Interactive Investor

Have your say: three biggest issues for shareholders right now

Shareholders have a great opportunity to hold boardrooms to account on serious issues this AGM season.

26th February 2021 16:02

by Graeme Evans from interactive investor

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Shareholders have a great opportunity to hold boardrooms to account on serious issues this AGM season.

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Improving ethnic diversity in Britain's boardrooms will be among the areas where pressure from shareholders can make a difference during this year's AGM season.

The call comes from the Investment Association after three-quarters of FTSE 100 companies failed to report the ethnic make-up of their boards ahead of annual meetings last year.

Its Institutional Voting Information Service has vowed to issue amber-top alerts on any companies that fail to do so this year, or don't show a credible plan to achieve Parker Review targets of having at least one director from an ethnic minority background by 2021.

The organisation also wants progress on gender diversity, with boards comprised of 30% or less female directors receiving a ‘red-top’ alert – an increase on last year’s 20% threshold.

A red-top alert denotes its strongest concern, followed by amber, which shows a significant issue to be considered by shareholders ahead of the meeting.

Legal & General (LSE:LGEN) has already said it will vote against the re-election of chairs of nomination committees if their companies still have an all-white board by January 2022. 

It said last month that 64% of FTSE 100 companies had ethnic representation on their boards, whereas the figure on the S&P 500 was better at 92%. L&G said it still met resistance from businesses claiming that people should be hired and appointed on merit alone.

Clare Payn, L&G Investment Management's senior global ESG and diversity manager, said: “Our answer to that is that they absolutely should be appointed on merit, but you’re more likely to appoint on merit if you broaden your talent pool.

“If you’re only selecting from 50% of the population, how are you going to select the best people? It’s not statistically possible.”

The issue was also highlighted recently by London-based executive recruitment and diversity consultancy Green Park, which said the total number of black, Asian and minority ethnic board members had dropped over the past year.

And at 3.3%, it noted that the percentage of chairs, CEOs and chief financial officers had not improved over the six years monitored. The group called for all companies to appoint a chief diversity officer, something almost half of S&P Index companies have already done.

Two-thirds of such roles in the US have been created within the last three years, including at General Motors (NYSE:GM), The Walt Disney (NYSE:DIS) and Coca-Cola (NYSE:KO).

Climate change is another issue set to feature heavily at AGMs this year, with shareholders urged to do more to ensure companies are taking a sustainable long-term view on their business.

The Investment Association warned that companies in high-risk sectors will receive an amber-top alert if they do not meet standards for climate-related financial disclosures.

The organisation wants to see companies reporting on climate-related risks in a consistent, clear and comparable manner, enabling managers to make better informed investment decisions – ultimately to the benefit of savers and investors.

Investors will also continue to shine a spotlight on executive pay, particularly in mind of the pandemic's impact on society. The Investment Association warned remuneration committees not to compensate executives for reduced pay as a result of the pandemic by adjusting this year’s remuneration, whether through ‘catch up’ awards or disproportionate salary increases.

It will also take a dim view of bonuses being paid if a company has taken government or shareholder support, with any company that choses to do so expected to provide a clear rationale. Among companies holding AGMs net week, defence firm Chemring Group (LSE:CHG) did not receive any government furlough funding and repaid a short-term debt facility taken early in the pandemic.  

Chemring (Thursday 4th March)

The “exceptional” performance of chief executive Michael Ord since joining the defence countermeasures firm in July 2018 has been recognised with a 9.6% increase in his base salary to £483,000 from January.

The head of the company's remuneration committee, Laurie Bowen, said Ord's time in charge had seen Chemring promoted to the FTSE 250 index on the back of a 45% increase in value, adding that he had a “vital role to play” in the next stage of the company's development.

Bowen pointed out that Ord was not being singled out for special treatment as employees at all levels were being recognised in a similar way. Ord joined Chemring from BAE Systems, where he was managing director of its naval ships and F-35 Joint Strike Fighter businesses.

His total remuneration for 2020 came in at just over £1 million, including £540,000 from an annual bonus scheme where Ord met almost all targets. Some 40% of this award will be in shares deferred for three years, with the company believing that shareholder needs are best served by paying out bonuses as earned rather than making any downward adjustments.

Bowen will review the remuneration policy during 2021 ahead of the triennial vote by shareholders at next year's AGM. All resolutions at last year's meeting were comfortably passed, with less than 1% of votes going against the remuneration report.

Chemring is the world leader in countermeasures for protecting air, sea and land platforms against the threat of guided missiles, with its major markets being the UK, United States, Australia and Norway. 

Questions for the AGM need to be submitted by 6pm on Monday, with proxy voting forms required no later than Tuesday at 11am.

Eco Animal Health (Thursday 4th March)

Eco Animal Health (LSE:EAH), whose products include an antibiotic for the treatment of respiratory and enteric diseases in pigs and poultry, is holding a special meeting directly after its AGM so that shareholders can vote on a new executive bonus scheme and long-term incentive plan.

The New Malden, Surrey-based business says the plans are necessary to ensure the closer alignment of management interests with those of shareholders, including through a focus on achieving profit targets and satisfactory return on capital employed.

In the past, the grant of share options to key employees has not been subject to performance conditions other than that they remain with the company on the vesting date.

The new deferred bonus plan and long-term incentive schemes will include clawback provisions in line with corporate governance best practice. If the proposals are approved, the first awards under the incentive plan are likely to be made in relation to the accounts for the year to last March and which are due for approval at the AGM.

Difficulties auditing the group's international operations during the Covid-19 pandemic meant the figures were only published in early February, causing the company's AIM-traded shares to be suspended for a month.

They are now trading again, with accompanying results for the six months to September showing the benefit of China's “exceptionally strong recovery” from African Swine Fever as profits surged 300% to £4.5 million on sales of £42.5 million.

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