Quarterly Report

Transcription

Quarterly Report

Quarterly Report
31 DECEMBER 2014
Europe, the Middle East
and Africa
Table of Contents

Market Development and Trends

Active Ownership and Responsible Investment

Engagement with Issuers and Statistics

Voting Highlights and Statistics
QUARTERLY REPORT | 3 1 D E C E MB E R 2 0 1 4
Market Development
and Trends
Discussions between EU Member States, its institutions, and other stakeholders
continue to evolve on the European Commission’s (EC) proposed revisions to the
Shareholder Rights Directive (SRD). Despite the earlier aspiration of the Italians,
who hold the current Presidency of the Council of the European Union, to conclude
these discussions by the end of the year, it now appears likely that negotiations will
still continue into the next Presidency, which will be held by Latvia. The key hurdle
is the proposal for increased shareholder oversight on related-party transactions, as
Member States have different practices to address control and protection in these
situations. The inclusion of other stakeholders, beyond issuers, their shareholders
and the intermediaries in the investment chain, has also been tabled. We continue
to monitor discussions as they progress among the Member States and the EU
institutions.
The Organisation of Economic Co-operation and Development has launched an
invitation for public comments on its revised Principles of Corporate Governance.
These Principles were last updated in 2004 and have come to serve as best
practice guidance for markets in establishing their corporate governance
frameworks. The key elements of the revised Principles cover:

Ensuring the basis for an effective corporate governance framework;

Rights and treatment of shareholders;

Institutional investors, stock markets and other intermediaries;

The role of stakeholders;

Disclosure and transparency; and

Responsibilities of the board
Notably, we have observed significant overlap between the proposed revisions to
the Principles and the proposed revisions to the EU SRD as previously discussed.
This is not unexpected as the changes seek to incorporate and promote
developments within global corporate governance practices over recent years, and
to address challenges and deficiencies identified. BlackRock will be submitting a
response.
3
CORPORATE GOVERNANCE & RESPONSIBLE INVESTMENT | Europe, the Middle East and Africa
Market Development
and Trends
United Kingdom
As discussed in previous commentaries, 2014 was the first year in which UK
issuers were required to put their forward-looking executive remuneration policies to
a binding shareholder vote. This entailed significant engagement with shareholders
to explain the appropriateness of the board’s proposed remuneration package for
the company and its stated strategy. We have since then witnessed a worrying
trend whereby a not insignificant number of issuers, despite just having had their
remuneration policies approved by shareholders at their 2014 AGMs, have begun to
consult shareholders yet again for proposed changes to their remuneration policies
for the coming year. BlackRock’s view is that the remuneration policy, as approved
by shareholders, should remain not only relevant but the most appropriate structure
for issuers as they continue to execute the stated strategy for which these policies
were originally proposed as the best possible structure.
Italy
Over the summer months, the Italian Parliament introduced legislation, known as
the ‘Development Decree’, which introduces three major changes to Italian
Company Law. One change is of particular concern as it introduces the possibility
of multiple voting rights per share, which goes against the principle of the equitable
treatment of shareholders, or one share – one vote. As a result of this Decree,
issuers have the option of amending their bylaws to provide double voting rights for
shareholders who have held their shares for a continuous two years or more.
Shareholders will need to have requested the registration of their shares in a
special share register in order to qualify. BlackRock does not support the adoption
of multiple voting rights. Our main areas of concern from a governance and policy
point of view is as follows:

4
The use of multiple voting rights runs contrary to what the EU institutions are
trying to achieve with the proposals for a revised SRD, which is the
strengthening of EU economies through improving their investment appeal.
Crucial to this is the increased engagement between issuers and their
investors. An important tool in promoting long term shareholder engagement
is the improvement of the cross-border execution of voting rights, as this
completes the circle of shareholder engagement.
Market Development
and Trends

We see very real unintended consequences as a result of this legislation,
which could ultimately have a negative impact on the Italian economy.
•
Disenfranchisement of minority shareholders, who are typically panEuropean but cross-border investors, who will see a disproportionality
between the economic capital they provided and their voting rights;
•
Issuers no longer engaging with minority shareholders whose voting
power has been diluted, i.e., an alienation of minority shareholders from
governance dialogue with issuers; and
•
The augmentation of the weight of activist shareholders.
France
The Florange Act
We are noting some potentially concerning trends across European markets where
countries are introducing (see Italy above) or re-enforcing the existing rules
(France) on multiple voting rights.
Earlier in 2014, under the Florange Act (Loi Florange) adopted in France, registered
shareholders for two years or more will automatically receive double voting rights.
The act/rule is automatically applied to all French issuers above a certain size. The
main concern in relation to the rule is that it is moving away from the widely
accepted one-share, one-vote principle. Prior to this act, French companies were
allowed to grant double-voting rights to registered shareholders after a minimum of
two years only if they had a bylaw provision specifically allowing for it.
The new law works in the way that companies whose bylaws already include
double voting rights before the introduction of the Florange law are exempt from this
law. Companies whose bylaws are silent on voting rights, are required to amend
their bylaws to preclude the automatic granting of double voting rights. The bylaws
amendment requires shareholder approval of two-thirds of voting rights to be
enacted.
2015 is the last full year when French listed companies can amend their bylaws to
keep the one-share, one-vote principle, before the automatic introduction of doublevoting rights. The two-year holding period resulting in the automatic granting of
double-voting rights started in April 2014. This means that French companies that
are looking to prevent automatic granting of double-voting rights have to submit an
amendment to their bylaws by April 2016 in order to give shareholders the option to
opt out of double-voting rights.
5
Market Development
and Trends
Switzerland
Swiss Corporation Law Reform
On November 28th, 2014, the Swiss Federal Council presented a preliminary draft
for a reform of the stock corporation law. The reform intends to modernize the
corporation law and to incorporate the 2013 Ordinance Against Excessive
Remuneration at Listed Companies (the “Minder Ordinance”) in the Code of
obligations. The draft aims at fostering shareholder participation by different
mechanisms:

companies could modify their bylaws to allow the distribution of a dividend
20% higher to shareholders who exercise their voting rights

companies would have to accept shareholder registration through an
intermediary and the registration could be done electronically

companies could hold “cyber-general meetings”

public companies are to set up an online platform for discussions before any
shareholders’ meeting
Regarding directors’ and executives’ compensation, the draft is clarifying certain
elements that had not been defined in the Minder Ordinance:

prospective say on pay votes on variable compensation are illegal

sign-on bonuses are only permissible if they are to compensate “clearly
demonstrated financial disadvantages” incurred in connection with the
change of employment

non-competition agreements must be concluded at arm’s length, they must
be commercially justified and not exceed a duration of 12 months

the compensation report must disclose the compensations, of each member
of the board and of the executive committee
Among the other proposals, the draft introduces a target gender quota of 30% for
the board of directors and the executive committee of publicly listed companies
based on a “comply or explain” approach with a five-year deadline. Shareholder
rights are being facilitated by decreasing shareholding thresholds required to use
them. Derivative lawsuits could be litigated at the expense of the company. There is
also the introduction of a capital band, allowing the board to increase or decrease
the share capital within an upper and lower limit during a period of five years.
Finally, the draft proposes that major companies engaged in the natural resources
sector disclose annually all payments made to public authorities. The Federal
Council opened a consultation on the draft which will end on March 15th, 2015.
6
Active Ownership and
Responsible Investment
Speaking Engagements
Below is a complete list of speaking events from the quarter, and subject matter
covered which include:
 BDO – London
BlackRock presented at a roundtable debate on investor engagement, hosted by
BDO. The participants were Chairmen and other non-executive directors from
smaller and AIM-listed issuers in the technology, media and telecommunications
industry.
The session focused on the frequency, quality and success of
engagement between issuers in this sector and their investors. BlackRock
described its philosophy and approach to engagement with issuers on corporate
governance, focusing on the importance of discussions on strategy, board
composition, succession planning and talent development, and overall transparency
and disclosure.
 Investor Relations training workshop hosted by The London Stock Exchange
- London
This workshop was for junior Investor Relations officers from both privately-held and
publicly-listed issuers. BlackRock presented an investor’s view on the importance
of the Investor Relations function in furthering good corporate governance
practices, primarily as a conduit for information flow between the issuer and its
investors, including fostering transparency, engaging in regular dialogue with
investors and encouraging and promoting a clear message from the top for the
integration of good corporate governance practices into strategy.
 Investor Relations training workshop hosted by The London Stock Exchange
- London
This workshop was a master class for more senior Investor Relations officers. The
majority of attendees were from UK-listed issuers with a wide array of market
capitalization. BlackRock participated in a panel discussion on the relevance of
corporate governance and responsible investment considerations in investor and
issuer engagement, the expectations of investors in regards to the understanding of
boards and management on these issues and the way in which the Investor
Relations function can contribute to a more effective and meaningful dialogue
between issuers and their investors.
7
Active Ownership and
Responsible Investment
Speaking Engagements - continued
 The 15th European Conference on Corporate Governance entitled "Corporate
Governance, Value Creation and Growth“ – Milan
BlackRock presented on the panel that was exploring the ways and tools that can
be used to build relationships between companies and investors. We explained our
philosophy around engagement that is based on constructive dialogue and building
trust. We also explained how we reach voting decisions where we use different
sources of information to arrive at our view on the voting items. Finally we
elaborated on our approach to vote against only in circumstance where
engagement had not worked.
 Hawkamah 8th Corporate Governance Conference: ACCOUNTABILITY &
LONG-TERM SUSTAINABILITY – Dubai, United Arab Emirates
BlackRock participated in a panel discussion on the premise that "Boards are about
creating value for shareholders. What are the investor expectations from companies
and their boards? What is the role of corporate governance in enhancing investor
confidence?" A range of views were expressed but the panel agreed that theses
investors have growing expectations of company boards and that expectations will
continue to grow. We debated the key tasks of the board and the individual board
members. To coincide with the event, BlackRock published an article entitled
"Evolving role of the company director" in the Hawkamah Journal on Corporate
Governance.
 AFEP – Paris
A briefing organized by AFEP for a group of large French corporates provided
BlackRock an opportunity to communicate and elaborate on our voting policies for
France in preparation for the 2015 voting season. We also communicated our views
on the recently adopted Florange Law (please see the section on market
developments for more information) and BlackRock's clear preference for one share
- one vote.
 French Corporate Governance Forum – Paris
BlackRock participated on a panel which debated engagements between
companies and investors in a French context and how the nature and frequency of
engagements have changed as investors’ expectations have grown in relation to
direct conversations with board members. The panel also discussed the pros and
cons of the Florange law and dual voting rights vs. one-share one-vote both from
an issuer and investor perspective.
8
Engagement with
Issuers1 and Statistics
EMEA
The
United
Engagement
KingdomStatistics
Engagement Statistics2
Level of Engagement3³
Number of
engagements
XX
15
Basic
Topics Discussed
Moderate
XX
11
Extensive
X
4
Environmental
X
0
Social
X
1
Governance
X
1
XX
15
The following examples from the past quarter demonstrate the wide range of issues
our engagements cover and highlight our efforts to protect the value of client’s
assets invested in these and similarly situated issuers. These examples reflect
engagements that merited particular focus on ESG considerations. The companies
mentioned are for illustrative purposes only and not as a recommendation of any
particular securities.
1
This quarter, we conducted a follow-up engagement on board composition and
refreshment with a financial services company. At the time of the annual general
shareholder meeting (AGM), we identified upcoming board changes and our
objective was to understand how the future composition of the board would retain
an appropriate balance of skills and experience to provide the necessary strategic
oversight. We met with the Chairman of the board as well as the new Senior
Independent Director (SID) to discuss the evolution of the board in this context.
Incidentally, the position of SID was one of the board roles that we wanted to
monitor at the time of the AGM as the director holding the role was stepping down
and a successor had not yet been announced. The incoming SID is a nonexecutive director who has been on the board for some years and whom we and
our fund managers believe will be well suited for the role. We also discussed the
Chairman’s board roles at other listed entities and the prioritization of demands for
time. We are comfortable that the board is taking an appropriately long-term view
of its composition in relation to the company’s strategy over time, and managing its
succession planning in a well thought out manner.
1
The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities.
The United Kingdom Engagement Statistics Report is a reflection of 4th Quarter 2014.
3 Basic engagement is generally a single conversation on a routine matter; Moderate engagement is technically more complex and generally involves
more than one meeting; Extensive engagement is technically complex, high profile and involves numerous meetings over a longer time frame.
2
9
Engagement with
Issuers and Statistics
10
2
We engaged a number of times this quarter with a major oil and gas company. In
collaboration with our fund managers, we met with the Chairman to discuss
strategy, succession planning and board composition. We spent considerable time
examining the long-term risks and opportunities for the company in relation to the
falling oil price as well as non-financial factors such as sanctions and geo-political
considerations. We gained a better understanding of the cost/benefit analysis
conducted by the board and management on projects individually as well as in the
context of the entire portfolio. Separately, we also met with senior management to
discuss the environmental impact of the company’s operations, and its strategy to
manage them. We focused our discussion on water management. We discussed
their collaborative efforts with governments, non-governmental organizations and
other external stakeholders. The company highlighted the importance of being
prepared, for example by identifying areas or regions which, although not currently
water scarce, could realistically become water scarce in the future due to climate
change, water supply and other factors. We also discussed different initiatives and
programmes in which the company is involved to advance technological
development in this area. Overall, we found these engagements to be informative
and are comfortable that the company is managing its risks and opportunities in this
area.
3
A large retail company sought feedback from us on proposed changes to its
remuneration policy. The changes were considered necessary in light of the
appointment of a new CEO and to reflect the volatile nature of the industry. The
main goal behind the changes was to bring stability to the executive team and to
retain them for at least the next five years. The company proposed a slight
decrease in base salaries and in the maximum cash and shares award percentage.
In turn it wants to implement a shorter one-year performance targets in order to
motivate management with targets which are predictable and achievable in the fastpaced retail industry. The components of the remuneration package would be a
base salary, an annual cash bonus and an annual deferred share award vesting in
years three, four and five. We were generally supportive of the new policy as the
company was trying to simplify the policy and align it with its industry
characteristics. We pointed that the one year performance targets have to be linked
to the achievement of longer time strategy. The company responded very positively
to our suggestions. The company’s remuneration committee will discuss them and
take actions as appropriate.
Engagement with
Issuers and Statistics
11
4
We engaged with the UK retailer to discuss our concerns in relation to their financial
reporting and profit misstatements that had a substantial impact on the company's
share price and reputation. We met with the company's senior independent director
to get a better understanding about (i) the reasons for the misstatement, (ii) the
oversight of accounting and reporting process provided by the audit committee, and
(iii) the oversight of the audit process and the relationship with the external auditors.
We raised questions about the corporate culture with the aim of getting a better
understanding of the way that potential problems could/can be reported
(whistleblowing policies and practice). We were looking to get an indication of an
alternative plan for the key board members in case the investigation confirmed
wrongdoings. With a number of senior executives leaving the company as a result
of findings, and with the Chairman resigning his position, we expressed our view
that the board needs to consider the balance of skills of its members, particularly
the lack of retail experience that some feel might have contributed to the
misstatement problems. Having a plan on how to rebuild the company's severely
impacted reputation was highlighted as a priority for the board.
5
We engaged with the UK energy company over the appointment of the new CEO
after a period of uncertainty over the leadership of the company. The engagement
included a discussion about the remuneration plans for the incoming CEO. We met
with the Chairman of the company to discuss the process for identification of the
potential CEO candidates and the final decision making process. The chairman
presented the board's view on the appropriate remuneration plan that was to be put
in place for the new candidate. In the board's view, given the exceptional nature of
the candidate, the proposed remuneration package included a one off payment that
was falling outside the existing remuneration policy approved by shareholders
earlier in 2014 (on a binding vote). In BlackRock's view, the new CEO was the right
person for the job. However, we were concerned about the board's decision to
award the one off sign on payment that was outside the policy. Subsequent to the
meeting with the chairman we had a number of conversations with the company
expressing our concerns over the one off payment and the decision to move away
from the policy so shortly after it was approved. After the period of consultation with
shareholders, the company withdrew its pay proposals and has agreed to structure
the incoming CEO's pay within the existing policy.
Voting Highlights47 and
Statistics
8
5
United
The
United
Kingdom
Kingdom
Voting
Voting
Statistics
Statistics
Number of
meetings voted
Number of
proposals
215
148
2906
1490
% of meetings voted against one or
more management recommendations
% of proposals voted against
management recommendation
14%
9%
1%
2%
As most UK-listed companies hold their annual shareholder meetings in the first
half of the year, much of the voting activity in the second half centres around
extraordinary general meetings (EGMs). This quarter in particular we have
witnessed a number of issuers calling EGMs for shareholder approval of mergers
and acquisitions and business unit disposals. The below are examples of some of
our voting highlights to provide more transparency into the scope of our work.
1
4
5
A UK integrated dairy company held an Extraordinary General Meeting this quarter
as the company was asking shareholders to approve the disposal of part of its
business as well as an amendment to the company’s remuneration policy to grant
exceptional incentive awards to the CEO. Since the remuneration policy had just
been approved by shareholders last June, the CGRI team engaged with the
company to understand the rationale for this extra-award so soon after the vote.
BlackRock expressed concerns over one-off payments to executives, especially
when they are linked to transactions which have not been finalized yet. We believe
executives’ remuneration should be aligned with the company’s long-term strategy
and should allow retention of talent without the need for exceptional additional
payments. The board argued that they could not foresee a transaction of that size at
the time they shaped the remuneration policy while also defending the operation as
one shareholder had been demanding for a long period of time. Finally, the
company was portraying the operation as very positive without mentioning the fact
that shareholders would be left with a high amount of liabilities. For all these
reasons, and after careful consideration, BlackRock decided to support the
transaction which seemed necessary but to vote against the grant to the CEO.
The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities and are not a complete list.
The United Kingdom Voting Statistic Report is a reflection of 4th Quarter 2014 and sourced from ISS Proxy Exchange, January 2, 2015.
12
2
3
A large consumer goods company sought shareholder approval to spin off its
pharmaceuticals business. The company recently undertook a strategic review, the
outcome of which was to refocus on its core businesses. The pharmaceuticals
business had been developed and managed as a separate division of the company,
with significantly different characteristics compared to the company’s core
operations. As such, the pharmaceuticals business had been regarded as non-core
since 2007 and, indeed, its results had been reported as a separate operating
segment as well. In the context of the revised strategy, the board decided it was
appropriate to demerge the pharmaceuticals business at this time. The newly
created company will be a distinct entity with a separate management team.
BlackRock voted in favour of this proposal as it was in line with the board’s stated
strategy, and seemed aligned with long-term shareholder interest.
4
A large UK pharmaceutical company asked shareholders to approve a transaction
with a Swiss issuer. The two companies entered into a three-part agreement,
exchanging assets in the vaccines and oncology businesses and creating a jointventure in the consumer healthcare sector. This large-scale transaction illustrates
the consolidation movement that is ongoing in the pharmaceutical market as
companies are looking for more synergies. The operation should allow for annual
cost savings of £1 billion by year five and £4 billion of the net proceeds from the
disposal is intended to be returned to shareholders via a B share scheme following
completion of the transaction. As the transaction seemed to be in line with the
company’s strategy to focus and strengthen its core business in order to create
long-term growth, we decided to support the transaction.
Q4 saw pharmaceutical
companies looking for synergies
as markets kept consolidating.
The last two voting highlights
include overviews on two large
pharmaceutical companies
which entered into a three-step
agreement, exchanging assets
and created a joint-venture.
13
In the last quarter of 2014 we participated in an annual general meeting of an
independent oil and gas company listed on AIM (Alternative Investment Market).
Amongst other proposals the company was seeking to re-elect its current CEO and
Chairman and to get authorisation for issuance of shares without pre-emptive
rights to the limit of 15%. We had reservations regarding re-electing the
CEO/Chairman because he is considered to be an insider beneficially owning
21.4% of the company, yet he serves on the audit and the remuneration
committees. He is performing a role of both CEO and Chairman, which may be
seen as inappropriate in light of him being an insider and considering the lack of a
senior independent director on the board to provide a counter balance to his
control. The awards granted to the CEO during the year under review were very
high considering the company’s size and were not conditional on the achievement
of performance hurdles. On this occasion we voted in favour of re-election as we
understand that the CEO is a key member of the Board and his expertise is
necessary to the achievement of company’s goals. However, we still believe the
company’s governance practices require improvement. We will engage with the
company in due course to recommend that additional independent non-executive
directors are recruited to mitigate the risks connected to consolidation of power in
CEO/Chairman’s hands. Secondly, we voted against authorisation for issuance of
shares without pre-emptive rights to the limit of 15%. In line with our policy we
believe that limits above 10% for AIM listed companies have a potential to be
excessively dilutive to existing shareholders.
Engagement with
Issuers6 and Statistics
EMEA excluding
Engagement
theStatistics
United Kingdom Engagement Statistics7
Level of Engagement8³
Number of
engagements
XX
19
Basic
Topics Discussed
Moderate
XX
14
Extensive
X
5
Environmental
X
0
Social
X
4
Governance
X
4
XX
17
The following examples from the past quarter demonstrate the wide range of issues
our engagements cover and highlight our efforts to protect the value of client’s
assets invested in these and similarly situated issuers. These examples reflect
engagements that merited particular focus on ESG considerations. The companies
mentioned are for illustrative purposes only and not as a recommendation of any
particular securities.
1
This quarter we engaged with a European multinational oil and gas company to
discuss board composition, responsibilities and training. This was particularly
timely as the board was newly elected in the spring. An encouraging aspect of the
engagement was the presence of the Board Chairman as it is still uncommon in this
market for non-executive directors to meet with shareholders, although we have
been witnessing wider take-up in the last year or so. In regards to non-executive
directors’ skills and experience, we note a shift towards more practical experience
than previous boards. This is something that the chairman values. We also
discussed the company’s environmental and social initiatives. The company has
been chosen to participate in the United Nations’ (UN) Global Compact LEAD
Board Programme designed to accelerate the recognition by boards and
management of the material impacts of non-financial issues. Specifically, the
initiative seeks to foster the integration of sustainability into corporate strategies by
educating and training directors on its relevance.
6
The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities.
The EMEA ex United Kingdom Engagement Statistics Report is a reflection of 4th Quarter 2014.
8 Basic engagement is generally a single conversation on a routine matter; Moderate engagement is technically more complex and generally involves
more than one meeting; Extensive engagement is technically complex, high profile and involves numerous meetings over a longer time frame.
7
14
15
2
We engaged with a European utilities company to discuss board composition and
induction after a number of new members were elected in the spring. The induction
process appears extensive and robust as a session on different business lines
follows each board meeting. There has also been a shift in the skills and
experience of the non-executives, with a greater subset now with strategic, legal
and broad economic backgrounds. An evaluation will be conducted later this year
to ascertain the impact this has had on the execution of board responsibilities. We
also discussed the company’s key risks and the processes by which these are
assessed. The new CEO has launched an initiative to reduce the company’s
overall risk. In tandem, and as a result, a new committee on sustainability has been
established for integration into the business and strategy. The company is also a
participant in the previously mentioned UN Global Compact LEAD Board
Programme.
3
In recent years, we have witnessed increasingly proactive steps by South African
issuers to engage with their shareholders on governance matters. This quarter we
engaged with an integrated energy and chemicals company to receive an update
on strategy in particular its operational transformation, board structure including
succession planning and non-executive directors’ skills and experience, board
effectiveness and evaluation, and executive remuneration. The discussion was
beneficial in that we were able to introduce the company to BlackRock’s approach
to corporate governance, and the board was able to demonstrate to us that it is
taking a considered view of the company’s evolving strategy and the required board
profile.
4
Alongside other investors we attended a roadshow of a multinational automotive
manufacturing company to understand the company’s business strategy and its
approach to sustainability. In the light of the CO2 emission targets imposed by the
EU as well as by individual countries globally, we wanted to satisfy ourselves that
the company was doing enough to meet these targets. We noted that at the
currently the company is behind its competitors in producing cars with lower CO2
emissions. When asked, the company failed to formulate a precise answer on how
it envisages achieving these targets. We will continue to monitor the company’s
progress towards them. The company wants to encourage its customers to buy its
electric vehicles by investing in the infrastructure required for charging and by
changing the chemical composition of the batteries to extend their range to 300 km.
Recognising that at present electric cars are not a solution for every customer, the
company is advertising its hybrid cars as a bridge technology.
5
On another occasion, we met with a different automotive manufacturing company,
operating at the premium end of the market. The aim of this group investor meeting
was to outline the company’s future plans, especially in the areas of sustainability
and profitability. The company believes that it imbeds sustainability into every
aspect of its operations, starting from the top management and Supervisory Board
oversight and ending with the electric vehicles (EV) range offered to the customers.
In terms of future strategy, on one hand the company is focusing on making their
combustion engines more efficient, on the other, it is developing its EV range.
The company’s EVs are designed specifically for electric driving - not just modified
from previous combustion engine models. The company is working on extending
the range of its EVs. This includes making them lighter by using carbon fibre for the
body of the car and by working with its battery supplier. The company has its own
carbon fibre manufacturing plant in the US, which is using hydro energy to power
production. Therefore it was able to reduce the cost of carbon fibre and improve its
margins on EVs. Using carbon fibre had an unexpected positive impact on the
employee wellbeing as the noise in the car manufacturing plants was reduced
significantly. Lastly the company is working on extending its brand recognition and
product diversification by entering into joint ventures to provide other mobility
services, e.g. a car share scheme or a parking aid application.
6
16
We engaged with a large bank in Switzerland on their implementation of rules in
relation to the Minder Ordinance. As a reminder, in November 2013 the Swiss
Federal Council (the executive branch of the Swiss federal government) adopted
the final ordinance against excessive remuneration for listed companies, called the
Minder Ordinance. The key aspect of the ordinance which needs to be implemented
in 2015 requires companies to put their executive pay up for a (binding) vote for the
first time. In our engagement with the bank's chairman we were looking to get a
better understanding of the work done in preparation for the vote. Most specifically
we were looking to get a better understanding of any potential changes the bank
was looking to implement in relation to the pay of their executives and the key risk
takers. Directly linked to the discussion we wanted to understand how the link
between pay and performance is captured given the operating environment and the
challenges that the bank is facing is relation to some of its business segments. We
also questioned the choice of performance targets for executive pay. We will
continue this engagement in advance of the 2015 shareholder meeting.
.
Voting Highlights97 and
Statistics
8
Unitedincluding
EMEA
Kingdom the
Voting
United
Statistics
Kingdom
Voting Statistics10
Number of
meetings voted
Number of
proposals
215
326
2906
2896
% of meetings voted against one or
more management recommendations
% of proposals voted against
management recommendation
36%
9%
1%
7%
This quarter was marked by a high level of transactions that shareholders were
called to approve. Large industrial groups are rationalizing their portfolios in order to
focus on their core business and/or to deleverage their balance sheets. The below
are examples of some of our voting highlights to provide more transparency into the
scope of our work.
1
Shareholders of a French power and transportation company were called this
quarter to approve the disposal of their energy business to an American issuer. The
transaction was extensively covered in the media due to the government’s
involvement during the negotiations and the fear of the French industry’s “jewels”
being sold to foreign interests. It led to the enactment of a new regulation extending
the State’s veto power regarding takeovers in strategic sectors. After lengthy
negotiations, the acquirer committed to invest and create employment in France as
well as the creation of three joint ventures between the two firms. A large
shareholder which is going to sell a part of its stake to the French government,
agreed to lend 20% of its voting rights to the French government to vote during this
meeting. The agreement was criticized as it gave the French State influence on the
decision-making which outweighed its economic exposure. As this transaction will
allow the company to focus on its transport activity and will provide the financial
strength to accelerate its growth, we decided to support the transaction which
seems to be in shareholders’ best interests.
9
The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities and are not a complete list.
The EMEA excluding the United Kingdom Voting Statistic Report is a reflection of 4th Quarter 2014 and sourced from ISS Proxy Exchange,
January 2, 2015.
10
17
2
3
18
We have voted at the shareholder meeting of the large Israeli global industrial
holding company. The company was looking for shareholder approval of a
transformational transaction that involves the separation and restructuring of its
holdings. Under the proposed strategic separation, the company will maintain its
holdings in its largest subsidiary which is the world’s leading integrated potash
fertilizer and value added specialty chemicals company, as well as one of Israel’s
largest integrated refining and petrochemicals companies. The company will
transfer its current holdings in energy, auto, shipping services, semiconductor
manufacturing and its renewable energy subsidiaries to a newly-formed company.
The new company shares will be distributed to the existing shareholders on a pro
rata basis as a dividend in-kind, so each shareholder as of the ex-dividend date will
receive a proportional share in the new company. We have considered the terms of
the transaction as well as the broader rationale for the separation and concerned
with the board’s view that the transaction would enable better focus by
management and would reduce the conglomerate discourse. We therefore decided
to approve the proposed separation/spin-off.
We voted in a special meeting of a leading provider of fixed and mobile
telecommunication solutions in the Czech Republic. The company also has
operations in Slovakia. An investment company incorporated in Netherlands (the
Parent) bought 65.93% of the company in November 2013, therefore becoming a
controlling shareholder. During the last quarter of 2014 shareholders were asked to
approve a proposal to allow the company to take out a syndicated loan to refinance
its Parent’s already completed acquisition of its shares. The proposal was put
forward by the Parent. The proposal quoted strengthening the financial ties
between the company and the Parent and potential lowering of cost of capital for
both as reasons behind the transaction. The share price of the company decreased
significantly following the announcement of this proposal. The proposed loan equals
to 30% of the company’ market capitalisation and would increase its long term debt
ratio from 6% to 42%. In the view of a recent year on year 16% decline in net profit
we believe that depleting the company’s debt raising capacity to refinance an
already completed transaction presents little strategic rationale and little value to
shareholders other than the Parent. Although this proposal might be seen as a
matter for management to decide on, on this occasion we voted against it, due to
potential negative impact on minority shareholders and questionable commercial
rationale.
.
To learn more about how we are shaping global governance and protecting our
clients’ assets, visit http://www.blackrock.com/corporate/en-us/about-us/responsibleinvestment
This document contains general information only and is not intended to be relied upon
as a forecast, research, investment advice, or a recommendation, offer or solicitation to
buy or sell any securities or to adopt any investment strategy. The opinions expressed
are as of December 31, 2014 and may change as subsequent conditions vary. The
information and opinions contained in this material are derived from proprietary and
non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together,
“BlackRock”) to be reliable, are not necessarily all inclusive and are not guaranteed as
to accuracy. There is no guarantee that any forecasts made will come to pass. Any
investments named within this material may not necessarily be held in any accounts
managed by BlackRock. Reliance upon information in this material is at the sole
discretion of the reader. The information does not take into account individual financial
circumstances. An assessment should be made as to whether the information is
appropriate for an investor having regard to one’s objectives, financial situation and
needs.
Investing involves risk, including possible loss of principal. This material is not intended
to provide, and should not be relied on for, accounting, legal or tax advice or
investment recommendations. No part of this document may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior written consent of BlackRock.
No material non-public information was solicited, offered or received in the course of
the engagements described in this material. In accordance with BlackRock’s conflicts
management policy, the voting elections made by BlackRock are informed by
BlackRock’s voting policies, and all voting elections are made independently of any
relationship between BlackRock and any entity whose securities are subject to a vote.
Each client engagement is different, and the examples of engagements described in
these materials are not necessarily representative of any or all other engagements
between BlackRock and a third party or third parties.
In the EU issued by BlackRock Investment Management (UK) Limited (authorised and
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Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000.
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