Fluttery votes

Here's the list of Paddy Power Betfair (now Flutter) major shareholders disclosed in last year's annual report. Capital Group is reported as having 5.9%, or 4.6m shares at 5 March 2019. Of these almost 3.9% are accounted for by the EuroPacific fund.

Here's an excerpt from the EuroPacific fund's NPX form that covered the 2019 AGM. The only resolution it said it voted against was resolution 2, to approve the dividend.

And here's an excerpt from Paddy Power Betfair's AGM voting results for the May 2019 meeting showing the vote against the resolution to approve the dividend.

The small print in the annual report says that the EuroPacific Fund delegates voting rights to Capital Research and Management. Does that mean that it voted For the dividend resolution, or didn't vote? Either way surely the NPX disclosure is pretty meaningless.

NMC voting turnout

Right... here's what we can see in the NMC meeting results. The first graph just sets out what NMC reports. So there is a headline total voting turnout for all meeting and at AGMs from 2015 I can also split out the insider and minority shareholder turnout figures because of the requirement to report the votes on independent NEDs twice.
In the second graph I've put in an assumed minority shareholder turnout of around 81% as this was the level it was at later on. This applies at three meetings - 2013 and 2014 AGMs, and the 2016 EGM. If I don't assume roughly the same turnout and instead assume 100% turnout of the insider bloc, then the minority shareholder turnout at the 2014 AGM would be 65%., which just didn't feel right.
UPDATE: I've added a third graph which is raw votes (rather than %) just in the years where insider votes are identifiable.

There are a few notable points. The 2016 AGM result look a bit odd. The big drop in overall turnout and insider turnout is largely Shetty not voting his shares, and this is explained in the AGM results notice. (Shetty held 47.7m at this point according to the annual report)

The very high, and unrepeated, level of minority shareholder voting is surprising. If my numbers are right it's 58.9m out 61.4m shares being voted, so only 2.5m(ish) not voted. By comparison at the previous AGM it looks 11m shares from the same free float were not voted.

Secondly, investors really don't like this company's approach remuneration. At that 2016 AGM 41.4m votes were cast against the remuneration report, so 70% of the minority shareholder vote. If we go to the 2016 EGM, 56m votes were cast against the rem policy. If we assume an 81% turnout (with more shares in issue) I reckon the vote against was around 85% of the free float. And it was over 80% against the remuneration report at the 2017 AGM too.

Thirdly, the 2013 AGM is quite interesting as it is obviously the controlling shareholders who voted the SID off the board (the vote against him 128m, shares held by controlling party disclosed in the annual report 124m) and on the same day it appointed the former EY person who became the SID.

Finally, it's terminal turnout time again. Voting levels drop as the shorting builds up.

How seriously do hedge funds voting disclosure?

Not seriously, I would argue. The principle that investors should disclose their voting records is pretty well established now, but we still get this cut & paste stuff justify not doing so.

More NMC stuff

A quick look at disclosures for one of NMC's largest shareholders, Wellington. Last Friday there was an RNS that announced that it held a bit over 10m shares, but in a note said it didn't have voting discretion for 1.35m of them (13.5%).

Then on Monday there was an RNS that replaced the one issued on Friday that announced that Wellington held 10m shares but the not now says it didn't have voting discretion for 8.7m of them (86.5%).

What happened there then? Who voted the other 8.7m shares (over 4% of those outstanding), or did no-one? Did they only find out on Monday? Not insignificant given that Wellington looks to have been the third largest external shareholder after Capital and Hermes (though part of its holding relates to a Vanguard fund it manages).

NMC Health voting rights

I spent a bit of Sunday trawling through NMC annual reports and RNS announcements. If you look at the disclosed shareholders in the annual reports you can figure out the holdings of the controlling shareholders. If you then look at the AGM results you can see both the total ISC and how much was voted. And because of the requirement to report the votes on independent NEDs both with and without controlling shareholder votes you can figure out what number the company put on controlled votes at the time of the AGM.

Looking at the 2015 AGM the numbers are exactly the same - combined voting rights disclosed in the annual report matched all votes cast minus minority shareholder votes cast. Looking at the 2017 AGM it's basically the same too. At the 2016 AGM it looks like 47.5m insider shares weren't voted, which is roughly B R Shetty's disclosed shareholding in the annual report for that year. Not sure why that might have happened. (Incidentally my initial calculation, which I'll look at again, suggests the reported turnout from the free float at the 2016 AGM was 96%, which seems high).

At the 2018 and 2019 AGM results it looks like 6.7m and 6.8m insider shares weren't voted at the respective meetings. This may be related to the fact that Shetty pledged 7m shares (but not 6.7m or 6.8m) to Goldman Sachs as part of a financing deal, about which NMC has provided more information today.

TR1 tales at NMC

A few more funky bits and pieces in the entrails of NMC Health's filings...

A couple of banks facilitating stuff for clients presumably. In the Morgan Stanley case it's an equity swap. Quite interested in who would want an NMC equity swap at this point, but again it's possible that the disclosures have lagged. The TR1 showing Morgan Stanley linked positions going below the disclosure threshold was issued to the market on 27 Feb, whereas the TR1 disclosing the previous notifiable holding was issued the day after.

24 Feb (but issued on 28 Feb)
Morgan Stanley - under 5% to 5.12% (3.94% not shares)
https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/holdings-in-company/202002281540585546E/

25 Feb (issued on 27 Feb)
Morgan Stanley - 5.12% (3.94% of which not shares) to under 3%
https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/holding-s--in-company/202002271636474038E/


Here's another bank in the mix: Goldman Sachs, and it's a mixture of put and call options, swaps and CFDs. At one point in early January the total interest in NMC shares goes from below 1% to almost 13%, of which less than 2% represented actual shares themselves, but that represents over a quarter of the free float. There are a bunch more Goldman TR1s that I'll look at later.

8 Jan
Goldman Sachs - 12.94% (11.17% not shares)
https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/holdings-in-company/202001151000018746Z/

That stuff drifts down again to just under 9% before disappearing under 1% again on 17 January. So this all happened within 10 days.
https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/holdings-in-company/202001211716315043A/


Finally, you can see a bit of stock lending activity out there too. For example, TR1s issued by Norges Bank show it winding down the amount of stock on loan (plus a jump in overall holding) from the back end of 2019. I've stuck a few of these into a chart.

Blackrock also issued a bunch of TR1s as its position went up and down, and there is a bit of disclosed stock lending in there. Here's a disclosure showing 1.6% lending near end November 2019.
https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/holding-s--in-company/201911281100020114V/  

According to ShortTracker, the total public short in NMC hit about 6% at max, and was at 5% at the time of the meeting in December that approved the company's buyback and its remuneration policy. Just the Norges and Blackrock disclosures show 3.75% between them out on loan around that time.

Incidentally, the voting turnout for that meeting was reported as 85% - with almost 178m out of 208m shares voted. Turnout at the AGM last June was actually a touch higher - 87% and 182m shares - that strikes me as pretty good in general and therefore not one of the cases I've found previously of shorted stocks seeing falling turnout.

FTSE100 corporate governance failure

UPDATED: Very useful info from Chris Hodge added - the ownership disclosure requirements are weaker for non-UK issuers. 

It's not surprising, given the market turmoil, that the crisis at NMC Health has attracted less attention than it would normally get, but it's shaping up to look pretty nasty. At the time of writing, the shares are suspended, the FCA has launched a formal enforcement investigation, the chief executive has gone (following several other directors) and the FD is on sick leave, the company has revealed off balance sheet financing running into hundreds of millions, the company is reported to have pledged future credit card payments from customers to obtain financing, there are reports of staff going unpaid and one analyst has warned that NMC shareholders might at the extreme be left with nothing.

It's pretty amazing that this has happened at a FTSE100, and this is something to bear in mind next time the claims is made that the UK's governance regime is the envy of the world. All this must surely require a thorough review.

First up, let's be clear this is not a UK company in a meaningful sense. Its shares trade here but the bulk of the business is elsewhere. Why are companies like this listed, and allowed to be listed, in the UK in the first place? Surely this example should lead us to look again at the listing rules?

Secondly, it's another controlled company, with a free float of only about 45% (though exactly who had the beneficial ownership the 55%+ is still a little unclear). [actually it looks to me like the free float was closer to 42%] Once again - why do we allow this, and if we are going to continue to do so why are shareholder protections so weak? 

The NMC case really brings this home. The 'protection' is that votes on 'independent' non-executives have to be shown twice, once including the controlling shareholder votes, and once without. And in the latter case if the director gets less than 50% the election has to be re-run. OK, great, but key players at NMC were not caught by this. B R Shetty, the founder and vice-chair who is right in the middle of it all was (rightly, obviously) not designated independent. So the governance regime by design excludes him from accountability. Nor is this glaring flaw in the regime a new thing - think James Murdoch at Sky.

Thirdly, even if all that doesn't bother you, its board clearly had independence issues. Surely in the case of a controlled company like this you have to be extra vigilant, and you should use what limited power you have to push for a board that has strong independent representation. So why so little challenge from shareholders? Looking back at its last AGM the directors barely got a tickle, let alone a slapped wrist. If I was invested with an asset manager that had a big position in NMC and voted for everything at that AGM I'd give them a serious grilling. 

We may need to need to look at reporting too. If NMC was unclear about who owned what it's possible that some of its RNS announcements are wonky. Having had a read through some of them I already have some questions. 

UPDATE: Actually the point in italics below is easily explained. The disclosure requirements for a 'non-UK issuer' are actually less than for UK issuer. Excerpt from the FCA below.

It's not obvious to me why there should be less transparency regarding the ownership of a non-UK issuer. It feels particularly odd in this case given that uncertainty regarding ownership of shares is right in the middle of the story. 

Also I realise that NMC did not tick the box (literally) on the TR1 forms to identify it as a non-UK issuer. Maybe an oversight though.

For example, this TR1 issued in January 2019 shows Capital's holding in NMC going over 5% on 22 January:

https://www.investegate.co.uk/nmc-health-plc--nmc-/rns/tr-1-notification-of-major-holdings/201901241344330419O/ 

Then there's nothing until January 2020, when this TR1 says that on 8 January Capital's position went to 11.5%:

https://investegate.co.uk/nmc-health-plc--nmc-/rns/notification-of-major-holdings/202001101030044297Z/

It seems very unlikely to me that Capital held the same position for almost a whole year and then went from 5% to 11.5% in one day, given the size of the move, the limited free float etc. So what's going on there? And when I looked at a share register showing historical holdings in the company, it looks like they went over 5% earlier. I thought TR1s had to be issued each time a shareholder goes over a 1% threshold - am I missing something? 

I appreciate that most market participants aren't going to rely on TR1s for holdings info, but these are regulatory announcements. Perhaps there is a reason why it didn't report ownership going over 6%, 7%, 8% etc, but if so the reporting regime seems a bit pointless. And it may not just be Capital, are there other TR1s that should have been issued? 

This in turn makes me wonder about the disclosures in the annual report. Here is the list of major shareholders in the most recent annual report.

I thought that requirement to disclose major shareholders kicks in at ownership of 3%. If the company issued a TR1 in January 2019 saying that Capital went over 5%, and the statement of major shareholders in the annual report is as at 6 March 2019, why is Capital not in the list?

I'm going to keep digging away at this one, and will blog again as I find more out. At the moment I'm just shocked that this had happened.

Workers on boards - sharp edges

Just a quickie on one of my favour topics - worker representation in corporate governance. First up a bit of politics: Once again the main opposition parties (including the SNP) went into the election advocating an extension of worker representation on boards.

There was nothing in the Conservative manifesto, but obviously it was the Conservatives who sought to amend the UK Corporate Governance Code to promote worker directors amongst other options. In addition, there are voices on the Right who want to reinvigorate this objective, something I'll likely to come back to in another post.

Meanwhile polling on the topic shows that the public - regardless of how they vote - support worker representation on boards. My basic point is that this remains a politically attractive policy, even though it is opposed/feared/detested (delete as appropriate) by many corporates and a number of  investors.

It's also starting to creep up the agenda in the US, largely because both Sanders and Warren have made commitments to put workers on boards. Interestingly, there have now also been a handful of shareholder resolutions seeking to appoint worker directors - at Alphabet, Microsoft and Fedex. Needless to say these haven't been successful, but they do start to change the dynamics of the argument.

As I've bored on about plenty of times, I'm not sure it's going to look great having asset managers blocking workers getting a greater voice in corporate governance. To date this has simply been a policy argument and as such has largely been in the shadows, but now we can actually see how Asset Manager X voted on appointing an employee director at ABC Inc the discussion has the potential to get quite a bit sharper.

If you trawl the voting records of asset managers you can already see some voting decisions. I had a look last night at a handful of big managers, all with a decent/good profile in the ESG world, and they all opposed all three resolutions at the US companies named above. Obviously it's a legitimate position to oppose worker representation in corporate governance, but equally it's a legitimate position to support it, and I think the managers of capital are currently way out of step with the views of those that capital belongs to. I doubt that will continue uncontested.

Turnout tales

If recent events tell us anything, it's that voting matters... With that in mind this is a quick post on something that caught my eye this year: sharp changes in voting turnout at a number of companies. Some of the more striking examples have been at companies that have got into financial trouble, like Thomas Cook, Interserve, Kier Group and so on. Here are a few examples (excuse my poor Excel skills). I've included publicly available data on short positions at the same time as the relevant meeting, as I think that the impact of shorting might be part of the story.

For completeness, take a look at Premier Oil, where a huge short position has recently been reported (it seems this one might be hedging).

But it's not just about shorting, there are some interesting results at companies that have been in the middle of other activity. Have a look at Provident Financial, which was facing a bid from Non-Standard Finance earlier this year. I have half an idea here that it could be the result of people taking a punt on the takeover succeeding using equity derivatives, hence banks ended up on the register as counterparties but didn't vote (as I believe there is a tax issue). I'm interested if anyone can tell me if I'm talking gibberish, or not.

And if we look back at Whitbread over the past couple of years, when Elliott had a large derivative position and was pressuring the company to restructure, we also see a drop in turnout. I'm not clear why this sharpened in 2019, though it's worth noting that it bounced back at this month's EGM. Press reports suggest Elliott wound down its position in July.

 

I'd love to see what the turnout at Melrose Industries March 2018 EGM was like, as I suspect we'd see the impact of hedge funds there too. But it's the one set of meeting results not available on its website.

And with that, I'm off... Happy Xmas and see you in 2020!

Shorting and voting

As some people will be aware, I've been looking into changes in voting turnout at companies in trouble. Short version: turnout has fallen at several such companies, in some cases significantly. Why this might be is another question. Since several of these companies were also been heavily shorted there's a potential explanation. Perhaps investors lending shares to those shorting were not recalling them in order to vote.

So I've had a look at public shorting data (which I know is limited) and plotted this against turnout. The charts below are v basic. I've just looked at the short position on (or shortly prior to) the date of the relevant meeting. Really I ought to put more shorting data in, as obvs the shares don't get lent out and shorted immediately before meetings.

Anyway, it looks like there is a bit of a correlation, although the Debenhams example does not show that at all. So it's possible that something else is going. Perhaps changes in the register explain it - as companies get into trouble big institutions who are more likely to vote are no longer there in numbers. Or perhaps some investors just give up - if you're an indexer who has to hold the shares, but know the company is doomed why vote? Why not at least get a bit of lending income? So not a straightforward story.

PS - Premier Oil obvs not in the same category as the others. I included it as the story about the massive short in the company is in the press today.

Dividend trades and voting

Obviously, I've not been blogging much lately, but something I've been spending a bit of time looking at is dividend arbitrage. In it its most well-known version, this is the practice of shifting stock around the ex dividend in order minimise tax payable. There is a variety of different trades, and at one end of the spectrum some of them are the subject of legal cases. (great piece on Macquarie's involvement here).

What all of them involve is stock lending. I recommend having a read of this paper from Richard Davies IR, which opened my eyes to the scale of lending that is going on in the UK. 20% to 30% of stock is going out on loan around the ex dividend dates of major UK PLCs, which immediately makes me think about the potential governance impact.

It's very hard to pin down who is involved. But one thing that can happen with large movements in stock is that they trigger regulatory announcements because voting rights thresholds are crossed. These are are the TR1 notices, which appear with the title "Holding(s) in company" if you look on sites like Investegate.

So one of the things I did was look at TR1 notices issued around the ex dividend dates of a few companies. And I can see some, Blackrock in particular seems to be triggering them on a regular basis. These appear to show a shift in allocation of voting rights a few days before the ex dividend date and back again a few days after it.

Where it gets particularly interesting is when the ex dividend date is close to the AGM. If this shuffling of stock involves lending some to another party then there *might* be an impact on voting turnout if shares aren't returned in time to vote. I have identified cases where voting turnout has gone down (very significantly in one of them) when the ex dividend date has been close to the AGM date.

I can't say for certain if the stock-lending is a) linked to a dividend trade or b) resulting in lower voting turnout. But it's a bit of a coincidence.

Corporate governance, again

There have been a few developments over the past week or two that play into the argument I've been making that 1990s-style corporate governance is come under serious pressure to change.

1. Polling from the resolutely centrist Progressive Centre UK, which found strong public support for policies like a mandatory maximum worker-to-CEO pay ratio, caps on bonuses, workers on boards etc. 

2. A report out today from the High Pay Centre shows that shareholders in UK companies are *still* not using their legal rights to control executive pay.

3. Research by LAPFF found that the large majority of companies are choosing NOT to appoint worker directors to their boards.

4. The launch of the ace-a-tronic Common Wealth, which is going to focus on questions of ownership in various fields.

You can pull this all into quite a coherent picture: the public thinks executive pay is too high; shareholders have been given powers to tackle it but don't seem willing and/or able to do the job; companies have been encouraged to give workers a say at board level, which might help tackle it, but have stuck two fingers up in response; as a result public policy experts are looking at other more radical interventions.

As I've said before, I think we can see the bones of an alternative approach to corporate governance. It's primarily come from the Left, but I think it is rapidly becoming 'common sense' across a large range of people who look at policy in this area. To repeat it, I think we're looking at a shift away from shareholder primacy (so more action on corporate purpose, perhaps legal changes to directors' duties), stakeholder representation in corporate governance (workers on boards etc) and more diverse forms of ownership (again, a greater stake for employees looks to be pretty central).

Again I'm repeating myself, but at the 'ideas' level, things seem to be moving pretty quickly. I was genuinely surprised at how far Chuka Umunna's pamphlet went on issues like co-determination and employee ownership, for example. And I recently stumbled on this speech by the head of the New Zealand financial / capital markets regulator explicitly arguing against shareholder primacy.

Something is up.

Major shareholder turns against Ryanair board

Just a quickie, but I spotted last week that Baillie Gifford had voted against the re-election of both David Bonderman (chair) and Kyran McLaughlin (SID) at the Ryanair AGM in September.

Why does that matter? Because Baillie Gifford is a large (4%) and long-standing Ryanair shareholder and, as far as I can see, has not opposed any board members in recent years.

Another straw in the wind I think.

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.

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.

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.

29/10/2018

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.

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.

Ryanair AGM in charts...

Just a bit of fun, but I've put together a few bits and pieces that put the vote on David Bonderman's re-election of chair of Ryanair in context.

To calculate the stats I've used the full AGM results distributed by the company, and stripped out Bonderman and O'Leary's holdings (about 51m shares)

First up, this is how the vote on his re-election stacks up against other chairs in the ISEQ20, based on the most recent numbers available (NB I couldn't find data for two of them).

The next one looks at the votes against and abstentions on Bonderman's election in 2017 and 2018

The final one looks at the split of votes cast and shares not voted (this one includes Bonderman and O'Leary's holdings).

There are some interesting things to note in this one. First, despite the number of shares falling by about 4% between 2017 and 2018 (due to buybacks) the number of shares voted increased by about 3% (27m shares, 2.38% of the 2018 ISC), whilst the number not voted fell by 18.8% (75m shares, 6.6% of 2018 ISC). Turnout (which had been drifting down over the past few years) increased from 66.3% to 71.4%. So in very rough terms terms it looks like an approx additional 5% of shares in issue came into play at this meeting.

I am curious about this. Undoubtedly there was much more focus on this year's AGM, which might have nudged turnout up (and these votes could have gone any of the three ways), but there was also reference in the meeting to some shares being voted at the chair's discretion. It's possible Ryanair used these votes this time having not done so previously, though I have no way to stand this up. To be clear, an extra 5% wouldn't make much difference to the result, but means the non-insider vote might have been edging towards 60:40 in favour.

Final point: looking at this chart, Bonderman actually received the active support of less than half (48%) of the issued shares, compared to more than half (58%) last year.

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.