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2017 11 17
··· Boards and institutional
investors
A RELATIONSHIP TO REINFORCE
La Sapienza
Facoltà di Economia e Commercio
Fiduciary’s Duty | 24.02.2017
2
INDEX
1.0 — Fiduciary’s duty
2.0 — Italian AGMs: the context
3 .0 — The players of the market
4.0 — Regulatory context
5.0 — Board diversities
6.0 — Renewal of the Board
7.0 — Board evaluation
8.0 — Succession Plans
9.0 — Board Induction
10.0 — Remuneration Policy
11.0 — AGM preparation: why?
12.0 — The engagement with Institutional Investors
13.0 — Case studies
Fiduciary’s Duty | 24.02.2017
Capital Structure
Risk Management
Executive
Remuneration
4 1 .0 F IDUC IAR Y ’ S DUTY
THE MEDIATION PARADIGM: A CLOSER LOOK
The Board is responsible for “aligning interests” by balancing the conflicting but equally valid perspectives of
management and shareholders on issues as:
Shareholders are part of the
stakeholder community to
which Boards should deal with:
DIRECTORS
MANAGEMENT SHAREHOLDERS Disclosure/Dividends&Growth
Investments
Investor Relations
MEDIATION
&
“ALIGNING
INTERESTS”
Transparency
ESG &
Sustainability
Long-term
approach
Integrated
thinking
Director
Nomination
Shareholder Rights
Control
Fiduciary’s Duty | 24.02.2017
5 1 .0 F IDUC IAR Y ’ S DUTY
A NEW APPROACH TO BOARD
HARDWARE
• The Board infrastructure.
• It defines governance policies and best practices.
• Principle-based approach.
• No transparency on decision making process inside
the Boardroom.
• Not enough to satisfy investors’ growing demands.
SOFTWARE
• The Board functioning.
• It defines how Board sets priorities, mediates
conflict and links its policies to business strategy
and performance.
• Clear Board’s role, responsibilities and behaviors.
• Board full awareness on processes connected to
the new approach.
• Board transparency.
• Stakeholder governance.
Roger Ferguson, CEO TIAA-CREF: “Corporate Governance “hardware” is in place, but CG
“software” is not.
The driver of cultural change inside the Boardroom Board should be a self-governing oversight body composed of highly competent, independent-minded, conflict-free
individuals with diverse characteristics and backgrounds who are well-informed, diligent, knowledgeable about the
Company’s business, focused on long-term performance, committed to serve the interests of the Company’s owners
and stakeholders and willing to take a high public profile in fulfilling their responsibilities.
Fiduciary’s Duty | 24.02.2017
6 1 .0 F IDUC IAR Y ’ S DUTY
THE ITALIAN GOVERNANCE ENVIRONMENT
HARDWARE
• The Governance infrastructure is clearly a
benchmark within EU countries and worldwide.
• Italian CG Code strongly promotes long-term value
creation for Shareholders.
• The Bank of Italy goes further promoting long-term
value creation for all stakeholders.
• Related party transaction regulation and slate
system for Board nomination is widely considered
as a benchmark.
• Voting obstacles have been eliminated (RD).
SOFTWARE
• Transparency on Board functioning is generally
not exhaustive.
• Board diversities still linked to old-style drivers.
• Board evaluation generally performed without an
external facilitator.
• Sustainable thinking or integrated reporting are
generally at a an early stage or “parallel” to the
strategy and not integrated.
• Long-term drivers on compensation as vesting
period are generally not sufficiently aligned with
long-term performance.
• Engagement with Shareholders is often reactive.
The driver of cultural change inside the Boardroom • CG Codes and norms are in place but business model and connected Boards, Directors and Companies are not
predominantly focused on operating for long-term value creation.
• Governance needs to update itself and this should start from the main actors: Board’s directors, which through
their Fiduciary’s duty should bring into the Boardroom a new model of sustainable business integrated with ESG
factors and ask for a cultural change at both Board and Company level.
Fiduciary’s Duty | 24.02.2017
7 1 .0 F IDUC IAR Y ’ S DUTY
FIDUCIARY DUTY
TWO MAIN DUTIES
Loyalty: placing the company’s interests ahead of
individual own interest.
Prudence: applying proper care, skill, and diligence
to business decisions.
• • • Main principle guiding Board responsibility is
mediating between the “legitimate but often
conflicting interests of Management and
Shareholders”.
• • •
• • •
Board members' time commitment might increase in 2016
and Director’s responsibilities become more complex.
• • •
BOARD RESPONSIB IL IT IES
Companies should carefully compile and disclose its
own list of Board responsibilities that reflects its
individual characteristics, circumstances and goals on
the basis of:
• Strong leadership skills and self-evaluations -
important to be effective.
• Effective strategy and risk oversight - for better
Board-Management information flow.
• Board addressing the corporate culture change.
• Effectively manage reputational risk on a global
scale.
• Improve dialogue with stakeholders, the quality of
disclosures around how boards are carrying out
their oversight responsibilities.
Fiduciary’s Duty | 24.02.2017
8 1 .0 F IDUC IAR Y ’ S DUTY
KEY GOVERNANCE – BOARD OVERSIGHT
TRENDS Leon Panetta: “Can we end the long
tradition of the Boardroom as a sealed
chamber …? Can we move toward
more transparency about boardroom
process …?”
More important trends will impact Board oversight across
jurisdictions in 2017:
Board composition: independence and diversity as
measures of effectiveness.
Board structure and processes: majority voting, annual
elections, CEO/chair split, etc.
Strategy: Board engagement in the strategy-setting process.
Succession: approach to executive and its own succession
planning.
Risk: oversight of risk management, including emerging,
complex and reputational ones.
Remuneration: the linkage between Company strategy,
executive compensation philosophy and pay plan design.
Financial oversight: oversight of financial matters as
external audit, internal audit, financial controls.
Sustainability: understanding the real indicators that create
value through integrated thinking.
Activism: more openness to activist investors and increased
engagement to long-term institutional investors.
• Board transparency is the pillar.
• Board effectiveness becomes the key-driver.
• This brings more responsibility for Board as
a whole and its Directors.
• Director’s role has changed and many new
tasks and responsibilities should be
addressed.
• Long-term thinking should be applied in the
boardroom, disclosed and promoted to all
stakeholders.
Fiduciary’s Duty | 24.02.2017
10 2 .0 ITAL IAN AGMS: THE CONTEXT
PANEL FTSE MIB The subject of this analysis consists in a panel composed of the FTSE Mib companies as of June 2017, except :
• Companies that have the registered office abroad (CNH Industrial, Exor, Ferrari, FCA, Stmicroelectronics,
Tenaris);
• Mediaset and Mediobanca, which have not held the AGM 2017 yet;
The chart below shows the Market Cap level of the Companies analysed from the largest to the smallest.
-
10.000
20.000
30.000
40.000
50.000
60.000
Market Cap
Fiduciary’s Duty | 24.02.2017
11 2 .0 ITAL IAN AGMS: THE CONTEXT
AVERAGE QUORUM
AGM PARTICIPATION % OUTSTANDING SHARE CAPITAL
• Record date: average participation by institutional
investors +160% in six years.
• New context: greater investors’ participation and
binding proposals (remuneration) created a positive
momentum for CG best practices implementation.
54,3% 52,3%
61,7% 65,3% 65,2% 66,6% 65,1%
10,7%
19,3% 20,6% 21,1% 25,4% 26,1% 27,6%
2009 2010 2011 2012 2013 2014 2015 2016
Average Quorum Minority Shareholders
47,5% 44,6%
41,2% 39,0% 39,0%
8,3%
20,7%
25,4% 26,1% 27,6%
2005 2013 2014 2015 2016
Controlling Shareholders Minority Shareholders
FTSE Mib 2016 % OUTSTANDING SHARE CAPITAL
• Active approach towards non-financial matters
(ESG): due to greater investments by international
investors on Italian corporations.
Fiduciary’s Duty | 24.02.2017
12 2 .0 ITAL IAN AGMS: THE CONTEXT
QUORUM IMPACT
MINORITY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Minority Shareholder Controlling Shareholder
The charts below shows the Minority shareholders weight in the last AGM.
• The average participation of Minority Shareholders is 47.6% of the Quorum.
• Prysmian is the only company whose Minority Shareholders represents almost 100% of the Quorum.
Fiduciary’s Duty | 24.02.2017
22
% 22
%
23
%
29
%
S.Ferragamo
MINORITY PARTICIPATION - FOREIGN INVESTORS
13 2 .0 ITAL IAN AGMS: THE CONTEXT
• 2012 • 2013 • 2014 • 2015
21
%
26
%
33
% 30
%
Unicredit
25
%
27
%
32
%
43
%
Intesa S
24
% 13
%
24
% 23
%
Snam
24
% 22
%
27
%
55
%
Telecom It
26
%
31
% 28
%
35
%
Eni
13
%
15
%
23
% 21
%
Saipem
9
%
12
%
15
%
17
%
Generali
22
% 17
%
32
%
35
%
Atlantia
5
%
14
% 11
%
12
%
Luxottica
13
%
20
%
27
%
46
%
Leonardo
SUBSTANTIAL INCREASING PARTICIPATION AT ITALIAN AGMS (% ISC) SINCE 2012
Fiduciary’s Duty | 24.02.2017
7
%
17
% 15
%
16
%
Luxottica
23
%
27
%
41
% 33
%
Saipem
25
%
30
% 28
%
34
%
S.Ferragamo
34
% 25
%
49
% 37
%
Snam
29
%
2
%
41
%
43
%
Atlantia
21
%
26
%
33
%
44
%
Generali
46
%
51
% 47
%
48
%
Eni
45
%
49
%
49
%
56
%
Telecom It
48
%
48
%
56
%
60
%
Unicredit
29
%
39
%
45
%
48
%
Leonardo
44
% 43
%
53
%
63
%
Intesa
MINORITY PARTICIPATION – INTERNATIONAL
INVESTORS
14 2 .0 ITAL IAN AGMS: THE CONTEXT
• 2012 • 2013 • 2014 • 2015
• 50% of the quorum is now usually held by foreign investors
• extraordinary resolutions are no longer routine exercise.
Fiduciary’s Duty | 24.02.2017
16 3 .0 THE PLAYERS OF THE MARKET
WHO ARE THE MAIN PLAYERS INVOLVED?
INSTITUTIONAL INVESTORS
• Many have CG teams.
• Have clear voting policies.
• Are generally happy to engage.
• Prefer to engage directly with Top Management,
not Investor Relations.
• Open to over-rule voting decision.
PROXY ADVISORS
• ISS and Glass Lewis – most influential.
• Recommend investors on how to vote.
• More rigid rather than their clients.
• Biased by Governance aspects only.
• Have a strong influence over many investors.
• Most are happy to engage but timing is important.
Fiduciary’s Duty | 24.02.2017
17 3 .0 THE PLAYERS OF THE MARKET
THE VOTING CHAIN
JP Morgan
Northern
BONY
UK Pension
Fund
US College
Fund
UK Pension
Fund
US Mutual
Fund
ISS
State
Street
HSBC
ECGS
Global
Custodian
Beneficial
Owner
Local
Custodians
Investment
Advisor
Proxy Voting
Agent
Proxy
Advisor
BLACKROCK
US Mutual
Fund
Glass
Lewis
Company
BNP Paribas
DB
Intesa
San Paolo
ISS
Broadridge
Fiduciary’s Duty | 24.02.2017
18 3 .0 THE PLAYERS OF THE MARKET
VOTING PROCESS FOR INVESTORS
Corporation
Fiduciary’s Duty | 24.02.2017
19 3 .0 THE PLAYERS OF THE MARKET
MAIN PROXY ADVISORS
• 500 analysts, 1700
institutional clients
which manage around
$26 trillion.
• 40.000 AGMs under
review each year.
• 300 analysts, 900
institutional clients
which manage around
$15 trillion.
• 23.000 AGMs under
review each year.
OTHER PROXY ADVISORS
Fiduciary’s Duty | 24.02.2017
21 4 .0 REGULAT OR Y CONTEX T
INVESTORS AND CORPORATIONS: THE
REGULATORY CONTEXT
GROWING ENGAGEMENT BY INVESTORS OVER THE CORPORATIONS THEY INVEST ON
The engagement by investors on their investee Companies is constantly growing due to:
• Intention to promote governance implementations and financial performance of corporations through:
— Board election
— Say on pay
— ESG engagement.
• The “Vote with your feet” approach may generate an excessive risk-taking for big institutional investors.
• Local and supra-national regulatory initiatives (i.e. financial sectors).
• Institutional investors are much more “accountable” towards their end-investors - clients (fiduciary duty).
• Recent scandals in poor Governance (Enron, BP, Volkswagen, …) proved that an appropriate governance
model is a risk-mitigation factor.
Fiduciary’s Duty | 24.02.2017
22 4 .0 REGULAT OR Y CONTEX T
UK STEWARDSHIP CODE
2010 (amended in 2012)
1. Release of a policy on stewardship responsibilities adoption.
2. Adopt and release a policy on conflicts of interest management.
3. Monitor the subsidiary Companies.
4. Adopt guidelines on the method/timing of the implementation of activist actions regarding subsidiary Companies.
5. Be ready to cooperate with other investors if required.
6. Adopt a clear strategy on voting rights and proxy voting disclosure.
7. Periodically report on stewardship and voting activities.
The Code is addressed to:
- asset managers
- asset owners (holding
shares of listed UK
Companies)
- service providers.
Fiduciary’s Duty | 24.02.2017
1. The Company should release a public policy on ownership responsibilities.
2. Monitor subsidiary Companies.
3. Adopt guidelines on method/timing of implementation of activist actions on subsidiaries, to protect investment and increase its value.
4. Take into consideration to cooperate with other investors if required, complying with any «agreement action» policy.
5. Consciuos exercise of the voting rights.
6. Report on the ownership and voting right exercise in subsidiary Companies, and implement an engagement activities policy.
23 4 .0 REGULAT OR Y CONTEX T
EFAMA CODE FOR EXTERNAL GOVERNANCE
2011
The Code is mainly
addressed to Investment
management companies.
Fiduciary’s Duty | 24.02.2017
24 4 .0 REGULAT OR Y CONTEX T
ITALIAN STEWARDSHIP CODE
2013 (amended in 2015)
1. The Companies adopt a publicly available policy regulating the exercise of rights on financial instruments pertaining OICR and administered portfolios.
2. The Companies monitor the listed subsidiary Companies.
3. 3. Adopt guidelines on method/timing of implementation of activist actions on listed subsidiaries, to protect investment and increase its value.
4. Evaluate the opportunity to cooperate with other investors if appropriate, taking careful attention to «agreement action» regulation.
5. The Companies consciously exercise the voting rights on financial instruments pertaining to OICR and administered portfolios.
6.The Companies mark the exercise of those rights on financial instruments pertaining to OICR and administered portfolios, and adopt a policy on external governance information disclosure.
The Code is manily
addressed to Asset
management Companies.
Fiduciary’s Duty | 24.02.2017
25
CONFLICTS OF INTEREST
Only the Stewardship Code recommends
the adoption of a policy to manage the
conflicts of interest.
PRE-AGM ENGAGEMENT
Only the Stewardship Code recommends to
communicate to the subsidiary Companies
the willingness to vote against or abstain
(motivated).
POST-AGM ENGAGEMENT
Only the Stewardship Code recommends
reporting the voting exercise in subsidiary
Companies.
INFORMATION ON PROXY
ADVISOR USE
The Italian Code does not mention any
disclosure on proxy advisory services
engagement.
4 .0 REGULAT OR Y CONTEX T
A COMPARISON ACROSS GOVERNANCE CODES
Fiduciary’s Duty | 24.02.2017
27 5 .0 BOARD D IVERS IT I E S
BOARD OVERSIGHT TRENDS
ADVANTAGES FROM DIVERS IT IES
Risk mitigation
• A proper mix of diversities in the Boardroom is
not only the driver to the effectiveness of the
Board but also an efficient tool to mitigate
growing risks to Board members.
Risk monitoring
• Wider, diversified and up-to-date expertise and
skills ensure the appropriate coverage of risks and
help directors pursuing their fiduciary duty.
Value creation
• Appropriate mix of skills ensures the Board
functions efficiently and supports strategically the
management to pursue a long-term value creation
for shareholders.
Objectives of the diversities policy
Boards should adopt diversities policy with the aim of:
• Finding a proper director’s skill set and variety of
perspectives which take into account company’s
culture & needs integrated with business &
economical context Board should face in the long-
term.
• Performing an in-depth assessment of Board
strengths, weaknesses and needs through an
effective Board evaluation.
• Achieving optimal balance between refreshing the
board and retaining valuable experience.
• Creating long-term value through injecting a
variety of informed perspectives into the
boardroom conversation.
• Defining a genuine Board appointments process to
ensure broader reach-out to identify and recruit
capable people of different backgrounds and life
experience.
Fiduciary’s Duty | 24.02.2017
28 5 .0 BOARD D IVERS IT I E S
TRENDS IMPACTING DIVERSITIES
More important trends will impact board diversities in
2017:
• Shareholders’ community has a strong say on
directors’ election.
• Disclosure on Board functioning is becoming
more important than composition, size or
independence.
• More transparency regarding Directors’
nomination process and functioning become
imperative.
• A greater and diverse diversities’ framework is
imperative for Boards to face long-term
challenges.
• Specialist and behavioral diversities should
enter in the Boardroom to minimize risks.
• Independence and thought diversity is critical
to compete today.
• Transition from a compliance exercise to ensuring
a sustainable long-term vision and mitigation of
risks.
• Principles are fundamental but attention to
company’s own culture, mission, values and
history should be integrated.
• Board succession plan help to ensure the
appropriate set of diversities to face future
challenges.
• Proper tenure mix to ensure continuity and
innovation.
• Integration of ESG factors within the business
strategy become the meaningful tool to ensure a
sustainable, profitable and less riskier business.
• Promote an effective integrated reporting.
• Stakeholder Governance becomes the new
approach.
Fiduciary’s Duty | 24.02.2017
29 5 .0 BOARD D IVERS IT I E S
WHAT DO DIRECTORS THINK ABOUT
DIVERSITIES?
34% agreed that the boards
on which they served fully
comprehended their
companies’ strategies.
Stephen Murray – President and Ceo of CCMP
Capital: “The whole activist industry exists
because public boards are often seen as
inadequately equipped to meet shareholder
interests”.
Lou Gerstner – Former Ceo of IBM: “In anything
other than a protected industry, longevity is the
capacity to change, not to stay with what you’ve
got, … . Companies that last 100 years are never
truly the same company, … . They’ve changed 25
times or 5 times or 4 times over that 100 years”.
Sir David Walker – Former Chairman of Barclays:
“The first question I would ask boards is whether
they are spending enough time and effort
assessing the organization’s long-term strategy, …
. If they are honest, the answer will almost always
be no.”
34
%
22
%
16
%
* Extract from Improving Board Governance: McKinsey Global
Survey results 2013.
Only 22% said their boards
were completely aware of
how their firms created
value.
Just 16% claimed that their
boards had a strong
understanding of the
dynamics of their firms’
industries.
Fiduciary’s Duty | 24.02.2017
30 5 .0 BOARD D IVERS IT I E S
BASIC VS ADVANCED BOARD
THE BAS IC BOARD
• Independence
• Tenure policy
• Gender
• Age
• Business expertise
• Financial expertise
• International expertise
• Audit expertise
• Risk management
• Familiarity with CG best practices
• Marketing & Sales
THE ADVANCED BOARD
• Attitude to change
• Dialogue skills within the Board
• Leadership experience
• Global mind-set
• Inter-market experience
• Crisis or turn-around experience
• New markets expertise
• Industry regulatory skills
• Governmental & Geo-political experience
• Cyber Security
• Information technology
• Digital & Media
• Race & Demography
• Environmental and Social factors
• Stakeholders’ culture
• Integrated thinking
Fiduciary’s Duty | 24.02.2017
20
14
14
13
13
13
13
12
11
10
10
10
9
9
8
7
Portugal
Germany
Italy
France
Ireland
Luxembourg
Spain
Belgium
Austria
Denmark
Sweden
UK
Norway
Switzerland
Finland
Netherlands
S IZE
31 5 .0 BOARD D IVERS IT I E S
• Italian “Independent Chairman” average level, 21%, is not aligned with
Nordics and Anglo-Saxons model.
• Not many CEO - Chair combined positions (14%).
• Italian “Non independent Chairman” average level is 34%.
COMPOSIT ION
94%
65%
56%
56%
50%
44%
40%
38%
38%
34%
32%
29%
21%
5%
2%
7%
9%
2%
24%
19%
3%
5%
6%
17%
11%
7%
15%
19%
17%
24%
14%
7%
6%
7%
3%
26%
39%
22%
17%
44%
47%
38%
44%
36%
41%
57%
34%
29%
50%
19%
2%
6%
33%
8%
4%
14%
60%
50%
56%
Netherlands
UK
Denmark
Finland
Portugal
Ireland
Norway
Belgium
Germany
Switzerland
Sweden
Austria
Italy
France
Luxembourg
Spain
Independent Chairman Executive Chairman Chairman former CEO
Non Independent Chiarman Combines Chiarman-CEO
• Italian Boards size average level, 1.4,
is in line with the Peers.
STATISTICS: SIZE & COMPOSITION
* Extract from ECGS 2014 Composition & Remuneration of Boards of Directors
11: EU average
Fiduciary’s Duty | 24.02.2017
80%
69%
62%
58%
58%
52%
49%
46%
44%
42%
41%
34%
33%
33%
32%
31%
3%
4%
29%
24%
8%
2%
7%
8%
19%
12%
11%
17%
29%
17%
27%
9%
18%
34%
46%
51%
47%
48%
39%
47%
66%
56%
50%
38%
69%
Switzerland
Finland
Spain
Norway
Luxembourg
Sweden
Denmark
France
Portugal
Belgium
UK
Ireland
Germany
Italy
Austria
Netherlands
Independent NED Executive Directors Not Independent NED
32 5 .0 BOARD D IVERS IT I E S
• Italian boards average independence level is 42%
• Italian executives on board average level is 19%
STATISTICS: INDEPENDENCE
* Extract from ECGS 2014 Composition & Remuneration of Boards of Directors
• EU independence rate is 34%
• 40% EU boards are below 50% level
[VALO
RE] [VALO
RE]
14%
Independent NED
Executive Directors
Not Independent NED
[VALOR
E] 18%
21%
27%
29%
4%
0%
<33%
33-49%
50-66%
67-99%
100%
Fiduciary’s Duty | 24.02.2017
33 5 .0 BOARD D IVERS IT I E S
STATISTICS: WOB & TENURE
* Extract from ECGS 2014 Composition & Remuneration of Boards of Directors
38%
31%
29%
29%
25%
24%
22%
21%
20%
20%
20%
18%
14%
13%
12%
5%
Norway
France
Finland
Sweden
Denmark
Italy
Netherlands
Belgium
Austria
Germany
UK
Spain
Switzerland
Ireland
Luxembourg
Portugal
WOMEN ON BOARD
TENURE
22%: EU average
• Italian gender average level, 24%, is over EU
level but behind Nordics Peers.
7,7
7,6
7,6
7
6,9
6,7
6,6
5,9
5,9
5,7
5,3
5,2
5,1
5
4,7
4,6
Belgium
Spain
Luxembourg
Ireland
Switzerland
Sweden
France
Germany
Portugal
Austria
UK
Denmark
Italy
Netherlands
Norway
Finland
• Italian EU tenure average level is 5.1 years.
5.9: EU average
Fiduciary’s Duty | 24.02.2017
3,5
2,1
1,13
2
1,7
Italia
Francia
Spagna
Uk
Norvegia
34 5 .0 BOARD D IVERS IT I E S
STATISTICS: OTHER INDICATORS
* Extract from Spencer Stuart 2015 Italia Board Index
58,9
59,7
60
57,5
55,3
Italia
Francia
Spagna
Uk
Norvegia
8%
33%
13%
32%
30%
Italia
Francia
Spagna
Uk
Norvegia
• The Italian level is in line
with European countries.
• Nonetheless, only France
shows older Boards.
AGE
• Italian Board-seats excessive
if compared to other
European countries.
• More than three times the
smallest average, registered
in Spain.
• The Italian level remains
below European countries.
• Specifically, it is the lowest
and ¼ of the best performing
country, Uk.
SEATS INTERNATIONALITY
Fiduciary’s Duty | 24.02.2017
35 5 .0 BOARD D IVERS IT I E S
WHAT SKILLS DO INVESTORS LIKE?
* Extract from 2014 Board Practices Report by Deloitte US. Sample: 221 Companies. Note: participants were asked to make 3 selections.
48% 32%
25%
23%
22%
17%
17%
17%
13%
10%
10%
9%
8%
3%
3%
3%
3%
3%
3%
2% 1%
Industry (simila to respective company)
C-level (e.g. CEO, CFO, COO, CIO or CTO)
International business exposure
Risk management
Technology/IT
Board committee (e.g. Audit, compensation, nominating/CG, risk)
Financial services
Operations
Mergers and acquisitions
CG
Cyber security
Other (please specify)
Marketing and/or public relations
Reasearch and development
Engeneering
Ethics and compliance
Human reosources
Outside Board services (e.g. Public, private, non-profit)
Proficiency in shareholder and investor communications
Sustainability (including environmental, social and governance issues)
Scientific
W h a t w i l l b e th e mo s t d e s i re d s k i l l s a n d e x p e r i e n c e n e e d e d to c o n tr i b u te
t o y o u r B o a r d ’s s u c c e s s i n th e n e x t tw o y e a r s ?
Fiduciary’s Duty | 24.02.2017
36 5 .0 BOARD D IVERS IT I E S
BASIC VS ADVANCED BOARD
THE BAS IC BOARD
• Independence
• Tenure policy
• Gender
• Age
• Business expertise
• Financial expertise
• International expertise
• Audit expertise
• Risk management
• Familiarity with CG best practices
• Marketing & Sales
THE ADVANCED BOARD
• Attitude to change
• Dialogue skills within the Board
• Leadership experience
• Global mind-set
• Inter-market experience
• Crisis or turn-around experience
• New markets expertise
• Industry regulatory skills
• Governmental & Geo-political experience
• Cyber Security
• Information technology
• Digital & Media
• Race & Demography
• Environmental and Social factors
• Stakeholders’ culture
• Integrated thinking
Fiduciary’s Duty | 24.02.2017
37 5 .0 BOARD D IVERS IT I E S
WHAT SKILLS DO INVESTORS LIKE?
CALPERS: “The Board should consist of Directors with
the requisite range of skills, competence, knowledge,
experience and approach, as well as a diversity of
perspectives, to set the context for appropriate Board
behaviors and to enable it to discharge its duties and
responsibilities effectively”.
TIAA-CREF INVESTMENT MANAGEMENT:
“The Board should be composed of individuals who can
contribute expertise and judgment, based on their
professional qualifications and business experience. The
Board should reflect a diversity of background and
experience”.
CPP INVESTMENT BOARD: “The experience,
qualifications and character of Directors is of utmost
importance. The Board as a whole must have general
business acumen (including specific qualifications in
finance, accounting and governance matters) and relevant
industry expertise”.
Investors’ policies are based on principles and refrain
from being prescriptive … up to Boards decide the
proper mix!
• Adequate mix of competences (80%)
• Financial experience (70%)
• Banking regulation skill (70%)
• Accounting skill (60%)
• Risk & control experience (50%)
• Technology skill (40%)
• Management expertise (30%)
• Human resources skill (20%)
• Industrial skill and experience (20%)
MorrowSodali directly surveyed a target of
institutional investors to define the list of preferred
diversities for banking industry’s Boards
Fiduciary’s Duty | 24.02.2017
38 5 .0 BOARD D IVERS IT I E S
BOARD COMPOSITION
TRENDS ON DISCLOSURE
• Calls for improving disclosure of Board composition.
• Provide investors with more meaningful disclosure that will help them in their voting decisions by better
enabling them to determine whether and why a Director candidate is an appropriate choice for a particular
Company.
Specifically, as to current Board members:
• Basic biographical information that sheds little light on the board’s thinking about what each individual brings
to the Boardroom table.
• Any directorships of public companies and registered investment companies.
Specifically, as to Nominee Directors:
• Particular qualifications, attributes, skills or experience that led the board to conclude that the person should
serve as a Director.
• Clear understanding of how an individual’s background and qualifications relate to the company’s business and
strategy.
Board diversity policy:
Disclose whether and how Board considers diversity in the nomination process.
Fiduciary’s Duty | 24.02.2017
39 5 .0 BOARD D IVERS IT I E S
DISCLOSURE BEST PRACTICE
PROXY STATEMENT PRUDENTIAL
Fiduciary’s Duty | 24.02.2017
40 5 .0 BOARD D IVERS IT I E S
DISCLOSURE BEST PRACTICE
Business Characteristics Qualifications, Attributes, Skills and Experience
The Company’s business is multifaceted and involves
complex f inancial transactions in many countries and in
many currencies.
• High level of f inancial literacy
• Relevant Chief Executive Officer/President
experience
The Company’s business is truly global and
multicultural, w ith its products sold in over 200
countries around the w orld.
• Diversity of race, ethnicity, gender, age, cultural
background or professional experience
• Broad international exposure
The Company’s business is a complicated global
enterprise and most of the Company’s products are
manufactured and sold by bottling partners around the
w orld.
• Extensive know ledge of the Company’s business,
industry or manufacturing
Marketing is the core focus of the Company’s business
and the Company seeks to develop and deploy the
w orld’s most innovative and effective marketing and
technology.
• Marketing/marketing-related technology experience
The Company’s business requires compliance w ith a
variety of regulatory requirements across a number of
countries and relationships w ith various governmental
entities and non-governmental organizations.
• Governmental or geopolitical expertise
The Board’s responsibilities include understanding and
overseeing the various risks facing the Company and
ensuring that appropriate policies and procedures are
in place to effectively manage risk.
• Risk oversight/management expertise
PROXY STATEMENT COCA COLA
Fiduciary’s Duty | 24.02.2017
41 3 .0 BOARD D IVERS IT I E S
DISCLOSURE BEST PRACTICE
PROXY STATEMENT COCA COLA
Fiduciary’s Duty | 24.02.2017
43
AGM RESOLUTIONS: BOARD ELECTION
SLATE SYSTEM MODEL
In Italy, the election of Boards of Directors and
statutory auditors applies a slate voting system called
“Voto di Lista”.
Voto di Lista
The Italian system historically features concentrated
ownership. The Slate voting (“Voto di Lista”) was
introduced to allow the representation of minority
shareholders in the Board.
It is a standard mechanism that ensures both Board
monitoring and the protection of Shareholders against
expropriation.
• • •
Condition:
Shareholders holding between
0.5%-4.5% of a Company’s share
capital are entitled to present a slate
of candidates ahead of the AGM.
• • •
6 .0 RENE WA L OF THE BOARD
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44
AGM RESOLUTIONS: BOARD ELECTION
SYSTEM SLATE SYSTEM MODEL
The Italian Voto di Lista framework develops into 3 different systems:
6 .0 RENE WA L OF THE BOARD
Maggioritario puro: Company’s by-laws establish that the slate obtaining the highest number of votes appoints
the large majority of Board Members; the second most-votes list appoints the remaining directors.
i.e Exor: “all irectors except one shall be elected from the list that has obtained the highest number of votes, on the
basis of the numerical order in which they appear on the list; as provided by law, one director shall be elected from
the list that has obtained the second highest number of votes on the basis of the numerical order in which the
candidates appear on the list”.
Maggioritario proporzionale: Company’s by-laws establish that the slate obtaining the highest number of votes
appoints the large majority of Board Members; the remaining directors shall be appointed by the other slates.
i.e Enel : “7/10 of the Directors to be elected, rounding down any fraction to the unit, shall be drawn from the slate
that has obtained the most votes cast in the order in which they are listed on the slate; the remaining Directors shall
be drawn from the other slates; for this purpose, the votes obtained by these slates shall be divided successively by
one, two, three and so forth according to the number of Directors to be elected”.
Proporzionale: The votes obtained by the lists shall be divided subsequently by one, two, three, four and so on
according to the number of directors still to be elected.
i.e. Mediaset: “When the voting ends, the votes obtained by each list shall be divided by the integers from one to
the number of Directors to be elected”.
Fiduciary’s Duty | 24.02.2017
45
SLATE VOTING SYSTEM IN ITALY -1/2
SOME FACTS
Some analysis conducted by MorrowSodali shows
that:
• >50% Companies adopts a “maggioritario puro”.
• 15 Companies’ bylaws establish that minority
Shareholders have the right to appoint only one
member to the Board of Directors.
• Mediaset and Mediolanum adopt a “metodo
proporzionale”.
• Mps has a hybrid system which guarantees a high
level of representation for minority Shareholders;
the by-laws provide for 50% of members
appointed by the majority and the remaining 50%
appointed proportionally from minority slates.
• MEF Companies have a good representation of
minority Shareholders, the system foresees that
7/10 are appointed by the majority and 3/10 by
minorities translating effectively, for a Board
made up of 9 members (Eni, Enel, Snam) in a
33% appointed by minority Shareholders.
• Bper is the only Company adopting a staggered
Board.
6 .0 RENE WA L OF THE BOARD
ITALIAN LISTED COMPANIES: FTSE-MIB
• The number of Companies declaring at least one
minority Director is decreasing over time: 90, vs 93 in
2014 and 97 in 2013.
• The number of Companies with minority Directors is
quite stable (39%), because issuers diminished.
• The total number of minority Directors is 172 (vs 174 in
2014 and 191 in 2013). When present, they weight 18%
of the total (23% in the Supervisory Boards).
• The size of a Company matters in defining the number of
minority Directors (2,3 in the FTSE Mib; 1,9 in the Mid
Cap sector and 1,3 in the Small cap sector); industry is
another key factor (in the banking sector the number
reaches 2,6).
• The Board of Auditors across Companies has a more
homogeneous structure, almost always made up of 3
members, one of which represents the minority
Shareholders.
Fiduciary’s Duty | 24.02.2017
46
SLATE VOTING SYSTEM IN ITALY -2/2
CRITICAL ASPECTS
• Board members appointed by Minority
Shareholders: average 27%, excluding foreign-
domiciled Companies and Directors not elected
with the slate voting system.
• Board members appointed by Majority
Shareholders: average 73%, excluding foreign-
domiciled Companies and Directors not elected
with the slate voting system.
• Minority representation in Ftse Mib Companies
fueled the debate at the Italian conference on
Corporate Governance.
• In line with MorrowSodali analysis, it was
revealed that those investors whose weight in the
Italian market significantly increased in recent
years, currently suffer from under-representation.
6 .0 RENE WA L OF THE BOARD
SOME COMMENTS
• Remember that many important Italian
Companies still today allow only one minority
Director.
• Italian Companies should consider amending their
by-laws to strengthen market representation. It is
known that best practice should provide a
minority Shareholder representation ratio not
below a range between 1/4 and 1/3. The ratio
should always be compared to the International
institutional investors’ representation level in
terms of share capital.
Fiduciary’s Duty | 24.02.2017
85,47% 83,70%
73,75% 70,95%
62,07% 56,43% 55,63% 55,08%
49,98% 49,69%
14,45% 9,74%
25,64% 28,96% 37,06%
42,93% 44,20% 44,79% 49,43% 49,32%
0,08% 6,56%
0,61% 0,09% 0,87% 0,64% 0,17% 0,13% 0,59% 0,99%
PosteItaliane
A2A* Buzzi BPER Leonardo ENI Fineco Terna ENEL TelecomItalia
47
2017 BOARD RENEWAL: RESULTS INCLUDING REFERENCE SHAREHOLDERS
Quorum in
terms of
ISC
• The chart below shows the voting results of the FTSE Mib companies that renewed the Board in 2017 in
terms of issued share capital («ISC»).
For instance, concerning Terna the shareholders participation is equal to 63.65% ISC, of which 55.08% supporting Majority Slate,
44.79% supporting Assogestioni Slate and 0.13% Against/Abstain/not Voting.
Average
support of
Majority Slate:
64.27%
6 .0 RENE WA L OF THE BOARD
77.12% 40.19% 63.27% 63.65% 58.78% 58.36% 75.45% 67.43% 81.79% 70.94%
For Majority Slate For Assogestioni Slate Against/Abstain/Not Voting
*in A2A three slates have been presented. Majority and Assogestioni slates are displayed meanwhile the third one is included in Against/abstain/not voting part.
Fiduciary’s Duty | 24.02.2017
31,43% 31,31%
16,89% 16,43% 16,43% 16,43% 16,43% 15,42% 14,70% 12,88%
68,34% 67,12%
81,89% 82,59% 83,25% 82,59% 83,25% 84,34% 83,63% 86,64%
0,23% 1,57% 1,22% 0,99% 0,32% 0,99% 0,32% 0,24% 1,67% 0,48%
BPER Leonardo ENI ENEL Fineco Buzzi A2A Terna TelecomItalia
PosteItaliane
48
2017 BOARD RENEWAL: RESULTS MINORITY SHAREHOLDERS
Minority
Shareholders
Participation
(%ISC)
Average
support of
Majority
Slate: 18.8%
• The chart below shows the voting results of the FTSE Mib companies that renewed the Board in 2017
considering only the participation of minority shareholders in terms of issued share capital («ISC»).
For instance, concerning Leornardo the minority shareholders participation is equal to 37.23% ISC, of which 31.31% supporting
Majority Slate, 67.12% supporting Assogestioni Slate and 1.57% Against/Abstain/not Voting.
6 .0 RENE WA L OF THE BOARD
16.56% 35.18% 23.66% 33.80% 34.42% 12.86% 20.94% 40.06% 33.17% 37.23%
For Majority Slate For Assogestioni Slate Against/Abstain/Not Voting
Fiduciary’s Duty | 24.02.2017
49
CASE STUDY: TELECOM
• On April 16 2014, Telecom’s Shareholders
meeting was called to renew the Company’s
Board for the following three-years term.
• Telecom’s by-laws provided that: 4/5 of the Board
members chosen from the slate receiving the
highest number of votes, 1/5 from minority slates.
• 3 slates submitted:
— Slate 1 (Telco)
— Slate 2 (Findim)
— Slate 3 (SGRs, Institutional Investors).
The outcome of the voting process produced a hardly
foreseeable result:
• Slate 3 obtained 3.780.506.392 votes equal to
28,18%, thereby surpassing the main
Shareholder’s slate, which in theory is considered
to be the majority slate.
6 .0 RENE WA L OF THE BOARD
• Since the slate could not provide 10 elected members
awarded to the majority slate, according to the by-laws
when the voting process had ended, the 3 candidates
present on the majority slate were elected to the Board.
• For the remaining 7 Directors a second voting round
was carried out with the majority thresholds set by law
(i.e. absolute majority of votes in favor). 7 candidates
from Telco were elected while the foreign investors
representation left the Meeting without further
instructions to follow.
• Outcome: Shareholders representing ~20% of share
capital (minority in the Meeting) obtained 4/5 of
seats (majority in the Board); only l/5 of Directors
were elected from slates representing ~80% of
ordinary share capital of Telecom Italia.
Fiduciary’s Duty | 24.02.2017
50
CASE STUDY: UNICREDIT
• On May 13 2015, UniCredit’s Shareholders
Meeting was called to renew the Company’s
Board for the following three-years term.
• Two slates were submitted:
— Slate 1 (Allianz S.p.A. - Aabar Luxembourg
S.a.r.l. - Fondazione Cassa di Risparmio di Torino
- Carimonte Holding S.p.A. - Fincal S.p.A. –
Cofimar S.r.l.).
— Slate 2 (SGRs & institutional investors).
The outcome of the voting process produced a hardly
foreseeable result:
• Slate 1 obtained 1.371.406.336 votes in favor,
equal to 44,18%.
• Slate 2 (the minority shareholders list)
1.694.743.751 votes, equal to 54,60%.
6 .0 RENE WA L OF THE BOARD
The supposedly minority slate received the
majority of the votes. Nonetheless, UniCredit’s by-
laws provides that in case the majority slate does
not include enough candidates to elect the
corresponding number of Directors according to
the voting procedures under letter a), all candidates
from the majority slate will be elected to the
Board, while remaining Directors will be elected
from the minority slate that obtained the highest
number of votes.
The outcome of the aforementioned events was
the election of only one Director from the slate
that obtained 54% of the votes representing the
majority of UniCredit’s share capital.
Fiduciary’s Duty | 24.02.2017
SUPPORT TO L IST PROMOTED BY
THE REFERENCE SHAREHOLDERS
At Generali and Intesa Sanpaolo’s AGMs, those lists
promoted by the reference shareholders, competing
for the majority of the Board seats, have been strongly
supported by the minorities.
51
30,10%
21,21% 23,28%
3,75%
10,38%
14,43%
SNAM GENERALI INTESA
Azionista Strategico Minoranze
9,64%
37,66% 41,15%
Supporto minoranze
SNAM
The list promoted by institutionl investors through
Assogestioni became the majority list, in spite of the
list promoted by the controlling Shareholder.
• Only 3,75% of shares held by institutional
investors supported the list promoted by CDP
Reti.
6 .0 RENE WA L OF THE BOARD
9,64%
37,66% 41,15%
SNAM GENERALI INTESA
Snam Generali IntesaSupport by minorities ••• Reference shareholders ••• Minority
CASE STUDY: THE ELECTION YEAR 2016
Fiduciary’s Duty | 24.02.2017
52
%
6 .0 RENE WA L OF THE BOARD
Morrow Sodali directly surveyed a target of institutional investors to define what information
should be disclosed about Board composition to make an informed vote on director elections
BOARD ELECTION: TRENDS
Fiduciary’s Duty | 24.02.2017
54
The Board Evaluation process has a key role in
determining and improving the Board effectiveness:
• The Board should undertake a formal and
rigorous annual evaluation of its own
performance and that of its committees.
• An effectiveness objective rather than a
compliance exercise.
• Regular use of an external facilitator could
improve Board evaluations by bringing an
objective perspective and sharing best practices
from other companies.
• Assessing its membership, organisation and
operation as a group, the competence and
effectiveness of each Board member and of the
Board committees.
7 .0 BOARD EVALUAT I O N
CONTEXT
• Assessing how well the board has performed
against any performance objectives set.
• The evaluation should also cover the quality and
timeliness of information received by the board
from the management.
• The board should state in the annual report
how performance evaluation of the Board, its
committees and its individual Directors has been
conducted.
• Outcome of the evaluation, including an action
plan on any necessary improvements increase the
accountability of the Board towards its own
performance, and is therefore expected by the
investor community.
Fiduciary’s Duty | 24.02.2017
55 7 .0 BOARD EVALUAT I O N
REGULATORY FRAMEWORK
Companies should “perform at least annually an evaluation of the performance of the
Board of Directors and its committees, as well as their size and composition, taking
into account the professional competence, experience, (including managerial
experience) gender of its members and number of years as Director. Where the
Board of Directors avails of consultants for such a self assessment, the Corporate
Governance Report shall provide information on their identity and other services, if
any, performed by such consultants to the issuer or to companies having a control
relationship with the issuer”.
CODICE DI AUTODISCIPLINA (1.C 1.G)
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56
MAIN TRENDS
• 79% of Italian listed companies disclosed that a
Board evaluation has been performed.
• 88 listed companies used questionnaires, only 18
interviews with Directors.
• 92% of FTSE MIB provide disclosure on Board
evaluation (96% financial sector and 100%
insurance).
• FTSE Mib: 14 use questionnaires, 2 interviews, 9
both, 9 disclosed they performed a Board
evaluation without further disclosure on the
process.
7 .0 BOARD EVALUAT I O N
STATISTICS
* Italian Corporate Governance Council Report
EU-US trends
• External facilitator practice on board evaluation is
not factorized inside Italian boardrooms.
• An improvement towards EU-Anglo-Saxons Peers
may resulted in more effective board evaluation.
27%
35%
40%
98%
5%
47%
Italy
France
Uk
US
Russia
South Africa
INDEPENDENT CONSULTANTS FOR THE BOARD EVALUATION
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57
UNILEVER
“Unilever’s Chairman leads the process whereby the Boards formally assess their own
performance with the aim of helping to improve the effectiveness of the Boards and
their Committees. The evaluation process consists of an internal exercise performed
annually with an independent third-party evaluation carried out at least once every three
years.
In 2012 we engaged an independent governance specialist to advise on our internal
evaluation process and help create three full and confidential online evaluation
questionnaires on our Boards, CEO and Chairman for all Directors to complete. The
detailed Board questionnaire invites comments on a number of key areas including
Board responsibility, operations, effectiveness, training and knowledge. The online
questionnaires were used again in 2013.
In addition, each year the Chairman conducts a process of evaluating the performance
and contribution of each Director which includes a one-to-one performance and
feedback discussion with each Director. The evaluation of the performance of the
Chairman is led by the Vice-Chairman/Senior Independent Director and the Chairman
leads the evaluation of the CEO, both using bespoke questionnaires. Committees of the
Boards evaluate themselves annually under supervision of their respective chairmen
taking into account the views of respective Committee members and the Boards.”
7 .0 BOARD EVALUAT I O N
DISCLOSURE OF THE PROCESS
MAIN TASKS ADDRESSED BY
UNILEVER BOARD
• Independent facilitator
• Questionnaires
• Peers to peers for directors
• Each committee Board
evaluation
Fiduciary’s Duty | 24.02.2017
58
BARCLAYS
“From the Board’s discussion of the review’s findings, the following areas for
action were agreed:
[…]
Greater awareness of the work of Board Committees: we agreed to give more
time, on a rolling basis, to Board Committee reporting to the Board, to allow all
Directors to gain a deeper understanding of the workings of each Board
Committee and their forward agendas;
Improvements to the Board appointments process: given the number of recent
changes to the Board, we agreed to ensure that all Board members are kept fully
informed of prospective candidates and potential appointments; and
Director induction: we agreed to improve the on-boarding process for new
Directors, including partnering new Directors, if appropriate, with longer-serving
Board members”.
7 .0 BOARD EVALUAT I O N
DISCLOSURE OF OUTCOME
IMPROVEMENTS
HIGHLIGHTED BY BARCLAYS
BOARD
• Functioning of Committees
• Board appointments
process
• Induction effectiveness
Fiduciary’s Duty | 24.02.2017
60
ITALY**
• In 2015, only 20 Companies have adopted
executive succession plans.
• The number is constant since 2014; it has
increased from 2013 (16 Companies) and 2012 (7
Companies).
• Disclosure of succession plan adoption has
improved among the FTSE MIB Companies.
• Information about the existence of the plans is
provided in Ftse Mib from 100% of the
Companies, representing an increase compared to
previous years.
8 .0 SUCCE S S I O N PLANS
CONTEXT
*Extract from Deloitte “Board Practices reports 2014” - ** Assonime “Corporate Governance in italia 2014 ”
US*
• Us Companies have introduced succession plans.
• 58% of large cap companies review their CEO
succession plans yearly, while 32% review these
twice a year.
• At 30% of the companies the Board has full
responsibility for succession planning, at 29% the
responsibility is on the Compensation Committee,
at 21% on the Nomination/Corporate Governance
Committee and at 2% of the companies on the
independent Directors.
Issue: Succession plans seem insufficiently
structured/clear about who is performing the
planning. Meantime, investors call for involvement
of the entire Board in the process as well as more
clarity about the timeframe of the process.
Fiduciary’s Duty | 24.02.2017
Advanced view (tomorrow)
The Board should ensure organizing regular/at least
annual strategic retreats with executive management
teams that should feature CG and Board autonomy.
The outcome of Board evaluation should be fed back,
as appropriate, into the Induction program design.
63
OBJECTIVES
• Build an understanding of the nature of the Company, its business and the markets where it operates.
• Build a link with the Company’s culture and people.
• Build an understanding of the Company’s main stakeholder relationships.
• Improve Board effectiveness and leadership approach through enhancing individual loyalty and transparency.
9 .0 BOARD INDUCT ION
CONTEXT
• Board’s procedures
• Organizational aspects
• Board & Committees Charters
• Role of director
• Fiduciary’s duty
• Responsibility
• Industry & markets knowledge
• Culture and people
• Media limits
• New set of risks
• Off-site strategic meetings
as part of the cultural
change plan
• Sustainability/ESG factors
• Technology & Security
safeguards
• Dialogue improvement
• Safety (process & culture)
• Maps of risks
• Strategic & Innovative
mind-set
• Stakeholder Governance
• Integrated thinking
Fundamental view (today)
Providing a new Director with information she will
need to become as effective as possible in her role.
Fiduciary’s Duty | 24.02.2017
65
CONTEXT & RECENT TRENDS
• A general but louder voice in executive
compensation without micro-management.
• Board and Compensation Committee engagement
with Shareholders ahead of the General Meeting.
• Alignment of Director interests with Shareholder
interests through adopting stock ownership
guidelines.
10 .0 REMUNE R AT IO N POL ICY
• Substantial and easy-to-understand disclosure of
pay to permit benchmarking by Shareholders.
• Independent Compensation Committee.
• Pay linked to performance and long-term value
creation for Shareholders.
• Top Management retention and talent attraction.
• Compensation reports should be written by the
Board and should explain how the compensation
program’s structure, performance metrics and
goals are designed to incentivize executives,
achieve business goals and maximize value
creation for Shareholders.
Fiduciary’s Duty | 24.02.2017
NON-EXECUTIVE COMPENSATION
• Review the best way to incentivize non-
executive Directors for increasing
responsibilities, time and duties dedicated to the
Board?
• Involvement of Directors should be 360°: inside
the boardroom and outside towards all identified
stakeholders.
• Less Directorships, more time dedicated to one
/few Boards and rewards aligned with time
commitment?
66
COMPENSATION – CONTEXT
EXECUTIVE COMPENSATION
• Executive compensation is still among the top key
concerns for the investor because it requires
alignment between the Management and the
Shareholders’ interests.
• Whilst the work of the Compensation Committee,
it is a responsibility of the whole Board.
A vote against the Remuneration Report is a
vote against the Board
• Increasing share of pay being at risk, in the form
of long-term compensation based on
performance rather than time-based.
Most of the compensation committees spend the
large majority of time on compensation, but
should also consider:
— management/leadership development
— succession planning.
10 .0 REMUNE R AT IO N POL ICY
Fiduciary’s Duty | 24.02.2017
67
%
10 .0 REMUNE R AT IO N POL ICY
Morrow Sodali directly surveyed a target of institutional investors to rank the issues in executive
remuneration from the most important to the least important
REMUNERATION: TRENDS
Fiduciary’s Duty | 24.02.2017
68
%
10 .0 REMUNE R AT IO N POL ICY
Morrow Sodali directly surveyed a target of institutional investors to define how important is it
for Remuneration Committees to disclose its decision-making process when defining executive
pay including the rationale for deciding on the structure and magnitude of overall executive pay
REMUNERATION COMMITTEE: TRENDS
Fiduciary’s Duty | 24.02.2017
DISCLOSURE
• Provide useful and easy-to-understand disclosure
of Company pay practices and decisions.
• Comprehensive, timely and transparent disclosure
of executive pay.
• Disclosure of individual executive and non-
executive Director compensation.
• Clearly explain the key decisions of the
Compensation Committee and their motivation.
• Clearly disclose and justify the performance
measures adopted and the related targets.
• Disclose the maximum amount of variable
compensation which can be paid to executive
Directors.
• Summarize the changes from the prior year.
69
COMPENSATION – BEST PRACTICES
PRINCIPLE
• Alignment to sustainable, long-term value
creation for Shareholders and stakeholders.
• Linking variable compensation with Company’s
financial and non-financial performance.
• Mix of performance-based short- and long-term
incentives.
• Rigorous objective targets corresponding to
results with a corresponding decrease in incentive
opportunity.
• Avoid significant retention awards without
assigning performance conditions.
• Maintain an independent and effective
compensation Committee, preferably fully
independent.
• Identify appropriate peer groups for performance
comparisons.
10 .0 REMUNE R AT IO N POL ICY
Fiduciary’s Duty | 24.02.2017
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INTEGRATED APPROACH TO COMPENSATION
BOARD, REM.CO AND HR – A NEW ROLE
• Holistic approach to compensation decision-
making process.
• Internal optimal coordination: Board/Rem.Co -
Investor Relations/Legal - Human Resources.
• External market considerations - investor
engagement - stakeholder considerations.
• Ensure Company internal pay alignment as well
as responding to external stakeholder
requirements.
• Take into account the social context.
• Board becoming a driver to implement an
integrated thinking inside and outside of the
Boardroom.
• Drive the Board versus a holistic approach to
Shareholders through regular Engagement.
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SHRD DIRECTIVE: UPDATE
Under the new rules, remuneration policy should
contribute to the business strategy, long-term interests
and sustainability of the company and should not be
linked to short-term objectives.
Directors' performance should be assessed using both
financial and non-financial performance criteria,
including where appropriate environmental, social
and governance factors.
Article 9a shareholder have the right to vote on the
remuneration policy at the general meeting( Member
States shall ensure that the vote by the shareholders at
the general meeting on the remuneration policy is
binding, however is possible to opt for an advisory
vote).
Shareholders will also have a right to vote on the
annual report on pay (art 9b).
Although is not establish a Ceo pay ratio the report
include “the annual change of remuneration, of the
performance of the company, and of average
remuneration on a fulltime equivalent basis of
employees of the company other than directors over at
least the five most recent financial
years, presented together in a manner which permits
comparison”.
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GLOBAL CONTEXT OF “SAY ON PAY”
COUNTRY YEAR
ADOPTED* DIRECTORS OR
EXECUTIVES PAY POLICY OR STRUCTURE BINDING OR ADVISORY FREQUENCY
REQUIRED OR
VOLUNTARY
Spain 2014 Directors Pay Policy, Pay Structure Binding, Advisory Annually Required
France 2013 Executives Pay Policy, Pay Structure Binding, Advisory Annually Required
The Netherlands 2004 Executives Pay Policy Binding Upon Changes Required
Australia 2005 Directors Pay Structure Advisory Annually Required
Sweden 2006 Executives Pay Policy Binding Annually Required
Norway 2007 Executives Pay Policy Binding Annually Required
Denmark 2007 Executives Pay Policy Binding Upon Changes Required
United States 2011 Executives Pay Structure Advisory
Annually/
Biennially/
Triennially
Required
United Kingdom 2013 Directors Pay Policy, Pay Structure Binding, Advisory Annually Required
Switzerland 2013 Directors Pay Policy Binding Annually Required
Germany None Executives Pay Structure Advisory Annually Voluntary
Canada None Executives Pay Structure Advisory Annually Voluntary
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• No empirical evidence yet.
• Regulation vs “Comply-or-explain” model.
• Complex matter affected by Company-specific
circumstances, market requirements and
willingness of Shareholders to commit resources.
• Substantial diversity in cultural approach to
compensation.
• Uncertainty where to go at Regulatory level.
• Controversial role of Proxy Advisory firms.
• Positive three-year trend (2012-2016) in FTSE
Mib company compensation results.
73
THE CURRENT DEBATE ON “SAY ON PAY”
What is more beneficial to financial
markets: a binding vote or an advisory
vote on pay?
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MORROW SODALI SURVEY ON SAY-ON-PAY
QUESTION 11
In Say-on-Pay proposals, what negative vote should cause Directors to amend the
compensation plan? (Please choose one option only)
> 5%
3%
> 10%
21%
> 15%
28%
> 20%
28%
> 30%
21%
• According to 28% of investors, Companies
should consider amending the compensation
plan when they receive >15% of votes against
their say on pay (SOP) policy.
• A further 28% of investors suggests that changes
should be made when receiving more than
20% votes against the SOP.
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%
10 .0 REMUNE R AT IO N POL ICY
Morrow Sodali directly surveyed a target of institutional investors to define the preference on the
Pay policy or rather, actual Pay-related decisions taken during the period under review (i.e.
Compensation report), or both
SAY ON PAY: TRENDS
Fiduciary’s Duty | 24.02.2017
The boxes below show the average level of support to Remuneration Policies proposed by FTSE Mib Companies
and the related average level of positive and negative recommendation issued by ISS.
The negative recommendations are often based on the following criteria:
• lack of disclosure
• excessive severance payments
• lack of disclosure on performance criteria for STI or LTI plans
• absence of risks adjustments mechanism.
76
RESULTS
Average level of
support to
Remuneration policies
on FTSE MIB
Level of positive
recommendation by
ISS (FTSE Mib).
88% 62.5%
37.5%
Level of negative
recommendation by
ISS (FTSE Mib).
REMUNERATION POLICY - FTSE MIB 2017
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THE AGM RESOLUTIONS: REMUNERATION
POLICY
There has been a decreasing support for the FTSE MIB Companies’ Remuneration policies from the main proxy
advisor (ISS) in comparison with the previous two years.
62,5% 71,4% 68,8%
37,5% 28,6% 31,3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2017 2016 2015
FOR AGAINST
ISS - FTSE MIB (2017-2015)
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PROXY ADVISORS AND SAY ON PAY
France and Italy registered high levels of concern during the last proxy season. Major issues still pertain to ex-
ante/post disclosure for targets and magnitude of severance agreements.
19,0%
41,0%
57,0% 62,5%
0,0 %
10, 0%
20, 0%
30, 0%
40, 0%
50, 0%
60, 0%
70, 0%
UK Spain France Italy
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REMUNERATION PROPOSALS – ITALIAN
METRICS FTSE MIB - M INORITY SUPPORT (2017 -2015)
The approval rates in FTSE MIB Companies have decreased in comparison with the last two years.
69,4% 75,9% 75,2%
30,6% 24,1% 24,8%
0,0 %
10, 0%
20, 0%
30, 0%
40, 0%
50, 0%
60, 0%
70, 0%
80, 0%
90, 0%
100 ,0%
2017 2016 2015
FOR AGAINST/ABSTAIN
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THE CONTEXT – INCLUDING REFERENCE SHAREHOLDERS
• The average approval rate is 88.1%.
• In fourteen cases, the support has been >95%.
• In four cases, the support has been <70%.
• In no case, the remuneration policy has been rejected.
SAY ON PAY APPROVAL RATES
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
For Against Abstain
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THE CONTEXT
• The average approval rate is 69.4%.
• In eleven cases, the support by minority investors has been >90%.
• In nine cases, the support by minority investors has been <50%, proving a mis-alignment to market
expectations.
MINORITY SHAREHOLDERS VOTE ON SAY ON
PAY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
For - Minority Shareholders Against - Minority Shareholders Abstein - Minority Shareholders
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The chart below shows the average consensus expressed by Minority Shareholders in the last three years.
The blue line represents the average level of overall consensus including the reference shareholders, while the red
line only takes into account the consensus expressed by the minority shareholders on the remuneration report.
MINORITY SHAREHOLDERS: AVERAGE
SUPPORT ( 2 0 1 7 - 2015 )
20%
30%
40%
50%
60%
70%
80%
90%
100%
Average 2015-2017 Average 2015 - 2017 (only Minority Shareholders)
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REMUNERATION PROPOSALS – US CONTEXT
SAY-ON-PAY-APPROVAL RATES IN 2015 *
Of the 94 Top 100 Companies that held a say-on-pay vote in 2015,
77% received approval rates in excess of 90% and 7% received
approval rates below 70%.
*Approval rates are calculated on the ratio of votes «for» over the sum of votes cast plus abstention, as reported in SEC filings.
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AGM PREPARATION & PLANNING
RECOMMENDATIONS FOR
COMPANIES
• Check the logistics of cross-border voting -
regulatory deadlines, unbundling, ADR votes, other
barriers to voting.
• Engagement with Proxy Advisors – act beforehand
to prevent negative recommendations.
• Engagement with investors: selection, access to the
right contact ("split-brain disease", comparison with
IR contact).
• Set a direct communication plan with investors to
neutralize potential activist behavior.
• Propose alternatives to the Board before publication
– estimate in advance the impact of the decision,
evaluate vulnerabilities, plan of action to maximize
support.
• Controlled “mobilization" of the Shareholders.
11 .0 AGM PREPARA T I O N: WHY?
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STAKEHOLDER GOVERNANCE – CONTEXT
Companies increasingly face complex uncertainties
and risks related to Governance issues, but also
related to social, environmental and, generally,
Stakeholder issues.
• An Integrated approach is called for - Boards
have the responsibility of shaping the culture,
both within the boardroom and across the
organization as a whole, embedding good
corporate behavior.
• Board efforts should embrace a more strategic
and coordinated approach that pursues
transformational goals:
— effectively streamlining this approach within
the organization
— engaging multiple stakeholders as
management, employees, Shareholders,
competitors, suppliers, governments, and NGOs
— increasingly focusing on transformational,
strategic results.
Boards and Directors should re-think their
leadership-role, stakeholder governance and
integrated-thinking.
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STAKEHOLDERS – INSTITUTIONAL INVESTORS
RECOMMENDATIONS FOR
COMPANIES
Paul Polman – Ceo Unilever: “… to attract the right
longer-term Shareholders to our register”.
• Integrated Governance
• Sustainable growth over the long-term
• Re-consider earnings guidance
• Long-term cultural change
• Holistic approach to Shareholders
Board transparency is the most effective
form of prevention from activism and to
attract right longer-term Shareholders.
11 .0 AGM PREPARA T I O N: WHY?
Many other companies as Glaxo Smithkline or
General Electric decided to apply such cultural
change and devote more efforts in managing
efficiently their Shareholders trough periodic
engagement.
• Boards should be far more active in facilitating
dialogue with major long-term Shareholders.
• Boards need to regularly communicate the
company’s long-term strategy and performance to
key long-term Shareholders. This is the most
effective way to alleviate the pressure to
maximize short-term returns.
• The more powerful discussions occur when
Companies strive to communicate their strategies
for longer-term growth and their key metrics for
it, besides single-minded governance issues (such
as pay).
• Dialogue gives Directors the context and
confidence to carry out their fiduciary duty.
• Therefore there must be two-way communication
• Engagement.
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ANTICIPATE INVESTORS ’ DISSENT
11 .0 AGM PREPARA T I O N: WHY?
AGM
• Shareholders Identification
• Voting policy analisys
• GAP analysis
INTELLIGENCE
• Proxy Advisor
• SRI Rating Agencies
• Institutional investors
PERCEPTION • Identify critical
factors
• Improvement plan
• Voting projection
STRATEGY
• Proxy Advisor
• Institutional investors
ENGAGEMENT
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90
BOARD ENGAGEMENT VS INVESTORS
THE ADVANTAGES
• Mitigate Proxy Advisor influence
• Get an external perception of the Company, its
governance model and the management
• Get warning signal connected to potential
dissident actions
• Improve the governance level aligning to best
practices promoted by Shareholders
• Strengthen the Board authority versus its
Shareholders
• Better understanding of investors’ requests
mitigating the risks of activism.
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
Fiduciary’s Duty | 24.02.2017
• • •
“We believe constructive
engagement regarding relevant
issues such as financial
performance, strategy, governance
and executive compensation
practices among shareholders, their
research providers and public
companies is very valuable to
promote understanding of the
various interests and concerns of all
parties”
Robert McCormick
Chief Policy Officer
GLASS LEWIS
• • •
91
GENERAL APPROACH
• No specific pattern to set up long term constructive
engagement/relationship between Companies and Shareholders. The
structure should be identified depending on a combination of factors.
• Differing priorities of distinct investor groups complicate the picture
for those Companies seeking to engage with Shareholders.
• Long-term institutional investors, for example, may not have the
desire or the resources to directly engage with Companies on
corporate governance issues.
• The Board of Directors may feel that investors’ reliance on proxy
advisory firms interferes with Company’s ability to effectively
engage with Shareholders.
• In general, in any outreach program investors wish to understand the
specificities of the Company’s internal system and actions to grasp the
rationale behind that Company’s strategies.
• A long-term, advanced engagement program should provide
investors with the possibility to understand why the Company may
not be aligned with best corporate governance practices and to deeply
interact with the Company itself, ensuring its willingness to change in
order to meet international investors’ views and expectations.
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OUTREACH - PROACTIVE COMMUNICATION
WITH INTERNATIONAL INVESTORS
DEFIN IT ION
Engagement is a powerful tool for a Company as it
allows to build constructive, informed relationships
with Shareholders and encourages transparency and
accountability.
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
ACTIV IT IES
• Identification of several strategic priority areas
relevant for both the Company and investors.
• Identification of decision-makers among the Top
investors.
• Face to face meetings or correspondence with
investors to set out concerns, seek their views on
contentious issues and evaluate/propose solutions.
• Deciding the most appropriate period to contact
Institutional investors to have their attention and
collaboration.
• Design an ad hoc route for each actor involved in
the process.
TIMING
• Ideally two months: from the beginning of the
project until the publication of the agenda.
Fiduciary’s Duty | 24.02.2017
• • •
“We believe constructive
engagement regarding relevant
issues such as financial
performance, strategy, governance
and executive compensation
practices among shareholders, their
research providers and public
companies is very valuable to
promote understanding of the
various interests and concerns of all
parties”
Robert McCormick
Chief Policy Officer
GLASS LEWIS
• • •
93
GENERAL APPROACH
• No specific pattern to set up long term constructive
engagement/relationship between Companies and Shareholders. The
structure should be identified depending on a combination of factors.
• Differing priorities of distinct investor groups complicate the picture
for those Companies seeking to engage with Shareholders.
• Long-term institutional investors, for example, may not have the
desire or the resources to directly engage with Companies on
corporate governance issues.
• The Board of Directors may feel that investors’ reliance on proxy
advisory firms interferes with Company’s ability to effectively
engage with Shareholders.
• In general, in any outreach program investors wish to understand the
specificities of the Company’s internal system and actions to grasp the
rationale behind that Company’s strategies.
• A long-term, advanced engagement program should provide
investors with the possibility to understand why the Company may
not be aligned with best corporate governance practices and to deeply
interact with the Company itself, ensuring its willingness to change in
order to meet international investors’ views and expectations.
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94
Morrow Sodali directly surveyed a target of institutional investors to define which
factors/elements they consider most important when arguing why companies should engage with
their investors on corporate governance issues
WHY ENGAGE WITH INVESTORS
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
Fiduciary’s Duty | 24.02.2017
95
%
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
Morrow Sodali directly surveyed a target of institutional investors to rank in order of preference
which representative form the company should carry out the engagement exercise with investors
on corporate governance
ENGAGEMENT: BOARD
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TRENDS
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
Larry Fink – Ceo, BLACKROCK: “I write today re-
iterating our call for engagement with a particular
focus on companies’ strategies to drive longer term
growth”.
• Not only Governance-driven investors apply this
approach.
• Today, very often, top investors such as
BlackRock, Vanguard and SSgA have changed
their attitude and promote a call for engagement.
• New engagement platforms to facilitate discussions on
specific matters with a group of investors
• Combine Environmental, Social & Governance with
Long-term perspective and Sustainability
• Close-door meetings with small target of major
Shareholders
• Importance of Transparency will be complemented by that
of thorough explanations within a more careful approach
to “comply or explain”
• The importance of Board composition, Director
succession planning, Board evaluation processes, and
Director skillsets are fundamental themes for stakeholder
dialogue
• Say-on-Pay has been an effective driver for implementing
engagement on compensation matter. That context
brought Rem.Co’s members and HR to put more attention
to stakeholders, specifically Shareholders
• Nowadays other matters are of interest for Shareholders as
well: Board appointment process, Board effectiveness,
Director’s fiduciary duty and value added in the
boardroom, long-term integrated strategy, wider risk
assessment.
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CHALLENGES LIMITING ENGAGEMENT
ACTIVITIES
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
• The outreach process is not a standard, “one size fits all”,
process.
• Investors have differing views on the importance of
corporate governance.
• Some investors view corporate governance as a key
determinant of future performance and devote significant
internal resources analyzing Companies’ policies.
• Corporate governance analysts may not have significant
influence on their portfolio managers’ buy or sell
decisions.
• Some investors attach a higher weight to voting their
shares and Company engagement.
• Very often investors rely on Proxy advisory firms that
provide their clients with research, services and voting
recommendations in order to allow their clients to make
informed voting decisions more quickly and easily.
• A common concern among market participants is that
many investors, and especially long-term institutional
investors, follow proxy advisory firms’ recommendations
without sufficient analysis and as such are seen to have
unfair influence on Shareholders.
• • •
“Engagement is essentially communicating with companies to
enhance our mutual understanding and, where there are
concerns, to seek changes in company practice. We believe
that the most effective engagement is usually done privately
and directly with companies.
The Corporate Governance and Responsible Investment team
works closely with the portfolio managers on individual
company engagements to ensure an integrated approach is
taken and a consistent message is delivered to companies..."
and "...As we approach each engagement individually we do
not have a prescribed escalation strategy, as suggested by the
Code, as we do not see engagement as mechanistic. Further,
BlackRock is very unlikely to make public statements about
our engagements or to call an extraordinary general meeting
or propose shareholder resolutions.
Our preference is to engage privately as we believe it better
serves the long-term interests of our clients to establish
relationships, and a reputation, with companies that enhances
rather than hinders dialogue...”
• • •
Michelle Edkins
Head of Corporate Governance
BLACKROCK
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98
Morrow Sodali directly surveyed a target of institutional investors to define how can investors-
issuer engagement be further improved and made more efficient
IMPROVEMENTS
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
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THE PROCESS
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
WHY: Out of “compliance” and “tick-box” exercise to build an effective and constructive two-way dialogue.
• Listen – expectations, concerns and recommendations to improve.
• Share – explain Board/management rationale on decisions taken and assure support.
WHAT: A shift recently occurred from engagement on single matters (Compensation, Board, Sustainability) towards a
holistic approach which integrates ESG factors into financial measures.
WHO: Point of reference is the Chairman or Senior Independent Director.
• More often Legal, Corporate Affairs, HR and IR functions take the lead.
• Trend - Vanguard – “Shareholder Liaison Committee”.
• Trend – Mervin King – Chair of IIRC – “Stakeholders Governance Committee”.
WHEN: Long before the proxy season and throughout the year – attention, focus and availability.
HOW: Board should be responsible for overseeing the engagement process, not the investors – Board should thus
have a proactive approach.
• Effective Target – Size, voting behaviour and recognised «voice» within the community.
• Corporate Governance team together with Portfolio Managers if necessary.
• “one-to-one” and in person (conference calls – depersonalization).
• London, Paris, Frankfurt, Netherland, Nordic countries, US (East & West Coast).
• Presentation clear, exhaustive, and with an “investor friendly” wording.
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CASE STUDIES
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
SUPPORT BY MINORITIES ON SAY ON PAY DUE TO PROACTIVE ENGAGEMENT
98
,1
96
,0
95
,8
94
,7
92
,6
89
,7
87
,3
49
,2
42
,4
37
,6
35
,1
29
,4
21
,8
17
,6
Favore Contrari Astenuti
ENGAGEMENT PROATTIVO:P ENGAGEMENT PROATTIVO: O
An active engagement process towards Proxy Advisor and Institutional Investors held by some Italian listed
Companies resulted in a clear support over their Remuneration policy proposals.
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ENGAGEMENT FOR AGM – CASE STUDIES
12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S
FRANCE:
• Total Early initiative to meet with U.S. investors, including index funds,
resulted in their increased support for renewal of combined CEO/Chair.
• Schneider Electric Pre-AGM proxy advisory firms dialogue permitted further
explanation of compensation proposals, increasing the probability of
resolution approval.
SPAIN:
• Gamesa Direct access to top foreign investors facilitated an open exchange of
ideas & opinions, promoting investor support on their governance practices at
critical moments.
• Enagas Engagement with proxy advisory firms helped them understand voting
policies & subsequent recommendations. Direct discussions of issues faced
helped clarify Company situation and provided rationale.
ITALY:
• UniCredit Embarked on a 48-month remuneration outreach program targeting
both international investors and proxy advisory firms which led to an increase
in overall support for their remuneration schemes from 63% up to 96%.
• Mediobanca began an outreach program in 2014 targeting international
investors and proxy advisory firms, increasing support for their compensation
schemes from 44% to 95%.
Intended to help, protect and
increase the long-term return
of the funds managed by
shareholders by actively
working to change how
companies address their
governance responsibilities.
Effective way to build
shareholder trust in
Management decisions and in
the overall direction of
company’s business.
Can lead to an improvement of
a company’s risk
management, reputation, long-
term ability to compete and its
overall economic value for
shareholders.
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103
MUNICH RE
13 .0 CASE STUD IE S
• The 2017 annual shareholder meeting of
German Reinsurer Munich Re was held in
April, shareholders cheered the departing
CEO. At the same an overwhelmingly
against vote was cast (65.70%) in regards
to the resolution proposed on executive
compensation.
• ISS recommended shareholders to vote
against the proposal due to a lacking
disclosure on the targets: “As only the
supervisory board is privy to these targets,
shareholders are unable to evaluate what it
means for these targets to be achieved”. Against For
65.7%
34.3%
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CITIGROUP
13 .0 CASE STUD IE S
• Citigroup’s shareholders were revolted about the
executive pay at April 26th AGM, due to the
increase of CEO payment up to 27% - $ 16.5
M.
• About 1/3 of shareholders that voted at Citigroup
Inc. AGM casted their ballots against the Bank’s
pay plan for top executives:
FOR
64%
AGAI
NST
36%
• The votes in favor resulted to be lower in
comparison with 2015, when about 84% voted
in favor.
• ISS and Glass Lewis & Co. recommended that
shareholders vote against the “say on pay”
proposal, saying the bank needs to more closely
link the executives’ pay to the bank’s performance
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105
RENAULT
13 .0 CASE STUD IE S
• The shareholders of the car manufacturer Renault, rejected the remuneration of the chairman-CEO, Carlos
Ghosn. Despite low approval rates of 64% in 2014 and 58% in 2015, Renault directors never implemented a
good dialogue with the shareholders.
• 54% of investors in the French carmaker voted against Mr Ghosn’s €7.3m pay package — it was the first
time this has happened in France.
• But the vote was non-binding, and the Renault board decided to leave Mr Ghosn’s pay unchanged.
• The French government, which commands about 20% of voting rights in Renault, or about a quarter of votes
cast at the shareholder meeting, voted against Mr Ghosn’s package.
• Mr. Macrone, France Minister of Economy, criticized the “dysfunctional governance” at Renault and said :
“The Board of Renault must meet again in the coming weeks to take into account this vote, otherwise we
will be forced to legislate”.
• According to an analysis conducted by Proxinvest, last year In France on average, 92% of votes were cast in
favour of the board proposal, For 2016 instead, the average level of shareholder support of the resolutions from
350 of the largest French companies is expected to fall at 80%.
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BP
13 .0 CASE STUD IE S
• The AGM for the 16 of April rejected the
company’s executive pay policy, a stinging—
though nonbinding—rebuke to Chief
Executive Bob Dudley and his board.
• It was the first shareholder rejection over the pay
at BP, a British National champion that traces its
roots back more than 100 years and is a widely
held stock here and among global investors.
FOR
40,71
% AGAI
NST
59,39
%
• The investors ratio is based on 20% increase in
Mr. Dudley’s total pay for the year, a period
during which the company lost $5.2 billion.
• The Company said: “We were disappointed that
the advisory vote for this year’s remuneration
report was not carried. We have already
spoken to a number of shareholders and have a
continuing dialogue. They are seeking changes
to our remuneration policy for the future. We
will continue that engagement and will bring a
revised policy to our next AGM in 2017”.
• In 2017 the Head of the Remuneration committee
addressed to investors that “Bob Dudley's total
single figure for 2016 has been reduced by some
40% compared to last year”. The total pay
package now amounts to $11.6 million (from
$19.6 million in 2015).
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VOLKSWAGEN
• In early May TCI (“The Childrens Investment Fund”), the hedge fund run by Sir Chris Hohn, has built up a
€1.2bn stake in VW and has written to the company’s management and supervisory boards demanding reform
of executive remuneration.
• The German carmaker is reeling from the diesel emissions fraud, the worst crisis in its 79-year history.
• VW reported a €1.6bn net loss for 2015 — its worst ever result, mainly because of costs stemming from the
scandal.
• VW was also criticized by investors after it emerged that members of its management board secured bonuses
for last year.
• Although some remuneration was withheld, 12 current and former board members were paid €63.2m in total
for 2015.
• Sir Chris Hohn: “The dirty secret of Volkswagen group is that for years management has been richly
rewarded with massive compensation despite presiding over a productivity and profit collapse”.
• The move against VW ranks as one of the highest profile assaults by an activist investor on a European
company since the financial crisis.
• Media reports as of May the 29th about a new case: Mr. Pischetsrieder, former Chairman until 2006, has been
payed a total of €50m until 2011. It is reported that in fact the payments have been some kind of pension plan,
arranged by Mr. Piech and without any formal board decision.
• In February 2017 VW revised its compensation system in order to face it more toward share performance
than the carmaker’s results. The new changes cap the CEO’s remuneration at 10 million euros and limit
compensation for other management-board members.
13 .0 CASE STUD IE S
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