We have come to the end of the
first part of the proxy voting season in the UK – and what a strange one it has
been. In nearly a quarter century of monitoring annual proxy seasons, we have
never seen one quite like this!
The UK proxy voting season runs broadly
from April to the end of July with a pause in June – this simply reflects the
fact that most companies have a December year end, with a sprinkle of July AGMs
to reflect a March year end. To put it into context, in the three months of
April, May and July we vote at more meetings than in the rest of the year
combined (132 versus 69 in 2019).
2020 for corporate governance
geeks presented a ripple of excitement as it is a ‘policy year’. Under
revisions to the Corporate Governance Code, UK companies are obliged to put a
binding resolution to shareholders on executive pay every three years – and
2020, for many companies, was to be a policy year. In January when we polished
and published our 2020 Corporate Governance Policy, we were anticipating
whether companies would show constraint, or introduce clever new tricks to
bolster executive pay.
Much of this swiftly became
academic with the reality of lockdown from COVID-19. Just as the UK, and much
of Europe when into economic shutdown, companies were beginning to grasp that
shareholder meetings could not take place with ‘live’ shareholders, but
legally, they were still required to happen. In the early, messy part of the
season, we saw company after company cancelling or postponing their meetings
whilst searching for alternatives – BP’s usual AGM home, the Excel Centre in
London, had been turned into the capital’s Nightingale Hospital just a few
weeks before. Eventually companies settled on a virtually streamed AGM, but
where, controversially, shareholders were not able to ask live questions or
lodge ‘on-the-floor’ proxies. This caused significant debate and led to one or
two revolts – at Standard Life Aberdeen a resolution moving to virtual only
AGMs was unexpectedly defeated; shareholders clearly showed they do want to
hold executive ‘feet to the fire’ at the hurly burly of a live AGM!
To put it into context, in the three months of
April, May and July we vote at more meetings than in the rest of the year
combined (132 versus 69 in 2019).
The technical aspects of voting
were also confused by the next messy occurrence; just as AGM Notices were being
published, companies one by one bowed to the inevitable need to preserve cash
and cancelled their dividends. In some cases, the resolution to pay a dividend
was withdrawn – but in some it had not been and so technically we were still
obliged to vote! In these cases we registered an abstention, knowing the
dividend had already been withdrawn – examples were Synectics, TT Electronics,
4Imprint Group, Synthomer, Johnson Service Group, Reach, National Express
Group, Lloyds Banking Group and Aviva. Our quarterly Corporate Governance
Report will thus show a large spike in abstentions that is not normal.
And finally what of the season
itself? Muted and understated might be the best description given the technical
challenges. We are pleased, that in the main companies showed sensible restraint
in their new pay policies; by and large they did not increase the multiples
available. Pension payments are reducing in line with best practice. Bonuses
have been cut to preserve cash, as have executive salaries. All this is
welcome. However, we continue to find few FTSE100 packages we can commend, and
in April and May of 30 voted, we supported just two, representing 93%
opposition! Overall we opposed 61% of all remuneration policies and reports
voted in April and May.
So Part I has had its heady
challenges. In Part II, at the end of the season, I will reflect on new
threats: the move to phantom options that could have unintended consequences,
and the ‘windfall risk’ from awarding maximum incentive shares at a time of
depressed share prices. The second half of the proxy voting season we expect
still to be virtual, though perhaps less messy – but it may still have some
surprises in store!