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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!

Reflections on the 2020 AGM Season

Neville White Neville White Head of RI Policy & Research
Opinion

Reflections on the 2020 AGM Season

Neville White

Neville White
Head of RI Policy & Research

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!