19 December 2019

2019 AGMs for ASX200 entities – interim report

This article was written by Joseph Muraca.

As at 18 December 2019, almost all entities in the ASX200 have held their AGMs. While voting results have generally been less dramatic than in 2018, entities continue to face intense scrutiny, directors continue to be called to account for perceived governance and operational shortcomings and ESG activists continue to use AGMs to agitate for change.

More detail on these trends observed for the year so far is below.[1]

We’ll publish a more fulsome note in early 2020 with our analysis and data for the full year.

Trend

Observations

Less combative AGMs on remuneration…

Overall, AGMs for the ASX200 in 2019 have been less combative on remuneration-related matters than last year. To date, only one remuneration report has been voted down (i.e. received a vote against of greater than 50%) whereas six were voted down in 2018. The magnitude of the votes against remuneration reports that have resulted in a strike is also lower than in 2018. In 2018, the average vote against a remuneration report resulting in a strike was 47%. In 2019 to date, the average vote against resulting in a strike is 35%.

A number of ASX200 entities who received a strike in 2018 have also successfully addressed shareholder concerns. Responses have ranged from restructuring remuneration and incentive arrangements to reductions in bonus payments and more transparency on hurdles and the reasons for remuneration outcomes. 12 continuing ASX200 entities received a strike last year. 10 of those have avoided second strikes and also received high votes in favour of their remuneration reports (with Harvey Norman and Westpac the two outliers). 

… but remuneration reports still a battleground

Despite these trends, entities face ongoing scrutiny on remuneration reports with the same number of strikes received this year to date and a marginal increase in the number of near misses seen year on year:

 

2019 YTD 

 2018

Total number of strikes for the ASX200
(inclusive of second strikes)

 15

 15

Number of second strikes

 3

 0

 Number of ‘near misses’
(i.e. entities within 10% of a strike)

 16

 14

The reasons behind these ongoing strikes and near misses continue to be discussed by the press and in public statements by institutional investors and proxy advisors. However, the vitriol has generally been dialled down this year and the magnitude of ‘no’ votes has substantially decreased. Presumably, in part, this is because except in some limited cases there have not been the same prevailing external factors seen last year (such as the Financial Services Royal Commission and APRA report into governance at CBA).

The strikes and near-misses this year appear to be motivated by similar concerns to those raised in 2018. These include investor dissatisfaction with the quantum of bonuses paid relative to entities’ performance, questions over the use of non-financial metrics for variable remuneration and, in a small number of cases, entities continuing with previously unpopular remuneration structures. The focus on non-financial metrics will be a critical development in 2020 and beyond given ARPA’s call in its proposed CPS511 for limits on the use of financial metrics for variable remuneration programs. 

Continuing trends in director elections

There has been no substantial change in the average votes on director elections, with the vast majority of directors still elected / re-elected with greater than 95% support. There is again a demonstrable difference between those seeking re-election and those seeking election for the first time. Those seeking re-election are more likely to fall below the 95% threshold.

Overall, there has also been a broader spread of results and more votes falling into the 85 – 95% range than in 2018 (18% in 2019 versus 8% in 2018).

These figures do not include directors who have resigned and/or not presented themselves for re-election.

Protest votes against directors’ elections / re-elections appear to be a result of similar issues to those observed last year. The trend of ‘cross-contamination’ from directors’ perceived performances at other entities, including ongoing fallout from the Financial Services Royal Commission, continues to influence results. Other concerns raised include board tenure and ‘over-boarding’.

ESG voting: more prolific but less successful 

Activists are continuing to make full use of their ability to requisition shareholder resolutions. As we’ve seen in previous years, these resolutions take the form of a proposed amendment to company constitutions followed by advisory resolutions contingent on that constitutional amendment. These contingent advisory resolutions are often bundled, with one company receiving 5 separate advisory resolutions (though one of those 5 was withdrawn before the AGM). We’ve also continued to see activists engaging in coordinated questioning at AGMs.

There has been a marked increase in the number of entities receiving shareholder requisitioned resolutions this year. 12 ASX200 entities were requisitioned to ask shareholders to vote on these resolutions this year, compared to 7 last year and 6 in 2017. Activists have also continued to target entities in a broad range of sectors: insurers, financiers and banks have all received ESG shareholder resolutions in addition to entities in the mining and energy sectors. Climate change remains the biggest issue on the activists’ agenda, with 16 of the 19 advisory resolutions seeking to address climate change related issues.

Despite the increase in the number of entities receiving these requisitions, they have generated less traction with shareholders. Proposed constitutional amendments have only generated an average of 5.76% support this year (compared to 6.89% in 2018).  Similarly, the average vote for the contingent advisory resolutions (as disclosed in the proxy vote) has fallen from 17.56% in 2018 to 13.35%. The highest proxy vote in favour of a contingent resolution this year – 31% – falls well short of the 46% proxy vote in favour of a contingent ESG resolution in 2018.

The bodies putting forward ESG resolutions continue to be transparent as to their toolkit for engaging with entities and shareholder requisitioned resolutions are typically a method of ‘last resort’. Several entities have engaged prior to their AGMs to avoid activists using this mechanism: CBA’s pledge to exit the thermal coal industry by 2030 and BHP’s new robust emission reduction targets resulted in activists not lodging planned ESG resolutions at the companies’ respective AGMs. 



[1] While year on year comparisons have been used in this note, there has been movement in the ASX200 across 2018 - 2019 which accounts for some discrepancies in the data captured.

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