Presentazione di PowerPoint - uniroma1.it · • Companies that have the registered office abroad (CNH Industrial, Exor, Ferrari, FCA, Stmicroelectronics, Tenaris); • Mediaset and

2017 11 17

··· Boards and institutional

investors

A RELATIONSHIP TO REINFORCE

La Sapienza

Facoltà di Economia e Commercio

Fiduciary’s Duty | 24.02.2017

2

INDEX

1.0 — Fiduciary’s duty

2.0 — Italian AGMs: the context

3 .0 — The players of the market

4.0 — Regulatory context

5.0 — Board diversities

6.0 — Renewal of the Board

7.0 — Board evaluation

8.0 — Succession Plans

9.0 — Board Induction

10.0 — Remuneration Policy

11.0 — AGM preparation: why?

12.0 — The engagement with Institutional Investors

13.0 — Case studies

1.0

···

Fiduciary’s Duty


Capital Structure

Risk Management

Executive

Remuneration

4 1 .0 F IDUC IAR Y ’ S DUTY

THE MEDIATION PARADIGM: A CLOSER LOOK

The Board is responsible for “aligning interests” by balancing the conflicting but equally valid perspectives of

management and shareholders on issues as:

Shareholders are part of the

stakeholder community to

which Boards should deal with:

DIRECTORS

MANAGEMENT SHAREHOLDERS Disclosure/Dividends&Growth

Investments

Investor Relations

MEDIATION

&

“ALIGNING

INTERESTS”

Transparency

ESG &

Sustainability

Long-term

approach

Integrated

thinking

Director

Nomination

Shareholder Rights

Control



A NEW APPROACH TO BOARD

HARDWARE

• The Board infrastructure.

• It defines governance policies and best practices.

• Principle-based approach.

• No transparency on decision making process inside

the Boardroom.

• Not enough to satisfy investors’ growing demands.

SOFTWARE

• The Board functioning.

• It defines how Board sets priorities, mediates

conflict and links its policies to business strategy

and performance.

• Clear Board’s role, responsibilities and behaviors.

• Board full awareness on processes connected to

the new approach.

• Board transparency.

• Stakeholder governance.

Roger Ferguson, CEO TIAA-CREF: “Corporate Governance “hardware” is in place, but CG

“software” is not.

The driver of cultural change inside the Boardroom Board should be a self-governing oversight body composed of highly competent, independent-minded, conflict-free

individuals with diverse characteristics and backgrounds who are well-informed, diligent, knowledgeable about the

Company’s business, focused on long-term performance, committed to serve the interests of the Company’s owners

and stakeholders and willing to take a high public profile in fulfilling their responsibilities.



THE ITALIAN GOVERNANCE ENVIRONMENT

HARDWARE

• The Governance infrastructure is clearly a

benchmark within EU countries and worldwide.

• Italian CG Code strongly promotes long-term value

creation for Shareholders.

• The Bank of Italy goes further promoting long-term

value creation for all stakeholders.

• Related party transaction regulation and slate

system for Board nomination is widely considered

as a benchmark.

• Voting obstacles have been eliminated (RD).

SOFTWARE

• Transparency on Board functioning is generally

not exhaustive.

• Board diversities still linked to old-style drivers.

• Board evaluation generally performed without an

external facilitator.

• Sustainable thinking or integrated reporting are

generally at a an early stage or “parallel” to the

strategy and not integrated.

• Long-term drivers on compensation as vesting

period are generally not sufficiently aligned with

long-term performance.

• Engagement with Shareholders is often reactive.

The driver of cultural change inside the Boardroom • CG Codes and norms are in place but business model and connected Boards, Directors and Companies are not

predominantly focused on operating for long-term value creation.

• Governance needs to update itself and this should start from the main actors: Board’s directors, which through

their Fiduciary’s duty should bring into the Boardroom a new model of sustainable business integrated with ESG

factors and ask for a cultural change at both Board and Company level.



FIDUCIARY DUTY

TWO MAIN DUTIES

Loyalty: placing the company’s interests ahead of

individual own interest.

Prudence: applying proper care, skill, and diligence

to business decisions.

• • • Main principle guiding Board responsibility is

mediating between the “legitimate but often

conflicting interests of Management and

Shareholders”.

• • •

• • •

Board members' time commitment might increase in 2016

and Director’s responsibilities become more complex.

• • •

BOARD RESPONSIB IL IT IES

Companies should carefully compile and disclose its

own list of Board responsibilities that reflects its

individual characteristics, circumstances and goals on

the basis of:

• Strong leadership skills and self-evaluations -

important to be effective.

• Effective strategy and risk oversight - for better

Board-Management information flow.

• Board addressing the corporate culture change.

• Effectively manage reputational risk on a global

scale.

• Improve dialogue with stakeholders, the quality of

disclosures around how boards are carrying out

their oversight responsibilities.



KEY GOVERNANCE – BOARD OVERSIGHT

TRENDS Leon Panetta: “Can we end the long

tradition of the Boardroom as a sealed

chamber …? Can we move toward

more transparency about boardroom

process …?”

More important trends will impact Board oversight across

jurisdictions in 2017:

Board composition: independence and diversity as

measures of effectiveness.

Board structure and processes: majority voting, annual

elections, CEO/chair split, etc.

Strategy: Board engagement in the strategy-setting process.

Succession: approach to executive and its own succession

planning.

Risk: oversight of risk management, including emerging,

complex and reputational ones.

Remuneration: the linkage between Company strategy,

executive compensation philosophy and pay plan design.

Financial oversight: oversight of financial matters as

external audit, internal audit, financial controls.

Sustainability: understanding the real indicators that create

value through integrated thinking.

Activism: more openness to activist investors and increased

engagement to long-term institutional investors.

• Board transparency is the pillar.

• Board effectiveness becomes the key-driver.

• This brings more responsibility for Board as

a whole and its Directors.

• Director’s role has changed and many new

tasks and responsibilities should be

addressed.

• Long-term thinking should be applied in the

boardroom, disclosed and promoted to all

stakeholders.

2.0

···

Italian AGMs:

the context


10 2 .0 ITAL IAN AGMS: THE CONTEXT

PANEL FTSE MIB The subject of this analysis consists in a panel composed of the FTSE Mib companies as of June 2017, except :

• Companies that have the registered office abroad (CNH Industrial, Exor, Ferrari, FCA, Stmicroelectronics,

Tenaris);

• Mediaset and Mediobanca, which have not held the AGM 2017 yet;

The chart below shows the Market Cap level of the Companies analysed from the largest to the smallest.

-

10.000

20.000

30.000

40.000

50.000

60.000

Market Cap



AVERAGE QUORUM

AGM PARTICIPATION % OUTSTANDING SHARE CAPITAL

• Record date: average participation by institutional

investors +160% in six years.

• New context: greater investors’ participation and

binding proposals (remuneration) created a positive

momentum for CG best practices implementation.

54,3% 52,3%

61,7% 65,3% 65,2% 66,6% 65,1%

10,7%

19,3% 20,6% 21,1% 25,4% 26,1% 27,6%

2009 2010 2011 2012 2013 2014 2015 2016

Average Quorum Minority Shareholders

47,5% 44,6%

41,2% 39,0% 39,0%

8,3%

20,7%

25,4% 26,1% 27,6%

2005 2013 2014 2015 2016

Controlling Shareholders Minority Shareholders

FTSE Mib 2016 % OUTSTANDING SHARE CAPITAL

• Active approach towards non-financial matters

(ESG): due to greater investments by international

investors on Italian corporations.



QUORUM IMPACT

MINORITY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Minority Shareholder Controlling Shareholder

The charts below shows the Minority shareholders weight in the last AGM.

• The average participation of Minority Shareholders is 47.6% of the Quorum.

• Prysmian is the only company whose Minority Shareholders represents almost 100% of the Quorum.


22

% 22

%

23

%

29

%

S.Ferragamo

MINORITY PARTICIPATION - FOREIGN INVESTORS


• 2012 • 2013 • 2014 • 2015

21

%

26

%

33

% 30

%

Unicredit

25

%

27

%

32

%

43

%

Intesa S

24

% 13

%

24

% 23

%

Snam

24

% 22

%

27

%

55

%

Telecom It

26

%

31

% 28

%

35

%

Eni

13

%

15

%

23

% 21

%

Saipem

9

%

12

%

15

%

17

%

Generali

22

% 17

%

32

%

35

%

Atlantia

5

%

14

% 11

%

12

%

Luxottica

13

%

20

%

27

%

46

%

Leonardo

SUBSTANTIAL INCREASING PARTICIPATION AT ITALIAN AGMS (% ISC) SINCE 2012


7

%

17

% 15

%

16

%

Luxottica

23

%

27

%

41

% 33

%

Saipem

25

%

30

% 28

%

34

%

S.Ferragamo

34

% 25

%

49

% 37

%

Snam

29

%

2

%

41

%

43

%

Atlantia

21

%

26

%

33

%

44

%

Generali

46

%

51

% 47

%

48

%

Eni

45

%

49

%

49

%

56

%

Telecom It

48

%

48

%

56

%

60

%

Unicredit

29

%

39

%

45

%

48

%

Leonardo

44

% 43

%

53

%

63

%

Intesa

MINORITY PARTICIPATION – INTERNATIONAL

INVESTORS


• 2012 • 2013 • 2014 • 2015

• 50% of the quorum is now usually held by foreign investors

• extraordinary resolutions are no longer routine exercise.

3.0

···

The players of the market


16 3 .0 THE PLAYERS OF THE MARKET

WHO ARE THE MAIN PLAYERS INVOLVED?

INSTITUTIONAL INVESTORS

• Many have CG teams.

• Have clear voting policies.

• Are generally happy to engage.

• Prefer to engage directly with Top Management,

not Investor Relations.

• Open to over-rule voting decision.

PROXY ADVISORS

• ISS and Glass Lewis – most influential.

• Recommend investors on how to vote.

• More rigid rather than their clients.

• Biased by Governance aspects only.

• Have a strong influence over many investors.

• Most are happy to engage but timing is important.



THE VOTING CHAIN

JP Morgan

Northern

BONY

UK Pension

Fund

US College

Fund

UK Pension

Fund

US Mutual

Fund

ISS

State

Street

HSBC

ECGS

Global

Custodian

Beneficial

Owner

Local

Custodians

Investment

Advisor

Proxy Voting

Agent

Proxy

Advisor

BLACKROCK

US Mutual

Fund

Glass

Lewis

Company

BNP Paribas

DB

Intesa

San Paolo

ISS

Broadridge



VOTING PROCESS FOR INVESTORS

Corporation



MAIN PROXY ADVISORS

• 500 analysts, 1700

institutional clients

which manage around

$26 trillion.

• 40.000 AGMs under

review each year.

• 300 analysts, 900

institutional clients

which manage around

$15 trillion.

• 23.000 AGMs under

review each year.

OTHER PROXY ADVISORS

4.0

···

Regulatory context


21 4 .0 REGULAT OR Y CONTEX T

INVESTORS AND CORPORATIONS: THE

REGULATORY CONTEXT

GROWING ENGAGEMENT BY INVESTORS OVER THE CORPORATIONS THEY INVEST ON

The engagement by investors on their investee Companies is constantly growing due to:

• Intention to promote governance implementations and financial performance of corporations through:

— Board election

— Say on pay

— ESG engagement.

• The “Vote with your feet” approach may generate an excessive risk-taking for big institutional investors.

• Local and supra-national regulatory initiatives (i.e. financial sectors).

• Institutional investors are much more “accountable” towards their end-investors - clients (fiduciary duty).

• Recent scandals in poor Governance (Enron, BP, Volkswagen, …) proved that an appropriate governance

model is a risk-mitigation factor.



UK STEWARDSHIP CODE

2010 (amended in 2012)

1. Release of a policy on stewardship responsibilities adoption.

2. Adopt and release a policy on conflicts of interest management.

3. Monitor the subsidiary Companies.

4. Adopt guidelines on the method/timing of the implementation of activist actions regarding subsidiary Companies.

5. Be ready to cooperate with other investors if required.

6. Adopt a clear strategy on voting rights and proxy voting disclosure.

7. Periodically report on stewardship and voting activities.

The Code is addressed to:

- asset managers

- asset owners (holding

shares of listed UK

Companies)

- service providers.


1. The Company should release a public policy on ownership responsibilities.

2. Monitor subsidiary Companies.

3. Adopt guidelines on method/timing of implementation of activist actions on subsidiaries, to protect investment and increase its value.

4. Take into consideration to cooperate with other investors if required, complying with any «agreement action» policy.

5. Consciuos exercise of the voting rights.

6. Report on the ownership and voting right exercise in subsidiary Companies, and implement an engagement activities policy.


EFAMA CODE FOR EXTERNAL GOVERNANCE

2011

The Code is mainly

addressed to Investment

management companies.



ITALIAN STEWARDSHIP CODE

2013 (amended in 2015)

1. The Companies adopt a publicly available policy regulating the exercise of rights on financial instruments pertaining OICR and administered portfolios.

2. The Companies monitor the listed subsidiary Companies.

3. 3. Adopt guidelines on method/timing of implementation of activist actions on listed subsidiaries, to protect investment and increase its value.

4. Evaluate the opportunity to cooperate with other investors if appropriate, taking careful attention to «agreement action» regulation.

5. The Companies consciously exercise the voting rights on financial instruments pertaining to OICR and administered portfolios.

6.The Companies mark the exercise of those rights on financial instruments pertaining to OICR and administered portfolios, and adopt a policy on external governance information disclosure.

The Code is manily

addressed to Asset

management Companies.


25

CONFLICTS OF INTEREST

Only the Stewardship Code recommends

the adoption of a policy to manage the

conflicts of interest.

PRE-AGM ENGAGEMENT

Only the Stewardship Code recommends to

communicate to the subsidiary Companies

the willingness to vote against or abstain

(motivated).

POST-AGM ENGAGEMENT

Only the Stewardship Code recommends

reporting the voting exercise in subsidiary

Companies.

INFORMATION ON PROXY

ADVISOR USE

The Italian Code does not mention any

disclosure on proxy advisory services

engagement.

4 .0 REGULAT OR Y CONTEX T

A COMPARISON ACROSS GOVERNANCE CODES

5.0

···

Board diversities


27 5 .0 BOARD D IVERS IT I E S

BOARD OVERSIGHT TRENDS

ADVANTAGES FROM DIVERS IT IES

Risk mitigation

• A proper mix of diversities in the Boardroom is

not only the driver to the effectiveness of the

Board but also an efficient tool to mitigate

growing risks to Board members.

Risk monitoring

• Wider, diversified and up-to-date expertise and

skills ensure the appropriate coverage of risks and

help directors pursuing their fiduciary duty.

Value creation

• Appropriate mix of skills ensures the Board

functions efficiently and supports strategically the

management to pursue a long-term value creation

for shareholders.

Objectives of the diversities policy

Boards should adopt diversities policy with the aim of:

• Finding a proper director’s skill set and variety of

perspectives which take into account company’s

culture & needs integrated with business &

economical context Board should face in the long-

term.

• Performing an in-depth assessment of Board

strengths, weaknesses and needs through an

effective Board evaluation.

• Achieving optimal balance between refreshing the

board and retaining valuable experience.

• Creating long-term value through injecting a

variety of informed perspectives into the

boardroom conversation.

• Defining a genuine Board appointments process to

ensure broader reach-out to identify and recruit

capable people of different backgrounds and life

experience.



TRENDS IMPACTING DIVERSITIES

More important trends will impact board diversities in

2017:

• Shareholders’ community has a strong say on

directors’ election.

• Disclosure on Board functioning is becoming

more important than composition, size or

independence.

• More transparency regarding Directors’

nomination process and functioning become

imperative.

• A greater and diverse diversities’ framework is

imperative for Boards to face long-term

challenges.

• Specialist and behavioral diversities should

enter in the Boardroom to minimize risks.

• Independence and thought diversity is critical

to compete today.

• Transition from a compliance exercise to ensuring

a sustainable long-term vision and mitigation of

risks.

• Principles are fundamental but attention to

company’s own culture, mission, values and

history should be integrated.

• Board succession plan help to ensure the

appropriate set of diversities to face future

challenges.

• Proper tenure mix to ensure continuity and

innovation.

• Integration of ESG factors within the business

strategy become the meaningful tool to ensure a

sustainable, profitable and less riskier business.

• Promote an effective integrated reporting.

• Stakeholder Governance becomes the new

approach.



WHAT DO DIRECTORS THINK ABOUT

DIVERSITIES?

34% agreed that the boards

on which they served fully

comprehended their

companies’ strategies.

Stephen Murray – President and Ceo of CCMP

Capital: “The whole activist industry exists

because public boards are often seen as

inadequately equipped to meet shareholder

interests”.

Lou Gerstner – Former Ceo of IBM: “In anything

other than a protected industry, longevity is the

capacity to change, not to stay with what you’ve

got, … . Companies that last 100 years are never

truly the same company, … . They’ve changed 25

times or 5 times or 4 times over that 100 years”.

Sir David Walker – Former Chairman of Barclays:

“The first question I would ask boards is whether

they are spending enough time and effort

assessing the organization’s long-term strategy, …

. If they are honest, the answer will almost always

be no.”

34

%

22

%

16

%

* Extract from Improving Board Governance: McKinsey Global

Survey results 2013.

Only 22% said their boards

were completely aware of

how their firms created

value.

Just 16% claimed that their

boards had a strong

understanding of the

dynamics of their firms’

industries.



BASIC VS ADVANCED BOARD

THE BAS IC BOARD

• Independence

• Tenure policy

• Gender

• Age

• Business expertise

• Financial expertise

• International expertise

• Audit expertise

• Risk management

• Familiarity with CG best practices

• Marketing & Sales

THE ADVANCED BOARD

• Attitude to change

• Dialogue skills within the Board

• Leadership experience

• Global mind-set

• Inter-market experience

• Crisis or turn-around experience

• New markets expertise

• Industry regulatory skills

• Governmental & Geo-political experience

• Cyber Security

• Information technology

• Digital & Media

• Race & Demography

• Environmental and Social factors

• Stakeholders’ culture

• Integrated thinking


20

14

14

13

13

13

13

12

11

10

10

10

9

9

8

7

Portugal

Germany

Italy

France

Ireland

Luxembourg

Spain

Belgium

Austria

Denmark

Sweden

UK

Norway

Switzerland

Finland

Netherlands

S IZE


• Italian “Independent Chairman” average level, 21%, is not aligned with

Nordics and Anglo-Saxons model.

• Not many CEO - Chair combined positions (14%).

• Italian “Non independent Chairman” average level is 34%.

COMPOSIT ION

94%

65%

56%

56%

50%

44%

40%

38%

38%

34%

32%

29%

21%

5%

2%

7%

9%

2%

24%

19%

3%

5%

6%

17%

11%

7%

15%

19%

17%

24%

14%

7%

6%

7%

3%

26%

39%

22%

17%

44%

47%

38%

44%

36%

41%

57%

34%

29%

50%

19%

2%

6%

33%

8%

4%

14%

60%

50%

56%

Netherlands

UK

Denmark

Finland

Portugal

Ireland

Norway

Belgium

Germany

Switzerland

Sweden

Austria

Italy

France

Luxembourg

Spain

Independent Chairman Executive Chairman Chairman former CEO

Non Independent Chiarman Combines Chiarman-CEO

• Italian Boards size average level, 1.4,

is in line with the Peers.

STATISTICS: SIZE & COMPOSITION

* Extract from ECGS 2014 Composition & Remuneration of Boards of Directors

11: EU average


80%

69%

62%

58%

58%

52%

49%

46%

44%

42%

41%

34%

33%

33%

32%

31%

3%

4%

29%

24%

8%

2%

7%

8%

19%

12%

11%

17%

29%

17%

27%

9%

18%

34%

46%

51%

47%

48%

39%

47%

66%

56%

50%

38%

69%

Switzerland

Finland

Spain

Norway

Luxembourg

Sweden

Denmark

France

Portugal

Belgium

UK

Ireland

Germany

Italy

Austria

Netherlands

Independent NED Executive Directors Not Independent NED


• Italian boards average independence level is 42%

• Italian executives on board average level is 19%

STATISTICS: INDEPENDENCE


• EU independence rate is 34%

• 40% EU boards are below 50% level

[VALO

RE] [VALO

RE]

14%

Independent NED

Executive Directors

Not Independent NED

[VALOR

E] 18%

21%

27%

29%

4%

0%

<33%

33-49%

50-66%

67-99%

100%



STATISTICS: WOB & TENURE


38%

31%

29%

29%

25%

24%

22%

21%

20%

20%

20%

18%

14%

13%

12%

5%

Norway

France

Finland

Sweden

Denmark

Italy

Netherlands

Belgium

Austria

Germany

UK

Spain

Switzerland

Ireland

Luxembourg

Portugal

WOMEN ON BOARD

TENURE

22%: EU average

• Italian gender average level, 24%, is over EU

level but behind Nordics Peers.

7,7

7,6

7,6

7

6,9

6,7

6,6

5,9

5,9

5,7

5,3

5,2

5,1

5

4,7

4,6

Belgium

Spain

Luxembourg

Ireland

Switzerland

Sweden

France

Germany

Portugal

Austria

UK

Denmark

Italy

Netherlands

Norway

Finland

• Italian EU tenure average level is 5.1 years.

5.9: EU average


3,5

2,1

1,13

2

1,7

Italia

Francia

Spagna

Uk

Norvegia


STATISTICS: OTHER INDICATORS

* Extract from Spencer Stuart 2015 Italia Board Index

58,9

59,7

60

57,5

55,3

Italia

Francia

Spagna

Uk

Norvegia

8%

33%

13%

32%

30%

Italia

Francia

Spagna

Uk

Norvegia

• The Italian level is in line

with European countries.

• Nonetheless, only France

shows older Boards.

AGE

• Italian Board-seats excessive

if compared to other

European countries.

• More than three times the

smallest average, registered

in Spain.

• The Italian level remains

below European countries.

• Specifically, it is the lowest

and ¼ of the best performing

country, Uk.

SEATS INTERNATIONALITY



WHAT SKILLS DO INVESTORS LIKE?

* Extract from 2014 Board Practices Report by Deloitte US. Sample: 221 Companies. Note: participants were asked to make 3 selections.

48% 32%

25%

23%

22%

17%

17%

17%

13%

10%

10%

9%

8%

3%

3%

3%

3%

3%

3%

2% 1%

Industry (simila to respective company)

C-level (e.g. CEO, CFO, COO, CIO or CTO)

International business exposure

Risk management

Technology/IT

Board committee (e.g. Audit, compensation, nominating/CG, risk)

Financial services

Operations

Mergers and acquisitions

CG

Cyber security

Other (please specify)

Marketing and/or public relations

Reasearch and development

Engeneering

Ethics and compliance

Human reosources

Outside Board services (e.g. Public, private, non-profit)

Proficiency in shareholder and investor communications

Sustainability (including environmental, social and governance issues)

Scientific

W h a t w i l l b e th e mo s t d e s i re d s k i l l s a n d e x p e r i e n c e n e e d e d to c o n tr i b u te

t o y o u r B o a r d ’s s u c c e s s i n th e n e x t tw o y e a r s ?



BASIC VS ADVANCED BOARD

THE BAS IC BOARD

• Independence

• Tenure policy

• Gender

• Age

• Business expertise

• Financial expertise

• International expertise

• Audit expertise

• Risk management

• Familiarity with CG best practices

• Marketing & Sales

THE ADVANCED BOARD

• Attitude to change

• Dialogue skills within the Board

• Leadership experience

• Global mind-set

• Inter-market experience

• Crisis or turn-around experience

• New markets expertise

• Industry regulatory skills

• Governmental & Geo-political experience

• Cyber Security

• Information technology

• Digital & Media

• Race & Demography

• Environmental and Social factors

• Stakeholders’ culture




WHAT SKILLS DO INVESTORS LIKE?

CALPERS: “The Board should consist of Directors with

the requisite range of skills, competence, knowledge,

experience and approach, as well as a diversity of

perspectives, to set the context for appropriate Board

behaviors and to enable it to discharge its duties and

responsibilities effectively”.

TIAA-CREF INVESTMENT MANAGEMENT:

“The Board should be composed of individuals who can

contribute expertise and judgment, based on their

professional qualifications and business experience. The

Board should reflect a diversity of background and

experience”.

CPP INVESTMENT BOARD: “The experience,

qualifications and character of Directors is of utmost

importance. The Board as a whole must have general

business acumen (including specific qualifications in

finance, accounting and governance matters) and relevant

industry expertise”.

Investors’ policies are based on principles and refrain

from being prescriptive … up to Boards decide the

proper mix!

• Adequate mix of competences (80%)

• Financial experience (70%)

• Banking regulation skill (70%)

• Accounting skill (60%)

• Risk & control experience (50%)

• Technology skill (40%)

• Management expertise (30%)

• Human resources skill (20%)

• Industrial skill and experience (20%)

MorrowSodali directly surveyed a target of

institutional investors to define the list of preferred

diversities for banking industry’s Boards



BOARD COMPOSITION

TRENDS ON DISCLOSURE

• Calls for improving disclosure of Board composition.

• Provide investors with more meaningful disclosure that will help them in their voting decisions by better

enabling them to determine whether and why a Director candidate is an appropriate choice for a particular

Company.

Specifically, as to current Board members:

• Basic biographical information that sheds little light on the board’s thinking about what each individual brings

to the Boardroom table.

• Any directorships of public companies and registered investment companies.

Specifically, as to Nominee Directors:

• Particular qualifications, attributes, skills or experience that led the board to conclude that the person should

serve as a Director.

• Clear understanding of how an individual’s background and qualifications relate to the company’s business and

strategy.

Board diversity policy:

Disclose whether and how Board considers diversity in the nomination process.



DISCLOSURE BEST PRACTICE

PROXY STATEMENT PRUDENTIAL




Business Characteristics Qualifications, Attributes, Skills and Experience

The Company’s business is multifaceted and involves

complex f inancial transactions in many countries and in

many currencies.

• High level of f inancial literacy

• Relevant Chief Executive Officer/President

experience

The Company’s business is truly global and

multicultural, w ith its products sold in over 200

countries around the w orld.

• Diversity of race, ethnicity, gender, age, cultural

background or professional experience

• Broad international exposure

The Company’s business is a complicated global

enterprise and most of the Company’s products are

manufactured and sold by bottling partners around the

w orld.

• Extensive know ledge of the Company’s business,

industry or manufacturing

Marketing is the core focus of the Company’s business

and the Company seeks to develop and deploy the

w orld’s most innovative and effective marketing and

technology.

• Marketing/marketing-related technology experience

The Company’s business requires compliance w ith a

variety of regulatory requirements across a number of

countries and relationships w ith various governmental

entities and non-governmental organizations.

• Governmental or geopolitical expertise

The Board’s responsibilities include understanding and

overseeing the various risks facing the Company and

ensuring that appropriate policies and procedures are

in place to effectively manage risk.

• Risk oversight/management expertise

PROXY STATEMENT COCA COLA




PROXY STATEMENT COCA COLA

6.0

···

Renewal of the Board


43

AGM RESOLUTIONS: BOARD ELECTION

SLATE SYSTEM MODEL

In Italy, the election of Boards of Directors and

statutory auditors applies a slate voting system called

“Voto di Lista”.

Voto di Lista

The Italian system historically features concentrated

ownership. The Slate voting (“Voto di Lista”) was

introduced to allow the representation of minority

shareholders in the Board.

It is a standard mechanism that ensures both Board

monitoring and the protection of Shareholders against

expropriation.

• • •

Condition:

Shareholders holding between

0.5%-4.5% of a Company’s share

capital are entitled to present a slate

of candidates ahead of the AGM.

• • •

6 .0 RENE WA L OF THE BOARD


44

AGM RESOLUTIONS: BOARD ELECTION

SYSTEM SLATE SYSTEM MODEL

The Italian Voto di Lista framework develops into 3 different systems:


Maggioritario puro: Company’s by-laws establish that the slate obtaining the highest number of votes appoints

the large majority of Board Members; the second most-votes list appoints the remaining directors.

i.e Exor: “all irectors except one shall be elected from the list that has obtained the highest number of votes, on the

basis of the numerical order in which they appear on the list; as provided by law, one director shall be elected from

the list that has obtained the second highest number of votes on the basis of the numerical order in which the

candidates appear on the list”.

Maggioritario proporzionale: Company’s by-laws establish that the slate obtaining the highest number of votes

appoints the large majority of Board Members; the remaining directors shall be appointed by the other slates.

i.e Enel : “7/10 of the Directors to be elected, rounding down any fraction to the unit, shall be drawn from the slate

that has obtained the most votes cast in the order in which they are listed on the slate; the remaining Directors shall

be drawn from the other slates; for this purpose, the votes obtained by these slates shall be divided successively by

one, two, three and so forth according to the number of Directors to be elected”.

Proporzionale: The votes obtained by the lists shall be divided subsequently by one, two, three, four and so on

according to the number of directors still to be elected.

i.e. Mediaset: “When the voting ends, the votes obtained by each list shall be divided by the integers from one to

the number of Directors to be elected”.


45

SLATE VOTING SYSTEM IN ITALY -1/2

SOME FACTS

Some analysis conducted by MorrowSodali shows

that:

• >50% Companies adopts a “maggioritario puro”.

• 15 Companies’ bylaws establish that minority

Shareholders have the right to appoint only one

member to the Board of Directors.

• Mediaset and Mediolanum adopt a “metodo

proporzionale”.

• Mps has a hybrid system which guarantees a high

level of representation for minority Shareholders;

the by-laws provide for 50% of members

appointed by the majority and the remaining 50%

appointed proportionally from minority slates.

• MEF Companies have a good representation of

minority Shareholders, the system foresees that

7/10 are appointed by the majority and 3/10 by

minorities translating effectively, for a Board

made up of 9 members (Eni, Enel, Snam) in a

33% appointed by minority Shareholders.

• Bper is the only Company adopting a staggered

Board.


ITALIAN LISTED COMPANIES: FTSE-MIB

• The number of Companies declaring at least one

minority Director is decreasing over time: 90, vs 93 in

2014 and 97 in 2013.

• The number of Companies with minority Directors is

quite stable (39%), because issuers diminished.

• The total number of minority Directors is 172 (vs 174 in

2014 and 191 in 2013). When present, they weight 18%

of the total (23% in the Supervisory Boards).

• The size of a Company matters in defining the number of

minority Directors (2,3 in the FTSE Mib; 1,9 in the Mid

Cap sector and 1,3 in the Small cap sector); industry is

another key factor (in the banking sector the number

reaches 2,6).

• The Board of Auditors across Companies has a more

homogeneous structure, almost always made up of 3

members, one of which represents the minority

Shareholders.


46

SLATE VOTING SYSTEM IN ITALY -2/2

CRITICAL ASPECTS

• Board members appointed by Minority

Shareholders: average 27%, excluding foreign-

domiciled Companies and Directors not elected

with the slate voting system.

• Board members appointed by Majority

Shareholders: average 73%, excluding foreign-

domiciled Companies and Directors not elected

with the slate voting system.

• Minority representation in Ftse Mib Companies

fueled the debate at the Italian conference on

Corporate Governance.

• In line with MorrowSodali analysis, it was

revealed that those investors whose weight in the

Italian market significantly increased in recent

years, currently suffer from under-representation.


SOME COMMENTS

• Remember that many important Italian

Companies still today allow only one minority

Director.

• Italian Companies should consider amending their

by-laws to strengthen market representation. It is

known that best practice should provide a

minority Shareholder representation ratio not

below a range between 1/4 and 1/3. The ratio

should always be compared to the International

institutional investors’ representation level in

terms of share capital.


85,47% 83,70%

73,75% 70,95%

62,07% 56,43% 55,63% 55,08%

49,98% 49,69%

14,45% 9,74%

25,64% 28,96% 37,06%

42,93% 44,20% 44,79% 49,43% 49,32%

0,08% 6,56%

0,61% 0,09% 0,87% 0,64% 0,17% 0,13% 0,59% 0,99%

PosteItaliane

A2A* Buzzi BPER Leonardo ENI Fineco Terna ENEL TelecomItalia

47

2017 BOARD RENEWAL: RESULTS INCLUDING REFERENCE SHAREHOLDERS

Quorum in

terms of

ISC

• The chart below shows the voting results of the FTSE Mib companies that renewed the Board in 2017 in

terms of issued share capital («ISC»).

For instance, concerning Terna the shareholders participation is equal to 63.65% ISC, of which 55.08% supporting Majority Slate,

44.79% supporting Assogestioni Slate and 0.13% Against/Abstain/not Voting.

Average

support of

Majority Slate:

64.27%


77.12% 40.19% 63.27% 63.65% 58.78% 58.36% 75.45% 67.43% 81.79% 70.94%

For Majority Slate For Assogestioni Slate Against/Abstain/Not Voting

*in A2A three slates have been presented. Majority and Assogestioni slates are displayed meanwhile the third one is included in Against/abstain/not voting part.


31,43% 31,31%

16,89% 16,43% 16,43% 16,43% 16,43% 15,42% 14,70% 12,88%

68,34% 67,12%

81,89% 82,59% 83,25% 82,59% 83,25% 84,34% 83,63% 86,64%

0,23% 1,57% 1,22% 0,99% 0,32% 0,99% 0,32% 0,24% 1,67% 0,48%

BPER Leonardo ENI ENEL Fineco Buzzi A2A Terna TelecomItalia

PosteItaliane

48

2017 BOARD RENEWAL: RESULTS MINORITY SHAREHOLDERS

Minority

Shareholders

Participation

(%ISC)

Average

support of

Majority

Slate: 18.8%

• The chart below shows the voting results of the FTSE Mib companies that renewed the Board in 2017

considering only the participation of minority shareholders in terms of issued share capital («ISC»).

For instance, concerning Leornardo the minority shareholders participation is equal to 37.23% ISC, of which 31.31% supporting

Majority Slate, 67.12% supporting Assogestioni Slate and 1.57% Against/Abstain/not Voting.


16.56% 35.18% 23.66% 33.80% 34.42% 12.86% 20.94% 40.06% 33.17% 37.23%

For Majority Slate For Assogestioni Slate Against/Abstain/Not Voting


49

CASE STUDY: TELECOM

• On April 16 2014, Telecom’s Shareholders

meeting was called to renew the Company’s

Board for the following three-years term.

• Telecom’s by-laws provided that: 4/5 of the Board

members chosen from the slate receiving the

highest number of votes, 1/5 from minority slates.

• 3 slates submitted:

— Slate 1 (Telco)

— Slate 2 (Findim)

— Slate 3 (SGRs, Institutional Investors).

The outcome of the voting process produced a hardly

foreseeable result:

• Slate 3 obtained 3.780.506.392 votes equal to

28,18%, thereby surpassing the main

Shareholder’s slate, which in theory is considered

to be the majority slate.


• Since the slate could not provide 10 elected members

awarded to the majority slate, according to the by-laws

when the voting process had ended, the 3 candidates

present on the majority slate were elected to the Board.

• For the remaining 7 Directors a second voting round

was carried out with the majority thresholds set by law

(i.e. absolute majority of votes in favor). 7 candidates

from Telco were elected while the foreign investors

representation left the Meeting without further

instructions to follow.

• Outcome: Shareholders representing ~20% of share

capital (minority in the Meeting) obtained 4/5 of

seats (majority in the Board); only l/5 of Directors

were elected from slates representing ~80% of

ordinary share capital of Telecom Italia.


50

CASE STUDY: UNICREDIT

• On May 13 2015, UniCredit’s Shareholders

Meeting was called to renew the Company’s

Board for the following three-years term.

• Two slates were submitted:

— Slate 1 (Allianz S.p.A. - Aabar Luxembourg

S.a.r.l. - Fondazione Cassa di Risparmio di Torino

- Carimonte Holding S.p.A. - Fincal S.p.A. –

Cofimar S.r.l.).

— Slate 2 (SGRs & institutional investors).

The outcome of the voting process produced a hardly

foreseeable result:

• Slate 1 obtained 1.371.406.336 votes in favor,

equal to 44,18%.

• Slate 2 (the minority shareholders list)

1.694.743.751 votes, equal to 54,60%.


The supposedly minority slate received the

majority of the votes. Nonetheless, UniCredit’s by-

laws provides that in case the majority slate does

not include enough candidates to elect the

corresponding number of Directors according to

the voting procedures under letter a), all candidates

from the majority slate will be elected to the

Board, while remaining Directors will be elected

from the minority slate that obtained the highest

number of votes.

The outcome of the aforementioned events was

the election of only one Director from the slate

that obtained 54% of the votes representing the

majority of UniCredit’s share capital.


SUPPORT TO L IST PROMOTED BY

THE REFERENCE SHAREHOLDERS

At Generali and Intesa Sanpaolo’s AGMs, those lists

promoted by the reference shareholders, competing

for the majority of the Board seats, have been strongly

supported by the minorities.

51

30,10%

21,21% 23,28%

3,75%

10,38%

14,43%

SNAM GENERALI INTESA

Azionista Strategico Minoranze

9,64%

37,66% 41,15%

Supporto minoranze

SNAM

The list promoted by institutionl investors through

Assogestioni became the majority list, in spite of the

list promoted by the controlling Shareholder.

• Only 3,75% of shares held by institutional

investors supported the list promoted by CDP

Reti.


9,64%

37,66% 41,15%

SNAM GENERALI INTESA

Snam Generali IntesaSupport by minorities ••• Reference shareholders ••• Minority

CASE STUDY: THE ELECTION YEAR 2016


52

%


Morrow Sodali directly surveyed a target of institutional investors to define what information

should be disclosed about Board composition to make an informed vote on director elections

BOARD ELECTION: TRENDS

7.0

···

Board evaluation


54

The Board Evaluation process has a key role in

determining and improving the Board effectiveness:

• The Board should undertake a formal and

rigorous annual evaluation of its own

performance and that of its committees.

• An effectiveness objective rather than a

compliance exercise.

• Regular use of an external facilitator could

improve Board evaluations by bringing an

objective perspective and sharing best practices

from other companies.

• Assessing its membership, organisation and

operation as a group, the competence and

effectiveness of each Board member and of the

Board committees.

7 .0 BOARD EVALUAT I O N

CONTEXT

• Assessing how well the board has performed

against any performance objectives set.

• The evaluation should also cover the quality and

timeliness of information received by the board

from the management.

• The board should state in the annual report

how performance evaluation of the Board, its

committees and its individual Directors has been

conducted.

• Outcome of the evaluation, including an action

plan on any necessary improvements increase the

accountability of the Board towards its own

performance, and is therefore expected by the

investor community.


55 7 .0 BOARD EVALUAT I O N

REGULATORY FRAMEWORK

Companies should “perform at least annually an evaluation of the performance of the

Board of Directors and its committees, as well as their size and composition, taking

into account the professional competence, experience, (including managerial

experience) gender of its members and number of years as Director. Where the

Board of Directors avails of consultants for such a self assessment, the Corporate

Governance Report shall provide information on their identity and other services, if

any, performed by such consultants to the issuer or to companies having a control

relationship with the issuer”.

CODICE DI AUTODISCIPLINA (1.C 1.G)


56

MAIN TRENDS

• 79% of Italian listed companies disclosed that a

Board evaluation has been performed.

• 88 listed companies used questionnaires, only 18

interviews with Directors.

• 92% of FTSE MIB provide disclosure on Board

evaluation (96% financial sector and 100%

insurance).

• FTSE Mib: 14 use questionnaires, 2 interviews, 9

both, 9 disclosed they performed a Board

evaluation without further disclosure on the

process.


STATISTICS

* Italian Corporate Governance Council Report

EU-US trends

• External facilitator practice on board evaluation is

not factorized inside Italian boardrooms.

• An improvement towards EU-Anglo-Saxons Peers

may resulted in more effective board evaluation.

27%

35%

40%

98%

5%

47%

Italy

France

Uk

US

Russia

South Africa

INDEPENDENT CONSULTANTS FOR THE BOARD EVALUATION


57

UNILEVER

“Unilever’s Chairman leads the process whereby the Boards formally assess their own

performance with the aim of helping to improve the effectiveness of the Boards and

their Committees. The evaluation process consists of an internal exercise performed

annually with an independent third-party evaluation carried out at least once every three

years.

In 2012 we engaged an independent governance specialist to advise on our internal

evaluation process and help create three full and confidential online evaluation

questionnaires on our Boards, CEO and Chairman for all Directors to complete. The

detailed Board questionnaire invites comments on a number of key areas including

Board responsibility, operations, effectiveness, training and knowledge. The online

questionnaires were used again in 2013.

In addition, each year the Chairman conducts a process of evaluating the performance

and contribution of each Director which includes a one-to-one performance and

feedback discussion with each Director. The evaluation of the performance of the

Chairman is led by the Vice-Chairman/Senior Independent Director and the Chairman

leads the evaluation of the CEO, both using bespoke questionnaires. Committees of the

Boards evaluate themselves annually under supervision of their respective chairmen

taking into account the views of respective Committee members and the Boards.”


DISCLOSURE OF THE PROCESS

MAIN TASKS ADDRESSED BY

UNILEVER BOARD

• Independent facilitator

• Questionnaires

• Peers to peers for directors

• Each committee Board

evaluation


58

BARCLAYS

“From the Board’s discussion of the review’s findings, the following areas for

action were agreed:

[…]

Greater awareness of the work of Board Committees: we agreed to give more

time, on a rolling basis, to Board Committee reporting to the Board, to allow all

Directors to gain a deeper understanding of the workings of each Board

Committee and their forward agendas;

Improvements to the Board appointments process: given the number of recent

changes to the Board, we agreed to ensure that all Board members are kept fully

informed of prospective candidates and potential appointments; and

Director induction: we agreed to improve the on-boarding process for new

Directors, including partnering new Directors, if appropriate, with longer-serving

Board members”.


DISCLOSURE OF OUTCOME

IMPROVEMENTS

HIGHLIGHTED BY BARCLAYS

BOARD

• Functioning of Committees

• Board appointments

process

• Induction effectiveness

8.0

···

Succession Plans


60

ITALY**

• In 2015, only 20 Companies have adopted

executive succession plans.

• The number is constant since 2014; it has

increased from 2013 (16 Companies) and 2012 (7

Companies).

• Disclosure of succession plan adoption has

improved among the FTSE MIB Companies.

• Information about the existence of the plans is

provided in Ftse Mib from 100% of the

Companies, representing an increase compared to

previous years.

8 .0 SUCCE S S I O N PLANS

CONTEXT

*Extract from Deloitte “Board Practices reports 2014” - ** Assonime “Corporate Governance in italia 2014 ”

US*

• Us Companies have introduced succession plans.

• 58% of large cap companies review their CEO

succession plans yearly, while 32% review these

twice a year.

• At 30% of the companies the Board has full

responsibility for succession planning, at 29% the

responsibility is on the Compensation Committee,

at 21% on the Nomination/Corporate Governance

Committee and at 2% of the companies on the

independent Directors.

Issue: Succession plans seem insufficiently

structured/clear about who is performing the

planning. Meantime, investors call for involvement

of the entire Board in the process as well as more

clarity about the timeframe of the process.


61 8 .0 SUCCE S S I O N PLANS

SAMPLE

9.0

···

Board Induction


Advanced view (tomorrow)

The Board should ensure organizing regular/at least

annual strategic retreats with executive management

teams that should feature CG and Board autonomy.

The outcome of Board evaluation should be fed back,

as appropriate, into the Induction program design.

63

OBJECTIVES

• Build an understanding of the nature of the Company, its business and the markets where it operates.

• Build a link with the Company’s culture and people.

• Build an understanding of the Company’s main stakeholder relationships.

• Improve Board effectiveness and leadership approach through enhancing individual loyalty and transparency.

9 .0 BOARD INDUCT ION

CONTEXT

• Board’s procedures

• Organizational aspects

• Board & Committees Charters

• Role of director

• Fiduciary’s duty

• Responsibility

• Industry & markets knowledge

• Culture and people

• Media limits

• New set of risks

• Off-site strategic meetings

as part of the cultural

change plan

• Sustainability/ESG factors

• Technology & Security

safeguards

• Dialogue improvement

• Safety (process & culture)

• Maps of risks

• Strategic & Innovative

mind-set

• Stakeholder Governance


Fundamental view (today)

Providing a new Director with information she will

need to become as effective as possible in her role.

10.0

···

Remuneration policy


65

CONTEXT & RECENT TRENDS

• A general but louder voice in executive

compensation without micro-management.

• Board and Compensation Committee engagement

with Shareholders ahead of the General Meeting.

• Alignment of Director interests with Shareholder

interests through adopting stock ownership

guidelines.

10 .0 REMUNE R AT IO N POL ICY

• Substantial and easy-to-understand disclosure of

pay to permit benchmarking by Shareholders.

• Independent Compensation Committee.

• Pay linked to performance and long-term value


• Top Management retention and talent attraction.

• Compensation reports should be written by the

Board and should explain how the compensation

program’s structure, performance metrics and

goals are designed to incentivize executives,

achieve business goals and maximize value



NON-EXECUTIVE COMPENSATION

• Review the best way to incentivize non-

executive Directors for increasing

responsibilities, time and duties dedicated to the

Board?

• Involvement of Directors should be 360°: inside

the boardroom and outside towards all identified

stakeholders.

• Less Directorships, more time dedicated to one

/few Boards and rewards aligned with time

commitment?

66

COMPENSATION – CONTEXT

EXECUTIVE COMPENSATION

• Executive compensation is still among the top key

concerns for the investor because it requires

alignment between the Management and the

Shareholders’ interests.

• Whilst the work of the Compensation Committee,

it is a responsibility of the whole Board.

A vote against the Remuneration Report is a

vote against the Board

• Increasing share of pay being at risk, in the form

of long-term compensation based on

performance rather than time-based.

Most of the compensation committees spend the

large majority of time on compensation, but

should also consider:

— management/leadership development

— succession planning.



67

%


Morrow Sodali directly surveyed a target of institutional investors to rank the issues in executive

remuneration from the most important to the least important

REMUNERATION: TRENDS


68

%


Morrow Sodali directly surveyed a target of institutional investors to define how important is it

for Remuneration Committees to disclose its decision-making process when defining executive

pay including the rationale for deciding on the structure and magnitude of overall executive pay

REMUNERATION COMMITTEE: TRENDS


DISCLOSURE

• Provide useful and easy-to-understand disclosure

of Company pay practices and decisions.

• Comprehensive, timely and transparent disclosure

of executive pay.

• Disclosure of individual executive and non-

executive Director compensation.

• Clearly explain the key decisions of the

Compensation Committee and their motivation.

• Clearly disclose and justify the performance

measures adopted and the related targets.

• Disclose the maximum amount of variable

compensation which can be paid to executive

Directors.

• Summarize the changes from the prior year.

69

COMPENSATION – BEST PRACTICES

PRINCIPLE

• Alignment to sustainable, long-term value

creation for Shareholders and stakeholders.

• Linking variable compensation with Company’s

financial and non-financial performance.

• Mix of performance-based short- and long-term

incentives.

• Rigorous objective targets corresponding to

results with a corresponding decrease in incentive

opportunity.

• Avoid significant retention awards without

assigning performance conditions.

• Maintain an independent and effective

compensation Committee, preferably fully

independent.

• Identify appropriate peer groups for performance

comparisons.



70

INTEGRATED APPROACH TO COMPENSATION

BOARD, REM.CO AND HR – A NEW ROLE

• Holistic approach to compensation decision-

making process.

• Internal optimal coordination: Board/Rem.Co -

Investor Relations/Legal - Human Resources.

• External market considerations - investor

engagement - stakeholder considerations.

• Ensure Company internal pay alignment as well

as responding to external stakeholder

requirements.

• Take into account the social context.

• Board becoming a driver to implement an

integrated thinking inside and outside of the

Boardroom.

• Drive the Board versus a holistic approach to

Shareholders through regular Engagement.



71

SHRD DIRECTIVE: UPDATE

Under the new rules, remuneration policy should

contribute to the business strategy, long-term interests

and sustainability of the company and should not be

linked to short-term objectives.

Directors' performance should be assessed using both

financial and non-financial performance criteria,

including where appropriate environmental, social

and governance factors.

Article 9a shareholder have the right to vote on the

remuneration policy at the general meeting( Member

States shall ensure that the vote by the shareholders at

the general meeting on the remuneration policy is

binding, however is possible to opt for an advisory

vote).

Shareholders will also have a right to vote on the

annual report on pay (art 9b).

Although is not establish a Ceo pay ratio the report

include “the annual change of remuneration, of the

performance of the company, and of average

remuneration on a fulltime equivalent basis of

employees of the company other than directors over at

least the five most recent financial

years, presented together in a manner which permits

comparison”.



72

GLOBAL CONTEXT OF “SAY ON PAY”

COUNTRY YEAR

ADOPTED* DIRECTORS OR

EXECUTIVES PAY POLICY OR STRUCTURE BINDING OR ADVISORY FREQUENCY

REQUIRED OR

VOLUNTARY

Spain 2014 Directors Pay Policy, Pay Structure Binding, Advisory Annually Required

France 2013 Executives Pay Policy, Pay Structure Binding, Advisory Annually Required

The Netherlands 2004 Executives Pay Policy Binding Upon Changes Required

Australia 2005 Directors Pay Structure Advisory Annually Required

Sweden 2006 Executives Pay Policy Binding Annually Required

Norway 2007 Executives Pay Policy Binding Annually Required

Denmark 2007 Executives Pay Policy Binding Upon Changes Required

United States 2011 Executives Pay Structure Advisory

Annually/

Biennially/

Triennially

Required

United Kingdom 2013 Directors Pay Policy, Pay Structure Binding, Advisory Annually Required

Switzerland 2013 Directors Pay Policy Binding Annually Required

Germany None Executives Pay Structure Advisory Annually Voluntary

Canada None Executives Pay Structure Advisory Annually Voluntary



• No empirical evidence yet.

• Regulation vs “Comply-or-explain” model.

• Complex matter affected by Company-specific

circumstances, market requirements and

willingness of Shareholders to commit resources.

• Substantial diversity in cultural approach to

compensation.

• Uncertainty where to go at Regulatory level.

• Controversial role of Proxy Advisory firms.

• Positive three-year trend (2012-2016) in FTSE

Mib company compensation results.

73

THE CURRENT DEBATE ON “SAY ON PAY”

What is more beneficial to financial

markets: a binding vote or an advisory

vote on pay?



74

MORROW SODALI SURVEY ON SAY-ON-PAY

QUESTION 11

In Say-on-Pay proposals, what negative vote should cause Directors to amend the

compensation plan? (Please choose one option only)

> 5%

3%

> 10%

21%

> 15%

28%

> 20%

28%

> 30%

21%

• According to 28% of investors, Companies

should consider amending the compensation

plan when they receive >15% of votes against

their say on pay (SOP) policy.

• A further 28% of investors suggests that changes

should be made when receiving more than

20% votes against the SOP.



75

%


Morrow Sodali directly surveyed a target of institutional investors to define the preference on the

Pay policy or rather, actual Pay-related decisions taken during the period under review (i.e.

Compensation report), or both

SAY ON PAY: TRENDS


The boxes below show the average level of support to Remuneration Policies proposed by FTSE Mib Companies

and the related average level of positive and negative recommendation issued by ISS.

The negative recommendations are often based on the following criteria:

• lack of disclosure

• excessive severance payments

• lack of disclosure on performance criteria for STI or LTI plans

• absence of risks adjustments mechanism.

76

RESULTS

Average level of

support to

Remuneration policies

on FTSE MIB

Level of positive

recommendation by

ISS (FTSE Mib).

88% 62.5%

37.5%

Level of negative

recommendation by

ISS (FTSE Mib).

REMUNERATION POLICY - FTSE MIB 2017



77

THE AGM RESOLUTIONS: REMUNERATION

POLICY

There has been a decreasing support for the FTSE MIB Companies’ Remuneration policies from the main proxy

advisor (ISS) in comparison with the previous two years.

62,5% 71,4% 68,8%

37,5% 28,6% 31,3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2017 2016 2015

FOR AGAINST

ISS - FTSE MIB (2017-2015)



78

PROXY ADVISORS AND SAY ON PAY

France and Italy registered high levels of concern during the last proxy season. Major issues still pertain to ex-

ante/post disclosure for targets and magnitude of severance agreements.

19,0%

41,0%

57,0% 62,5%

0,0 %

10, 0%

20, 0%

30, 0%

40, 0%

50, 0%

60, 0%

70, 0%

UK Spain France Italy



79

REMUNERATION PROPOSALS – ITALIAN

METRICS FTSE MIB - M INORITY SUPPORT (2017 -2015)

The approval rates in FTSE MIB Companies have decreased in comparison with the last two years.

69,4% 75,9% 75,2%

30,6% 24,1% 24,8%

0,0 %

10, 0%

20, 0%

30, 0%

40, 0%

50, 0%

60, 0%

70, 0%

80, 0%

90, 0%

100 ,0%

2017 2016 2015

FOR AGAINST/ABSTAIN



80

THE CONTEXT – INCLUDING REFERENCE SHAREHOLDERS

• The average approval rate is 88.1%.

• In fourteen cases, the support has been >95%.

• In four cases, the support has been <70%.

• In no case, the remuneration policy has been rejected.

SAY ON PAY APPROVAL RATES

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

For Against Abstain



81

THE CONTEXT

• The average approval rate is 69.4%.

• In eleven cases, the support by minority investors has been >90%.

• In nine cases, the support by minority investors has been <50%, proving a mis-alignment to market

expectations.

MINORITY SHAREHOLDERS VOTE ON SAY ON

PAY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

For - Minority Shareholders Against - Minority Shareholders Abstein - Minority Shareholders



82

The chart below shows the average consensus expressed by Minority Shareholders in the last three years.

The blue line represents the average level of overall consensus including the reference shareholders, while the red

line only takes into account the consensus expressed by the minority shareholders on the remuneration report.

MINORITY SHAREHOLDERS: AVERAGE

SUPPORT ( 2 0 1 7 - 2015 )

20%

30%

40%

50%

60%

70%

80%

90%

100%

Average 2015-2017 Average 2015 - 2017 (only Minority Shareholders)



83

REMUNERATION PROPOSALS – US CONTEXT

SAY-ON-PAY-APPROVAL RATES IN 2015 *

Of the 94 Top 100 Companies that held a say-on-pay vote in 2015,

77% received approval rates in excess of 90% and 7% received

approval rates below 70%.

*Approval rates are calculated on the ratio of votes «for» over the sum of votes cast plus abstention, as reported in SEC filings.


11.0

···

AGM preparation:

why?


85

AGM PREPARATION & PLANNING

RECOMMENDATIONS FOR

COMPANIES

• Check the logistics of cross-border voting -

regulatory deadlines, unbundling, ADR votes, other

barriers to voting.

• Engagement with Proxy Advisors – act beforehand

to prevent negative recommendations.

• Engagement with investors: selection, access to the

right contact ("split-brain disease", comparison with

IR contact).

• Set a direct communication plan with investors to

neutralize potential activist behavior.

• Propose alternatives to the Board before publication

– estimate in advance the impact of the decision,

evaluate vulnerabilities, plan of action to maximize

support.

• Controlled “mobilization" of the Shareholders.

11 .0 AGM PREPARA T I O N: WHY?


86

STAKEHOLDER GOVERNANCE – CONTEXT

Companies increasingly face complex uncertainties

and risks related to Governance issues, but also

related to social, environmental and, generally,

Stakeholder issues.

• An Integrated approach is called for - Boards

have the responsibility of shaping the culture,

both within the boardroom and across the

organization as a whole, embedding good

corporate behavior.

• Board efforts should embrace a more strategic

and coordinated approach that pursues

transformational goals:

— effectively streamlining this approach within

the organization

— engaging multiple stakeholders as

management, employees, Shareholders,

competitors, suppliers, governments, and NGOs

— increasingly focusing on transformational,

strategic results.

Boards and Directors should re-think their

leadership-role, stakeholder governance and

integrated-thinking.



87

STAKEHOLDERS – INSTITUTIONAL INVESTORS

RECOMMENDATIONS FOR

COMPANIES

Paul Polman – Ceo Unilever: “… to attract the right

longer-term Shareholders to our register”.

• Integrated Governance

• Sustainable growth over the long-term

• Re-consider earnings guidance

• Long-term cultural change

• Holistic approach to Shareholders

Board transparency is the most effective

form of prevention from activism and to

attract right longer-term Shareholders.


Many other companies as Glaxo Smithkline or

General Electric decided to apply such cultural

change and devote more efforts in managing

efficiently their Shareholders trough periodic

engagement.

• Boards should be far more active in facilitating

dialogue with major long-term Shareholders.

• Boards need to regularly communicate the

company’s long-term strategy and performance to

key long-term Shareholders. This is the most

effective way to alleviate the pressure to

maximize short-term returns.

• The more powerful discussions occur when

Companies strive to communicate their strategies

for longer-term growth and their key metrics for

it, besides single-minded governance issues (such

as pay).

• Dialogue gives Directors the context and

confidence to carry out their fiduciary duty.

• Therefore there must be two-way communication

• Engagement.


88

ANTICIPATE INVESTORS ’ DISSENT


AGM

• Shareholders Identification

• Voting policy analisys

• GAP analysis

INTELLIGENCE

• Proxy Advisor

• SRI Rating Agencies

• Institutional investors

PERCEPTION • Identify critical

factors

• Improvement plan

• Voting projection

STRATEGY

• Proxy Advisor

• Institutional investors

ENGAGEMENT

12.0

···

The engagement with Institutional

Investors


90

BOARD ENGAGEMENT VS INVESTORS

THE ADVANTAGES

• Mitigate Proxy Advisor influence

• Get an external perception of the Company, its

governance model and the management

• Get warning signal connected to potential

dissident actions

• Improve the governance level aligning to best

practices promoted by Shareholders

• Strengthen the Board authority versus its

Shareholders

• Better understanding of investors’ requests

mitigating the risks of activism.

12 .0 THE ENGAGE M E NT WITH INST ITU T I ON AL INVEST OR S


• • •

“We believe constructive

engagement regarding relevant

issues such as financial

performance, strategy, governance

and executive compensation

practices among shareholders, their

research providers and public

companies is very valuable to

promote understanding of the

various interests and concerns of all

parties”

Robert McCormick

Chief Policy Officer

GLASS LEWIS

• • •

91

GENERAL APPROACH

• No specific pattern to set up long term constructive

engagement/relationship between Companies and Shareholders. The

structure should be identified depending on a combination of factors.

• Differing priorities of distinct investor groups complicate the picture

for those Companies seeking to engage with Shareholders.

• Long-term institutional investors, for example, may not have the

desire or the resources to directly engage with Companies on

corporate governance issues.

• The Board of Directors may feel that investors’ reliance on proxy

advisory firms interferes with Company’s ability to effectively

engage with Shareholders.

• In general, in any outreach program investors wish to understand the

specificities of the Company’s internal system and actions to grasp the

rationale behind that Company’s strategies.

• A long-term, advanced engagement program should provide

investors with the possibility to understand why the Company may

not be aligned with best corporate governance practices and to deeply

interact with the Company itself, ensuring its willingness to change in

order to meet international investors’ views and expectations.



92

OUTREACH - PROACTIVE COMMUNICATION

WITH INTERNATIONAL INVESTORS

DEFIN IT ION

Engagement is a powerful tool for a Company as it

allows to build constructive, informed relationships

with Shareholders and encourages transparency and

accountability.


ACTIV IT IES

• Identification of several strategic priority areas

relevant for both the Company and investors.

• Identification of decision-makers among the Top

investors.

• Face to face meetings or correspondence with

investors to set out concerns, seek their views on

contentious issues and evaluate/propose solutions.

• Deciding the most appropriate period to contact

Institutional investors to have their attention and

collaboration.

• Design an ad hoc route for each actor involved in

the process.

TIMING

• Ideally two months: from the beginning of the

project until the publication of the agenda.


• • •

“We believe constructive

engagement regarding relevant

issues such as financial

performance, strategy, governance

and executive compensation

practices among shareholders, their

research providers and public

companies is very valuable to

promote understanding of the

various interests and concerns of all

parties”

Robert McCormick

Chief Policy Officer

GLASS LEWIS

• • •

93

GENERAL APPROACH

• No specific pattern to set up long term constructive

engagement/relationship between Companies and Shareholders. The

structure should be identified depending on a combination of factors.

• Differing priorities of distinct investor groups complicate the picture

for those Companies seeking to engage with Shareholders.

• Long-term institutional investors, for example, may not have the

desire or the resources to directly engage with Companies on

corporate governance issues.

• The Board of Directors may feel that investors’ reliance on proxy

advisory firms interferes with Company’s ability to effectively

engage with Shareholders.

• In general, in any outreach program investors wish to understand the

specificities of the Company’s internal system and actions to grasp the

rationale behind that Company’s strategies.

• A long-term, advanced engagement program should provide

investors with the possibility to understand why the Company may

not be aligned with best corporate governance practices and to deeply

interact with the Company itself, ensuring its willingness to change in

order to meet international investors’ views and expectations.



94

Morrow Sodali directly surveyed a target of institutional investors to define which

factors/elements they consider most important when arguing why companies should engage with

their investors on corporate governance issues

WHY ENGAGE WITH INVESTORS



95

%


Morrow Sodali directly surveyed a target of institutional investors to rank in order of preference

which representative form the company should carry out the engagement exercise with investors

on corporate governance

ENGAGEMENT: BOARD


96

TRENDS


Larry Fink – Ceo, BLACKROCK: “I write today re-

iterating our call for engagement with a particular

focus on companies’ strategies to drive longer term

growth”.

• Not only Governance-driven investors apply this

approach.

• Today, very often, top investors such as

BlackRock, Vanguard and SSgA have changed

their attitude and promote a call for engagement.

• New engagement platforms to facilitate discussions on

specific matters with a group of investors

• Combine Environmental, Social & Governance with

Long-term perspective and Sustainability

• Close-door meetings with small target of major

Shareholders

• Importance of Transparency will be complemented by that

of thorough explanations within a more careful approach

to “comply or explain”

• The importance of Board composition, Director

succession planning, Board evaluation processes, and

Director skillsets are fundamental themes for stakeholder

dialogue

• Say-on-Pay has been an effective driver for implementing

engagement on compensation matter. That context

brought Rem.Co’s members and HR to put more attention

to stakeholders, specifically Shareholders

• Nowadays other matters are of interest for Shareholders as

well: Board appointment process, Board effectiveness,

Director’s fiduciary duty and value added in the

boardroom, long-term integrated strategy, wider risk

assessment.


97

CHALLENGES LIMITING ENGAGEMENT

ACTIVITIES


• The outreach process is not a standard, “one size fits all”,

process.

• Investors have differing views on the importance of

corporate governance.

• Some investors view corporate governance as a key

determinant of future performance and devote significant

internal resources analyzing Companies’ policies.

• Corporate governance analysts may not have significant

influence on their portfolio managers’ buy or sell

decisions.

• Some investors attach a higher weight to voting their

shares and Company engagement.

• Very often investors rely on Proxy advisory firms that

provide their clients with research, services and voting

recommendations in order to allow their clients to make

informed voting decisions more quickly and easily.

• A common concern among market participants is that

many investors, and especially long-term institutional

investors, follow proxy advisory firms’ recommendations

without sufficient analysis and as such are seen to have

unfair influence on Shareholders.

• • •

“Engagement is essentially communicating with companies to

enhance our mutual understanding and, where there are

concerns, to seek changes in company practice. We believe

that the most effective engagement is usually done privately

and directly with companies.

The Corporate Governance and Responsible Investment team

works closely with the portfolio managers on individual

company engagements to ensure an integrated approach is

taken and a consistent message is delivered to companies..."

and "...As we approach each engagement individually we do

not have a prescribed escalation strategy, as suggested by the

Code, as we do not see engagement as mechanistic. Further,

BlackRock is very unlikely to make public statements about

our engagements or to call an extraordinary general meeting

or propose shareholder resolutions.

Our preference is to engage privately as we believe it better

serves the long-term interests of our clients to establish

relationships, and a reputation, with companies that enhances

rather than hinders dialogue...”

• • •

Michelle Edkins

Head of Corporate Governance

BLACKROCK


98

Morrow Sodali directly surveyed a target of institutional investors to define how can investors-

issuer engagement be further improved and made more efficient

IMPROVEMENTS



99

THE PROCESS


WHY: Out of “compliance” and “tick-box” exercise to build an effective and constructive two-way dialogue.

• Listen – expectations, concerns and recommendations to improve.

• Share – explain Board/management rationale on decisions taken and assure support.

WHAT: A shift recently occurred from engagement on single matters (Compensation, Board, Sustainability) towards a

holistic approach which integrates ESG factors into financial measures.

WHO: Point of reference is the Chairman or Senior Independent Director.

• More often Legal, Corporate Affairs, HR and IR functions take the lead.

• Trend - Vanguard – “Shareholder Liaison Committee”.

• Trend – Mervin King – Chair of IIRC – “Stakeholders Governance Committee”.

WHEN: Long before the proxy season and throughout the year – attention, focus and availability.

HOW: Board should be responsible for overseeing the engagement process, not the investors – Board should thus

have a proactive approach.

• Effective Target – Size, voting behaviour and recognised «voice» within the community.

• Corporate Governance team together with Portfolio Managers if necessary.

• “one-to-one” and in person (conference calls – depersonalization).

• London, Paris, Frankfurt, Netherland, Nordic countries, US (East & West Coast).

• Presentation clear, exhaustive, and with an “investor friendly” wording.


100

CASE STUDIES


SUPPORT BY MINORITIES ON SAY ON PAY DUE TO PROACTIVE ENGAGEMENT

98

,1

96

,0

95

,8

94

,7

92

,6

89

,7

87

,3

49

,2

42

,4

37

,6

35

,1

29

,4

21

,8

17

,6

Favore Contrari Astenuti

ENGAGEMENT PROATTIVO:P ENGAGEMENT PROATTIVO: O

An active engagement process towards Proxy Advisor and Institutional Investors held by some Italian listed

Companies resulted in a clear support over their Remuneration policy proposals.


101

ENGAGEMENT FOR AGM – CASE STUDIES


FRANCE:

• Total Early initiative to meet with U.S. investors, including index funds,

resulted in their increased support for renewal of combined CEO/Chair.

• Schneider Electric Pre-AGM proxy advisory firms dialogue permitted further

explanation of compensation proposals, increasing the probability of

resolution approval.

SPAIN:

• Gamesa Direct access to top foreign investors facilitated an open exchange of

ideas & opinions, promoting investor support on their governance practices at

critical moments.

• Enagas Engagement with proxy advisory firms helped them understand voting

policies & subsequent recommendations. Direct discussions of issues faced

helped clarify Company situation and provided rationale.

ITALY:

• UniCredit Embarked on a 48-month remuneration outreach program targeting

both international investors and proxy advisory firms which led to an increase

in overall support for their remuneration schemes from 63% up to 96%.

• Mediobanca began an outreach program in 2014 targeting international

investors and proxy advisory firms, increasing support for their compensation

schemes from 44% to 95%.

Intended to help, protect and

increase the long-term return

of the funds managed by

shareholders by actively

working to change how

companies address their

governance responsibilities.

Effective way to build

shareholder trust in

Management decisions and in

the overall direction of

company’s business.

Can lead to an improvement of

a company’s risk

management, reputation, long-

term ability to compete and its

overall economic value for

shareholders.

13.0

···

Case studies


103

MUNICH RE

13 .0 CASE STUD IE S

• The 2017 annual shareholder meeting of

German Reinsurer Munich Re was held in

April, shareholders cheered the departing

CEO. At the same an overwhelmingly

against vote was cast (65.70%) in regards

to the resolution proposed on executive

compensation.

• ISS recommended shareholders to vote

against the proposal due to a lacking

disclosure on the targets: “As only the

supervisory board is privy to these targets,

shareholders are unable to evaluate what it

means for these targets to be achieved”. Against For

65.7%

34.3%


104

CITIGROUP


• Citigroup’s shareholders were revolted about the

executive pay at April 26th AGM, due to the

increase of CEO payment up to 27% - $ 16.5

M.

• About 1/3 of shareholders that voted at Citigroup

Inc. AGM casted their ballots against the Bank’s

pay plan for top executives:

FOR

64%

AGAI

NST

36%

• The votes in favor resulted to be lower in

comparison with 2015, when about 84% voted

in favor.

• ISS and Glass Lewis & Co. recommended that

shareholders vote against the “say on pay”

proposal, saying the bank needs to more closely

link the executives’ pay to the bank’s performance


105

RENAULT


• The shareholders of the car manufacturer Renault, rejected the remuneration of the chairman-CEO, Carlos

Ghosn. Despite low approval rates of 64% in 2014 and 58% in 2015, Renault directors never implemented a

good dialogue with the shareholders.

• 54% of investors in the French carmaker voted against Mr Ghosn’s €7.3m pay package — it was the first

time this has happened in France.

• But the vote was non-binding, and the Renault board decided to leave Mr Ghosn’s pay unchanged.

• The French government, which commands about 20% of voting rights in Renault, or about a quarter of votes

cast at the shareholder meeting, voted against Mr Ghosn’s package.

• Mr. Macrone, France Minister of Economy, criticized the “dysfunctional governance” at Renault and said :

“The Board of Renault must meet again in the coming weeks to take into account this vote, otherwise we

will be forced to legislate”.

• According to an analysis conducted by Proxinvest, last year In France on average, 92% of votes were cast in

favour of the board proposal, For 2016 instead, the average level of shareholder support of the resolutions from

350 of the largest French companies is expected to fall at 80%.


106

BP


• The AGM for the 16 of April rejected the

company’s executive pay policy, a stinging—

though nonbinding—rebuke to Chief

Executive Bob Dudley and his board.

• It was the first shareholder rejection over the pay

at BP, a British National champion that traces its

roots back more than 100 years and is a widely

held stock here and among global investors.

FOR

40,71

% AGAI

NST

59,39

%

• The investors ratio is based on 20% increase in

Mr. Dudley’s total pay for the year, a period

during which the company lost $5.2 billion.

• The Company said: “We were disappointed that

the advisory vote for this year’s remuneration

report was not carried. We have already

spoken to a number of shareholders and have a

continuing dialogue. They are seeking changes

to our remuneration policy for the future. We

will continue that engagement and will bring a

revised policy to our next AGM in 2017”.

• In 2017 the Head of the Remuneration committee

addressed to investors that “Bob Dudley's total

single figure for 2016 has been reduced by some

40% compared to last year”. The total pay

package now amounts to $11.6 million (from

$19.6 million in 2015).


107

VOLKSWAGEN

• In early May TCI (“The Childrens Investment Fund”), the hedge fund run by Sir Chris Hohn, has built up a

€1.2bn stake in VW and has written to the company’s management and supervisory boards demanding reform

of executive remuneration.

• The German carmaker is reeling from the diesel emissions fraud, the worst crisis in its 79-year history.

• VW reported a €1.6bn net loss for 2015 — its worst ever result, mainly because of costs stemming from the

scandal.

• VW was also criticized by investors after it emerged that members of its management board secured bonuses

for last year.

• Although some remuneration was withheld, 12 current and former board members were paid €63.2m in total

for 2015.

• Sir Chris Hohn: “The dirty secret of Volkswagen group is that for years management has been richly

rewarded with massive compensation despite presiding over a productivity and profit collapse”.

• The move against VW ranks as one of the highest profile assaults by an activist investor on a European

company since the financial crisis.

• Media reports as of May the 29th about a new case: Mr. Pischetsrieder, former Chairman until 2006, has been

payed a total of €50m until 2011. It is reported that in fact the payments have been some kind of pension plan,

arranged by Mr. Piech and without any formal board decision.

• In February 2017 VW revised its compensation system in order to face it more toward share performance

than the carmaker’s results. The new changes cap the CEO’s remuneration at 10 million euros and limit

compensation for other management-board members.


···

Offices

morrowsodali.com GENEVA • SAO PAULO • MEXICO CITY • BEIJING • JOHANNESBURG

Local partners:

LONDON

103 Wigmore St

Marylebone, W1U 1QS

London, United Kingdom

MADRID

Calle del Gral. Pardiñas, 15

Planta 1

28001 Madrid, Spain

NEW YORK

509 Madison Avenue

Suite 1206

New York, NY 10022, USA

PARIS

20 Rue Quentin-Bauchart

75008

Paris, France

STAMFORD

470 West Avenue

Stamford, CT 06902, USA

ROME

Via XXIV Maggio, 43

00184

Rome, Italy

SYDNEY

135 King Street

Suite 25.02, Level 25

Sydney NSW 2000, Australia

Documents

Presentazione di PowerPoint - uniroma1.it · • Companies that have the registered office abroad (CNH Industrial, Exor, Ferrari, FCA, Stmicroelectronics, Tenaris); • Mediaset and