Gouvernance | Page 8

Billet à lire de Frederick Alexander et al. : « From Shareholder Primacy to Stakeholder Capitalism » (Harvard Law School Forum on Corporate Governance, 26 octobre 2020).

Extrait :

This policy agenda includes the following categories of interventions required for a broad transition to Stakeholder Capitalism.

We have drafted proposed Federal legislative language, “The Stakeholder Capitalism Act,” attached in Exhibit A of the full paper linked to below, which incorporates each of the following ideas:

Responsible Institutions: We propose that the trustees of institutional investors be required to consider certain economic, social, and environmental effects of their decisions on the interests of their beneficiaries with respect to stewardship of companies within their portfolios. This clarified understanding of fiduciary duty will ensure that institutional investors use their authority to further the real interests of those beneficiaries who have stakes in all aspects of the economy, environment, and society. These changes can be achieved through an amendment to the Investment Company Act of 1940 (15 U.S.C. 80a) by inserting language after paragraph (54) of Section 2 and after subsection (c) of Section 36.

Responsible Companies: Just as trustees of invested funds must expand their notion of the interests of their beneficiaries, the companies in which they invest must also expand the understanding of the interests of the economic owners of their shares, who are more often than not those same beneficiaries. We propose a federal requirement that any corporation or other business entity involved in interstate commerce be formed under a state statute that requires directors and officers to account for the impact of corporate actions not only on financial returns, but also on the viability of the social, natural, and political systems that affect all stakeholders. This change can be achieved through the addition of a new Chapter 2F of Title 15 of the U.S. Code.

Tools for Institutional Accountability: In order to allow beneficiaries to hold institutional investors accountable for the impact of their stewardship on all the interests of beneficiaries, we propose laws that mandate disclosure as to how they are meeting their responsibility to consider these broad interests, including disclosure of proxy voting and engagement with companies. We propose that the Securities and Exchange Commission should promulgate rules requiring each investment company and each employee benefit plan required to file an annual report under section 103 of the Employee Retirement Income Security Act of 1974.

Tools for Company Accountability: Corporate and securities laws that govern businesses must also be changed in order to give institutional investors the tools to meet their enhanced responsibilities. This will include requiring large companies to meet new standards for disclosure regarding stakeholder impact as an important element of their accountability. This proposal can be achieved through an amendment added to The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) after section 13A.

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This tension cannot be wished away. The White Paper proposes a solution: rules that facilitate and encourage investor-sanctioned guardrails. Such guardrails would allow shareholders to insist that all companies that they own forgo profits earned through the exploitation of people and planet. Unlike executives, the institutional shareholders who control the markets are diversified, so that their success rises and falls with the success of the economy, rather than any single company. This means that these institutions suffer when individual companies pursue profits with practices that harm the economy. We believe that by leveling the competitive playing field, these changes will pave the way for the type of corporate behavior imagined by the New Paradigm, the Davos Manifesto and the Business Roundtable Statement.

Indeed, far from being “state corporatism,” as the memo claims, what we propose is “human capitalism,” where the workers, citizens, and other humans whose savings fund corporations are given a say in the kind of world they live in. Will it be one in which all compete in a manner that rejects unjust profits? Or, in contrast, will it be one in which corporations continue to lobby against regulation that protects workers while the corporate executives make 300 times the median salary of workers?

À la prochaine…

Mme Hoyé propose une tribune intéressante sur la RSE dans son article « Responsabilité sociale des entreprises: où en sommes-nous ? » publié sur Ligere.fr le 17 septembre 2020. Elle fait le point et soulève le chemin encore à parcourir…

Extrait :

Au cours de ces dix dernières année, une évolution a été observée dans le sens de la nécessité croissante de « redéfinir le droit des sociétés » pour mieux prendre en compte l’évolution de l’analyse du droit et de l’économie. L’objectif sociétaire traditionnel porté par la « doctrine juridique de la personnalité d’entreprise », tient à la protection des intérêts des membres et des créanciers de la société. Les profits générés sont ensuite partagés entre les actionnaires considérés comme propriétaires de l’entreprise. Ainsi, l’approche de la théorie contractuelle prévaut et la promesse tacite des dirigeants de maximiser la richesse des actionnaires s’opère. En effet, selon la théorie de la Corporate Governance, il existe une nette distinction entre le rôle des propriétaires d’une société (les actionnaires) et des dirigeants (le conseil d’administration) lorsqu’il s’agit de prendre des décisions stratégiques efficaces. L’actuelle « coutume de la retenue » en matière d’éthique, complète l’accent mis sur une analyse économique de la fonction d’entreprise où les concepts d’efficience et de rentabilité semblent persister. Caractérisés par ses propres règles de position, les bénéfices sont considérés comme la « ligne de fond » de l’entreprise, et par conséquent, selon l’argument, il n’y a aucune possibilité d’évaluer moralement les activités menées dans ce cadre d’activité.

Pourtant, face aux nouveaux enjeux auxquels se confrontent les sociétés au XXIème siècle, la thèse de « l’entreprise- profit » soutenue par Friedman ne semble plus être à l’ordre du jour. Dès lors, les entreprises peuvent-elles entreprendre une activité économique dite « durable », où la recherche exclusive de bénéfices s’estompe au profit d’une meilleure éthique entrepreneuriale? L’éthique s’érige désormais comme élément incontournable de l’ensemble des concepts que nous pourrions utiliser pour tenir compte de la fonction organisationnelle que détiennent les entreprises. Non pas que les actions des sociétés peuvent avoir des effets puissants, à la fois bénéfiques et/ou préjudiciables, mais parce qu’une prise en compte éthique des actions des sociétés est presque impérative pour atteindre une croissance durable. Il s’agit d’optimiser les performances en évoluant vers une responsabilité sociale et environnementale (RSE) où les sociétés sont responsables de l’impact de leurs actions sur la société civile. L’entreprise doit alors intégrer à sa stratégie l’ensemble de sa chaîne de valeur, dont les parties prenantes (« stakeholders »), de manière à minimiser et à compenser les effets négatifs de son activité. L’objectif étant d’atteindre une qualité de vie au moins aussi bonne que celle dont nous bénéficions aujourd’hui, comme le soutien le « rapport Brutland » (1987). Pour cela, il est primordial que les structures de gouvernance d’entreprise agissent tant en termes de bien-être des employés, qu’en termes d’efficacité et de productivité. Cela implique l’utilisation de critères éthiques, sociaux et environnementaux (les 3 piliers de la théorie de « corporate governance ») dans la sélection et la gestion des portefeuilles de placements. De ce point de vue, l’idée d’équilibrer les responsabilités de l’entreprise se développe, acceptant le fait que les entreprises peuvent créer de la valeur en gérant mieux le capital naturel, humain et social.

(…) Dans le cadre transnational, divers outils d’orientation souvent à caractère facultatif visent à promouvoir le développement durable et le civisme social. En tant que préoccupation mondiale, une croissance durable ne peut être atteinte que si tous les pays agissent de concert mettant en oeuvre des actions coordonnées. C’était notamment l’objectif de l’accord de Paris en « faisant en sorte que les flux financiers soient cohérents avec une voie vers une réduction des émissions de gaz à effet de serre et un développement résilient au climat ». Le pacte Mondial lancé officiellement en 2000 invite les entreprises à adhérer, appliquer et promouvoir 10 principes en matière de droits fondamentaux. Cette adhésion a été assortie à l’obligation pour les entreprises de publier chaque année une communication sur les progrès réalisés dans l’application des principes. L’entreprise qui ne réalise pas cette obligation est considérée comme « non communicante » et peut être à terme radiée. Aussi, les Nations Unies ont présenté un projet de normes sur les responsabilités des sociétés transnationales et autres entreprises commerciales en matière de droits de l’homme. Les principes de Rugie font peser sur les entreprises des contrôles et vérifications périodiques par des organes nationaux ou multinationaux, permettant ainsi de prescrire un grand nombre d’actions concrètes à mener par les entreprises pour respecter les droits de l’homme . Ces travaux ont abouti à l’adoption d’une résolution du Conseil des Droits de l’Homme de l’ONU s’articulant autour de trois axes: « protéger, respecter et remédier » contribuant à faire progresser le débat juridique sur le rôle des Etats et des entreprises dans le domaine des droits de l’homme.

Pour autant, malgré la construction d’une voie de responsabilité internationale des entreprises, de nombreuses divergences peuvent encore être mises en évidence. C’est surtout l’absence de réglementation uniforme qui a attiré l’attention de la Commission européenne poussée à établir une certaine crédibilité et une harmonisation des pratiques avec une transparence des critères afin de combler le vide existant. Ainsi, dans sa stratégie RSE du 25 octobre 2011, la Commission fournit un cadre normatif de protection, via des sections comprenant la Direction Générale des Entreprises et la Société de l’Information qui guident le comportement des entreprises afin d’étendre l’influence de la RSE pour les responsabiliser vis-à-vis des effets qu’elles exercent sur la société. Par ailleurs, le levier du droit fiscal a été adopté par l’Union européenne dans un contexte juridique de financement durable, mettant en place une taxation corrective qui promeut les projets les plus respectueux et taxe ceux qui sont dommageables dans le but d’orienter les comportements vers une situation économique jugée optimale. Ces initiatives ont été prises par les institutions européennes afin d’encourager les entreprises à « aller au-delà de la conformité », soulignant qu’il existe une relation entre les actions proactives et l’amélioration de la compétitivité. Au moins, la politique de l’UE indique clairement que les actions volontaires des entreprises ne doivent pas être considérées comme un substitut à la réglementation légale. C’est pourquoi l’UE doit continuer à soutenir de manière proactive les activités qui peuvent faciliter le progrès de la conduite responsable des entreprises en encourageant les acteurs des secteurs clés à s’appuyer sur des projets responsables et à définir des exigences de diligence raisonnable.

(…)

Ainsi, il apparaît essentiel de définir un équilibre stable entre les impératifs moraux et économiques. Les entreprises, comme l’ensemble des agents ont des devoirs moraux, des responsabilités sociales et devraient être de « bonnes entreprises citoyennes ». C’est ce que met en exergue le nouveau « duty of care » ( devoir de diligence) désormais attendu des sociétés, qui encourage une voie de réorientation de la logique du système productif vers de nouveaux objectifs plus responsables. Ce devoir conduirait à l’acceptation d’une rentabilité financière moindre à court terme, en renonçant aux bénéfices immédiats, afin d’encourager un développement éthique, social et durable sur une activité économique à plus long terme. Un tel principe doit être appuyé par toutes les parties prenantes afin que le mouvement soit étendu à l’ensemble des agents économiques. Néanmoins, il est encore tôt pour prédire les effets de ces changements, qui soulèvent la question des méthodes de régulation, leur introduction étant encore récente et sans changement réel, notamment du fait du peu de mesures actuelles permettant d’imposer des sanctions. Par ailleurs, il convient également de noter la spécificité des questions environnementales, qui ne sont pas seulement dépendantes de la gouvernance des entreprises mais font appel à d’autres acteurs (dépendance à la science, prospective, etc.) et suggèrent des investissements importants afin de se libérer des ressources naturelles et éviter une complète destruction de la valeur. Le problème ne dépend plus de l’ignorance, mais de la vitesse des changements ainsi que de la propagation des déséquilibres. Par conséquent, le droit des sociétés peut être une réponse, mais la réflexion interdisciplinaire semble hautement nécessaire pour parvenir à la possibilité d’un équilibre entre le développement durable et la primauté des actionnaires.

La professeure australienne Rosemary Teele Langford offre un bel article relayé par l’Oxford Business Law Blog : « Purpose-Based Governance and Revitalisation of Company Law to Facilitate Purpose-Based Companies » (18 septembre 2020).

Extrait :

The permissibility of corporations pursuing purposes other than profit has been the subject of debate for a number of years. This debate has intensified recently with proposals from bodies such as the British Academy and the Business Round Table (as discussed in previous OBLB posts) to allow or mandate the adoption of purposes by corporations. The challenges posed by COVID-19 have also focused attention on corporate purpose. In addition, there is increasing demand for appropriate vehicles for the conduct of social enterprises and other purpose-based ventures. At the same time, purpose is central to governance in the charitable sphere. In two recent articles I critically analyse the role of purpose in Australian company and charity law and demonstrate revitalisation of the law to facilitate adoption of, and governance centred on, purpose.

(…)

The second article, ‘Use of the Corporate Form for Public Benefit – Revitalisation of Australian Corporations Law’, provides extended detail on relevant aspects of the company law regime and focuses more closely on particular issues that arise in the facilitation of purpose-based companies. These include the application of directors’ duties in the context of such companies, with particular focus on the application of the duty to act in good faith in the interests of the company where companies have multiple purposes. This in turn has relevance for the drafting of appropriate constitutional provisions. Other issues arise in relation to standing and enforcement, departure from purposes and signalling. The focus of analysis is on the for-profit corporate form given that it is uncontroversial that other corporate forms (such as companies limited by guarantee) can be used for charitable and not-for-profit purposes. 

In this respect, experience from the UK and US can provide helpful insights in the revitalisation of Australian law. In particular, scholarly analysis of the issues arising from these overseas legislative regimes, and suggested solutions, are invaluable in determining the application of directors’ duties to purpose-based companies and in framing appropriate constitutional provisions. Although changes to the law are not necessary to enable companies to adopt purposes, these lessons from other jurisdictions that have legislated to allow for special-purpose companies are therefore instructive in revitalising Australian law. 

This analysis demonstrates that revitalisation of Australian law to allow purpose-based companies is feasible. In fact, it is opportune. This in turn allows company law to be attuned to practical and conceptual developments in the corporate sphere and more broadly. Such revitalisation does not require a fundamental shift, particularly given the malleability of directors’ duties. Indeed, given that the origins of the corporate form were connected with public ends, this evolution of the corporate form, and the attendant adaption of directors’ duties, are a natural adaptation rather than a radical reformulation. 

À la prochaine…

Dans BoardAgenda, Gavin Hinks propose une solution pour que les parties prenantes soient mieux pris en compte : la création d’un comité social et éthique (déjà en fonction en Afrique du Sud) : « Companies ‘need new mechanism’ to integrate stakeholder interests » (4 septembre 2020).

Extrait :

While section 172 of the Companies Act—the key law governing directors’ duties—has been sufficiently flexible to enable companies to re-align themselves with stakeholders so far, it provides no guarantee they will maintain that disposition.

In their recent paper, MacNeil and Esser argue more regulation is needed and in particular a mandatory committee drawing key stakeholder issues to the board and then reporting on them to shareholders.

Known as the “social and ethics committee” in South Africa, a similar mandatory committee in the UK considering ESG (environmental, social and governance) issues “will provide a level playing field for stakeholder engagement,” write MacNeil and Esser.

Recent evidence, they concede, suggests the committees in South Africa are still evolving, but there are advantages, with the committee “uniquely placed with direct access to the main board and a mandate to reach into the depths of the business”.

“As a result, it is capable of having a strong influence on the way a company heads down the path of sustained value creation.”

Will stakeholderism stick?

The issue of making “stakeholder” capitalism stick has vexed others too. The issue was a dominant agenda item at the World Economic Forum’s Davos conference this year, as well as becoming a key element in the presidential campaign of Democrat candidate Joe Biden.

Others worry that stakeholderism is a talking point only, prompting no real change in some companies. Indeed, when academics examined the practical policy outcomes from the now famous 2019 pledge by the Business Roundtable—a group of US multinationals—to shift their focus from shareholders to stakeholders, they found the companies wanting.

In the UK, at least, some are taking the issue very seriously. The Institute of Directors recently launched a new governance centre with its first agenda item being how stakeholderism can be integrated into current governance structures.

Further back the Royal Academy, an august British research institution, issued its own principles for becoming a “purposeful business”, another idea closely associated with stakeholderism.

The stakeholder debate has a long way to run. If the idea is to gain traction it will undoubtedly need a stronger commitment in regulation than it currently has, or companies could easily wander from the path. That may depend on public demand and political will. But Esser and MacNeil may have at least indicated one way forward.

À la prochaine…

Belle tribune dans Fortune de MM. Colin Mayer, Leo Strine Jr et Jaap Winter au titre clair : « 50 years later, Milton Friedman’s shareholder doctrine is dead » (13 septembre 2020).

Extrait :

Fifty years ago, Milton Friedman in the New York Times magazine proclaimed that the social responsibility of business is to increase its profits. Directors have the duty to do what is in the interests of their masters, the shareholders, to make as much profit as possible. Friedman was hostile to the New Deal and European models of social democracy and urged business to use its muscle to reduce the effectiveness of unions, blunt environmental and consumer protection measures, and defang antitrust law. He sought to reduce consideration of human concerns within the corporate boardroom and legal requirements on business to treat workers, consumers, and society fairly. 

Over the last 50 years, Friedman’s views became increasingly influential in the U.S. As a result, the power of the stock market and wealthy elites soared and consideration of the interests of workers, the environment, and consumers declined. Profound economic insecurity and inequality, a slow response to climate change, and undermined public institutions resulted. Using their wealth and power in the pursuit of profits, corporations led the way in loosening the external constraints that protected workers and other stakeholders against overreaching.

Under the dominant Friedman paradigm, corporations were constantly harried by all the mechanisms that shareholders had available—shareholder resolutions, takeovers, and hedge fund activism—to keep them narrowly focused on stockholder returns. And pushed by institutional investors, executive remuneration systems were increasingly focused on total stock returns. By making corporations the playthings of the stock market, it became steadily harder for corporations to operate in an enlightened way that reflected the real interests of their human investors in sustainable growth, fair treatment of workers, and protection of the environment.

Half a century later, it is clear that this narrow, stockholder-centered view of corporations has cost society severely. Well before the COVID-19 pandemic, the single-minded focus of business on profits was criticized for causing the degradation of nature and biodiversity, contributing to global warming, stagnating wages, and exacerbating economic inequality. The result is best exemplified by the drastic shift in gain sharing away from workers toward corporate elites, with stockholders and top management eating more of the economic pie.

Corporate America understood the threat that this way of thinking was having on the social compact and reacted through the 2019 corporate purpose statement of the Business Roundtable, emphasizing responsibility to stakeholders as well as shareholders. But the failure of many of the signatories to protect their stakeholders during the coronavirus pandemic has prompted cynicism about the original intentions of those signing the document, as well as their subsequent actions.

Stockholder advocates are right when then they claim that purpose statements on their own achieve little: Calling for corporate executives who answer to only one powerful constituency—stockholders in the form of highly assertive institutional investors—and have no legal duty to other stakeholders to run their corporations in a way that is fair to all stakeholders is not only ineffectual, it is naive and intellectually incoherent.

What is required is to match commitment to broader responsibility of corporations to society with a power structure that backs it up. That is what has been missing. Corporate law in the U.S. leaves it to directors and managers subject to potent stockholder power to give weight to other stakeholders. In principle, corporations can commit to purposes beyond profit and their stakeholders, but only if their powerful investors allow them to do so. Ultimately, because the law is permissive, it is in fact highly restrictive of corporations acting fairly for all their stakeholders because it hands authority to investors and financial markets for corporate control.

Absent any effective mechanism for encouraging adherence to the Roundtable statement, the system is stacked against those who attempt to do so. There is no requirement on corporations to look after their stakeholders and for the most part they do not, because if they did, they would incur the wrath of their shareholders. That was illustrated all too clearly by the immediate knee-jerk response of the Council of Institutional Investors to the Roundtable declaration last year, which expressed its disapproval by stating that the Roundtable had failed to recognize shareholders as owners as well as providers of capital, and that “accountability to everyone means accountability to no one.” 

If the Roundtable is serious about shifting from shareholder primacy to purposeful business, two things need to happen. One is that the promise of the New Deal needs to be renewed, and protections for workers, the environment, and consumers in the U.S. need to be brought closer to the standards set in places like Germany and Scandinavia. 

But to do that first thing, a second thing is necessary. Changes within company law itself must occur, so that corporations are better positioned to support the restoration of that framework and govern themselves internally in a manner that respects their workers and society. Changing the power structure within corporate law itself—to require companies to give fair consideration to stakeholders and temper their need to put profit above all other values—will also limit the ability and incentives for companies to weaken regulations that protect workers, consumers, and society more generally.

To make this change, corporate purpose has to be enshrined in the heart of corporate law as an expression of the broader responsibility of corporations to society and the duty of directors to ensure this. Laws already on the books of many states in the U.S. do exactly that by authorizing the public benefit corporation (PBC). A PBC has an obligation to state a public purpose beyond profit, to fulfill that purpose as part of the responsibilities of its directors, and to be accountable for so doing. This model is meaningfully distinct from the constituency statutes in some states that seek to strengthen stakeholder interests, but that stakeholder advocates condemn as ineffectual. PBCs have an affirmative duty to be good corporate citizens and to treat all stakeholders with respect. Such requirements are mandatory and meaningful, while constituency statutes are mushy.

The PBC model is growing in importance and is embraced by many younger entrepreneurs committed to the idea that making money in a way that is fair to everyone is the responsible path forward. But the model’s ultimate success depends on longstanding corporations moving to adopt it. 

Even in the wake of the Roundtable’s high-minded statement, that has not yet happened, and for good reason. Although corporations can opt in to become a PBC, there is no obligation on them to do so and they need the support of their shareholders. It is relatively easy for founder-owned companies or companies with a relatively low number of stockholders to adopt PBC forms if their owners are so inclined. It is much tougher to obtain the approval of a dispersed group of institutional investors who are accountable to an even more dispersed group of individual investors. There is a serious coordination problem of achieving reform in existing corporations.

That is why the law needs to change. Instead of being an opt-in alternative to shareholder primacy, the PBC should be the universal standard for societally important corporations, which should be defined as ones with over $1 billion of revenues, as suggested by Sen. Elizabeth Warren. In the U.S., this would be done most effectively by corporations becoming PBCs under state law. The magic of the U.S. system has rested in large part on cooperation between the federal government and states, which provides society with the best blend of national standards and nimble implementation. This approach would build on that.

Corporate shareholders and directors enjoy substantial advantages and protections through U.S. law that are not extended to those who run their own businesses. In return for offering these privileges, society can reasonably expect to benefit, not suffer, from what corporations do. Making responsibility in society a duty in corporate law will reestablish the legitimacy of incorporation.

There are three pillars to this. The first is that corporations must be responsible corporate citizens, treating their workers and other stakeholders fairly, and avoiding externalities, such as carbon emissions, that cause unreasonable or disproportionate harm to others. The second is that corporations should seek to make profit by benefiting others. The third is that they should be able to demonstrate that they fulfill both criteria by measuring and reporting their performances against them.

The PBC model embraces all three elements and puts legal, and thus market, force behind them. Corporate managers, like most of us, take obligatory duties seriously. If they don’t, the PBC model allows for courts to issue orders, such as injunctions, holding corporations to their stakeholder and societal obligations. In addition, the PBC model requires fairness to all stakeholders at all stages of a corporation’s life, even when it is sold. The PBC model shifts power to socially responsible investment and index funds that focus on the long term and cannot gain from unsustainable approaches to growth that harm society. 

Our proposal to amend corporate law to ensure responsible corporate citizenship will prompt a predictable outcry from vested interests and traditional academic quarters, claiming that it will be unworkable, devastating for entrepreneurship and innovation, undermine a capitalist system that has been an engine for growth and prosperity, and threaten jobs, pensions, and investment around the world. If putting the purpose of a business at the heart of corporate law does all of that, one might well wonder why we invented the corporation in the first place. 

Of course, it will do exactly the opposite. Putting purpose into law will simplify, not complicate, the running of businesses by aligning what the law wants them to do with the reason why they are created. It will be a source of entrepreneurship, innovation, and inspiration to find solutions to problems that individuals, societies, and the natural world face. It will make markets and the capitalist system function better by rewarding positive contributions to well-being and prosperity, not wealth transfers at the expense of others. It will create meaningful, fulfilling jobs, support employees in employment and retirement, and encourage investment in activities that generate wealth for all. 

We are calling for the universal adoption of the PBC for large corporations. We do so to save our capitalist system and corporations from the devastating consequences of their current approaches, and for the sake of our children, our societies, and the natural world. 

À la prochaine…

Dans un article du Financial Times (« European companies were more keen to cut divis than executive pay », 9 septembre 2020), il est observé que les assemblées annuelles de grandes entreprises européennes montrent des disparités concernant la protection des salariés et la réduction des dividendes.

Extrait :

Businesses in Spain, Italy, the Netherlands and the UK were more likely to cut dividends than executive pay this year, despite calls from shareholders for bosses to share the financial pain caused by the pandemic.

More than half of Spanish businesses examined by Georgeson, a corporate governance consultancy, cancelled, postponed or reduced dividends in 2020. Only 29 per cent introduced a temporary reduction in executive pay. In Italy, 44 per cent of companies changed their dividend policies because of Covid-19, but just 29 per cent cut pay for bosses, according to the review of the annual meeting season in Europe.

This disparity between protection of salaries and bonuses at the top while shareholders have been hit with widespread dividend cuts is emerging as a flashpoint for investors. Asset managers such as Schroders and M&G have spoken out about the need for companies to show restraint on pay if they are cutting dividends or receiving government support. “Executive remuneration remains a key focal point for investors and was amongst the most contested resolutions in the majority of the markets,” said Georgeson’s Domenic Brancati.

But he added that despite this focus, shareholder revolts over executive pay had fallen slightly across Europe compared with 2019 — suggesting that investors were giving companies some leeway on how they dealt with the pandemic. Investors could become more vocal about this issue next year, he said.

One UK-based asset manager said it was “still having lots of conversations with companies around pay” but for this year had decided not to vote against companies on the issue. But it added the business would watch remuneration and dividends closely next year.

Companies around the world have cut or cancelled dividends in response to the crisis, hitting income streams for many investors. According to Janus Henderson, global dividends had their biggest quarterly fall in a decade during the second quarter, with more than $100bn wiped off their value. The Georgeson data shows that almost half of UK companies changed their dividend payout, while less than 45 per cent altered executive remuneration. In the Netherlands, executive pay took a hit at 29 per cent of companies, while 34 per cent adjusted dividends. In contrast, a quarter of Swiss executives were hit with a pay cut but only a fifth of companies cut or cancelled their dividend.

The Georgeson research also found that the pandemic had a significant impact on the AGM process across Europe, with many companies postponing their annual meetings or stopping shareholders from voting during the event.

À la prochaine…

Article à lire de M. Ashwell dans Corporate Secretary : « The threat of employee shareholder activism » (7 août 2020). Intéressante perspective sur l’activisme poussé de manière indirecte par la situation des salariés des entreprises.

Extrait :

Facing an employee-backed or employee-led shareholder proposal generates media attention and causes embarrassment for senior management. But are these recent examples a flash in the pan, or should more companies be bracing for employee-shareholder activism?

A confluence of circumstances

Pat Tomaino is director of socially responsible investing at Zevin Asset Management and has filed shareholder proposals at Alphabet and Amazon, as well as other large technology companies, in recent years. He worked with an employee group at Alphabet, following a mass employee walkout at Google in 2018.

‘It’s a strategy that we as impact investors want to leverage more in the future, but it really depends on a confluence of circumstances,’ he says. ‘We’re not in the business of instigating employee activity inside companies – that’s not the role of investors. We have a stake in the financial outlook of the company. We’re not creating employee activism but, where we do see that it exists, we take that into account. What are employees asking for and why are they acting that way? What signal should we take for how companies are handling their long-term ESG goals?’

Tomaino says that when he has talked to employee groups at large technology companies about shareholder proposals, there’s a feeling that they have tried other avenues of feedback and activism internally. ‘These employees had tried the usual channels and were looking for levers to make change,’ he says. ‘They’d done direct action, they’d talked to the press and they’d noticed that there’s power through shareholder proposals.’

In Germany, employee-shareholder activism is much more established. Labor groups have experimented with shareholder proposals since the early 1990s, according to an academic report from Natascha van der Zwan, assistant professor of public administration at Leiden University. One particularly notable example she highlights is the Deutsche Telecom annual meeting in 2007, when around 1,000 employees entered the meeting to voice discontent about increased working hours and pay cuts as part of a corporate restructuring. Employee-shareholders reportedly signed their voting rights over to local labor unions to oppose the restructuring, as part of a broader campaign involving employee walkouts and labor union protests.

For board directors in the US, Gillian Emmett Moldowan, partner at Shearman & Sterling, says it’s never been more important to receive meaningful updates about nonexecutive employees.

‘Employee campaigns of any nature get significant press attention,’ she explains. ‘Boards have historically been more separated from non-executive employee issues, whether it’s compensation or workers’ issues, or how employees feel about the firm as a whole. I would encourage boards to get an understanding from those who report into the board of human capital management risk and enterprise risks, as well as an understanding of what the company is doing to assess and mitigate those risks.

‘If boards have not historically received information about employee satisfaction and employee sentiment about the company management, then getting hold of that information is a good first step.’

Structural issues

Instances of recent employee shareholder activism have defining traits that may not be replicated elsewhere. For instance, Tomaino explains that many Alphabet employees involved in the shareholder action feel aggrieved at how they think the company’s mission has changed. Google’s motto in its IPO documents was ‘Don’t be evil’, but it has since dropped the slogan and employees have expressed concerns about the direction the company is moving, including in its bidding for national defense contracts.

Aalap Shah, managing director at Pearl Meyer, highlights several structural issues that may make companies more at risk of employee shareholder activism in the future.

‘Part of the issue is the power some companies have given to their employees through equity,’ he explains. ‘In addition, many of these companies are recruiting from the same talent pool, where there’s a desire to work for a company that has some sort of positive purpose. There is significantly more desire [on the part of] millennials and Gen Z to be part of an organization that has purpose, and you’re going to have to compete for that top talent by giving them equity.’

Tomaino says employees with large amounts of their personal net worth tied up in company stock will view themselves as engaged investors as much as employees. But Moldowan says this shouldn’t make companies think differently about granting stock options to employees as part of their compensation packages.

‘Shareholders can bring a proposal if they qualify to do so under the proxy rules, and those shares can be bought on the market – they need not come from an equity compensation plan,’ she says. ‘Not giving equity awards won’t stop an employee acquiring equity by other means.’

An Amazon employee group recently filed a comment letter with the SEC expressing concerns and opposition to proposed changes to Rule 14a-8, on the grounds that planned shifts to share ownership and proposal resubmission thresholds would make it harder for employee groups to advocate for change.

All of the interviewees for this article agree that it’s important for boards to receive information about employee sentiment and for boards or management to be seen to respond appropriately when employee groups express significant levels of discontent. Tomaino acknowledges that it’s unlikely large passive investors would vote in favor of employees and against management – unless the proposal was on something truly egregious – but that a proposal can help cause embarrassment for management that may drive change.

As Covid-19 shines a greater light on the treatment and recognition of employees, and the Business Roundtable’s statement equally prompts stakeholders to question companies when they feel they’re not being given a fair hearing, this may not be the last we see of employee participation in shareholder proposals in the US.

À la prochaine…