Other recent case study examples

Speedy Hire

Tosca is a 20% shareholder of Speedy Hire and requisitioned a general meeting to table two shareholder resolutions. Firstly, to propose the removal of Jan Astrand (Executive Chairman) and secondly, to propose the appointment of David Shearer as an independent non-executive director.

Speedy Hire’s Board published a detailed circular rejecting these proposals. The circular chronicled the extensive degree of contact that had occurred in the 14-month period between May 2015 and July 2016 between Tosca and the company. The tone of the subsequent announcements clearly indicated that relationships had become increasingly strained between the two sides.

A significant factor was the fact that Tosca owns 20% of UK tool and equipment supplier HSS and Tosca was promoting a merger between the two companies, which was not in the best interest of all shareholders. Our approach in such situations is to seek the views of all of the interested parties in order to reach a balanced view of what we think is in the best interests of our clients. We had separate calls or meetings with each of Tosca, Jan Astrand, David Shearer and Russell Down (Chief Executive of Speedy Hire) and also a previous member of the Speedy Hire Board. As a result, we concluded that M&G would support the Board and not require the chairman to step down.

In the event, 64% of shareholders supported Jan Astrand to remain as chairman, however, 52% also voted in favour of electing David Shearer to the Board. Jan Astrand has now reverted back to being a non-executive chairman. On 30th September, the company announced a positive trading update and stated that “full year profit before tax will be ahead of its previous expectations”.



In January 2016, Babcock announced the retirement of its CEO, following a 13-year tenure, over which period the share price rose from 98p to 1080p (representing a compound annual growth rate of 19% per annum). On retirement, the Remuneration Committee exercised their discretion in favour of the CEO, allowing him to retain in full his outstanding long-term incentive awards (subject to the achievement of existing performance measures). In such instances, there is an expectation that outstanding awards are pro-rated from the point of award to the point of departure, with vesting of retained awards subject to ongoing performance criteria.

We raised a number of points with the Company relating to the timing and quality of disclosure on remuneration discussions and our expectation that time pro-ration should be applied to outstanding long-term incentive awards for the CEO.

Rather than following our voting guidelines and voting against, we abstained on the remuneration report in recognition of the significant value that the CEO has delivered to our clients over the long period in which we have been invested in Babcock shares. The remuneration report was only just approved (with 52% of shareholders voting in favour and 48% voting against or abstaining).



Baidu is a leading Chinese language internet search provider. The company announced earlier this year that it had received a proposal from the Baidu chairman and chief executive officer, together with the chief executive of Chinese online video platform iQiyi, to purchase Baidu’s stake in iQiyi. We were concerned whether this was in the interest of all shareholders due to the possibility that it could distract Baidu’s chief executive and lead to potential future conflicts of interest, alongside a lack of transparency on how the proposed purchase price was determined.

Baidu’s non-executives formed a special committee to consider the proposal, and we wrote to the committee highlighting our concerns. We then met with Baidu’s chief financial officer and, again, raised our concerns. We subsequently contacted other shareholders and the Asian Corporate Governance Association to express our apprehensions, and suggested they also contact the company.

Baidu announced in July that the proposal had been withdrawn; we believe this reflects well on the special committee and the company’s approach to external shareholders.


Royal Dutch Shell and BHP Billiton – SRI days

Companies are facing pressure to respond to the growing interest among investors in the environmental, social and governance (ESG) practices of the businesses in which they invest. To address this, companies are hosting ESG / SRI (socially responsible investment) investor days, at which senior management, often the CEO and/or Chairman, and other relevant executives discuss key ESG issues with investors. We see this as an encouraging improvement in business practice – and one that demonstrates how seriously companies are taking their ESG responsibilities, providing greater transparency and allowing investors to better understand how these companies are managing ESG risks to their business.

We regularly attend company ESG / SRI days, and recently went to events sponsored by multinational oil & gas company Royal Dutch Shell, and Anglo-Australian diversified mining company BHP Billiton.


Royal Dutch Shell

Shell’s annual SRI event coincides with the release of its annual Sustainability Report. The event was chaired by the company’s CEO Ben van Beurden – a demonstration of how engaged the company is with ESG issues – and was attended by the Chairman of the Corporate Social Responsibility committee and other senior management from relevant areas of the business.

The event covered the full gamut of ESG issues affecting Shell’s business, focusing on several key areas. These included issues ranging from the transparency of tax payments to governments (Shell is a member of the EITI - Extractives Industry Transparency Initiative) to onshore operations in Nigeria, where pipeline sabotage and deteriorating politics appear to be affecting Shell’s appetite for continued operations.

Climate change and renewable energy were also strong areas of focus. For the former, shareholder resolutions were discussed, including the ‘Aiming for A’ resolution calling for greater disclosure of climate change risks. The company also outlined portfolio resilience for different climate change and carbon scenarios. For the latter, Shell highlighted renewables and clean tech development, centring on biofuels, hydrogen as a transportation fuel and carbon capture and storage (CCS), where recent policy in the UK has been disappointing.

We raised a number of issues with the chair of the CSR committee and other operational management. These included oil spills in Nigeria and sugar plantation worker conditions at Raizen in Brazil (Raizen is a joint venture between Shell and Brazilian bioethanol producer Cosan). These discussions provided a good base for further dialogue, and we will continue our interactions with Shell.


BHP Billiton

BHP’s new Head of HSE (Health Safety & Environment) hosted an interesting meeting covering a broad range of issues. He provided an update on the Samarco tailings dam (which stores mine waste) failure in Brazil, where investigations remain ongoing. An independent review on the cause of the dam failure has recently been released. The company is also conducting a review of all dams (tailings or otherwise) and non-operated joint venture structures. Aside from this catastrophic failure, generally it seems that BHP Billiton is among the industry leaders in managing its ESG risks. Positive developments include its ‘field leadership’ programme, focusing on management’s engagement with on-site safety, and its shift towards leading versus lagging indicators in safety management. Overall, we think the company’s HSEC (Health, Safety, Environment and Community) reporting is strong.

We provided feedback on the importance of BHP maintaining its focus on improving HSEC standards in spite of other valid pressures, which include cost controls and production increases. We also stressed that investors (and our clients) make little distinction between whether a joint venture partner is an operator or not, particularly when it relates to fatalities, injuries or sustainability.



Swiss multi-national food and drink business Nestlé seems to take a proactive approach to Environmental, Social and Governance (ESG) issues affecting its business. Among other issues, Nestlé takes a robust line on raw materials sourcing and water management, is a global leader in health & wellness, and has commissioned an independent transparency specialist to investigate labour controversies in its own supply chain. The business is ‘A’ rated by MSCI ESG Research, and is one of the top food producers in the Dow Jones Sustainability index, with the highest score in its ‘Environmental’ and ‘Health’ categories.

Having said this, there are a number of ‘open’ issues affecting the company, in particular the US Supreme Court case relating to the alleged use of child labour in cocoa farming in Cote d’Ivoire.

We met with senior executives from the Sourcing and Sustainability departments to discuss management of ESG risks & opportunities. In particular we focused on supply chain issues in their huge coffee business, as well as allegations around the use of forced labour in the Thai fishing supply chains of global consumer goods businesses such as Nestlé; an issue they are now addressing alongside other protagonists in the industry. As a follow-up to this topic we also recently attended a panel debate at which relevant parties debated the problems facing the fishing industry, in Thailand and other countries. The debate focused on the often poor conditions faced by workers in the industry and discussed how to work towards potential solutions to some of the issues – we are organising follow-up discussions with some panel members to continue the discussion and we will continue to monitor the situation closely.


Columbia Sportswear

Columbia Sportswear is a US-listed company that designs, distributes and markets active outerwear, sportswear, footwear, accessories and equipment, under the Columbia, SOREL, Mountain Hardwear and prAna brands. It was founded in 1938 by the father of the current Chairperson, and is now run by his grandson. The company’s products are sold in approximately 100 countries.

The business has grown successfully over time and we were keen, in particular, to understand how the company manages its supply chain risks – an area in which its peers have often struggled. We also discussed succession planning, which can be difficult in a family-run business. What was very clear from our call with the CEO was the strength and involvement of the non-executive directors, who include the Chairman of Intel and one of the founders of Nike. It was very apparent how seriously these individuals value their reputations and this has contributed to the company appearing to have leading policies on supply chain management. We were also reassured on the process for succession planning, although this is an area we will continue to monitor closely.


Deutsche Lufthansa

Deutsche Lufthansa, when combined with its subsidiaries, is the largest airline in Europe, both in terms of passengers carried and fleet size. Its main business area is passenger transport, but it also offers cargo, catering and financial services.

The company has faced growing competition e.g. from low-cost carriers, and has responded with substantial unit cost reductions. Partly as a result of this strategy, there has been a wave of strike action from different groups of employees, leading to worldwide flight cancelations.

Half of Deutsche Lufthansa’s supervisory board is made up of employee representatives (a requirement under German Corporate Law – “Aktiengesetz”). In light of this, we spoke with the Chairman to understand how effectively the board is operating, given that relations with employees are currently strained. Our discussion provided examples of how potential conflicts are being managed, although this remains a work in progress as some of the labour issues have not yet been settled.

We also discussed long-term strategy and the ongoing challenge from low-cost carriers, and how the business was hoping to respond. We finally touched on the contribution from the company’s independent directors, given that a number of these directors have high-profile roles elsewhere (including the CEOs of Adidas and Merck KG), and received reassurance about their time commitment and involvement. We received sound responses to our questions from the Chairman and felt that the board was meeting the continued challenges well.


Ophir Energy

Ophir Energy (FTSE 250) is an upstream oil and gas exploration business, which primarily develops offshore and deepwater oil and gas assets around Africa and Asia.

Following a review of its remuneration policy, Ophir proposed a radically different approach to remuneration, with the intention of supporting key organisational changes across the company, and focusing all employees on value creation and capital allocation.

The company consulted on an LTIP (long-term incentive programme) structure that moved away from making annual awards to executives (subject to performance), to a proposed structure under which awards would be determined following a Net Asset Value (NAV) trigger event. It was proposed that all employees would be eligible to participate, in combination with a significant reduction in annual bonus potentials, thus shifting the culture from one of ‘entitlement’ to one that is focused on value creation.

Our engagement with Ophir focused on understanding the company’s motivation for proposing the revised scheme, and ensuring that the basis on which NAV is measured is appropriate. We also discussed the drivers for, and appropriateness of, implementing the revised structure on a company-wide basis, and the potential consequences of doing so for the wider employee population.

Consideration was given to the scenarios where NAV events are not reflected in the share price, under which circumstance the plan’s outcome might diverge from the interests of shareholders. In addition to conferring over the proposal with the Remuneration Committee Chair, we discussed the potential impact of the changes on employees with the Chief Executive, Nick Cooper. We concluded that the proposed plan was essential to support the cultural changes being driven through the organisation, and on that basis we voted in favour of the remuneration policy. Circa 88% of shareholders voted in favour of the policy at the AGM on 10th May 2016.


Virgin Money Holdings

Virgin Money Holdings (FTSE 250) is a retail bank operating in the residential mortgages, savings and credit card markets – it also offers insurance and investment products. The company listed in 2015.

At the start of 2016, Virgin Money’s Remuneration Committee consulted with M&G on a revised remuneration policy for 2016. The proposals included introducing a material fixed cash allowance for the Chief Executive, rebalancing the annual bonus and long-term incentive plan, revising the performance metrics for awards under the long-term incentive plan and updating the remuneration structures to comply with relevant regulatory requirements.

We discussed the proposals with the Remuneration Committee Chair, focusing on understanding the rationale behind the proposed changes, how the proposed metrics aligned with the company’s strategy and how the non-financial measures (based on a scorecard of brand, culture, control measures and personal objectives) would be measured. Following our discussions with Virgin Money, we were satisfied that the proposals were appropriately aligned with the company’s strategy and culture, and on that basis voted in favour of the remuneration policy. Circa 92% of shareholders voted in favour of the policy at the AGM on 4th May 2016.