Nelson Peltz’s appointment to Unilever plc (NYSE:UL)’s board makes it look like open season for activism in the U.K.
Nelson Peltz Joins Unilever’s Board
The Trian Partners founder was accepted as a director a little over two weeks ago to cap a second successful private engagement for the activist this year, after Peltz and colleague Ed Garden joined the board of Janus Henderson.
Q1 2022 hedge fund letters, conferences and more
Indeed, the number of board seats won by activists at U.K.-based companies is up to 10 so far this year, from six and five during the same period in 2021 and 2020, respectively, according to data from Insightia's Activism module. As has been the trend since at least 2017, the majority of those seats have come from settlements.
Scott Hopkins, a partner in law firm Skadden's London office and M&A practice, told me this week that it has been a busy season, with "a much greater sense that activist funds are an established feature of the landscape," and more acceptance of their role by long-only institutional investors.
While the number of companies publicly targeted is down a little in the U.K. and quite a bit in continental Europe, the U.K. has seen an uptick in proxy contests and pro-M&A and divestiture demands that would belie the economic backdrop.
"It's a tricky environment in terms of forward-pricing, supply chains, etc. but activists believe they can be sure enough to put forward their theses," noted Hopkins in our interview. "The M&A and balance sheet strategy is in the ascendance because of the volatility and differing opinions on which businesses and units will do well and which won't."
According to news reports, Trian's agenda at Unilever has less to do with M&A or a breakup, which will be unsurprising to those that have followed Peltz’s past campaigns, and more to do with operations. That bucks a trend I wrote about just a few days before Unilever's announcement, although I noted that Peltz had been relatively quiet about his thesis, in contrast to the gung-ho campaign at Procter & Gamble several years ago. Now, Peltz has a bit more freedom, as evidenced by some of his public comments, but also the constraints of the boardroom.
Activists might be a bit shier about making their predictions public, but their involvement could be good cover for management teams facing questions about their plans for the downturn from anxious shareholders.
We may not see quite the rash of settlements that we saw in response to the first days of the COVID-19 pandemic, given that the proxy season pipeline is nearly empty. But it remains a surprisingly opportune moment for activism, at least in jolly old London.
Josh Black - Editor-in-Chief, Insightia
Opposing Pay Packages
Investors that have tired of opposing pay packages with little impact are taking another tack.
Some U.S.-listed companies are infamous for their remuneration plans facing significant pushback year-on-year but the continued escalation of CEO pay now has investors casting their votes against specific directors.
"In 2021, investors became more demanding as the world entered a 'new normal'," Domenic Brancati, global chief operating officer of Georgeson, told Insightia in an interview.
"Remuneration remained a major flashpoint for shareholders in 2021 and investors continue to focus on executive compensation into the 2022 annual general meeting season."
It came as little surprise when Intel's "say on pay" proposal received 34.1% support, given that the technology giant's 2020 and 2021 pay proposals received 47.8% and 61.7% opposition, respectively. This year, however, investors also took their frustration out on compensation committee members Alyssa Henry and Dion Weisler, who faced 49.6% and 28.5% opposition, respectively. These votes represented 34.9 and 28.5 percentage point declines in support, respectively, compared to Intel’s previous annual meeting.
The same trend was also on show at Arrowhead Pharmaceuticals. The biotechnology company's remuneration report, which failed to pass last year, received 79.4% opposition at the company's March 17 annual meeting, thanks to CEO Christopher Anzalone’s pay being more than four times the average named executive officer’s (NEO) pay. Directors William Waddill and Mauro Ferrari faced 62.2% and 64.7% opposition, a far cry from the 3% opposition both directors faced one year prior.
Ontario Teachers' Pension Plan was among the many investors to oppose both Arrowhead's pay plan and directors, noting in its voting rationale that the company's failure to "sufficiently address concerns expressed by shareholders at the company's previous annual meeting" resulted in the fund manager having "lost faith in director[s] ability to act in the best interests of shareholders."
These are not isolated incidents, with similar circumstances presenting themselves at G-III Apparel Group, JP Morgan, and Discovery’s 2022 annual meetings.
As of June 16, 2022, 71 director re/election proposals subject to a vote at U.S.-listed companies have failed to receive majority support, compared to 83 and 109 throughout 2020 and 2021, respectively, according to Insightia's Voting module.
Executive compensation was "one of the top reasons" why BlackRock voted against directors globally in 2021, according to its proxy season review. The world's largest fund manager opposed the reelection of 931 directors at 453 companies due to compensation concerns, compared to 668 directors at 338 companies one year prior.
In a voting bulletin, Vanguard also warned about the risks directors face if companies consistently fail to strengthen their pay practices. The fund manager voted against three compensation committee members at Discovery's April 8 annual meeting, following a "long history of engagements with Discovery, at which, among other governance topics, executive compensation has consistently been discussed."
"Where support for executive pay is low, boards should consider their shareholders' views and be responsive to input," Vanguard said. "In evaluating plans, we look for the compensation committee to consider pay-for-performance alignment, long-term focus, and a structure that promotes rigor and outperformance."
Rebecca Sherratt - Publications Editor, Insightia
Updated on
