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AGMs: A season of discontent

28 August 2018 by Bernadette O’Donoghue, Cian Whelan, Natasha O’Connor

AGMs: A season of discontent - read more

The 2018 AGM season saw shareholders taking strong stances on remuneration and auditor ratification, while scrutiny on diversity and succession planning persists

The 2018 annual general meeting (AGM) season was full of governance developments: the surprising defeat of SIG plc’s auditor ratification; the quantification of board responsiveness; and the publication of a new UK Corporate Governance Code. And, while traditional touchstones of investor disquiet remained, it was the nuance of individual issuer’s circumstances, such as the use of discretion and levels of disclosure, that influenced many AGM outcomes.


Following on from the 2017 AGM season, when two-thirds of the FTSE 350 held binding triennial votes, the 2018 season saw investor focus shift from structural elements of remuneration, to remuneration committee decision-making – particularly around levels of pay and adjustments.


Responsiveness to prior, and indeed anticipated, dissent was also a recurring theme, with many varying approaches by issuers to engaging with shareholders.

Driving this focus is the Investment Association’s public register, established in response to the government’s green paper on corporate governance reform. The register records publicly listed companies that have either withdrawn or received significant shareholder opposition to resolutions ‘to understand the process used by those companies to identify and address the concerns of their shareholders.’

“For succession, reliance on ‘interim’ measures is only for the most unpredictable of circumstances”

Persimmon, despite suffering one of the largest against votes of the 2018 season, provide an encouraging example of responsiveness and the power of engaging early and often. Although the brewing shareholder discontent was well telegraphed, the remuneration committee’s response was comprehensive, announcing a series of actions in February 2018 with the express purpose of reducing the quantum of awards. The board also embarked on a wide-ranging campaign of engagement, the impact of which is evident in the AGM results, with many shareholders opting for abstention over opposition.

Conversely, Safestore, which after withdrawing remuneration proposals in the lead up to its 2017 AGM due to an expected lack of support and barely getting its remuneration policy passed at a subsequent special meeting, proceeded with granting two million shares to the CEO, with a face value at the time of a little over £8.5 million. Having failed to heed shareholder concerns, Safestore’s remuneration report received in excess of 48% votes cast against and all remuneration committee members received in excess of 20% votes against its re-elections.


Responsiveness was not the only aspect of the remuneration committee’s responsibilities that was heavily scrutinised this past AGM season. The use of discretion to amend outcomes and the adjustment of performance targets also acted as a lightning rod for shareholder discontent.

Paddy Power Betfair narrowly escaped having their name put on the public register after 19.6% voted against its remuneration report. This followed the lowering of targets under its LTIP, with the potential for future lowering dependent on certain taxes and regulations.

Playtech, which utilised upward discretion in adjusting the outcome of annual bonus awards despite losses and the failure to meet all targets, failed to secure majority support for its remuneration report. In addition, its remuneration committee chair received an against vote of 43%, showing that investors are not shying away from holding individual decision makers to account for poor practices.

Bovis Homes took a novel approach to ‘discretion’, awarding its CEO and CFO discretionary bonuses of shares on top of formulaic payouts under its annual bonus plan. Shareholders were understandably unhappy and almost 38% cast their votes in opposition to the remuneration report.

Excessive awards

Finally, in a recurrent theme, and to which market sentiment should come as little surprise, excessive compensation and out-of-step increases were once again the cause of more than one shareholder revolt.

Legislation surrounding the calculation of CEO to worker pay ratios passed through parliament in July 2018; however, it appears the impending legislation did little to dissuade others from awarding excessive salary increases to incumbent and incoming directors.

Direct Line awarded a starting salary to newly appointed Penny James 38% higher than its outgoing CFO and received an against vote of 23% on its remuneration report. In the second largest remuneration-related defeat of the season, Royal Mail’s remuneration report failed to secure majority shareholder support owing to the recruitment package awarded to Rico Back.


In mid-January, outsourcing specialist Carillion announced its collapse and liquidation. In the immediate aftermath, the UK government launched a parliamentary enquiry into the former FTSE 350 constituent to identify the ultimate cause. The report, published in May 2018, was damning in its criticism of the board, the Financial Reporting Council and, perhaps most scathingly, of the company’s auditors, both internal and external.

It was, therefore, not surprising that this year’s AGM season saw a more focused appraisal of auditors and their roles as scrutineers of publicly presented information. The ratification of auditors is not unused to such observation; the proverbial heat on auditors has intensified in recent years with the CMA and EU regulations targeting entrenchment and anti-competitive practices via mandatory rotation and stringent tendering rules.

This traditionally routine proposal was the cause of the largest defeat of the 2018 season, with SIG plc failing to secure ratification of its incumbent auditor, Deloitte, and subsequently having to retender with a now short transitionary period in which to acclimatise its new auditor.

While the number of shareholder revolts (defined as votes against in excess of 20%) against auditor ratifications has dropped from nine in 2017 to three (to date) in 2018, the FRC has upped the ante in terms of its investigation and sanction of auditor behaviour, particularly in those companies where shareholder and stakeholder value has been negatively impacted.

KPMG is currently under investigation for its audit of the accounts of Conviviality plc, the drinks company which fell into administration in April 2018.

In recently levelled sanctions, PWC, as auditor of the Taveta Group (which encompassed BHS) was given a severe reprimand and a £6.5 million fine, with the individual audit partner fined £325,000 and the removal of his ability to practice as an auditor for a period of 15 years.

Similarly, Quindell plc’s former auditor KPMG was fined £3.15 million and the individual audit partner fined £84,000 for a breach of audit standards.

It is likely that this trend of enhanced scrutiny will continue in 2019 AGM season given the recent calls for the potential break up of the ‘big four’ and the fast approach of the earliest of the transitional deadlines under the EU regulations.


Government-backed reviews over the past couple of years have called for greater diversity at both board and senior management levels in FTSE 350 companies.

“A broader range of social perspectives, talent and expertise can influence decision-making”

Enhancing the diversity of boards so their compositions better reflect the demographics of employees, customers and other stakeholders is seen as crucial to companies’ capacity to deliver on their wider social responsibilities, by ensuring that a broader range of social perspectives, talent and expertise can influence decision-making. This sentiment is echoed in the new UK Corporate Governance Code published last month.

For the 2018 season, Glass Lewis included skills matrices in its election of directors’ analyses for all FTSE 100 companies. Skills matrices provide a more holistic view of board composition that goes beyond binary categories and provide more focused and useful disclosure for assessing a company’s ability to meet a constantly shifting risk landscape.

Of particular interest was the perceived dearth of cyber technology experience and/or qualifications, with approximately only 10% of the FTSE 100 non-executive directors deemed to have such skills, based on an appraisal of issuer disclosure. While we acknowledge that many companies will have external experts who provide consultancy on such matters, given the current focus on data protection and the increased incidence of cybercrime, investors may think it prudent for boards to seek to bolster this aspect of their collective skillset.

Succession planning

In the same vein, we have seen increased scrutiny of companies’ succession planning, with analysis relying heavily on nuanced aspects of a company’s disclosure, particularly the corporate governance statement and the nomination committee’s report.

During the 2018 season, WPP and the London Stock Exchange Group learned the importance of disclosure around succession, both suffering increased investor pressure around the robustness of their succession plans due to the perceived opacity of their processes. Investors are keen to see that boards are prepared for such scenarios with a ready, or at least almost ready, list of suitable internal and external candidates, and reliance on ‘interim’ measures only for the most unpredictable of circumstances. Transparency in disclosure seems to be key.

New code

The season was rounded out with the aforementioned publication of the revised UK Corporate Governance Code. The major changes, other than the clear structural differences (fewer provisions and the removal of ‘supporting principles’), largely mirror the calls made by Theresa May and the green paper in the two preceding years, with the spotlight firmly trained on corporate culture, stakeholder engagement and board composition.

Of particular import for the 2019 season is the section providing issuers with guidelines on engaging with their workforce. Although the actual implementation of the concept is still in its relative infancy in the UK market, already we are seeing a diversity of approaches. The structure of any role and its responsibilities, the processes around appointment, and the level of exposure to shareholder scrutiny are all variables that companies are experimenting with to various degrees and we expect to see more ‘interpretations’ manifest in the 2019 AGM season. From an investor perspective, meaningful disclosure from companies of these aspects will play a vital role in evaluating efficacy and compliance with the spirit of the new code.

The announcement of the new code, and indeed the code itself, also references the desire to move away from a prescriptive approach to comply or explain and has called on investors and proxy advisors alike to pay due regard to a company’s individual circumstances when evaluating performance.

For its part, Glass Lewis will continue to take a holistic view of the operation and composition of the board and the prevailing culture at the company, as opposed to some mechanistic reading. This approach is sure to be aided by the greater transparency and enhanced disclosure for which the new code appears to advocate and which we welcome.

Natasha O’Connor is research manager, Northern Europe; Bernadette O’Donoghue is senior research analyst, Northern Europe; and Cian Whelan is research analyst, Northern Europe; all at Glass Lewis.

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