In October, IHS Markit and Glass Lewis co-hosted an ESG and IR focussed event in Paris. More than 50 French companies participated in the lively discussions around topics as remuneration, board of directors, ESG trends, as well as activism. All matters were heavily discussed by investor relations, board representatives and general counsels, representatives of the shareholder community and their providers.
Season review, season preview
- A review of the 2019 AGM proxy season in France presented by Irene Bucelli from Glass Lewis and an overview of 2020 trends presented by Benoît Belliat from Ipreo IHS Markit.
Remuneration has been once again the hot topic of the 2019 AGM season. If the 2018 season showed that shareholders have become overall more supportive of ex-ante and ex-post votes, the 2019 season results were stable on average. Still the first cases of say-on-pay rejected by shareholders could be observed. In addition, several companies continued to face high dissent on these proposals. Two families of issues can be distinguished: (i) disclosure and (ii) practice. The latter is the main driver for high dissent and rejected proposals.
Shareholders are now more likely to pay attention to the directors’ individual attendance to board meetings. 2019 saw a significant increase of directors’ individual attendance disclosure following the first rejected re-election item in 2018 for this purpose. Consequently, it has been noted that one out of three contested resolutions on directors’ re-election are due to low attendance. Adding to that, this low attendance was systematically sanctioned by more than 20 percent of dissent by minority shareholders.
With the idea of keeping an open discussion and promote different views and opinions, IHS Markit and Glass Lewis invited issuers, investors, academic researchers and data providers to be panellists from different backgrounds.
Activism is not just a trend
- A panel discussion on passive investments, active ownership, and activism with:
– Nathalie Etzenbach-Huguenin, General Counsel at Solocal
– Orsolya d’Alboy, Governance Analyst at BNP Paribas Asset Management;
– Irene Bucelli, Senior Analyst at Glass Lewis; and
– Sophie Vermeille, Lawyer and Founder of Rules for Growth Institute.
– Moderator: Patrick Fiorani, Glass Lewis.
At French companies the capital structure is known to be relatively concentrated and often in the hands of a controlling shareholder. With the recent introduction of double voting rights, activists’ attempts were made even more arduous. Nowadays, cross-shareholdings allow investors to be well settled in many companies. The development of passive management contributes to the growth of activism, specifically as passive asset management has become one of the most active in terms of stewardship and cross border voting. Large institutional investors such as Blackrock, Vanguard, or State Street represent on average 25 percent of the float capital voted at general meetings, of the CAC 40 issuers.
During this discussion, we heard about the important distinction between the different types of activists. Long activism (at Scor, Lagardère, Pernod Ricard) and short activism strategies (at Groupe Casino Guichard Perrachon) are very different approaches, both causing challenges to companies and their investor relations, legal and management teams. But activism can also arise from smaller individual shareholders as was the case at Solocal. Taken in the context of increased shareholder activity from more “mainstream” positions, it indicates that issuers are increasingly engaging with shareholders of different types. Feedback from constructive engagements was brought in the discussion, although sometimes, activist investors bring insufficiently grounded analysis. Overall, academic research tends to show that activist campaigns bring overall positive outcome. Yet, it is complex to follow both parties’ arguments, notably because all the information is not always public. This seems to be a prerequisite for Asset Managers and Proxy Advisors who try to maintain balanced engagement with issuers and those investors who are questioning the strategy. It generally happens when the activism campaign leads to an AGM proposal, more often to appoint one or several board members.
ESG integration is here to stay
- A panel discussion on ESG integration, stewardship, and best practices with:
– Vanda Heinen, ESG and Stewardship Analyst at Union Invest Asset Management;
– Helman le Pas de Sécheval, General Counsel at Veolia ; and
– Francesco Mazzeo, Associate Director and Client Relations at Sustainalytics.
– Moderator: Andreas Posavac, IHS Markit.
Motivated by the new Pacte Law, we will see more and more companies defining a “purpose” in their bylaws. This “raison d’être” as named in French, and the rewording of art. 1833 of the French Civil Code seeks to put the E, the S and the G at the core of the business. ESG information is often analysed as a long-term risk, which can become a short-term leading topic. Investors now are seeing ESG not only as a risk, but also as an opportunity to increase their performance. There is a view that ESG is a great risk indicator, which can lead to outperformance if the right sectoral KPIs are used. At the same time, ESG can help identify risks early for the standard asset management of a firm. Issuers have been under scrutiny by both rating companies (like Sustainalytics) and investors to improve their disclosure in the short-term and enhance their ESG strategy in the long-term. The question of the consistency of ESG ratings on the one hand, and of the comparability of ESG data provided by issuers on the other hand leaves room for further developments. Started a few years, companies going on governance roadshows are now common practice. With great feedback.
ESG needs to be integrated with long-term strategic targets. It needs to be about more than just telling a story, having a forward-looking approach is important. The next phase will not only be to mitigating risks but also seizing new business opportunities.
The discussion also covered the risk and opportunity of separating the Stewardship and Portfolio Management responsibilities with different views on the matter. Guarantee for more independence or investment decision makers aggregating all the data? The debate is still open and thrilling.
As we talk more and more about executive compensation in France, of its link with ESG performance, and of the growing importance of ESG integration by asset managers, will we sooner or later see ESG related remuneration for portfolio managers, as well…?
For more information on this event, as well as IHS Markits services on corporate governance, proxy solicitation, activism defence or M&A transactions, please contact us.