Pernod-Ricard : riding high on the coattails of strong financial results

On November 9, shareholders gathered within the walls of the vast Salle Pleyel in Paris’ chic 8th arrondissment. The storied Art Deco concert hall, home of the Orchestre de Paris, played host to the Annual General Meeting (AGM) of famed French wines & spirits distiller, Pernod Ricard.  True to form, Proxinvest analysts descended upon the AGM to chronicle the events of the day.


Alexandre Ricard, scion of the Ricard Family, took to the stage in his capacity as Chairman and CEO to profusely thank his employees for achieving growth, year after year, reflecting the company’s expanding footprint in its key growth markets (US, China, India…). The crowd was regaled with impressive tales of organic growth, cash flow generation, and debt reduction; staples of a conventional AGM. The results, however, belied a track record of chronic underperformance (on notable operational metrics) vis-à-vis market leader Diageo Plc and the failure to uphold corporate governance best practices. Time and again, Proxinvest has publicly spoken out against the company’s practice of combining the CEO and Chairman positions (since 2015), the disproportionate number of Board seats held by its largest shareholders, and most importantly, its use of double voting rights with excessive terms (after a 10-year holding period). Unsurprisingly, this has made the maker of the famed eponymous pasitis one of the least shareholder-friendly companies in the CAC 40.

Phitrust Active Investors, an open-ended mutual fund (société d’investissement à capital variable, or SICAV) shared our concerns. Pernod Ricard nevertheless was unequivocal in its response to several written questions addressed by the fund to its top brass: double voting rights are an appropriate tool to promote shareholder loyalty. Not to dwell on the subject of shareholder loyalty which, as demonstrated by several practioners, can be achieved through other means, the company’s purported rationale ignores a key category of long-term shareholders: holders of bearer shares who are denied double voting rights irrespective of their holding period.


Making matters worse, neither the over-representation of the two largetst shareholders (Ricard Family and Groupe Bruxelles Lambert), nor the combined Chairman-CEO position were deemed as governance issues by the Board. Whereas the Ricard Family shareholder pact holds almost 15% of shares, it controls 36% of Board seats. The Board’s justification that directors represent all shareholders regardless of family affiliation, essentially a regurgitation of a director’s legal responsibility, is as disconcerting as it is unconvincing.


Fortunately, a sizable number of shareholders heeded our concerns. Case in point were the re-elections of Veronica Vargas, a great granddaughter of company founder Paul Ricard, and Paul Ricard SA (largest member of the aforementioned shareholder pact, represented by Paul-Charles Ricard, another third-generation descendant of the founder) which received opposition rates of 18.11% and 11% respectively.


Shareholders should further note that Veronica Vargas was identified as a related party in the Statutory Auditor’s Special Report on Regulated Agreements and Commitments with Related Parties due to her employment at Société Générale Corporate & Investment Banking (SG CIB). The bank provided financing as part of its regulated agreement with the company, and yet, contrary to the spirit of the law, the report failed to disclose the interest paid for such financing. However, Deloitte and KPMG, the company’s auditors who are ultimately responsible for the disclosure of such crucial details, were not sanctioned by shareholders.


No true AGM tale is complete without addressing one of the most headline-grabbing topics on the agenda: executive compensation. In a rare departure from the norm, Pernod Ricard failed to disclose all the components of Alexandre Ricard’s compensation in the standard overview table typically found in a French company’s reference document. Notably absent from said table was a sum to the tune of €2.7M awarded to the company chief to compensate him for forgoing his rights to a “Top Hat” pension plan. Once taken into account, this payment would increase Alexandre Ricard’s total compensation to €6.3M. Notwithstanding this adjustment, the orginial total compensation of €3.6M was deemed excessive in so far as alignment with performance is concerned. Shareholders were regrettably unfazed: 97% of them voted to approve the “Say on Pay” resolution.





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