Overall data on votes cast by the FRR during the 2016 season
The FRR voted on 2,176 shares in 36 countries during 2016. This represented 72,314 resolutions at 2,610 general meetings. The FRR attended 99.4% of general meetings, being absent from just 16, which equates to 0.6% of the total.
The difficulties encountered by the FRR’s managers, and any lack of vote, often resulted from the specific characteristics of local regulations, in particular the blocking of shares before a general meeting, or in the event of split voting. It is also worth remembering that although the investment managers are systematically required to vote on shares held in the portfolio, in the absence of a periodic “rebalancing” of indices through index-linked management, it may be that they are unable to vote on a share due to it being blocked several days before the general meeting. Although the FRR’s investment managers are required to avoid not voting, their attendance at general meetings is subject to the rebalancing and holding of the share in benchmark indices. This is the main reason for the high percentage of these mandates in the votes rejected. In terms of voting breakdown, the number of votes FOR resolutions has been relatively stable over time, at 86.8% in 2016. This figure can be explained by the regional diversification of the FRR’s investments. Therefore, even if a country has a stormy general assembly season, the other countries would not necessarily be affected, which explains this relatively stable percentage of votes in favour within the FRR’s portfolio.
Breakdown of the FRR’s portfolio within the context of general meetings in 2016
As an institutional investor, the FRR is invested in the world’s leading markets, and therefore attends local issuers’ general assemblies in the portfolio’s 36 countries. Governance practices for small and mid-cap companies are different from those for large caps. This diversification of investments automatically makes it harder to compare one company with another, for example regarding the composition and diversification of the board of directors. Various trends may therefore be taken into account: at an overall portfolio level, where they are not very suggestive but reflect macro trends likely to be shared by the markets; and locally, where they are more similar. Different trends appear if we look at the situation from a small or large-cap perspective. Disagreement over small caps is often clearer. This is because they are often less transparent, especially for determining the performance criteria that will unlock variable remuneration (award of stock options or bonus shares). This category of resolutions also happens to be the most disputed.
Resolutions concerning limits on capital increases are hotly debated as small and midcap companies often want more flexibility. Also, regulated agreements between companies and any holding structures may seem opaque, and prompt a “no” vote from investors. Yet small and mid-cap companies are increasingly taking governance standards into account. Some countries, such as Germany, have seen votes against pay rises become much more commonplace, with a rejection rate close to that of 2010.
Unlike small and mid caps, the average approval rate for large caps’ say-on- pay resolutions was up in 2016 (CAC 40 index). With the amendment to the Sapin 2 act aimed at limiting director pay, voting by shareholders attending the general meeting will now be binding on the board of directors. This constitutes real progress and a proper restraining influence by shareholders. We will just have to see how things pan out in 2017.
The incorporation of environmental issues also seems to be taking root, and companies are showing an increasing tendency to highlight their environmental and social responsibility. The integration of these new issues into a company’s global strategy reflects the beginnings of performance based on more long-term criteria, perhaps showing greater awareness of the risks associated with ecological and energy transition. This is another positive move worth highlighting. The tendency towards greater equality on boards of directors also continues. Although the FRR supports this, it has not forgotten that a board of directors must be staffed by competent, available directors.