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.

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