October 18, 2019 – At AXA – 25 Avenue Matignon – Paris
9:15 OPENING OF THE CONFERENCE:
- François Vannesson, General Secretary of Axa Climate, General Secretary of D&C
9:20 Kick off:
- George Stansfield, General Secretary of the AXA Group
- Robert Ophèle, President of the Autorité des Marchés Financiers
- Clément Royo, Advisor to the President of the National Assembly’s Finance Committee
10:00 Round table 1: Forms of corporate control and wider corporate purposes.
Is it possible to talk about strong majority shareholders and weak minority shareholders in France and in continental Europe more globally? To what extent has the Florange law been able to increase this phenomenon? What are the positive and negative effects of these types of capital structures? To what extent does this configuration change the shareholder activism of investment funds and pension funds? To what extent does the introduction of the broader social purpose change the situation in terms of shareholder engagement? What about the latest statements made in the United States on the obsolescence of the pro shareholder model?
In introduction of the round table, Thomas Bourveau will present his paper about the Florange Act: The Effect of Tenure-Based Voting Rights on Stock Market Attrativeness: Evidence from the Florange Act
- Clément Royo, Advisor to the President of the National Assembly’s Finance Committee
- Olivier Fortesa, Managing Partner at Amber Capital
- Matthew B. Goodman, Associate at Sullivan & Cromwell LLP
- Thomas Bourveau, Assistant Professor at Columbia University, Vice President of D&C
- Iuri Struta, Senior Financial Reporter at Activist Insight
11h45 Round table 2: Shareholder collaboration.
The manager-shareholder dynamics draw much more benefits from cooperation that confrontation. Several studies (Fisch, Sepe) demonstrated that the cooperation model brings an added value that unilateral decision models do not offer, wether that decision belongs to the company’s organs or its shareholders. That being said, do French managers agree with theses remarks? Shareholder cooperation is indeed, originally, a strategy implemented by foreign hedge funds, whose influence the French – and, to a certain extent, Europeans – tradition is far from being fond of.
In that context, one needs to wonder to what extent the SRD 2 directive allows the development of a logic of cooperation. Although the directive seeks to promote « long-term » investment, its concrete provisions seem to defeat the objectives it was aimed to reach. Beyond the directive, how should regulations relating to market abuses and concerted actions be interpreted in the context of activism, and especially when activist practices are abusive?
- Alessio Pacces, Professor at the University of Amsterdam
- Angus Milne, Director Risk & Compliance at TCI
- Paola Perotti, CEO at GO Investment Partners
- Alain Pietrancosta, Professor at the University Paris I Panthéon-Sorbonne, Member of the Executive Committee of D&C
13:00 LUNCH BREAK
13:45 Round table 3: The rise of green activism.
Environmental activism is on the rise: with pension funds getting more active and some activist funds incorporating a sustainability agenda, the potential impact of shareholders over non-financial concerns is a rather newly acknowledged phenomenon. Yet, this illustrates how shareholder activism may contribute to the defining of a long-term value-creating strategy for companies and suggests that their influence on governance issues is far from being limited to short-term financial performance. The fact that hedge funds (such as ValueAct Capital, with the recent creation of ValueAct Spring fund, or other funds such as BlackRock, who has a special offer for clients willing to invest in socially and environmentally responsible companies), environmental activism is no longer a marginal aspect of shareholder activism. How can we explain such a growing importance of environmental shareholder activism? How will ESG risks and sustainability concerns predictably impact the governance of French and European companies in the near future?
- Alexis Masse, Strategic advisor at GRDF and President of the responsible investment forum
- Loïc Dessaint, Director of Proxinvest
- Pierre-Yves Gauthier, Founder of AlphaValue
- Cédric Laverie, Head of France Governance Research at ISS (Institutional Shareholder Services)
- Ahmed Guenaoui, Treasurer of D&C
15:15 END OF THE CONFERENCE
TRANSCRIPT : Corporate governance and shareholders engagement conference : the new normal
Opening of the conference by François Vannesson, General Secretary of Axa Climate, General Secretary of D&C
- Outline of the circumstances of D&C’s creation: the glaring need for an economic analysis of corporate law.
George Stansfield, General Secretary of the AXA Group
- Intensive focus on shareholder activism at the moment in France by all stakeholders, regulators, lawmakers, players, etc.
- Above all the noise, shareholder value is an important concern.
- Significant amounts of capital are at play here. Elliott, for instance, has $38M in asset.
- The theme can generate emotion, but it is now part of the landscape and is here to stay.
Robert Ophèle, President of the Autorité des Marchés Financiers
- Shareholder engagement is at the heart of healthy and well-functioning markets, and these kinds of concerns are also core to the AMF’s founding mission. As proof of the latter, the AMF’s annual report this year featured a section dedicated to corporate governance practices.
- The AMF’s thinking on corporate governance has 3 specific insights: a debate on activism, sustainable development, and a debate on the role of proxy advisors.
- Transparency could be improved in that matter. However, activism has the merit of being a vector for accelerating the consideration of ESG criteria by players.
- EU substantive law incorporates the principle that market participants must publish a clear engagement policy & voting policy, in accordance with the SRD Directive.
- Finally, on proxy advisors: the AMF is in favour of the effective exercise of voting rights and is convinced of the usefulness of agencies to the extent that they help investors, especially those based far from the country of listing, to fulfil their fiduciary duties. But we are currently in a situation of self-regulation of proxies. And with the increasing weight of passive management, the « determining weight » in shareholder dialogue can fall to active managers, some of whom make sharp criticism of issuers, and some passive players can be too mechanical in their approach by responding to voting recommendations. Some proxies are also embroiled with conflicts of interest.
- In the SRD2 Directive, in June this year, an article was dedicated to the transparency of voting agencies. The debate remains lively in the United States, following a 2017 bill. Two months ago, the SEC published guidance mentioning that agencies will be subject to sanctions for giving misleading advice.
Clément Royo, Advisor to the President of the National Assembly’s Finance Committee
- The underlying thinking of the Woerth report is that it is normal & healthy that shareholders are active.
- The problem is their definition: no legal definition of active shareholders really exists. The closest definition that could be found was based on two elements: the action of shareholders who are often a minority, and who make « demands » through campaigns (public or not).
- There was some common ground in the responses given to the committee: we are in a low interest rate environment, people are looking for yields to keep their heads above the water, and value is becoming scarce.
- Companies also have weaknesses, which is normal, but this becomes a sensitive subject in the media.
- There have been some very vocal, publicized campaigns that created a “certain context” in which the report was undertaken.
- There was an “overall positive assessment,” but there are some “harmful and abusive” behaviours. For example, “blackmailing” a company into a squeeze-out is abusive.
- In some cases, the identification by activists of weak points can trigger the aggravation of a company’s difficulties.
- Then comes the question of regulation, which should not be taken lightly. The regulatory corpus very clearly adapted itself to this “new normal” of activism.
- The first recommendation, changing the reporting threshold from 5% to 3%, is “not a panacea,” but it would make Paris aligned to London as a financial marketplace, although there are exceptions to this threshold in the UK.
- The idea is to allow companies to have a better knowledge of their share ownership structure. Measures aimed at this are compared to the French legislation of the “housing right.”
- The strength of the activists lies in simultaneous communication of campaign elements, so best market practices need to be introduced to allow for a level playing field.
- The idea of publishing a guide for shareholder dialogue is evoked.
- Short selling can be problematic; the introduction of the ‘emergency referral’ procedure before the AMF is outlined.
- Amendments will soon be tabled in the French National Assembly as a result of this report.
ROUNDTABLE #1 : Forms of corporate control and wider corporate purposes
Speakers: Clément Royo, Advisor to the President of the National Assembly’s Finance Committee, Olivier Fortesa, Managing Partner at Amber Capital, Matthew B. Goodman, Partner at Sullivan & Cromwell LLP
Moderator : Thomas Bourveau, Assistant Professor at Columbia University, Vice President of D&C
- There can be lots of clichés around activists, just as there have been in French culture around businesspeople.
- Short discussion about the 2014 Florange Act and how it helps issuers to maintain their control of the company’s strategy.
- The Woerth report is a very fair report. We have a tendency in France to make new laws all the time; we resisted the temptation here.
- Elliott is one of the biggest activists, a lot of which try to emulate it. This will continue, especially after the Pernod Ricard case, which is symbolic of a wider outbreak of activism in the French market.
Iuri Struta, Senior Financial Reporter at Activist Insght
- Presentation of extracts from Activist Insight’s internal data bank, charts on 2019 activity compared to previous years, offensive vs defensive campaigns etc.
- Phitrust & Comgest’s campaign at Essilorluxottica during the early 2019 governance crisis is highlighted.
- Activist campaigns related to a squeeze-out process deserve to be mentioned, and in particular the role of Elliott at XPO Logistics.
ROUNDTABLE #2: Shareholder collaboration
Speakers : Alessio Pacces, Professor at the University of Amsterdam, Angus Milne, Director Risk & Compliance at TCI, Paola Perotti, CEO at GO Investment Partners
Moderator : Alain Pietrancosta, Professor at the University Paris I Panthéon-Sorbonne, Mmeber of the Executive Committee of D&C
We are seeing an institutionalization of shareholder structures, more and more institutional funds (Vanguard, Blackrock, etc.) take positions in companies’ capitals. A recent OECD report on shareholder ownership is an illustration on this. How will shareholder cooperation shape up in the future?
- Angus Milne – Companies in France have the right to set thresholds lower than SRD. So it is strange that they say that it is difficult to know who is in their capital.
- Alessio Pacces – It is more of a forced cooperation than a willing one. Activists bring focus to the market, they have 10 holdings whereas a Blackrock has thousands, the Norwegian SWF is mainly indexed but has some scope for active allocation and reshaping its portfolio. “Long-term” is in the eye of the beholder. Companies can decide themselves what horizon they want to adopt.
The impact of activist campaigns :
- Alessio Pacces – Elliott lost two legal battles at Akzo Nobel in Netherlands but it is not clear that Elliott had no impact at all. There were boards appointments. Activists’ campaigns are never “impactless,” even when they appear to be a failure. A lot more goes on beneath the surface in terms of governance.
- Paola Perotti – Japan is a hotbed of activism. Fights are often reported in the Western press but there is a lot of quiet activism. GO Investment Partners will publish a paper on quiet activism. The structure around pensions and retirement is important here, the GPIF plays a role, as it has a 100-year investment horizon.
Activist strategy, regulation & legal barriers to dialogue :
- Angus Milne – TCI has 25 holdings and 10 meaningful positions. don’t like to be defined as activists, rather as engaged investors. They prefer long and slow engagement over time. The problem with the notion of concerted action is that it is difficult to define: sometimes, TCI just shares its views with fellow shareholders, which even if it leads nowhere could be legally problematic, even in retrospect. From what moment does normal shareholder discussions end and concerted action begin?
- Paola Perotti – a sudden legal change is afoot in Japan, which could see threshold crossing requirements drop from 10% to 1%, with exceptions for “portfolio investors” (which could be anyone and everyone). There are lessons to be learned here for the French experience. She goes on to mention the language barrier as an obstacle to dialogue, as international investors in Japanese companies are subject to a time lag before accessing results information due to translation time.
- Alain Pietrancosta – we are seeing the emergence of legal tools as “anti-activist” measures. Regulation in Europe focuses on market abuses and concerted action. The danger is that the extent and vagueness of these two notions could worry active-strategy shareholders (and activists). He mentions a recent academic paper he wrote on market abuse in Europe and MAR. On American vs European law on insider trading: there was a politically motivated decision to leave the definition of market abuses vague and extensive. In the USA, this framework is based on a well-defined notion of fiduciary duty. Regulating against the “undue use of insider information” has not a contractual basis and could end up practically inhibiting shareholder action.
ROUNDTABLE #3 : The rise of green activism.
Speakers : Alexis Masse, Strategic advisor at GRDF and President of the responsible investment forum, Loïc Dessaint, Director at Proxinvest, Pierre-Yves Gauthier, Founder of AlphaValue, Cédric Laverie, Head of France Governance Research at ISS (Institutional Shareholder Services)
Moderator : Ahmed Guenaoui, Treasurer of D&C
The core theme here is the integration of extra-financial information into a model of capitalism that was previously focused solely on financial information. We are also faced with the “new radicalism” of ever more demanding consumers, a new era of political activism.
- Alexis Masse – we are facing a contradiction in France right now: the sophistication of the French market in terms of green finance is always held up as a model, it is a leading marketplace. But there is a lack of coupling between developed supply and real demand, which begs a question of public policy.
- Loïc Dessaint – Proxinvest exists to read annual reports and sift through them for funds, including some activists like Elliott. Environmental voting policy can come under scrutiny, but Proxinvest is also attentive to aspects such as the equity ratio of remuneration. They would prefer bosses to compare their salaries to those of their employees rather than those of their American peers.
- Pierre-Yves Gauthier – in terms of ESG, because French law is so Malthusian, we are up against a hard fight for environmental financial activists. One needs a lot of money to stand up to Total. We are also up against the all-powerful nature of the French board of directors. An American NGO tried to bring up motions about fossil fuel usage in AGMs but failed. This is why we need to think about lowering thresholds in order to propose motions in AGMs for minority shareholders
- Loïc Dessaint – another example is BHP Billiton, the Anglo-Australian energy company, where shareholders called for the end of the financing of “polluting” energy lobbies and there was some upset here on the final voting recommendations that were communicated. We believe that it created tension between Blackrock and a client, Calpers. Green issues can be a source of conflict between asset owners and asset managers.
- Denis Branche – Phitrust has difficulties in getting resolutions passed at Total on green issues; resolutions never reached the voting stage. But just this threat of shareholder insurrection probably encouraged them to change certain practices, so it has a snowball effect. It is about shareholder aggregation and we see other activists (Amber, Elliott) do this regularly on governance issues.
The role of French law & ideas of reform
- Alexis Masse – in France, fiscal reductions are used to encourage savers, so the FIR’s idea is to systematically propose green savings products to savers by default, so it would be an opt-out system, not an opt-in one. This could improve things.
- Pierre-Yves Gauthier – we should not get too excited about French reform: global factors are more important. For example, Norges Bank has to act on its environmental impact as an investor because of the size of its assets.
- Loïc Dessaint – the starting point for all this is that in France, the environment is considered as being within the board of directors’ purview, not that of all shareholders, so there is a structural legal context at play here. It would need articles of association of companies to be changed.
- Cédric Laverie – we are seeing the rise of “name & shame” tactics on green issues in capitalism, and this is set to grow. The most concrete recent manifestation of an ESG issue spiraling from a press storm into a full-blown governance crisis was at Bayer with the Monsanto acquisition and the litigation in the US. The FT has written lots of articles naming specific companies. This could become more prevalent.
- Alexis Masse – in France, the problem is that trade union members do not really have a good grasp of shareholder dynamics and how to use them as a tool, unless it is just a question of making a failure of shareholder dialogue public by going on strikes to protest.
- Loïc Dessaint – then you have the rise in employee shareholding structures in France, which some consider as a “poison pill” to discourage activist funds. But their own governance is quite opaque.
There are 4 working groups on activism at the moment. Is/will the topic of corporate accountability be evoked?
- Alexis Masse – the FIR looks closely at the topic of accountability.
- Pierre-Yves Gauthier – people may fear the blurring of the lines between activists and normal shareholders which could discourage steps forward on accountability. It does not seem likely there will be a group dedicated to it anytime soon in France.
The conference was organized by Rules for Growth
with the support of