hietala - FOR
1.3 Elect Director Alexander A. Karsner - FOR
1.4 Elect Director Anders Runevad - FOR
1.9 Management Nominee Kenneth C Frazier - AGAINST
1.12 Management Nominee Darren W. Woods - AGAINST
4 Require Independent Board Chair - FOR
Rationale: Escalation of our engagement due to persistent climate and governance concerns with the company.
In 2019, ExxonMobil was removed from select LGIM strategies, sanctions applied under LGIM’s Climate Impact Pledge engagement programme. In 2020, we announced that we will be opposing the re-election of the company’s chair/CEO as we believe the separation of roles provides a better balance of authority and responsibility. As the roles currently remain combined, we will therefore vote AGAINST resolution 1.9 at the 2021 AGM.
LGIM acknowledges steps taken by the company around carbon disclosure and targets, but we remain concerned with the strength of the Exxon’s sustainability and capital-allocation strategy, as the risks of the energy transition become increasingly apparent. That is why we support activist investor Engine No. 1’s proposals for board refreshment, as the experience and skills of the proposed four candidates would, in our view, make a positive contribution to board effectiveness and oversight, providing much-needed constructive challenge at a time of industry disruption. LGIM will be voting FOR resolutions 1.1-1.4.
As in 2020, we will also support a resolution requesting that the company implements an independent chair, and will oppose the re-election of the chair of the Board Affairs committee for failing to respond to a meaningful level of shareholder support for such votes in prior years.
Meeting: AGM, 12 May 2021
Summary of resolutions:
Resolution 4 – Re-elect Alicja Kornasiewicz as director, board chair
Resolution 9 – Re-elect Camela Galano as director, member of the remuneration committee
Resolution 10 – Re-elect Dean Moore as director, chair of the remuneration committee
Resolution 14 – Elect Ashley Steel as director, member of the remuneration committee
Rationale: LGIM has chosen to escalate its vote position and cast a vote against the election/re-election of all members of the remuneration committee and the board chair of Cineworld. We have strong concerns about the structure of the long-term incentive plan granted to the executives, and its misalignment with the long-term interests of the company, its shareholders and other stakeholders. In particular, we note the impact of COVID-19 on the company’s financials and stakeholders, including furloughs for employees and the suspension of dividends. We also take into account the current social sensitivities around income inequality.
LGIM already signalled its concerns about the pay package at the special shareholder meeting held in January 2021. Despite a significant vote against the proposed pay package (above 20%) by the company’s shareholders, we are concerned by the lack of response from the company’s remuneration committee and board.
LGIM’s Vote Intention: Against the resolutions (Management recommendation: For).
Meeting: AGM, 11 May 2021
Summary of resolution: Resolution 4, Shareholder Resolution, Require Independent Board Chair
Rationale: LGIM has co-filed this shareholder resolution at Gilead Sciences, together with members of IOPA (Investors for Opioid and Pharmaceutical Accountability).
LGIM has a longstanding policy advocating for the separation of the roles of CEO and board chair. These two roles are substantially different, requiring distinct skills and experiences. Since 2015 we have supported shareholder proposals seeking the appointment of independent board chairs, and since 2020 we have voted against all combined board chair/CEO roles. Furthermore, we have published a guide for boards on the separation of the roles of chair and CEO, and we have reinforced our position on leadership structures across our stewardship activities – e.g. via individual corporate engagements and director conferences. In our advocacy process, the obvious next step is filing shareholder resolutions; we have therefore co-filed this resolution together with members of IOPA.
During the past year, LGIM’s Investment Stewardship team met individually with the company, indicating our concerns over the combined role of the chair/CEO. We also engaged the company together with the co-filing shareholders. We invite our fellow shareholders to support this resolution.
LGIM has co-filed a similar resolution at Eli Lilly* this year as well.
LGIM’s Vote Intention: For the resolution (Management recommendation: Against).
*For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.