05 March 2018 by Lorraine Young
Company secretaries should review the PLSA and ISS voting guidelines ahead of this year’s annual general meetings
For company secretaries, the two sets of 2018 voting guidelines published in January by the Pensions and Lifetime Savings Association (PLSA) and Institutional Shareholder Services (ISS) are likely to prove valuable for planning annual general meetings (AGMs). The PLSA has also released its AGM Voting Review for 2017.
Overall, the PLSA’s AGM Voting Review shows steady levels of shareholder dissent at company AGMs for the past two years, with about a fifth of companies experiencing significant dissent for at least one resolution at their meeting.
Over the longer term, dissent has fallen since the peak after the financial crisis. Unsurprisingly, the greatest level of dissent continues to be over executive pay awards.
There is a slowly increasing trend of voting against individual directors, which investors perceive to be effective in ‘extreme’ cases. For example a vote against the re-election of the remuneration committee chair is endorsed where there is concern about remuneration policies or excessive pay.
This is often seen as a useful escalation if companies do not act at the first sign of unrest. However, overall votes against remuneration committee chairs remain low at 3.4% in FTSE 100 companies, although up from 2.3% in the previous year.
One change from last year is the establishing of a public register of shareholder dissent. The register was launched in December 2017 with information for AGMs and general meetings held in 2017. It will be updated regularly and the date of the most recent update is noted on the website.
The register is an aggregated list of publicly available information about meetings of companies in the FTSE All Share Index that have received significant shareholder opposition to proposed resolutions, or have withdrawn a resolution before the vote occurred.
The register is supposed to aid the understanding of the process used by those companies to identify and address investor concerns. The register is maintained by the Investment Association and can be accessed on its website.
The methodology behind the register is also described on the Investment Association website. A vote of at least 20% against the board’s recommendation on any matter is considered to be significant dissent.
Resolutions that are withdrawn between the issue of the notice of meeting and the conclusion of the meeting – because the company thought they might be defeated – are also included, but resolutions withdrawn for other reasons are exempt.
“A vote of at least 20% against the board’s recommendation on any matter is considered to be significant dissent”
In line with usual practice, votes ‘at discretion’ are added to the column that aligns with the board’s recommendations, which in most cases will be the ‘for’ vote. There are different views in the market about whether votes withheld should be included when calculating levels of dissent.
Some take a purist approach that votes withheld are not votes and should therefore not be counted, while others note that such abstentions can show low investor support, and therefore should be considered by companies when analysing voting results.
The register includes basic details about the meeting, the results of the vote and links to any related announcements. These are sourced from the National Storage Mechanism and companies’ websites.
Companies may notify the Investment Association of any relevant public statements by emailing a link for the relevant webpage to email@example.com. The register entry will not make any judgment about the content or quality of any public statements.
So far in the UK, only Jimmy Choo has had an online-only AGM. The ISS voting guidelines advise investors to support proposals for ‘hybrid’ meetings – usually in relation to amending a company’s articles – where there is a physical meeting that shareholders can join online.
Virtual-only meetings where you can only participate online and it is impossible for investors to attend a physical meeting are not supported. There is a strong feeling that the physical meeting, where shareholders can ask the board questions and hold the directors to account, should be kept.
Purely online meetings have become more common in the US, but even there investors do not much like them. Last year the Sisters of St Francis of Philadelphia took on the energy firm Conoco over its decision to stop holding a physical AGM. Conoco retreated, agreeing to hold a hybrid meeting in future.
Several large investors and the Investment Association have said they do not support purely online meetings.
The proxy advisor Glass Lewis has a policy of voting against members of the governance committee where companies hold virtual-only meetings in the US from 2019, unless shareholders are assured that they will be afforded the same rights and opportunities at online events as they would be at a physical meeting.
Part of the rationale for the increase in virtual-only meetings is to encourage greater shareholder participation, with companies such as carmaker Ford and IT firm HP moving to all online AGMs.
But the trend has not caught on to the same extent in Europe. Where questions can be asked online, firms are recommended to read these out in full and not sanitise them so they can maintain trust in the process.
Although the Financial Reporting Council consultation on the UK Corporate Governance Code somewhat indicates what the revised version of the code will look like, things are not finalised, and the various sets of voting guidelines are therefore based on the current code.
The PLSA says that its guidelines are not intended prescriptively and assume that investors have evaluated any explanations for non-compliance with the code, taken account of a company’s individual circumstances and engaged appropriately. Investors are reminded to balance the signal given by a voting sanction against the possibility of it making a situation worse.
“Purely online meetings have become more common in the US, but even there investors do not much like them”
The voting guidelines comment on how shareholders might view certain resolutions on the AGM notice and what factors might make them support or oppose a particular matter. It is beyond the scope of this article to explore all of these but some points of note are set out over the page.
Next month we will review voting policies in relation to the appointment or reappointment of the board chair, directors and the auditors.
A vote against the report and accounts has traditionally been seen as a vote of no confidence in the board. But shareholders also vote against the report and accounts:
The guidelines have detailed analysis of pay. This includes the broad point that if shareholders do not support the remuneration policy they may also vote against the chair of the remuneration committee, and other committee members if they have been in post for more than one year.
Article changes will be considered case-by-case and voting will be based on the best interests of shareholders. Investors do not like changes being bundled into a single resolution if they cover non-routine matters.
But from a company secretary point of view, if there are a lot of changes when a company’s articles are being updated, it is easiest to propose a resolution adopting a new set of articles in their entirety, rather than drafting convoluted resolutions to deal with the insertion, deletion or amendment of multiple clauses.
The PLSA guidelines add that if a change to the articles introduces a material increase in borrowing powers or does not include a limit on borrowing powers then a vote against the new or amended articles may be appropriate.
The voting guidelines can be found via the websites of the Pensions and Lifetime Savings Association and Institutional Shareholder Services. The AGM review can also be found on the PLSA website.
Comparing the ISS and PLSA’s stance on resolutions around share capital for listed companies, smaller companies and investment companies.
|Resolution||FTSE All Share||Smaller companies: FTSE Fledgling Index and Alternative Investment Market||Investment companies and venture capital trusts|
|Authorise issue of equity||
Support authority to issue up to a third of current issued share capital (ISC) with a further third for a fully pre-emptive rights issue.
PLSA: Suggest voting against if the allotment and pre-emption authority resolutions are bundled together.
|As for larger companies.||As for other companies.|
|Disapply pre-emption rights||
Support authority if in line with the Pre-emption Group Statement of Principles (5% of ISC in any one year and 7.5% in a rolling three-year period).
A limit of 10% of ISC supported if half of this is for an acquisition or specified capital investment.
|Routine authority may be up to 10% of ISC in any one year.||Routine authority up to 5% of ISC in any one year or 10% if there is a commitment for any issue to be at or above net asset value. C-share issues to be considered using this guidance.|
Support if the authority:
PLSA: Support if a prudent use of cash and does not bring about excessive and unsustainable leverage.
|No different policy specified.||No different policy specified.|