Friday, 21 September 2018

Ryanair: Airline Getting Battered

Yesterday was Ryanair's AGM, which I attended on behalf of the ITF. The two major stories ahead of the meeting - sizeable investor unrest focused on the board, and labour relations - have merged into one, with a particular focus on chairman David Bonderman.

On the governance point, investors and some analysts have drawn a link between the lack of independence and challenge on the board and the ability to deal with significant problems in the business effectively. On the labour side, the ITF, ETF and various unions have come to the conclusion that the haphazard nature of negotiations with the company signal a problem with its management and leadership. As such, heading into the AGM the ITF, ETF and others were calling for governance reforms, whilst investors like Aberdeen Standard, Royal London and the Local Authority Pension Fund Forum (LAPFF) raised concerns about labour practices.

As such the AGM was really dominated by discussions of both, with Michael O' Leary speeding much of his time talking about union negotiations, in between defending his chairman (yes, a chief executive defending his chairman, not the other way round).

O' Leary largely struck a conciliatory tone, saying the company was working with unions and hoped to have deals done in most markets by Xmas (which I think a number of unions would find a tad optimistic). He also said that the company was very happy to move to local contracts - rather than employing everyone outside the UK on Irish contracts - which is a rather significant shift from his comments after the ECJ ruling last September.

There were a couple of institutional shareholders there - LAPFF and Aberdeen Standard. The former recommended its members vote against the chair, whilst the latter voted for all directors, but on the understanding that it would vote against the chair and the SID at the next AGM if there had been no board refreshment (as in new directors, not a round of drinks for directors).

LAPFF asked a question about EU261 claims in respect of flights cancelled by strikes. It appears that Ryanair expects to go to court in the UK over this, because it doesn't agree with the CAA. It's worth keeping an eye on given the potential amounts involved.

As for Bonderman, he survived the vote today but must be on his way out. At the AGM the company only showed the % votes for - Bonderman only got 70.5%, and Kyran McLaughlin did even worse with 66.8%. But if you add in abstentions, and strip out Bonderman and O'Leary's own holdings, then the chair only got the support of 65% of non-insider shareholders. Plus we know that some of the investors voting for him have said they want change.

To put that result in context, the average vote in favour of a a director of an Irish company is 97.3% according to Proxy Insight, and the next least popular chair of an ISEQ20 company is Martin Keane at Glanbia - the most shorted stock on the Irish exchange based on public disclosures. Keane saw total oppose + abstentions of 24% at the Glanbia AGM. I can't see how a future vote on Bonderman as chair would not see even greater opposition.

I would be very surprised if there is not a new chairman by the time of the next AGM.

Sunday, 16 September 2018

Ryanair AGM

As most people will be aware, Ryanair has its AGM this week, and there is quite a bit of interest in what might happen, particularly in relation to the chairman.

These things are impossible to call in advance. The only thing we really know is the base rate - most directors of most public companies are easily re-elected. In Ireland it looks similar to the UK, with average votes against in very low single figures, and directors are voted out extremely rarely.

So we shouldn't expect an earthquake, but to get a better picture it's worth spelling out what we know so far:

1. Three proxy advisory agencies - ISS, Glass Lewis and PIRC - have recommended that shareholders opposed the re-election of Ryanair's chairman David Bonderman. The poor governance of the company and the chair's long tenure are themes that appear in all this analysis. Also the appointment of a director who is clearly not independent (due to his role at one of Ryanair's brokers) as senior independent director is seen to reflect badly on the chair. The company's labour problems also get quite a few mentions.

2. The major US public pension funds CalPERS and CalSTRS have already voted against Bonderman's re-election (in fact the latter has voted against the whole board).



3. The Local Authority Pension Fund Forum has recommended that its members vote against Bonderman's re-election along with the report and accounts, and will attend the AGM. This is driven by concern about the company's governance and labour relations.

4. Ryanair has banned media from its AGM, leading to negative business comment pieces in Ireland and the UK. I do wonder if this is because they know that some shareholders are going to attend. I imagine. like most AGMs, most institutional investors rarely, if ever, show their faces. But I wonder if the board knows that this time will be different? LAPFF is going to attend, but are others?

5. Ryanair has announced ahead of the AGM that all of its resolutions will be carried by a large majority. I suspect this confidence is based on a combination of the facts that a) a lot of money has already voted, so they can see the votes they have already, and b) it probably knows that it has its major shareholders onside.

6. Those big shareholders are an interesting bunch. As a reminder here are the company's notifiable holders as disclosed in its annual report:

Excluding O'Leary, the other four shareholders listed hold almost a third (32.1%) of its shares. Looking at past AGMs it looks as though turnout has drifted down to around 65%. If that held for Thursday's meeting then they will potentially represent about 50% of votes cast.

I think Ryanair is probably right to feel confident about this group. Looking at votes cast at previous AGMs, I don't think that Capital can have voted against Bonderman or other board members before. Similarly looking at Baillie Gifford's voting record it appears it has usually supported the board (see 2017 votes here, for example, no votes against any resolutions).

Fidelity and HSBC are interesting as I don't know if in either case votes are cast consistently across the group. Fidelity UK's voting disclosure for Q2 2017 shows that they voted against the company's rem report last year. That just about works with Ryanair's disclosed voting results for its 2017 AGM, though (based on the holdings figures in the annual report), that only allows for another 17m-ish votes against cast against the rem report by others. That seems small having looked at how other investors voted, but I've not really dug into it.

The situation for HSBC looks odd until you get into the detail of Ryanair's filings. The voting disclosure for HSBC Global Asset Management for Q3 2017 (available here) shows that it opposed the remuneration report (resolution 2) and abstained on Bonderman's re-election (resolution 3a) at last year's AGM in September. Remember that Ryanair's annual report says that at end June 2017 "HSBC Holdings" held 112m shares. Now compare that with the oppose votes on resolution 2 and abstentions on resolution 3:


Plainly, 112m votes were not cast against the remuneration report (if all of Fidelity's 70m were voted against too we should be looking for at least 180m+ oppose votes) and the abstentions on Bonderman's re-election are even further out.

The explanation for this is that the bulk of the shares attributed to HSBC are actually held by HSBC Bank Plc. For example if you look at this filing from mid August and scroll down to box 10 you can see that voting rights attributed to HSBC Bank Plc are just over 5%, whereas those for all the various asset management bits of the business don't break 0.2%. On the face of it the shares held by the bank were either voted differently to the asset manager, or weren't voted at all.

How those shares will be voted this time around is anybody's guess as I don't know why the bank holds them. My only other experience of banks taking big positions in companies has been in merger situations where they hold shares as counterparties for hedge funds who want exposure via derivatives.

(*Incidentally, there are some other odd things about Ryanair's filings - see bit more detail at the end.)

7. We do know that a number of major Ryanair shareholders have been engaging with the company over both its governance and its approach to labour relations. A quick Google around pulls up a number of examples of this. We can also see that a number of investors, including some with pretty large positions, have been voting against the company. Given both governance and labour issues are front and centre ahead of this week's meeting it's possible that the noise around the AGM will provide a useful focal point for those seeking change.

Most asset managers will also subscribe to ISS and/or Glass Lewis and so they will be seeing the same analysis that has been splashed across the press. Regardless of my own position, I do find it hard to see how anyone looks at Ryanair's corporate governance and concludes that a) it's actually fine and b) reforming it would not help the company get through some of the struggles it has faced.

It took years to get rid of Keith Hellawell from Sports Direct, but prolonged pressure achieved it. Now that the genie is out of the bottle at Ryanair I suspect it will play out the same way there.

8. In light of all the above, I think this take on the AGM is about right:



Roll on Thursday. I'll try and blog as soon as I have any news.


* So, take a look at the major shareholders that Ryanair disclosed in its 2014 and 2015 annual reports. In the 2015 AR, HSBC is disclosed as a major shareholder in 2015, and reported as having been a major shareholder in 2014 and 2013. But in the 2014 AR HSBC is not disclosed as a shareholder in 2014 or 2013 (or 2012).



Therefore it looks like one of these annual reports contains an error relating to who the company's major shareholders are/were - they can't both right, right? And when I have looked at Ryanair filings relating to shareholders crossing reporting thresholds (Standard Form TR-1) again these don't seem to match up perfectly with what is in some of the annual reports. Ho hum.

Tuesday, 4 September 2018

Unions call for Ryanair chairman to go



ITF and ETF call for new Ryanair chairman

The International Transport Workers’ Federation (ITF) and European Transport Workers’ Federation (ETF) are calling for shareholders to oppose the re-election of Ryanair chairman David Bonderman and overhaul the company’s corporate governance practices.
Back in December the company finally announced that it would recognise trade unions for the first time. Progress since then has been erratic and contradictory, with Ryanair signing recognition deals in some countries while leaving workers no choice but to take industrial action in others.
Ryanair still has a long way to go in order to build a mature relationship with unions, improve its employment practices and ensure fair conditions for its employees.
The low-fare model has made aviation accessible to all and has provided thousands of jobs both directly and indirectly. In other low-fare airlines, companies and unions work closely to ensure the best product for passengers and best conditions for workers. To date Ryanair has failed to build such a relationship with workers and unions.
ITF, ETF and their affiliate unions have lost confidence in the ability of the current Ryanair leadership to make the transition to a sustainable, unionised business model. They are therefore calling for shareholders to oppose the re-election of the company chairman at the forthcoming AGM and to appoint an independent chair as successor.
Mr Bonderman has chaired Ryanair since 1996, overseeing a corporate culture which for two decades was virulently anti-union. If Ryanair is serious about engaging with workers and unions then the time has come for fresh leadership. ITF and ETF are aware from discussions with Ryanair shareholders that a number also have concerns about the company’s corporate governance.
Stephen Cotton, ITF General Secretary, said: “In recent months Ryanair has shown its immaturity in industrial relations. At the end of last year ITF, ETF and our affiliates welcomed the prospect of a new era of cooperation with the company. Instead, we have seen the stalling, antagonism and underhanded tactics continue.”
“We believe that these problems partly stem from a seriously antiquated corporate governance model. Keeping the same chair for over two decades and installing former Ryanair executives as ‘independent’ non-executives does not lend itself to proper scrutiny and challenge in the boardroom.”
Eduardo Chagas, ETF General Secretary, said: “The time has come for Mr Bonderman to go. It is hard to see how a business like Ryanair can move on when its chairman is stuck in the last century.”
“Ryanair’s business model is built on social dumping and the exploitation of workers. Unions standing together to fight such behaviour is at the heart of our Fair Transport Europe campaign. A different Ryanair is in reach, but a change in leadership is a vital step to shake off the company’s legacy of bad behaviour.”
ITF and ETF have written to Ryanair shareholders asking for them to vote against the re-election of David Bonderman as chairman at the company’s AGM on 20 September. The letter can be read here.

Sunday, 26 August 2018

Conflicts of interest, alignment etc

Three sort of related thoughts that I have had recently, when thinking more about competing interests within the firm etc.

1. If there were really no tension between different interests (i.e. managers, workers, investors) then it should not matter who has control rights. For example, if we think that the "real" corporate governance problem is self-interested managers, then it should not matter if the monitoring/accountability solution is worker representation on boards and/or voting rights, or enhanced shareholder rights. 

I think actually a lot of ESG people do tacitly believe that there is a conflict of interest, even while they also remain convinced that shareholders can act as a sort of proxy for the public interest. I think this is why they get wobbly about workers on boards, but often don't clearly articulate why. But then if there IS a conflict of interest then we should really discuss why the UK corporate governance model prioritises the interests of one set of stakeholders (investors) over others.  

2. On a kind of related point, it struck me that most accounts of what is wrong with executive pay seem to have their preferred villains. If you are more to the Right (even if you don't know it), I suspect you're going to be more likely to see the problem as one of stupid public policy interventions and agency issues that can be tackling by market oversight (perhaps with a few digs at rem consultants). If you're on the Left you're more likely to see market oversight (and shareholder primacy) as flawed, and be more sympathetic to regulators and policymakers. 

Obviously I'm on the Left, and my biases shake out in the way above. But the more I've been thinking about it recently, the more surprised I am that none of us share the blame around much. I'll try writing about this in more depth in a few weeks.

3. Thinking about executive pay specifically, it struck me that while people talk about equity-based compensation for directors as achieving "alignment" with shareholders it actually really doesn't. Increasingly many mainstream corporate governance people argue for directors to have a substantial amount of their reward tied up in the company's equity, and for it to be held for a prolonged period.

But this is not what the shareholders that most directors interact with - asset managers - do themselves. We do not require portfolio managers to select one stock, put all their clients' assets into it, and hold it for 5 years. Rather asset managers diversify (arguably far too much) and they value liquidity. When there have been tentative attempts to propose or introduce "loyalty" mechanisms for shareholders, these have been opposed in principle and in practice, including by people within the ESG world.

I'm a huge skeptic about performance-related reward in any case, but this point specifically does make me wonder about shareholder primacy mission creep. Shareholders contribute little in practice to companies, yet they have control rights and expect managers of companies to take on a huge amount of firm-specific risk that they would not shoulder themselves. 

Saturday, 25 August 2018

Cut and paste hedge fund reporting, again

Back from holidays, so had a quick Google to see if I could find any of that pro forma stewardship reporting that I had been tracking. And, yes, there is more:

Altavista Capital:

Altavista Investment Management UK LLP manages or advises a number of funds with varying strategies. The Code is therefore relevant to some aspects of the Firm’s activities. While the Firm supports the objectives that underlie the Code, it has chosen not to commit to the Code.
The Firm determines its approach to stewardship on a case by case basis, taking into account its duties to the funds that it manages and the actions that will lead to the most favourable outcome for the value of its investments and the interests of its investors.
Furthermore the Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular code relating to any individual jurisdiction.

The Firm provides investment management services to various funds (“the Funds”) that pursue investment strategies that involve investing in a wide range of securities and instruments without limitation in various jurisdictions. If the Firm were to invest directly in UK single equities these would represent only a small part of the firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

The Firm provides investment management services to clients, including a Fund, pursuing an investment strategy that involves investing in global equities. While the Firm may invest directly in UK single equities these would represent only a small part of the Firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction.

The next two are particularly interesting....

The Firm provides investment management services to various funds (“the Funds”) that pursue investment strategies that involve investing primarily in equity instruments in various jurisdictions, including UK listed equities. While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

The Firm invests globally, excluding UK equities. The Fund’s investment focus is in commodities, focusing on fundamental based relative value trading with directional overlays. The Code is therefore not relevant to the Firm's trading activities. While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code.
The Firm invests in a variety of asset classes and in a variety of global jurisdictions. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

Those two are interesting because, if you look at the URLs, both are hosted on the website of a legal firm called Duff and Phelps which advises investors on regulation and compliance, amongst other things. I wonder if this might be the source of the text?

A bit more Chantal Mouffe

The excerpt below is from For A Left Populism. I found the book a bit underwhelming to be honest, but the idea of approaching politics as a radicalisation of democracy appeals to me. I'm particularly interested in how this would play out in corp gov / ownership issues, where I agree that genuinely radical ideas would not necessarily even be conceived as being "anti-capitalist".
"The current move by the defenders of the status quo to label all of the critiques of the neoliberal order as 'extreme left', and to present them as a danger to democracy, is a disingenuous attempt to impede any kind of challenge to the existing hegemonic order. As if the choice was limited to accepting the current neoliberal hegemonic formation as the only legitimate form of liberal democracy or rejecting liberal democracy altogether...
"Despite the claim of many liberal theorists that political liberalism necessarily entails economic liberalism and that a democratic society requires a capitalist economy, it is cleat that there is no necessary relationship between capitalism and liberal democracy... It is within the framework of the liberal state - the division of power, universal suffrage, multi-party systems and civil rights - that it will be possible to advance the full range of present-day democratic demands. To struggle against post-democracy does not consist in discarding those principles but in defending and radicalising them...
"The process of radicalising democracy necessarily includes an anti-capitalist dimension as many of the forms of subordination that will need to be challenges are the consequences of capitalist relations of production... There are many points of antagonism between capitalism and various sectors of the population, and this means that, when this struggle is envisaged as an extension of the democratic principles, there will be a variety of anti-capitalist struggles. In some cases they may not even be perceived as being 'anti-capitalist' by the people involved in them and many will be conducted in the name of equality and conceived as struggles for democracy.
"People do not fight against 'capitalism' as an abstract entity because they believe in 'laws of history' leading to socialism. It is always on the basis of concrete situations that they are moved to act. If they struggle for equality it is because their resistances to various forms of domination are informed by democratic values and it is around those values, addressing their actual aspirations and subjectivities, and not in the name of anti-capitalism, that people can be mobilised."      

Monday, 30 July 2018

Severn Trent dividends

Another day, another attack on a utility company for putting its investors first....

Press release - Embargoed until 00:01 Thursday July 26, 2018

SEVERN TRENT SHAREHOLDERS MAKE £1.1 BILLION AS BILLIONS OF LITRES WASTED, GMB REVEALS

Dividends and interest worth £190 million were accrued by shareholders in 2017 alone, GMB Union figures show

An investigation by GMB, the water union, has revealed Severn Trent shareholders have made almost £1.1 billion in just five years.
The privatised water company showered shareholders with a total of £190 million in 2017 alone.
Severn Trent wastes more than 400 million litres of water every single day through leaks. [1]
Last month, GMB figures showed Severn Trent’s CEO trousered a whopping £10 million in salary, bonuses, pensions and other benefits over the past five years. [2]
The figures come from a joint investigation into the accounts by GMB and Corporate Watch [3] as part of GMB’s Take Back the Tap Campaign to bring England’s privatised water industry back into public ownership.
While shareholders pocketed these eye-watering sums, consumer water bills in England and Wales have increased by 40% above inflation since privatisation in 1989 according to a report by the National Audit Office [4]
Tim Roache, GMB General Secretary, said:
“Forking out billions to shareholders, while bills rocket and trillions of litres of water are wasted shows just how broken the system is.
“We all need water, it’s not an optional extra, it’s absurd that something we all depend on is in private hands delivering eye watering pay outs instead of being run for the public good.
“That’s why GMB is calling for the water industry to be brought back into public ownership.”
ENDS
Contact: GMB Press office 07958 156846 press.office@gmb.org.uk
Notes to editors:
[4] National Audit Office report: The Economic Regulation of the Water Sector, page 9 (2015) https://www.nao.org.uk/wp-content/uploads/2014/07/The-economic-regulation-of-the-water-sector.pdf