The year 2020 continues to present many unknowns and the mettle of our community has been tested and strengthened every day. The global pandemic has disrupted issuers’ plans for growth and, in some cases, the ability to operate altogether. The business community is delicately balancing the interests of shareholders, employees, suppliers and many other stakeholders.
Issuer responses to the pandemic have varied. We’ve seen issuers raising capital to strengthen balance sheets, shelving expansion projects, cutting their workforce or continuing as planned, believing they could weather the storm. Much has been written about what issuers have done as a result of the pandemic and, the upcoming AGM season gives investors the opportunity to have their say as issuers submit their remuneration reports for approval and directors seek re-election.
In this article we’ll share our insights into some of the key issues to look out for this proxy season and what you can do to prepare:
Remuneration and financial results
The approach to executive remuneration, as well as the impact of government support packages on financial results are both important issues to be considered in the lead up to AGM season. All four major Australian proxy advisors have commented on what they, and their institutional investor clients, expect from issuers this year. This includes:
Boards exercising restraint when considering executive bonuses to ensure pay aligns with the pain felt by shareholders, employees and the community
Providing a clear outline of how stimulus measures, such as JobKeeper and similar grants in other countries, have impacted financial results
Disclosing any adjustments to performance targets in light of the pandemic.
With government measures to contain the pandemic implemented across the world, many issuers tapped equity markets to shore up balance sheets and prepare for the uncertainty that lay ahead. In Australia, most of these capital raisings took the form of an institutional placement and accompanying share purchase plan for retail shareholders, which doesn’t always provide the opportunity for investors to maintain their pro-rata position. Protest votes may be a concern for issuers that did not adequately justify heavily discounted issuances or that severely diluted existing shareholders.
ESG shareholder proposals
Shareholder resolutions for the coming season have already landed for many issuers and this follows unprecedented support for these proposals during the off-peak AGM season in April/May. Although non-binding, we saw a majority of proxy votes cast in favour of an ACCR-requisitioned climate change resolution at an oil and gas company. In addition, two climate-related resolutions requisitioned by activists also received more than 40% support at another oil and gas company’s AGM. It will be interesting to monitor how these voting trends develop over the coming months as large index funds continue to push for change and as more capital flows into ESG-focused funds.
Corporate social responsibility
There was fear that due to the difficult financial and economic conditions, corporate social responsibility would become less of a focus for the business community. Instead, we have seen business play a large role in addressing the issues facing our society. The “social” part of ESG is firmly in the spotlight as issuers balance their responsibility to employees and the need to preserve cash and meet liabilities while revenue has dropped. Investors expect that issuers will reaffirm their commitment to corporate social responsibility and continue to enhance their established practices of engagement, disclosure and action.
What can you do?
At this time, much of what is being voted on in the coming AGM season has already been set in stone. Remuneration outcomes have been decided, annual reports have been written and now it’s up to investors to decide. Proxy advisor and investor engagement is a key action that you should be undertaking to understand what your investors are focused on and communicating what you’re doing about it. Analysing the share register to ascertain who holds the voting rights and the impact of proxy advisors, are important first steps to inform these engagements. Once the Notice of Meeting has been released, tracking investor votes before it’s too late will give you the intelligence and insight you need to ensure your AGM is a success. Georgeson, a Computershare company, is the world's original and foremost provider of strategic services to corporations and investors working to influence corporate strategy. Talk to us today about how we can help you reduce risk and increase resilience.