Standard Life Investors has slammed Volkswagen and Sports Direct in its annual corporate governance report and threatened to up the pressure on the companies, which face an environmental scandal and workers’ rights controversies between them.
The companies were both earmarked as “escalation candidates” in the Governance and Stewardship Annual Review for 2016, alongside payments business Fleetcor.
SLI voted against almost a resolution at almost a third of the meetings it attended last year. It voted on behalf of clients at 1,569 last year and voted against one resolution or more at 430 of these.
SLI says it has raised concerns at Sports Direct with senior executives and non-executives over a number of years “but to little effect”. In particular it said it had a number of outstanding concerns on labour standards and zero-hour working contracts.
Volkswagen was criticised for failing to address governance concerns following the 2015 emissions scandal, whereby the US Environmental Protection Agency revealed its cars were using cheat devices to hide the level of pollutants they were emitting.
Despite concerns about board independence there were no changes put forward to address this at the 2016 AGM and SLI adds that the remuneration outcomes for 2015 “did not seem appropriate”.
“However, the distribution of voting rights at the company ensured that all resolutions proposed by the board were passed,” the report states. Volkswagen is a family-controlled business.
Head of stewardship and ESG investing Euan Stirling says 2016 saw widespread dissent in shareholder ranks against excessive pay for management.
“We place particular emphasis on corporate culture and the impact of excessive remuneration and the responsibility of shareholders to hold boards to account. The serious implications of failure in these areas suggest that further remedies are likely to be sought.”
SLI takes a more positive view on corporate governance at advertising firm WPP and Martin Marietta Materials, which it lists as companies where it has been “influential in achieving change”.
At WPP, SLI says it feels encouraged that the chairman has taken on board concerns about succession planning; however, it says concerns still remain about executive pay and it has voted against the remuneration report at the AGM as well as the re-election of the compensation committee chair.
Forty two per cent of SLI votes against management recommendations were over remuneration and share schemes and this is set to continue to be an issue in 2017.
Stirling notes many companies will need to seek authority for a new remuneration policy as the UK binding vote on remuneration policy enters its third year.
“While the binding remuneration policy vote has restricted the amount of discretion available to remuneration committees, it has not addressed the underlying trend of increasing quantum.
“As active investment managers with a focus on active, constructive engagement we believe that we can positively influence the companies in which we invest.”
SLI has fought against the use of a poison pill shareholder structure at Martin Marietta Materials that limits the power of minority shareholders. The report says the fund manager has made some progress addressing this issue with the board.
The report adds that SLI joined the Investor Forum in 2016 and envisages that this will become a key part of its engagement strategy in the UK, especially where issues escalate to the point where collective engagement is deemed necessary.