Thursday 29 November 2018

Sports Direct - Mike Ashley's declining popularity

Perhaps others spotted this at the time, but I just realised that Mike Ashley saw a very sizeable vote against his re-election at the most recent Sports Direct AGM.

On the headline vote he walked it with a vote against of just under 10%, or 44m shares. But obviously he's the controlling shareholder so a lot of those votes are his. So if we look at the votes on independent directors (where his holding is stripped out) the total number of minority shareholder votes cast is 120m. So the minority shareholder vote against his re-election was 36.6%. There can't be that many votes against chief execs that are that high. What is more I can see some interesting names voting against him - like M&G.

It's also up from a roughly 20% minority shareholder vote against in 2017, 20% against in 2016 (though including abstentions takes total not in favour to 27%) and 11.5% in 2015.

Obviously there is no chance of him being ousted, but it again shows you how unusual Sports Direct is in governance terms.

Saturday 24 November 2018

Chief execs, incentives and discounting

A quick plug for Are chief executives overpaid? by Deborah Hargreaves, formerly of the High Pay Centre. Spoiler alert: the answer is YES.

The book is a quick run through what top pay looks like, why it has changed and grown, some of the attempts to tackle it and so on. Of interest to people in the corp gov microcosm, the book is pretty critical of shareholder primacy. As I've argued previously, this has already become the "common sense" amongst left-of-centre policy wonks (last year's IPPR report fleshed out what I think is the centre of gravity now) and I have seen the odd similar approach from the Right too. It does feel like the ground is shifting, so it will be interesting to see if we start seeing more policy / regulatory ideas in this space - one to keep an eye on.

On pay specifically, as always my eye was drawn to the section on motivation (where again I think opinions have shifted, though practice has not). So here's a chunk:

[R]esearch by Professor [Alexander] Pepper... undermines the argument that top executives need ever bigger carrots dangled in front of them to improve their work ethic. He has found executives 'are much more risk averse than standard economic theory would suggest'. This means they value a 'sure' thing such as money more highly than a risky option such as the promise of a share award.

At the same time, 'executives are very high time discounters'. This means that if they know they will not get their share award for another three years, they disregard its value. 'This empirical evidence challenges conventional wisdom about the merits of high-powered incentive plans and pay for individual performance. It suggests that long-term incentives may actually be fuelling increases in executive pay, rather than helping to contain pay inflation.'  

I've always found the point about discounting very interesting, and wonder how execs compare against the rest of us. But it also blows a hole in some of the ideas being pushed as 'reforms'. For example, if you advocate that LTIPs have a 5-year timescale rather than a 3-year one, aren't you just diminishing the value of it in the eyes of execs even further?

I had a back and forth with a defender of the "make pay more long term" school a year or so back, and their argument seemed to be that execs say they don't value long-term rewards because they want short-term ones. To me that sounds self-evident. If you say "I put a lower value on Y than X", you can also express this as "I put a higher value on X than Y" (unless I'm missing something?). So I don't see why we don't just accept that when execs say they value long-term incentives less they mean it.

Of course the reason why some people don't like this conclusion is because then you have to question why - if the function of incentives is to get execs to do what shareholders want - would you change the structure of rewards in a way that makes them less attractive to recipients? If you have a lot invested in a set of beliefs including "long term = good" and "performance-related pay = good" that's going to be lead to some major cognitive dissonance.

Wednesday 21 November 2018

Voting different ways on the same stock

There's always a danger that a) if pension funds delegate voting rights to asset managers and b) if they appoint multiple asset managers then they may end up voting different ways on the same stock.

Googling around for something completely different the other day, I came across a current example. The fund in question actually has managers that in some cases hold the same stock and, on some pretty significant votes at significant companies they voted different ways. This is flagged up by the fund's investment consultant (I've anonymised the managers):

On Amazon and Tesla, MANAGER A does not believe a separation of CEO and Chair positions would bring governance improvements and did not vote in favor of the resolution. The manager aligned itself with Facebook management on not adopting a responsible taxation code and not requiring reporting of “fake news” or reporting on the gender pay gap. MANAGER A did not disclose its position on the dual-share class issue.

On Amazon and Tesla, MANAGER B took the opposite position to MANAGER A and does believe separating CEO and Chair positions will bring governance improvements and voted against the management. The manager aligned itself with Facebook management on not adopting responsible taxation code but was in favour of reporting on “fake news”, the gender pay gap and abolition of dual-share classes.

Actually the fund has a third manager that also holds one of the same stocks as the other two:

MANAGER C voted against Facebook’s management on the reporting on “fake news”, the gender pay gap and abolition of dual-share classes but did not disclose votes on adopting a responsible taxation code. 

Needless to say, Amazon, Tesla and Facebook are companies that have some controversial practices. But the fund's appointed managers have voted different ways on some key issues.

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.