Thursday, 1 November 2018

Union research shows support for Ryanair chairman even lower than reported

Union research shows support for Ryanair chairman even lower than reported

Shareholder support for Ryanair chairman David Bonderman at the company’s recent AGM was even lower than reported, new research by trade union groups shows.
The International Transport Workers’ Federation (ITF) and European Transport Workers’ Federation (ETF) have analysed the records of shareholder votes published since the Ryanair AGM last month. The research shows that even fewer investors back Mr Bonderman than was initially publicised.
On 20 September Ryanair reported 70.5% of votes in favour of Mr Bonderman, with 29.5% opposed. However, once abstentions are taken into account the level of support for the chairman falls to 67%.
The total drops further if shares belonging to Ryanair directors are excluded, bringing the level of support down to 65%. Based on these results Mr Bonderman is now the least popular ISEQ20 chair, with a level of opposition over 10 times higher than for the average Irish company director in 2018.
While reports are not yet available for all investors, those so far indicate that major asset managers including Columbia Threadneedle and Janus Henderson voted against Mr Bonderman’s re-election, while others such as Allianz abstained. All three are among the company’s top 20 shareholders.
Separately, public data shows that some asset managers have been cutting their holdings in Ryanair over the AGM period. Filings show that Capital Group reduced its stake in the company from 17.01% on 21 August to 14.54% on 15 October, while FMR (part of Fidelity) dropped from 4.94% on 6 August to below 3% on 16 October.
ITF and ETF wrote to shareholders at the beginning of September asking them to vote against Mr Bonderman’s re-election, citing his failure to hold Ryanair’s executive management to account. The same call was also made by the shareholder advisory firms Glass Lewis, ISS and PIRC, all of whom have serious concerns about Ryanair’s corporate governance model.
Following the AGM, the UK’s Local Authority Pension Fund Forum (LAPFF) – one of the major institutional investors which voted against Mr Bonderman – has called for a new chairman to be appointed in 2019. If this does not happen, LAPFF will file a resolution to unseat Mr Bonderman at next year’s AGM.
Meanwhile, the demands of Ryanair’s workers continue to go unaddressed. Although recognition deals have been signed in some countries, the vast majority of workers have still seen no improvement in pay or conditions since the company announced it would begin dealing with unions last December.

Saturday, 27 October 2018

What comes next?

I think that the outlines of a future corporate governance model for the UK are increasingly clear. Whilst I'm a long-term, strong proponent of such a change, I think the range of voices in favour is a good indication that it is likely. In very broad terms I see three linked planks:

1. A move away from shareholder primacy. I know that some argue that actually section 172 of the Companies Act a) doesn't really have much practical impact and b) does sort of promote a wider interpretation of shareholder value. But I don't see a really strong argument against a formal shift. It is an increasingly widely made point that workers have long-term firm-specific risk in companies that deserves to be recognised. That needs to be captured in company law.

2. A formal role for employees in corporate governance. As I've blogged before, all the major political parties have made manifesto commitments to workers on boards in different forms. The Tories have actually gone ahead and made the FRC promote this - in a heavily fudged form - in the UK Corporate Governance Code. Although there are to date only a couple of examples of workers on boards (FirstGroup and Mears Group) the door is clearly open now.

3. Ensuring that workers derive a greater share of the wealth that they create at the point of production. This might be worker-ownership funds, or profit-sharing or some other mechanism. Again it is an increasingly widely heard idea (and Ed Miliband deserves a nod, because this is absolutely what he was aiming at with talk of pre-distribution).

This is a mixture of policies which would have been characterised as "far Left" a few years ago, and they are probably still viewed as such by some in the corp gov microcosm. But I could see them commanding a wide range of support across politics (and this is pretty mainstream social democracy in reality).

A couple of things to think about. In the event of a No Deal Brexit it's possible that the radical Right of the Conservatives take control go down a much more Thatcherite route, in which case this stuff will not happen. So nothing is inevitable.

Secondly, alternatively if this mix does look likely to into force then we have to think about the relative position of shareholders. Strengthening the role of labour means weakening the relative position of capital even if their rights remain the same. This process needs managing. Time to get thinking caps on.

Sunday, 14 October 2018

Patisserie Holdings

Just a couple of bits of info relating to Patisserie Holdings - the company behind Patisserie Valerie.

I had a quick look at filings to see if there was anything of note. One interesting disclosure is this TR1 notice showing that back in April Blackrock cut its position from just under 10% (second only to Luke Johnson) to under 5%. I don't know if Blackrock has a typical index holding in AIM-listed stocks, but in any case that's obviously quite a big cut. It came shortly before the H1 results.

Separately, looking back to the January AGM there was a fairly sizeable level of opposition to Johnson's re-election as executive chair. There was a 2.97% vote against, but many more abstentions. In total 18.5% didn't vote in favour (though voting turnout was low). Having had a quick look at voting disclosures, it appears that managers that abstained included Baillie Gifford, Hermes and Royal London. It looks to me like there might also be a proxy adviser recommendation at play here.

There were also 3%+ votes against the report and accounts and the appointment of the auditor. To be honest if I was Grant Thornton I'd be a little bit concerned by this week's events.  

Saturday, 13 October 2018

Workers on boards round-up

Just a quick round-up of some news that relates to the issue of worker representation on boards. I think the fact that there is quite a bit is indicative of the shift in thinking that is going on.

1. This is old, but I had totally missed it. Mears Group has appointed an employee director, having been elected at the AGM earlier in June with almost zero opposition. It looks like the director was chosen by management, rather than elected by the workforce. Nonetheless we now have at least two UK  companies with employee directors on the board (FirstGroup being the other).

I'll have a dig into the voting on these directors when I have time. However having a quick look at the AGM results it must be the case that some investors that have been lukewarm at best on the issue of employee representation on board in their public policy positions have voted for the election of employee directors in practice.

I can see some interesting voting issues ahead in the next AGM season, but that's for another day.

2. The ICSA has published a poll showing that the large majority of companies are opposed to the idea of worker directors (though 19% are in favour). I assume, given the ICSA's orientation, that respondents are likely to be company secretaries. There is some useful info on how companies are thinking (or not) about the revised UK Corporate Governance Code:
When questioned as to whether or not they had deliberated the UK Corporate Governance Code’s proposals for getting the workforce voice into the boardroom, 29% of companies have not yet considered them and 15% have, but taken no action. Of those companies that have considered the Codes’ proposals, 25% favour the designated non-executive director option, 14% are inclined to combine one or more of the options, 7% are in favour of a works council or similar, 5% have other ideas, 2% would prefer to have an employee on the board and 1% are unsure.

3.  The ICAEW has published a report encouraging companies to consider the benefits of employee directors on boards. This is very welcome, though it's a shame that unions do not get a mention in there. Still, interesting that one group of professional advisers is taking a more positive line on this.

4. Jim Moore on The Independent has published a comment piece criticising Legal & General for going down the nominated NED route.

5. The Evening Standard has published a letter from Luke Hildyard of the High Pay Centre responding to a previous comment piece (which praised L&G) and arguing that employee directors are indeed a good thing.

6. The Bank of England's Andy Haldane has voiced his support for employee representation on boards.

7. The ETUC held a rally outside the European Parliament calling for greater worker participation within companies, including representation on boards.

Saturday, 6 October 2018

Legal & General vs workers on boards

A little bit of news about workers on boards (or the lack of them) in the UK. Legal & General is the first big PLC that I have seen set out how it will address workforce engagement.

Perhaps no big surprise, but they have adopted the nominated NED option:
The Company is also pleased to announce the appointment of Lesley Knox as designated non-executive director for engagement with the Company's workforce, in line with the provisions of the UK Corporate Governance Code (July 2018), with immediate effect. Lesley is currently Chair of the Company's Remuneration Committee and so is well-placed to engage effectively with the Company's workforce.
And it's also worth remembering that is in line with the position adopted by its asset management business LGIM.
The introduction of an employee sitting on a Board or establishing a shareholder committee, in our view, would significantly change the current roles and responsibilities of directors and shareholders. We continue to support the Unitary Board model in the UK and focus our efforts on how Board effectiveness can be improved within the current governance structure. In saying this, we also understand that directors should be accountable to other stakeholders including employees. One way in which there can be better alignment between employees and shareholders is for Boards to better understand the sentiment of employees in the organisation. This can be done by nominating one of the current independent Non-Executive Directors (a “Nominated Employee Non-Executive Director”) to be held accountable for seeking out employees views in the business. This nominated director will have responsibilities to meet with staff at different levels and report back to the Board the findings. Furthermore, in the Annual Report, the Nominated Employee Non-Executive Director should also provide a statement and report back to shareholders at the AGM or Annual Report of what he/she has done to fulfil their remit.
Equally obviously this is going to fall a long way short of the expectations of unions and other advocates of meaningful worker representation. It will be interesting to see if other PLCs follow suit. I can imagine some tension ahead.

Finally, on a related note, there's a piece in the Evening Standard opposing workers on boards and supporting L&G's alternative. There's an interesting bit suggesting that opponents of workers on boards have argued against by reference to directors' duties:
Businesses successfully lobbied that being forced to hire a workers’ rep as a director would make them hostage to unions and get in the way of fleet-footed decision-making.
Besides, they pointed out, the law says directors’ primary duty is to shareholders, not staff. So, under Section 172 of the Companies Act, a director charged with looking out for workers’ interests above all else is breaking the rules.
I think this is a bit off target. For one, as currently formulated the Companies Act does give priority to shareholders but also says they've got to consider impact on workers, environment etc. In addition, if the claim above were true then First Group would have been in breach of the Companies Act for years, since it has a worker on its main board.

Nonetheless, if corporate lobbyists are using this as an argument (and I've also seen section 172 prayed in aid of tax avoidance, large bonuses at banks etc) then it strengthens the case for reform of directors' duties in any case.

PS. Here's what the Companies Act 1985 (section 309) said about directors' duties to employees:

309Directors to have regard to interests of employees

(1)The matters to which the directors of a company are to have regard in the performance of their functions include the interests of the company's employees in general, as well as the interests of its members.
(2)Accordingly, the duty imposed by this section on the directors is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors.

(3)This section applies to shadow directors as it does to directors.

Sunday, 30 September 2018

Just one more thing about Ryanair....

I can see that there were at least a couple of asset managers that did not vote against either David Bonderman as chairman or Kryan McLaughlin as senior independent director. And reasons given for this are that they expect the company to make changes and, if those changes are not made, there is a threat of a future vote against.

But it has also been made explicit by Ryanair that it will remove voting rights from ex-EU shareholders very swiftly in the event of a hard Brexit. So it seems a bit risky to have voted FOR directors that you actually want to see replaced when there is a risk that you won't be able to replace them in future.

I can't help thinking that there is a degree of self-delusion that voting for things you actually disagree with is a sophisticated approach. I don't think those who receive your vote in favour necessarily take it the way you mean it, or present it in the way you want - in this case O'Leary was very clear in the AGM that he wanted the level of support received to be seen as a positive. But if you're under threat of losing your ability to change your vote in future it seems especially risky.

Elon Musk and the SEC

This week has seen reality start to catch up with Elon Musk's Twitter feed. Earlier in the year he famously tweeted that he had "Funding secured" to take Tesla private at $420 a share. This was something of a shock to external shareholders, analysts, the board of directors and so on.

Slightly later, a further blog from Musk stated that although there had been discussions with an investor, taking the company private was not doable in a way that enabled existing shareholders to remain as investors.

This week the SEC sued Musk on the basis that the claims in in tweets were somewhat exaggerated, and sought to have him barred as a director. Musk has quickly settled, and will pay a $20m fine and give up the chair of Tesla for three years, though he remains as CEO.

This much you can read from the news anyway, but what interests me is the governance settlement - getting Musk to give up the chair. This is significant as there was a shareholder resolution at the company's AGM in June that sought exactly this outcome (amid wider investor concerns about a lack of independent representation on the board). But the resolution failed to get a majority. So the SEC has achieved something that shareholders could not on their own.

Well, some shareholders... because for the resolution to fall short some of them must have voted against the idea of having a separate independent chairman. So let's have a quick look at a few votes from some big institutions...

Baillie Gifford, Tesla's largest external shareholder OPPOSED the independent chair resolution and voted FOR directors up for election.

Fidelity (or at least the US funds whose SEC disclosures I could find) also OPPOSED the resolution and voted FOR the board.

T Rowe prices appears to have split its votes on the independent chair resolution (maybe different funds voting different ways?) and voted FOR the board.

Blackrock voted FOR the independent chair resolution and OPPOSED one of the board directors.

Vanguard OPPOSED the independent chair resolution and FOR the board.

Norges Bank voted FOR the independent chair resolution and OPPOSED one of the board directors.

I'll update this as I dig out more votes.