2015 Proxy Season Preview

Transcription

1 2015 Proxy Season Preview Europe February 12, 2015

2 Today s Speakers Andrew Gebelin - Director, European Proxy Research Carla Topino - Associate VP of European and Emerging Markets Policy Dimitri Zagoroff - Manager, European Compensation Research Phil Kuhn - Senior Analyst, France Sinéad Barry - Senior Analyst, Germany and Switzerland Patricia O Donoghue Senior Analyst, Italy and Spain 2

3 Agenda Europe Regulatory Updates Glass Lewis Guideline Updates Country Governance and Policy Updates Nordic Region The Netherlands United Kingdom France Germany Switzerland Italy Spain Q&A 3

4 Europe: Regulatory Updates Carla Topino Associate Vice President, European and Emerging Markets Policy

5 Europe: Regulatory Developments Revision of Shareholders Rights Directive Proposal presented in April 2014 by the European Commission Submitted to Council and European Parliament for their consideration: ongoing negotiation ECON Committee and JURI Committee draft reports European Commission reportedly working to expedite the introduction of the new legislation Outstanding issues: remuneration votes and related-party transactions 5

6 Europe: Regulatory Developments Women on Boards: Minimum objective of 40% for non-executive positions by 2020 Proposal for a Directive approved by Commission in November 2012 Endorsement by European Parliament in November 2013 New plenary debate at the European Parliament in January 2015 Currently under discussion among the EU s Justice Ministers New figures on women on boards in Europe released by EU Commission As of October 2014, women account for 20.2% of board members of the largest publicly listed companies in the EU Only four countries (France, Latvia, Finland and Sweden) where women account for at least a quarter of board members. 6

7 Europe: Regulatory Developments New EU Regulatory framework on Statutory Audit Amended Directive and Regulation on Statutory Audit entered into force in June 2014 New legislation will become applicable in mid-2016 Objectives: (i) clarify the role of auditors and reinforce their independence; (ii) facilitate the cross-border provision of statutory audit services in the EU; (iii) contribute to a more dynamic audit market in the EU; and (iv) improve auditor supervision Stricter requirements for listed companies: (i) mandatory rotation of audit firms every 10 years; (ii) list of prohibited non-audit services; and (iii) limitations on the fees charged for non-audit services Non-Financial Reporting Directive on disclosure of non-financial and diversity information by certain large companies and groups adopted by the European Parliament in April

8 Europe: Guidelines Updates Andrew Gebelin Director, European Proxy Research

9 Europe: Guideline Updates Updates introduced to Glass Lewis Continental Europe Policy Guidelines for the upcoming proxy season include: Potentially holding the nominating committee accountable in case of a company s failure to meet best practice standards with regard to board diversity with no reasonable explanation provided Assessment of board responsiveness to shareholder votes on director elections Concerns in case of LTI awards vesting below the lower middle quartile Opposition to the grant of equity awards to NEDs in case of vesting depending on performance targets or continued service on the board over an extended period of time Case-by-case analysis if non-voting preference shares are introduced or increased 9

10 The Netherlands and Nordic Markets: Governance Updates

11 Norwegian Code of Practice for Corporate Governance revisions Emphasizes direct election of board by shareholders Increased engagement responsibilities for nominating committee Sweden Corporate Governance Code under review Overboarding continues to be a problem Fines levied by FSA Boards may flaunt rules or indemnify directors against fines Focus on board diversity (comply-or-explain approach) Regional developments Developments at the National Level: Nordic Markets Heightened scrutiny of board diversity policies (ex Norway) Focus on nominating committee actions and disclosure More transparent involvement of institutional investors 11

12 New remuneration rules for financial institutions take effect 7 February 2015 Variable remuneration capped at 20% of base salary collectively, up to 200% for individuals in certain cases 1 year transition period for compliance Severance capped at 100% of base salary Bellwether for consideration of similar rules for Europe Audit reform Developments at the National Level: The Netherlands Mandatory audit rotation requirements could affect up to half of companies on AEX and AMX indices Non-audit fees prohibited Expanded audit reports Board diversity: 30% quota takes effect in

13 United Kingdom: Governance Updates Dimitri Zagoroff Manager, UK & European Compensation

14 UK Regulatory Developments Financial Conduct Authority on Minority Shareholder Protections Applies to premium companies with 30% or larger shareholder ( controlling ) Two votes on director elections & listing transfer/cancellation (independent shareholders & all shareholders) mandatory relationship agreement between controlling shareholder & premium listed issuer shareholder veto on transactions involving controlling shareholder that damage interests of minority shareholders Increased disclosure of related party transactions & director selections No change to free float requirements (25% of share capital) 14

15 UK Regulatory Developments Auditor Market & Tendering Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Tender Processes and Audit Committee Responsibilities) Order 2014 Competition & Market Authority (replaced the Competition Commission) companies should tender audit work every ten years Audit committee (not mgmt) should engage with auditor Intended to harmonise with EU regulations on changing auditors UK expected to adopt 20-year limit, with tendering every ten Transitional arrangements: 20+ year incumbent auditors must be tendered by year incumbent auditors must be tendered by 2023 We expect a high number of tenders during 2015 season Say-on-Audit votes? No immediate action; Financial Reporting Council ( FRC ) will consider this in a future review of UK Corporate Governance Code 15

16 UK Regulatory Developments Revised UK Corporate Governance Code (FRC) Takes effect for reporting periods starting Oct Responsiveness: board should address any significant voting opposition GC100 (secretarial body) recommends 20% threshold Reporting: increased emphasis on risk assessment, long-termism Additional reporting on annual review of risks, internal control Separate statements on accounting basis, & broader viability Boards encouraged to assess going concern, material uncertainties for a longer period ( at least 12 twelve months ) 16

17 UK Regulatory Developments Revised UK Code includes remuneration revamp Variable pay should include recovery provisions (clawback/malus) Board should consider minimum exec holding requirements, including postemployment Highlights potential conflicts when consulting execs on pay matters Guiding principle: pay should be sufficient to attract, retain and motivate > avoid paying more than is necessary Doesn t apply for 2015 season, but we expect early adoption Changes reflect growth of structural safeguards Clawback & malus provisions Bonus deferral Extended holding restrictions on vested awards Minimum shareholding requirements 17

18 Variable Pay Cap Further Changes? CRD includes 1:1 cap on variable:fixed pay (2:1 with shareholder approval) All UK banks received approval for 2:1 cap except RBS (not proposed) UK gov t challenged the cap, but dropped its challenge in late 2014 All major UK banks adopted fixed share allowances to comply with CRD Executives receive a fixed number of shares ( FSA ) annually, vesting over time Intended to offset reduced variable pay opportunity without increasing salary, pension EU has raised questions on whether these allowances are truly fixed EBA guidelines due after February meeting Formal rules on FSA allocation, structure likely Also possible that FSA s are branded variable, forcing shake-up 18

19 Euro Say-on-Pay Overview Binding or Advisory? Prospective or Retrospective? Belgium & France employ retrospective annual advisory votes Not required in France Switzerland employs binding votes, both prospective & retrospective Italy: prospective policy votes; binding for banks & insurers, otherwise advisory Germany: advisory prospective policy votes, but not required Netherlands: prospective binding votes on new plans or significant changes UK employs both: binding policy votes (triennial) and advisory implementation votes (annual); rejected advisory vote triggers binding policy vote UK Model Set to Expand Spain adopting this format for 2015 Proposed Shareholder Rights Directive (ETA: 2016) would standardize this format across EU 19

20 UK: New Vote Structure (One Year In) No *current* UK companies failed 2014 binding policy votes Kentz failed binding & advisory but has been acquired Burberry failed its advisory vote; must resubmit binding policy in 2015 Will companies with high opposition to policy make changes? Less than 75% support in 2014: Standard Chartered, Hiscox ICAP Wm Morrison Cranswick Astrazeneca (including abstentions) EasyJet (single large shareholder) We expect far fewer binding policy votes in 2015 Similarly, fewer new LTI plans up for vote 20

21 France: Governance and Policy Updates Phil Kuhn Senior Analyst, France

22 Executive Compensation 2014: First season of advisory votes on executive remuneration: Very high participation by SBF120 companies High approval rates For 2015 we expect to see improved disclosure and a stronger link between pay and performance Impact of Macron Law Developments at the National Level: France Designed to boost growth and economic activity Improves tax and legal treatment of performance/free share plans Supplemental retirement plans might be linked to performance Loi Florange (law of 29 March 2014) passed in March 2014: Aim of promoting and improving the economy in France Two major implications for shareholders: Reverses board neutrality principle Automatically grants double voting rights after two years 22

23 Developments at the National Level: France Double-Voting Rights Legal changes Double voting rights for shares held in the same account for two years Opt-out clause Impact on Glass Lewis policy guidelines If not previously approved and no opt-out clause: Against ratification of board acts; AND re-election of governance committee members; OR chairman of the board or the most senior director; OR accounts and reports Implementation Many companies already provide for double voting rights Some companies may align the holding period Many boards currently debating presentation of an opt-out clause 23

24 Developments at the National Level: France Anti-Takeover Devices Legal changes Boards may take frustrating action in the case of a takeover bid Capital proposals can now be used as a takeover defense Opt-out clause Impact on Glass Lewis policy guidelines If authority can be used as a takeover defense without shareholder approval: Against authorities to repurchase shares or issue shares or convertible debt instruments; policy does not apply to controlled companies Implementation Many companies will adopt an opt-out clause; or Qualify the proposed authorities; or Implement reciprocity measures 24

25 Germany and Switzerland: Governance and Policy Updates Sinéad Barry Senior Analyst, Germanic Markets

26 Developments at the National Level: Germany Equal participation of men and women in leadership positions: Legislation for supervisory board gender quota of 30% passed by Federal Cabinet in December 2014 Applicable to all companies subject to the co-determination laws (108 companies) Failure to comply will invoke the empty seat sanction All listed companies to set and disclose a binding target for increased female participation on their supervisory boards 28 of the DAX30 companies currently have at least one female supervisory board member Full implementation of Kodex compensation disclosure tables Following amendments in May 2014 aimed at further clarifying the format Change of focus for new chairman of the Corporate Governance Commission 26

27 Developments at the National Level: Switzerland Final phase of Minder Initiative implementation Binding remuneration vote All required article amendments to be made by the end of FY2015 Emergence of common practice with respect to approval process Amendment to the Code of Best Practice for Corporate Governance Implementation of changes brought about by the Minder initiative All recommendations are now subject to a comply or explain provision Recommendation that a board be comprised of both men and women 27

28 Developments at the National Level: Draft amendments to the Code of Obligations under consultation Provision for a non-binding gender quota of 30% of non-executives Comply or explain provision Switzerland Reduction in share capital required to: convene an EGM; propose a special audit; and bring legal action against directors at the costs of the Company Prohibition of prospective approval of variable remuneration Penalties for shareholders who do not exercise their rights to vote through lowered dividend amounts SIX Swiss Exchange Directive on Information relating to Corporate Governance Format for the disclosure of information essential to investors To be adhered to on a comply or explain basis 28

29 Italy and Spain: Governance and Policy Updates Andrew Gebelin Director, European Proxy Research

30 Introduction of shares with multiple voting rights Law n. 116/2014: change in the regulatory framework Adoption of double voting rights at Campari, Astaldi and Amplifon Financial institutions regulations Implementation of CRDIV Guaranteed bonuses admitted only for new personnel in the first year of employment Golden parachutes linked to performance criteria and subject to malus/claw back provisions Cooperative banks Pending regulatory reform Change in voting rules: elimination of the one vote per investor rule Mergers and acquisitions potentially triggered by the new rules Board diversity Developments at the National Level: Expiration of transitional provision Italy 30

31 Developments at the National Level: Spain Revisions to Spanish Companies Act Board of Directors Revisions of term length, director and committee independence, and chairman/ceo mandate Shareholder Rights Revised thresholds for exercising minority shareholder rights, legally challenging corporate resolutions and receiving beneficial ownership information Executive Remuneration Binding vote on compensation policy every three years or when changes are made to the policy Binding vote on compensation policy in the following year after a mandatory advisory vote is rejected by shareholders Revisions to Spanish Corporate Governance Code Revisions expected in the coming weeks 31

32 Q & A

33 Other Resources at Glass Lewis Glass Lewis Blog / Proxy Season Insider Special Reports Greening the Green Mind the Gap Global Proxy Season Preview 33