21st Proxinvest Report on General Meetings and Shareholder Activism – Proxy Season 2017
Paris, November 29th 2017
Proxy Season 2017 represented a milestone for shareholders in France: a record number of rejected resolutions, an accelerated pace of shareholder activism, the first implementation of a binding vote on remuneration policies, and a significant level of dilution from double voting rights
- A record number of rejected resolutions
Since its founding in 1995, Proxinvest has never witnessed such a contentious proxy season in France. The number of rejected resolutions gained 52% to reach 85 resolutions in 352 general meetings. Interestingly, resolutions were rejected in more than 10% of companies. Shareholders were mostly concerned with authorizations to issue capital, which comprised 56% of rejected resolutions. Excessive dilution and the possibility to use said authorizations as anti-takeover devices were cited as reasons for opposition. Executive compensation came in second place at 19% of rejected resolutions followed by regulated agreements with related parties at 8%.
- Double voting rights: an affront to shareholder democracy
Double voting rights played an instrumental role in the 2017 Proxy Season. Had the one-share/one-vote principle prevailed, an additional 28 resolutions would have been rejected, up from 48 and 32 in 2016 and 2015 respectively. Most alarmingly, among the 14 companies that adopted double voting rights in the SBF 120 Index, the average dilution was a staggering 22% of voting rights; an unfortunate legacy of the Florange Law. Far from their ostensible goal of promoting shareholder loyalty, double voting rights, a privilege denied to holders of bearer shares, have been exploited by large shareholders to control general meetings to the detriment of minority shareholders. Proxinvest has long advocated for eliminating double voting rights and bridging the gap between cash flow rights and voting rights.
- Shareholder opposition at French general meetings did not lose steam in 2017.
True to form, Proxinvest recommended voting against 43% of the 6,867 resolutions appearing in its coverage universe during the season. Actual shareholder opposition was 5.43%, down slightly from 5.5% registered in 2016. This remains higher than the 3% opposition rate observed across Europe (as measured by Expert Corporate Governance Service among the companies listed in the Europe STOXX 600 Index). Opposition rates were even higher in the CAC 40 Index, finishing the season at 6.5% as compared to 5.1% in the prior year period. Even more telling was the fact that opposition rates among minority shareholders reached 9.8%. Mirroring the trend observed among rejected resolutions, the most contested resolutions in 2017 largely concerned anti-takeover devices and executive compensation.
- A record year for shareholder activism
Shareholder activism was on the rise this year in France. Proxinvest has yet to encounter a season with this many external resolutions (73). Shareholders at the former French Yellow Pages, SoLocal Group, were particularly active this year, proposing 56 resolutions in three general meetings. Their efforts did not fall on deaf ears as they were able to obtain more favorable terms on a complex, previously non-negotiable restructuring plan with the speculative funds holding the company’s debt, reject the free shares (6% of capital) awarded to the top brass, and most importantly, oust the company’s management (Robert de Metz and Jean-Pierre Remy). Activist fund Phitrust Active Investors rallied considerable support among minority shareholders at the Accor general meeting, where it barely fell short of overturning the company’s double voting rights regime (48% opposition rate). In this regard, Proxinvest supported the AMF (Autorité de Marchés Financiers) proposal to cut the capital threshold for proposing external resolutions in half.
- Voting on strategic transactions at general meetings
After a scathing multifaceted public campaign against the lack of shareholder consultation on the Safran acquisition of Zodiac Aerospace, The Children’s Investment Fund (TCI) and its outspoken boss Sir Christopher Hohn were successfully able to lower the takeout price by over €1 billion. This confrontation brought the issue of shareholder say on strategic acquisitions to the forefront of governance discourse in a year that witnessed the acquisition of Christian Dior Couture by LVMH and media group Havas by Vivendi. Both acquisitions were carried out at rich multiples, accrued benefits to their parent companies and the bosses behind them (Bernard Arnault and Vincent Bolloré), and most regrettably, were not submitted to shareholders for approval. Echoing LR11.1 of the FCA (Financial Conduct Authority) handbook on Premium Listings in the LSE (London Stock Exchange), Proxinvest calls for a binding shareholder vote on all strategic transactions without the participation of related parties.
- Inaugural year for the binding vote on Remuneration Policy (Article 161, Sapin II Law)
The Sapin II Law, which came into force in 2017, introduced an ex-ante binding vote on Remuneration Policy at general meetings; a historic development for corporate governance in France. Citing concerns over quantum and structure, Proxinvest advised shareholders to vote against 62% of these resolutions in the SBF 120 Index. Whereas no resolutions were rejected during the year, the remuneration policies at Atos and Renault came close with approval rates as low as 53% and 54% respectively. Shareholders were nevertheless far from complicit with 78 remuneration policies receiving opposition rates in excess of 20%. Tellingly, 8 companies were able to secure approval for their remuneration policies largely due to the support of their controlling shareholders (SFR, Ipsen, Bic, JC Decaux, Dassault Aviation, Iliad, Plastic Omnium and Dassault Systèmes). Key features driving shareholder approval were reasonable quantum, a demonstrated alignment with performance, and Board response time following a highly contested remuneration plan. In 2018, a binding vote on variable compensation will come into effect: in case of a rejection, no variable compensation will be paid for the year in question.
- On-line voting to increase voter turnout
Participation rates continued their march upwards in 2017 reaching 73.55% vs. 68.94% in the previous year. Although this turnout is encouraging, only 56% of minority shareholders voted during the year. Exercising voting rights remains governed by an archaic and administratively cumbersome process that evidently discourages individual shareholders and non-residents from voting. It is also an unnecessarily costly process for professional investors. As advocated for in a recent AMF report (“Pour un vote transparent et effectif en assemblée générale à l’ère du numérique”), a free voting process underpinned by a complete digitalization of custodial services and secure on-line voting holds great promise for promoting shareholder democracy.
Proxinvest is an independent proxy advisory and corporate governance consultancy. The report noted in the communiqué comprises 450 pages divided into two volumes. The first volume includes information on turnout at general meetings, opposition rates, a detailed analysis of voting results for different types of resolutions as well as a full review of the inaugural resolutions under the Sapin II Law. The second volume covers eight notable cases of shareholder activism during the season, an analysis of external resolutions and a synopsis of the principles and voting guidelines for 2018. In the annex, resolutions boasting opposition rates in excess of 20% are noted in detail.
Contact : Jehanne Leroy, Analyst in charge of this report (firstname.lastname@example.org)
Loïc Dessaint, CEO (email@example.com)
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