November 20, 2017

Winds of change in the boardroom

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In an article in Governance and Compliance, Dianiele Vitale, commenting on the 2017 UK Annual General Meeting season, observes that executive pay and director elections remain the focus of shareholder attention, not just in the UK but in European markets also.

It was not so many years ago that small shareholders seemed powerless in the face of institutional and other large shareholders when it came to curbing boardroom excesses, including inflated salary and bonus payments.

What has changed? To be sure, legislation and public opinion have played their part, as has increased participation by shareholders. At Pearson’s AGM, The Telegraph reported that shareholders rejected the company’s remuneration report after CEO John Fallon received a bonus of £343,000. This was equivalent to a 20 per cent pay rise, despite having presided over Pearson’s worst 12 months in nearly 50 years on the stock exchange.

As a FTSE 100 company Pearson receives more public attention because of its status, and negative publicity will not be appreciated by investors. It is possible that there could be higher levels of opposition to resolutions at the AGM next year.

Pearson is not the only FTSE 100 company that had a resolution proposed by the board but rejected by shareholders. Old Mutual tabled a proposal to issue shares that failed to gain the majority necessary to pass. Interestingly, the most commonly contested resolutions were authorities to issue shares, followed by director elections and, in third place, resolutions related to the approval of the remuneration report.

With the UK government making executive pay a key element in its review of corporate governance and their green paper, the remuneration report may climb the league table of contested resolutions in future. The new requirement for organisations to publish the pay ratio of the CEO to the average UK worker could lead to negative publicity where the ratio is seen to be irresponsibly high.

Whether such negative publicity is directed at the remuneration policy or, as Henry Key, editor of Governance and Compliance, observes, at specific directors such as remuneration committee chairs, the 2018 AGM season may reveal.

Winds of change? Perhaps it is more of a breeze at the moment, but it is blowing in the right direction.

For the Georgeson 2017 Proxy Season Review, go to: www.georgeson.com

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