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D.F. King’s Annual AGM Season Review webcast: an uncertain climate
Insights - What We Think

‘Companies are being increasingly scrutinised for their boards’ ability to become more aligned, more inclusive and more accountable to shareholders and stakeholder’

To celebrate the launch of the Annual General Meeting (AGM) Season Review, D.F. King hosted an Ahead webcast to give an exclusive first look at the report. We also heard views from experts across the UK and Europe governance industry.

David Chase Lopes, Managing Director of D.F. King (EMEA), welcomed three panellists including Alice Squires – Co-head of Investor Advisory at Rothschild & Co., Cécile Combeau – Head of Investor Relations & Financial Communication at SUEZ and Nathan Leclercq – Senior Corporate Governance Analyst at Aviva Investors.

‘Activists attacks are often against issues that companies were already planning to address, but weren’t communicated properly. Communication is key.’

The 2021 AGM season and 2022 forecast

2020’s AGM season saw the accelerated transformation from a shareholder-to-stakeholder model due to the pandemic.

D.F. King’s AGM Season Review for 2021 showed that companies are being increasingly scrutinised for their boards’ ability to become more aligned, more inclusive and more accountable to shareholders and stakeholders – especially their impact on the environment and society.

But shareholders are expecting this as well as, not instead of, profitability and long-term strategy.

Some other report highlights include:

  • Average AGM attendance rates in the UK market dipped in 2021, falling to 73.9% from 75.9% in 2020
  • ESG priorities gain momentum among shareholders, with 11 climate items raised compared to three the previous year
  • Unprecedented scrutiny for executive pay outcomes

In our webcast, David and his guests covered four of the main AGM topics featured in the report: remuneration, Say-on Climate, activism, and diversity and inclusion.


General Meeting Season review - Europe 2020

Watch the webcast

Remuneration: are boards ‘sharing the pain’?

For almost a decade, the subject of remuneration has been a vital point of discussion and debate between boards and investors.

2020 saw more scrutiny from investors than ever before. However well a company performed, shareholders and stakeholders expected boards to be measured in their 2020 variable remuneration awards to executives due to the pandemic.

2021 was a year where proxy advisers and investors demanded that executives ‘share the pain’. Our expert panellists agreed that pay arrangements should be aligned with the shareholder experience. Companies should show constraint in executive pay during times of financial difficultly – such as COVID-19.

Many directors across the UK and Europe were rewarded to compensate loss of earnings, which puts fairness and equality into question. It was telling to see how companies treated their employees during the pandemic and how quickly they’ve repaid government loans – if at all.

It’s the role of management to help companies navigate these issues with long-term incentives and objectives.

Some boards incorporated environmental, social and governance (ESG) into their remuneration, including bonus targets. But what should those ESG metrics be and what’s the right proportion? Some boards look to investors for that guidance and vice versa. While there’s no right or wrong, a company should show the thought process behind its remuneration policy.

During the discussion it was recommended that boards can build the right policy to suit their stakeholders by building relationships long before these issues arise. They should create a two-way dialogue and listen to their expectations, using feedback to make decisions around remuneration.

Meaningfulness behind Say-on Climate

One of the prominent and more novel trends to gain momentum during the 2021 season was the Say-on Climate agenda. This was shown in our report by increased climate-related proposals at UK AGMs in 2021. There has also been a high proportion of French early adopters.

But, according to our panel, it’s still a very new area so it’s not yet clear if companies are meaningful in their resolutions. This might settle over the coming years as this validation grows, but boards should make resolutions that are relevant to them for the most meaning.

Climate itself is a matter of general interest – not just to investors but to society as a whole. It’s up to management and the board of directors to identify key issues and establish appropriate targets.

In some scenarios, it may be that shareholders agree but not other stakeholders such as employees. Proxy advisers have a strong impact here and can help find positive aspects in Say-on Climate proposals. They can use robust climate information and ensure the issue is on the agenda.

So far, companies with good stories have been more progressive but those with bad stories or none are under more pressure. But proposals like Say-on Pay have been successful, so the panel hopes to see the same for Say-on Climate. If investors aren’t willing to support it, they should be ready to explain why.

How to pre-empt activism

Shareholder activism is at an all-time high. The market is currently liquid and active, so more active investors are becoming more independent and vocal with their views.

Our panel believes companies should foresee potential activism campaigns by sourcing investor relations experts to identify and report the hot topics they see worrying investors. This could include financial, governance, social, environmental and more.

They should build an internal warning system that feeds long-term strategy planning of the company. Sometimes this can be as simple as picking up the phone to investors, but it’s key to understand them and their views. Companies should communicate strong messaging around their rationales.

This issue of the environment is high-profile and resonates. In March, data showed that the equivalent of 80% of the global GDP was committed to Net-Zero policies, while shareholders have been driving companies to allocate capital to ESG-aligned equity and credit. This creates a convergence from both sides, therefore increasing public activism.

From a more traditional perceptive, one of the simplest ways for boards to pre-empt and avoid activism is to ensure they have a strong capital allocation policy. They should understand every level of their register and where their capitals come from.

Activists attacks are often against issues that companies were already planning to address, but weren’t communicated properly. Communication is key.

Wider forms of inclusion and diversity

In 2021, investors actively used the AGM to foster more forms of diversity in the boardroom and wider company.

Conversations and engagement are increasingly turning to wider forms of diversity, including but not limited to ethnic, cultural and non-visual aspects. Issuers should expect to be increasingly challenged on these topics moving forward.

The annual Hampton-Alexander review outlined the progress reached by the FTSE 350 to meet established targets (33% of board positions by end of 2020 for 350 companies). Their report recommendations have been cited as sources behind policy changes.

Our panel described balanced representation to social backgrounds as a critical issue. This should include understanding key stakeholders and finding the right talent, but also embracing diversity at all levels of the company.

One of our panellists has seen boards experiencing difficulty in finding candidates with the right level of experience. But should all candidates have to be board-ready? Perhaps companies should be more flexible and creative with expertise from younger candidates with varying experience.

To succeed, boards will have to overcome their challenges and find ways to move ahead. They must prove themselves to be aligned, inclusive and accountable while creating sustainable value to shareholders and stakeholders.