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Shareholders step up their involvement

10-07-2012 | Visie | Sylvia van Waveren
A pick-up in shareholder participation was palpable in the 2012 Dutch AGM season. Sylvia van Waveren reports.


  Key points
  • Noticeable increase in shareholder participation
  • Positives: no shareholder proposals submitted; improved sustainability reporting; and greater shareholder engagement throughout the year
  • Negatives: companies are ignoring new supervisory-board election legislation; reporting on remuneration-policy implementation remains weak
  • Robeco successfully engaged with TNT Express on pay
The Dutch shareholder is starting to flex his muscles. That was one of the trends to emerge from the recent 2012 AGM season in the Netherlands. “In general, there was an increase in shareholders’ participation and commitment,” observes Robeco Engagement Specialist Sylvia van Waveren.

When shareholders were unable to attend a meeting, for instance, they often granted proxies to investor partners to speak and vote on their behalf.

One sign of this was an increase in voting at AGMs. At the meetings of the largest Dutch-listed companies on the AEX, total voting increased from 59% of shares in 2011 to 63% in 2012, according to data from Eumedion, the independent foundation dedicated to improving corporate governance in the Netherlands. Moreover, at least one participant in Eumedion, in which Robeco takes part, attended 57 AGMs of Dutch-listed companies*.

Mixed trends from 2012 AGM season
But that’s not the only development in the Dutch shareholder scene that became apparent this spring. Van Waveren identifies a handful of other trends—some positive, others not so good. On the positive side, she points to a lack of shareholder proposals being submitted, an improvement in the quality of sustainability reporting and increased shareholder engagement throughout the year.
 

 

“We were successful is asking companies to amend certain points prior to their AGMs”

 

Less positively, widespread criticism of the candidates for election—or re-election—as supervisory board directors was necessary. Moreover, corporate reporting on the implementation of remuneration policy continues to be weak.

No shareholder proposals
Let’s look at these emerging trends more closely. First, the lack of shareholder proposals being submitted. What typically happened, notes Van Waveren, was that proposals that were initially submitted were withdrawn prior to the AGM.

Take the example of TNT Express. In January, two of the company’s shareholders, Jana Partners and Aimco, had proposed a number of candidates for appointment as supervisory directors. But their proposals were withdrawn shortly before the publication of the AGM agenda, after it had been announced that TNT Express had entered into discussions with UPS regarding a takeover.

Van Waveren describes the absence of shareholder proposals as “positive progress”. “It is the result of shareholders’ continuous engagement with companies,” she says. “At Robeco, we sorted out a number of issues and were successful is asking companies to amend certain points prior to their AGMs.” (Click here to go straight to a TNT Express case study to see how Robeco successfully engaged with the company prior to the AGM.)

Election of supervisory board directors
The second perceptible trend during this AGM season was shareholders’ critical assessments regarding the candidates for election as supervisory directors. Important criteria in this process were the number of supervisory directorships held by the person in question, his or her attendance rate at board meetings and the supervisory board self-assessment reports.

dutch-agm-season-in-numbers

When considering the number of supervisory directorships, shareholders were clearly taking into account the upcoming Dutch Act on Management and Supervision. This legislation sets a maximum of five supervisory directorships per person.

This was a factor behind Robeco’s unhappiness about the number of directorships held by the directors up for election at TNT Express and AkzoNobel. “We expressed our concerns, not only in the AGMs themselves but also directly to the companies beforehand,” says Van Waveren.

Disclosure of the remuneration report
Also on a negative note, reporting on the implementation of remuneration policy continues to be weak. That said, Van Waveren accepts that the quality of remuneration reports is mixed.

Royal Dutch Shell and Unilever stand out positively. Not only do they provide good information on the remuneration structure (something that most Dutch companies also do), but they also offer information about the outcomes of their remuneration policy by disclosing details of management’s bonuses and earnings.

They are the exception, however. At most the Dutch companies, there is a lack of clarity about the amount paid in short-term bonuses. Moreover, companies often provide no rationale for the performance criterion. This issue was brought up at several AGMs.

Supervisory-board remuneration was on the agenda at 15 Dutch companies. And at TNT Express, the proposal for changes to remuneration encountered relatively high resistance: 30% of votes were against management. “Shareholders were mainly objecting to the proposal to pay supervisory directors for each meeting they attend,” notes Van Waveren.

 

 “An intensive shareholder engagement has been taking place throughout the year"

 

Given the company’s circumstances—the company was in merger talks where extra supervisory board meetings were unavoidable—it is perhaps unsurprising that a significant number of shareholders felt that this was an inappropriate change.

Increased shareholder participation
The final trend that emerged during the AGM season was more positive: shareholder participation in the decision-making process at AGMs has increased. One reason for this increase could be the extension of the period between the publication of the AGM agenda and the AGM itself. The increased awareness of shareholders responsibilities, stimulated by initiatives such as Eumedion’s best practice for engaged share-ownership, has probably also played a role.

And this increased participation hasn’t been confined to the AGM season. “It can be said that an intensive shareholder engagement has been taking place throughout the year,” says Van Waveren.

Shareholder engagement case: TNT Express  
Material developments came thick and fast at international courier services group TNT Express during the first quarter of 2012. The company wanted to add two new members to its supervisory board. A new long-term incentive plan was proposed. And a EUR 9.50 per share takeover by UPS was agreed.

By no means were all these developments welcome. They meant that Robeco had several meetings with the company before its 11 April AGM. Robeco’s purpose during this process was to monitor the governance of the company, concentrating on clear and transparent reporting towards stakeholders.

“Our aim was to ensure that the company’s governance was in accord with international and Dutch governance best practice,” explains Van Waveren. “This meant that the company’s disproportionately protective anti-takeover measures had to be addressed, while remuneration policy needed to be brought into line with good governance practice.”

Robeco discussed remuneration policy with the company on several occasions, as well as the reasoning behind the proposed expansion of the supervisory board. The proposed changes in the company’s articles of association were also deliberated.

Dialogue with other stakeholders
Mind you, it wasn’t just the company where dialogue was necessary. Robeco also had a conference call with Jana Partners, the shareholder activist that proposed its own candidates for appointment as supervisory directors, to talk over their motivation.

When the takeover by UPS was announced, Robeco discussed the consequences for the AGM agenda with the company’s corporate secretary and an investor relations officer. It became clear that the company was willing to reconsider the format and topics on the agenda at the AGM.

Ahead of the shareholder meeting, TNT Express did indeed withdraw its proposal for the additional members of the supervisory board and postponed the use of performance shares in its long-term incentive policy.

These changes removed the most important concerns. “We appreciate the company’s co-operation and its openness to constructive dialogue,” says Van Waveren. “We will continue the engagement with the company regarding upcoming developments.”

*Robeco itself attended the AGMs of TNT Express, Royal Dutch Shell, ASM International, DSM and AkzoNobel, where it acted on behalf of several Eumedion partners. Robeco was also an opt-in member for 15 AGMs and granted power of attorney to speak on its behalf at ten other AGMs.
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