Volume 4, Issue 1
January 2017
AVANT-GARDE RETURNS TO FRANCE:
AN INTERVIEW WITH LOÏC DESSAINT
DON’T SHOOT THE MESSENGER:
THE INFLUENCE OF PROXY ADVISERS
VOTING NEWS
PROXY
MONTHLY
www.proxyinsight.com
Proxy statement
Nick Dawson, Co-Founder & Managing Director,
Proxy Insight Limited.
I
t is the start of a new year, and
revolts at their meetings. One of the
vanguard
the era of contentious politics in
most frequent proposals responsible
planning to introduce two binding
the Anglosphere shows no sign
for such investor dissent in the
say on pay votes in quick succession.
of abating any time soon. A new
U.S. is advisory votes on golden
president now sits in residence at
parachutes.
left
and
right
on
such
corporate
reform,
The first will be a binding vote on
the White House, firing out executive
orders
of
a company’s future remuneration
Four
companies
have
already
diverse issues as the Trans-Pacific
this year suffered the wrath of
Partnership and federal hiring rights.
their investors in proposing such
contentious
former
The second will be a binding vote
executives, including AEP Industries,
on past variable and exceptional
finally ruled that a vote in parliament
Datalink Corporation, PhotoMedex
remuneration, and will be introduced
is required for Article 50 to be
and Team Health Holdings, which
in 2018.
triggered. This is likely to further
received 43.18%, 27.66%, 32.41%
slowdown the process of the U.K.’s
and 52.56% of votes cast against
Staying with the U.K., this year will
see most British companies undergo
their triennial binding say-on-pay
vote on future remuneration policy,
which was introduced in 2013.
Executive remuneration in the U.K.
is increasingly viewed as having a
to
proxy season.
In the U.K., the supreme court has
separation from the European Union.
payouts
policy, which will be introduced this
“
their proposals respectively.
France has
decided to
elbow its
way into the
vanguard of corporate
reform.”
This
issue’s
main
article
is
a
culmination of last year’s additions to
Proxy Insight. Using Proxy Insight’s
new ‘synthetic vote’ system, the
article
offers
analysis
of
an
the
unprecedented
real
impact
of
proxy adviser recommendations in
influencing the voting decisions of
investors.
Our headline interview this month is
Although
harmful effect on business, numerous
with Loïc Dessaint, Chief Executive
denounced proxy advisers for their
U.K. institutions, regulatory bodies,
Officer of French proxy adviser,
supposedly undue influence over
investors and think-tanks expressing
Proxinvest. In the interview, we not
investor voting, our analysis suggests
their
or
only debate the merits of some of the
that this influence is exaggerated.
unregulated pay packets. However,
unique features of French corporate
it is yet to be seen if these rumblings
governance – including the presence
Proxy Insight is the only tool to offer
will
distaste
be
with
converted
excessive
into
issuers
have
long
decisive
of censors on French boards and
the voting intelligence necessary to
action during the approaching proxy
the impact of the Florange Law
navigate today’s investor relations
season.
on shareholder rights – but also
market. If you are not a client and
discuss future reforms, which will be
would like to take a look, we would
introduced over the next two years.
be delighted to offer you a trial.
Although 2017 is still young, there
nevertheless have already been a
Please get in touch.
number of companies that have
Not to be left behind, France has
suffered considerable shareholder
decided to elbow its way into the
[email protected]. 
2
Avant-Garde
Returns to France
An interview with Loïc Dessaint, CEO of Proxinvest, on
France’s return to the forefront of Corporate Governance
Do you have an opinion on the binding
required before such remuneration will
say on Pay votes to non-executive
say on pay vote that comes into effect
be paid.
directors would be superfluous.
this year in France? What do you think
the long-term impact of the two new
This introduction of this two binding
On
binding pay votes will be in France?
vote
what
are paid through fixed remuneration
system
should
avoid
the
contrary,
many
chairmen
happened at BP in the U.K. last year,
rather than fees. It is important that
Indeed, France will become a new
where a board fails to implement
shareholders can also control the
laboratory regarding shareholder rights
properly a remuneration policy which
remuneration paid to the chairman.
to control executive pay. In 2016, say
was previously approved. Now in
on pay votes were rejected at three
France,
payments
How do you feel about the significant
French companies (Renault, Alstom,
will not be allowed anymore without
amount of state ownership in France,
Solocal Group).
egregious
“
shareholder approval.
For each of them, the reaction of the
board was very disappointing from
Proxinvest’s point of view, which tends
to demonstrate that self-regulation is
still a cultural challenge in France.
With the Sapin 2 Law, it is now clear
that directors can no longer enforce
executive
such
remuneration
with specific reference to their recent
Such egregious
payments will
not be allowed
anymore
without
shareholder approval.”
push for adoption of the Florange Law
and its ramifications for shareholder
rights in French companies?
The Florange Law is a law drafted by
the French parliament. As a significant
registered shareowner of many listed
French firms, the French State had a
Do you believe that the French system
direct interest to maximize its voting
powers.
practices
of voting on say on pay for each
which are not approved by a majority of
executive individually is superior in any
the shareholders. The distinct powers
way to the standard practice of voting
When the French State forced the
of the board of directors and of the
on executive remuneration collectively?
adoption of the double voting right
general meeting of shareholders are
now much clearer.
Starting this year, the board of directors,
provision at Alstom, Renault and
Not really. It is not significantly different.
Orange, it acted selfishly and diluted the
We look at the same issues when we
interests of the other co-shareholders
analyze such types of resolution.
which cannot register their shares for
with the support of its remuneration
committee,
has
to
define
various reasons.
the
Do you believe that the say on pay votes
remuneration policy and the rationale
should be extended to independent
Even worse, the double voting right
behind it. This binding remuneration
directors, or should remain with just
problem was not circumscribed to
policy must then be approved by the
executives?
the state-owned firms, but was also
company’s shareholders at the AGM.
adopted by other firms like Vivendi
In France, the general meeting of
for example. We did our best with
shareholders already authorizes the
our allies at Phitrust Active Investors
shareholder approval of variable or
maximum
and the support of other investors to
extraordinary remuneration will also be
director fees, so an extension to the
As
of
the
2018
proxy
season,
level
of
non-executive
restore shareholder rights.
3
“THE EQUAL TREATMENT OF SHAREHOLDERS SHOULD
NOT BE AN OPTION. ONE VOTE PER SHARE SHOULD BE
A BASIC LISTING RULE WORLDWIDE.”
Now, I am pretty sure that the French
the size of the board, the long tenure
at pay levels than other non-French
State did probably not realize at an
or some conflicts of interests. In a
investors which are accustomed to
initial stage how much the reputation
sense, censors could be acceptable
very high pay levels, for example in
of the French market place would be
as permanent consultants sitting on
the U.S. and the U.K.
impaired by this generalization of the
the board alongside other consultants
double voting right provision.
or as a one-year test period for a new
It is understandable that it is hard to
director.
adjust to local practices. It requires
During the 2016 French proxy season,
an internal governance team with
Proxinvest observed 56 resolutions
In any case, it is important that the
diverse skills and probably the use of
which failed to be adopted, but 48
board keeps full powers to decide
multiple proxy advisers to avoid the
other resolutions should have also
to continue or stop the censorship
risk of over-reliance on a single point
failed if the “one share – one vote”
and that’s rarely the case since many
of view.
principle be applied. These statistics
censors are elected by the general
illustrate
meeting and then protected against
Case in point is that half of the CEOs
dismissal by their mandate.
of the SBF 120 French index earn less
that
the
double
voting
right provision is mostly used as a
protective tool.
From an investor point of view, it may
be scary to realize that the destination
of their money is in the hands of
the French State. Investors must
tackle this issue, not only in France
where they could co-file shareholder
proposals but also in the U.S. where
there are too many issuances of dualclass of shares or non-voting shares.
The equal treatment of shareholders
“
than €2.6 million per year, including
In 2015 the
average total
remuneration
of a CEO in the
SBF 120 index
increased by 20%.”
shares
and
options.
If
overseas
investors, which own 60% of the CAC
40, do not take into consideration this
local reality, they will export high pay
levels all over Europe, contributing
accidentally
to
the
dangerous
widening gap between citizens and
their business leaders.
You have been quite outspoken about
foreign investors failing to adapt to
Do you feel that there has been any
the French market. What do you feel
improvement from companies with
they could be doing better?
regards to suspending the right to
should not be an option. One vote per
increase share capital during a period
share should be a basic listing rule
Following the introduction of the
of public offer, or does Proxinvest
worldwide, like it is under the U.K.
consultative Say on Pay votes in
still believe that capital increases are
premium listing rules.
France four years ago, investors
being used as anti-takeover devices?
obtained
significant
improvements
The censor is a position that is unique
in the transparency and quality of
Following
to
performance
French issuers understood investor
French
corporate
governance.
conditions.
However,
a
fruitful
and
most
dialogue,
Do you see any merit to this board
they failed to curb executive pay
expectations
of
them
position?
levels.
decided to suspend the right to
increase share capital during a public
A censor is a non-voting director. It is
In 2015 the average total remuneration
tough to promote this role since it is a
of a CEO in the SBF 120 index
form of denial of the basic governance
increased by 20%. This is a huge
Of course, investors must remain
principles
and
increase, which was far too large to
watchful to avoid any proliferation of
accountability: in theory, any director
be justified by the performance of
protective devices like Bons Breton,
should have a voting right.
French companies.
and to safeguard their rights to
In practice, it is sometimes used to
My experience is that our French
circumvent investor expectations on
clients seem to look far more closely
of
responsibility
offer.
consider and accept a buyout offer.
Thank you Loïc.
4
Don’t Shoot the
Messenger
Proxy Insight reveals the real influence of proxy advisers
New data from Proxy Insight suggests that the influence of the main proxy advisers, ISS and Glass Lewis, is exaggerated,
investors relying far less on proxy adviser recommendations for their own voting than is widely thought.
Following
shareholder
rebellions,
far
too often the go to response of issuers
Lewis recommendations from the proxy
of ISS and Glass Lewis. It is also interesting
adviser itself.
to note that the correlation declined
is to blame the undue influence of ISS
and Glass Lewis for the dissent of their
between the years of 2015 and 2016.
The correlation data
investors.
This
However, as Table 2 shows, if we constrain
widespread
conviction
in
Table 1 illustrates the correlation between
our analysis to contentious votes only
the
ISS and Glass Lewis recommendations
– i.e. when at least one proxy adviser
unrestrained authority of proxy advisers
and the actual voting of the institutional
recommends against managment – then
extends even to the U.S. Securities and
investors.
the picture becomes far more interesting.
Daniel Gallagher, earlier this decade
Although the table shows that the investors
For contentious votes only a little over
urging investors “to take responsibility for
voted in line with the recommendations of
half – 54% of investors in 2015 and 51%
their voting decisions rather than engaging
ISS and Glass Lewis the vast majority of
in 2016 – voted in line with ISS when the
in rote reliance on proxy advisory firm
the time, the percentages are nevertheless
proxy
recommendations.”
much lower than expected.
management.
However, new data from Proxy Insight
This indicates that even at the aggregate
For Glass Lewis, the correlation fell even
suggests that this influence is exaggerated,
level there is at least some disconnect
the correlation between the voting of
between the voting of the institutional
investors on contentious resolutions and
investors and the voting recommendations
Exchange Commission. Its commissioner,
adviser
recommended
against
further, with just 34% of investor votes in
2015 and 30% in 2016 voting the same way
as the proxy adviser’s recommendation.
ISS and Glass Lewis recommendations
being much lower than initially expected.
All Recommendations
For the analysis, we took the top ten
institutional
investors
and
ISS
Glass Lewis
analyzed
2016
90.3%
83.2%
their voting on Advisory Say on Pay/
2015
90.5%
84.4%
Remuneration Report votes in the UK
and US during 2015 and 2016. We then
Table 1: Correlation between Top Investor Voting and Proxy Adviser
recommendations on US/UK SoP resolutions
compared the recommendations of ISS
Against Recommentations Only
and Glass Lewis for each resolution to
calculate the correlation.
The
recommendations
of
ISS
were
produced by our very own ‘synthetic vote’
system, whereas we received the Glass
ISS
Glass Lewis
2016
51.4%
29.5%
2015
53.8%
33.6%
Table 2: Correlation between Top Investor Voting and Proxy Adviser
Against recommendations on US/UK SoP resolutions
6
“NATURALLY, PROXY ADVISERS [...] WILL JUMP ON THIS
AS EVIDENCE THAT THEIR INFLUENCE OVER CLIENTS
HAS BEEN GREATLY EXAGGERATED.”
Even more suprisingly, since 2015, the
Mellon correlate above 90% with ISS on
There are many conclusions that can be
institutional investors have only voted
Say on Pay overall.
drawn from this data. Naturally, proxy
against management in 61.8% of say on
advisers, tired of being the scapegoat of
pay resolutions where both ISS and Glass
By contrast, BlackRock, Vanguard, State
issuers, will jump on this as evidence that
Lewis recommended against.
Street, FMR, Goldman and Northern Trust
their influence over clients has been greatly
all correlate with ISS less than 50% of the
exaggerated. Moreover, many observers will
time on against only recommendations.
note that in general the institutional investors
Deeper into the data
seem less aggressive than ISS and Glass
Analyzing the data down to an investor level
Moreover, Table 4 shows that the
allows us to see the voting behaviour of
investors typically correlate less with
individual investors not only in comparison
Glass Lewis than ISS. This may be due
However, this data is probably most
with proxy adviser recommendations, but
to the fact that Glass Lewis is generally
relevant to regulators, as it suggests that the
also in relation to the different countries and
more aggressive than ISS, which in turn
argument of the undue influence of proxy
regions in which they invest.
will inevitably lead to a larger diversion
advisers – an assertion which in turn brought
from the usually passive voting of
about the Proxy Advisory Firm Reform Act in
institutional investors.
the U.S. – is built on shakey ground.
As Table 3 illustrates, all investors bar BNY
Lewis.
Against only
Recommendations
All Recommendations
Investor
All
U.S.
U.K.
All
U.S.
U.K.
BlackRock
91.0%
91.2%
90.0%
25.3%
24.2%
35.2%
Dimensional Fund Advisors, Inc.
93.6%
92.9%
98.9%
100.0%
100.0%
100.0%
Vanguard Group, Inc.
92.4%
92.8%
88.5%
35.0%
37.8%
11.5%
State Street
93.0%
93.4%
89.6%
44.6%
46.3%
30.0%
Fidelity Management & Research
92.4%
92.4%
92.4%
34.6%
34.9%
32.1%
BNY Mellon
67.5%
64.5%
95.4%
83.0%
81.4%
100.0%
Goldman Sachs Asset Management LP
95.8%
95.2%
99.7%
40.7%
28.6%
97.2%
Northern Trust
90.0%
90.2%
87.9%
12.7%
13.7%
0.0%
T. Rowe Price
92.3%
92.2%
93.7%
56.5%
55.3%
69.0%
AllianceBernstein LP
97.7%
97.9%
96.5%
93.1%
92.6%
97.7%
Table 3: Correlation between Top Investor Voting and ISS recommendations on US/UK SoP resolutions
All Recommendations
Investor
Against only
Recommendations
All
U.S.
U.K.
All
U.S.
U.K.
BlackRock
84.8%
84.9%
83.5%
16.0%
15.2%
23.0%
Dimensional Fund Advisors, Inc.
92.8%
94.7%
82.9%
87.1%
95.9%
38.5%
Vanguard Group, Inc.
86.4%
86.6%
85.0%
21.3%
23.0%
7.0%
State Street
85.4%
85.2%
86.5%
23.6%
23.8%
22.1%
Fidelity Management & Research
85.7%
85.9%
90.1%
23.0%
22.1%
30.4%
BNY Mellon
63.7%
61.2%
82.4%
58.2%
60.4%
35.6%
Goldman Sachs Asset Management LP
88.1%
88.9%
84.0%
17.6%
12.7%
37.2%
Northern Trust
83.3%
83.3%
83.7%
5.9%
6.0%
4.6%
T. Rowe Price
83.4%
83.4%
83.9%
27.8%
27.6%
31.1%
AllianceBernstein LP
83.6%
83.9%
81.5%
37.6%
36.9%
43.4%
Table 4: Correlation between Top Investor Voting and Glass Lewis recommendations on US/UK SoP resolutions
7
News summary
A round-up of the latest developments in proxy voting.
Nasdaq Baltic conducts e-voting tests
than a ‘public’ company, has managed
published guidelines. These guidelines
to avoid disclosing the pay of its own
stressed the necessity of holding
Nasdaq Baltic has conducted its
senior executives since the 1990s.
management and boards accountable
first successful tests of blockchain
However, as one of the world’s largest
to shareholders or pension funds for
technology,
that
asset managers, with $3.9 trillion
the remuneration given to company
enables investors listed on Nasdaq
using
a
service
assets under management, it is hard
executives.
Tallinn to vote at an AGM without being
to see why many issuers will acquiesce
physically present at the meeting.
to pay disclosures when such an
In practical terms, the new guidelines
important investor fails to do so.
recommend that if shareholders vote
According to Nasdaq “We currently
against a company’s remuneration
have a functioning proof of concept
This conundrum is expressed by a
policy, they should also oppose the re-
(PoC)
user
professor at the Stanford Graduate
election of the remuneration committee
interfaces in Estonia. The PoC can now
School of Business, David Larcker:
chair as a company director. This
identify users based on their Estonian
although Vanguard has “begun actively
follows from research conducted by
digital ID – either via Estonian ID card
challenging companies more” it would
PLSA, which revealed that 85% of
or e-Residency card.” The voting
seem far less hypocritical if Vanguard
pension funds were concerned by
system apparently allows investors to
first got its “own house in order.”
the pay gap between executives and
with
four
web-based
view information about meetings and
ordinary workers.
vote before or during the meeting,
However, Vanguard’s current chief
use the system to transfer their voting
executive Bill McNabb argues that
According to Luke Hildyard, policy
rights to a proxy, monitor how the
keeping the pay of senior executives
lead for stewardship and corporate
proxy voted on their behalf, and, if
secret has been a great competitive
governance at PLSA, the guidelines
needed, recall the proxy, and review
advantage for Vanguard, allowing it to
“are designed to ensure the individuals
previous meetings and transactions
attract the very best talent. In addition,
responsible for a company’s executive
based on the indelible record the
Vanguard
Arianna
pay practices are held to account and
system creates.
Stefanoni Sherlock declared in an
we hope that this can at last deliver
spokeswoman
email that “we believe that determining
meaningful progress on excessive top
Nasdaq started the pilot system in
the specific structure and pay is a
pay.”
February 2016. This is the second
decision best left to the companies’
e-voting pilot system that Nasdaq has
boards.”
Legal & General to disclose pay ratio
for trading in shares of non-public
PLSA demands tougher stance on
Legal & General is planning to disclose
companies successfully launched last
exec pay
the
tested, after the Nasdaq Linq platform
year.
Vanguard fails to disclose exec pay
Vanguard, as a ‘client-owned’ rather
pay
ratio
between
its
chief
executive and its average employee
The Pensions and Lifetime Savings
in March, thereby becoming one of
Association
called
the first U.K. companies to respond
upon investors to demand a tougher
to the recent attempts to reform U.K.
stance on executive pay in newly
corporate governance.
has
recently
9
“BLACKROCK, THE WORLD’S LARGEST ASSET
MANAGER, IS THREATENING TO PRECIPITATE
SHAREHOLDER REVOLTS IN THE U.K.”
According to Stefan Stern, director of
insufficient board oversight, which
enforcement of directors’ power in the
the High Pay Centre, a U.K. research
calls into question the quality of the
U.K. was incredibly fragmented and
group: “Pay ratios aren’t a magic
board. We believe that shareholders
could be pulled together by giving the
bullet but they would change the
should hold directors to a high
FRC additional powers.”
conversation in a constructive way.
standard in this regard.”
It’s like weight gain. If you never weigh
Executive pay once again an issue in
yourself, you just get heavier and
Approximately half of the U.K.’s largest
heavier.”
companies face binding investor votes
on their future pay policy this year.
However, many other companies have
opposed the introduction of pay ratios
Germany
Following widely criticized bonus and
pension deals for senior executives
FRC seeks more powers
at Deutsche Bank and Volkswagen,
on the grounds that the ratio could
executive pay is once again back on
be misleading due to the various
The
different types of companies and the
(FRC), the U.K.’s audit and governance
revealed
vast difference in employee skills and
standards custodian, has asked for
chief executive, Martin Winterkorn,
wages within the job market.
more oversight powers in an attempt
who resigned following the Dieselgate
to further its ability to tackle corporate
scandal in 2015, is eligible for an
governance issues.
annual company pension of €1.1
BlackRock threatens investor dissent
Financial
Reporting
Council
the agenda in Germany. It was recently
that
former
Volkswagen
million ($1.2 million) - a move that has
BlackRock, the world’s largest asset
The FRC has declared that although
been criticized by all of Germany’s
manager, is threatening to precipitate
compliance with the U.K. Corporate
political parties.
shareholder revolts in the U.K., unless
Governance Code was high, “when
Britain’s largest companies attempt
boards choose not to follow provisions
This follows earlier calls for a clawback
to
too many explanations are of poor
of bonuses from former Deutsche
quality. This suggests that some
chief executive Josef Ackermann, as
rein
in
excessive
boardroom
remuneration.
boards still need to do more than
he is being held culpable for the bank’s
BlackRock’s demands include an
pay lip service to the needs of their
current
end to enormous pay rises and
shareholders and other stakeholders.”
widespread criticism in Germany, Mr
director pension entitlements at U.K.
companies.
Moreover,
woes.
However,
despite
Ackermann has managed to keep
BlackRock
As a result, the FRC has asked
declared that it would only approve
the U.K. government to expand its
salary rises for top executives at U.K.
oversight powers, in particular around
According
firms if such companies increase their
requirements for directors of public
Party (SPD) leader and current vice-
workers’ wages by a similar amount.
and private companies to promote
chancellor Sigmar Gabriel, “we have
In addition to these new guidelines,
the business’ success for the benefit
to demonstrate clearly that we can set
BlackRock’s
head
of
hold of his millions in bonuses.
to
Social
Democratic
investment
of shareholders, and with regards to
limits to greed.” Mr Gabriel even went
stewardship in Europe, Amra Balic,
staff, suppliers, customers and other
as far as to suggest new legal limits for
once again reiterated that executive
stakeholders.
executive pay in Germany. As a result,
pay must be linked to performance:
it seems that executive pay is likely
According to the FRC’s executive
to become an election-year issue, as
“Executive pay should be strongly
director of corporate governance and
the German SPD is planning a slow,
linked to performance, by which we
reporting, Paul George, “we have
steady usurping of the Chancellery
mean strong and sustainable returns
some responsibility to hold actuaries
from Merkel’s Christian Democratic
over the long-term, as opposed to
and auditors to account, but we don’t
Union party (CDU).
short-term hikes in share prices. We
have powers over all members of the
consider misalignment of pay with
board. And what we suggested to
performance as an indication of
the select committee was that the
10
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