General Mandate Proposals in Hong Kong: ACGA Report

General mandate proposals are gaining attention as companies seek more flexibility in capital management. However, a report issued by the covers a close-up view of case studies, and potential pitfalls associated with general mandates in the H-share market based on findings last year.

Key takeaways from ACGA:

• Three-quarters of the top 100 by market capitalization sought a general mandate in 2023
• Nearly one in ten mandates were opposed by more than 30% of shareholders
• Some issuers are reducing mandate size after resolutions barely pass
• Shareholders push back hard at China Mengniu Dairy with a resounding 49.8% rejecting the mandate
• One in four issuers only sought a 10% mandate, but the majority of dual-class share stocks seek the full 20%

IROs are coming under pressure in their engagements with shareholders on capital issuance proposals. Pre-emptive rights still being a red line for many institutional investors to safeguard their holdings when voting on such requests. What are companies and shareholders doing together in finding an optimal model that works for all? A starting point should include reviewing past results and circulars for the upcoming shareholder meeting followed by a thorough identification process of investor concerns through a well-crafted outreach plan with their investors. Most institutional investors have set their policies on new issuance of stock. In doing so, issuers will overcome the barriers to unlocking a healthy relationship with shareholders on capital proposals and focus on other pressing topics.

Listing Rules in China: What’s New?

On 12 April 2024, the China Securities Regulatory Commission (CSRC) issued a guideline emphasising strict implementation of delisting regulations on STAR Market and ChiNext companies. The landscape of listing rules in China is undergoing significant changes mainly focused on improving the quality of listings, reflecting broader economic reforms and the drive for greater transparency and strengthening of investor protections. There are several areas it has outlined that will be of focus including regulation surrounding M&A deals, as well as remedies for investor compensation.

• Improve quality of listings is the focus in the A-Share Market: Approximately 30 stocks trading at the Shanghai and Shenzhen bourses are bordering the delisting line which is based on combined financial indicators according to the CSRC’s calculations. Another 100 companies may face delisting risk warnings in 2025.
• Distributions of dividends under the spotlight: A-share issuers may be subject to scrutiny for failing to pay adequate dividends to their shareholders. The regulator expects a 30% payout ratio in the final dividend in terms of cumulative cash over a recent 3-year period. highlights that in terms of cash amount, that baseline is a cumulative 50 million yuan for main board listings and 30 million for STAR Market and ChiNext issuers.
• There are reports that Companies have scrambled to scuttle plans for initial public offerings in China this year as the securities watchdog tightens rules on share listings in a bearish market. Forty-seven companies pulled their listing plans from China’s stock exchanges so far this year, compared with 29 withdrawals during the same period one year earlier, data from stock exchanges showed. Read more from the .

Companies that fall into the latest guideline will have a period of transition to make improvements until the end of 2025 to comply. The latest update seeks to raise the bar among companies trading on the A-share market.

Shareholder Activism in Japan

Hong Kong investment firm Oasis Management is considering submitting shareholder proposals to Japanese cosmetics giant Kao in 2025 with its 3% shareholding to encourage management to cut underperforming products and boost shareholder returns reported by .

This approach not only aims to enhance corporate governance but also to ensure that companies are positioned to deliver sustainable, long-term benefits to all stakeholders. Through detailed analysis and shareholder engagement, Oasis Management exemplifies how disciplined activism can serve as a catalyst for significant change in corporate Asia. It underscores the growing influence of shareholder activists in shaping corporate strategies and governance standards in the region, highlighting a trend that is rapidly evolving amidst the dynamic economic landscape of APAC.

Shareholder meetings are landmark events for North American listed companies, but executives need to engage shareholders throughout the year. Michael Vogele, Managing Director of the global advisory group at 新月直播app, explores.

The 2024 shareholder meeting season is in full swing, but companies across the US already need to be conscious about what comes next, Shareholder Engagement season. There are plenty of tactics here, and expertly executing shareholder engagement requires the assistance of an advisor with deep knowledge of the shareholder meeting and institutional investor landscape. Mandated by the US SEC, for instance, N-PX filings detail the proxy voting records of registered funds, giving issuers insight into how investors voted at their shareholder meeting.

To truly understand investors’ motivations, companies should directly engage with them during the “off-season.

Investors signal their expectations for public companies through their proxy voting policies, which are publicly available and updated once a year. These proxy voting guidelines offer a sense of potential issues for shareholder meetings. Sifting through the paperwork can certainly secure valuable insights – a by Deloitte and Tufts University found that 83% of professional investors across the US now boast specific ESG policies – the sheer breadth of shareholder pressure points require a more holistic approach, ultimately one that involves year-long engagement because there are countless issues for which investors apply case-by-case analyses and speaking directly with the investor can shed light on how they may vote on a particularly nuanced matter.

A range of challenges

The scale of the challenges facing US corporate leaders is clear from the numbers and it is imperative that issuers understand key stakeholders’ evolving expectations. Consider for example, the rising importance of cybersecurity. With new SEC rules obliging companies to disclose serious incidents, a of US investors now see cyber as a major threat.

And if that’s echoed by the reaction of corporate leaders – PwC reports that 88% of American companies are considering sharpening their cyber risk policies – there are plenty of other worries too.

As the Deloitte survey implies, ESG is one, though in practice that spans the gamut from board diversity to practical action on climate change. A second involves corporate pay, while third involves AI: at in February, 37.5% of shareholders voted for a motion demanding the company clarify how it uses the technology.

Given these competing priorities, how should executives react? SEC forms and policy documents are a good start. But to truly get to grips with what shareholders want, companies can’t imply wait for contact – but should rather proactively engage investors to understand their concerns.

In-person meetings (most over Zoom or Teams) are obviously important here: the statistics that letter writing won’t get leaders far. Just as crucial is thinking carefully about which stakeholders to approach. While calls with investor portfolio managers are important from a financial perspective, stewardship or responsible investor teams are the groups which ultimately make proxy voting decisions.

In a broader sense, companies should rely on their last shareholder meeting results to decide which issues to focus Shareholder Engagement efforts on over the coming year. As a rule of thumb, any resolution receiving below 80% support from shareholders requires a robust corporate response. Shareholder resolutions creeping over the 20% threshold are even more urgent.

Based on recent experiences, meanwhile, US companies seem destined to have a busy year. As GAM Investments reports, for instance, many resolutions hit that all-important 20% mark over the last two years, with few signs that’ll change through 2024.

Transparency and speed

Once companies have pinpointed the main shareholder worries – and which investor teams to engage – what should they do next? In the first place, we’d recommend speaking to every stakeholder willing to have a conversation, including those rejecting the company line.

If, moreover, it becomes clear that a majority of respondents are worried about a particular policy, executives should move fast. In reality, of course, implementing changes might take years. Nevertheless, corporations should signpost their intentions in advance, and clearly explain timelines.

Whatever the challenge, leaders would be wise to link change with wider business goals. Beyond fulfilling their primary professional function, this is what investors increasingly expect: prefer that ESG goals connect with shareholder value through quantitative data. The same is true in cyber security. With each major incident in value, there’s clearly space for companies to balance ethics and the bottom line.

Not that a universal approach necessarily works either. Once again, dialogue the watchword here, helping executives determine exactly what shareholders are looking for. When it comes to compensation, for instance, every investor has their own preferred style – and major US corporations, from to , may feel shareholder principles do not allow for industry-specific considerations.

One important way to break the deadlock is transparency, ensuring investors can judge companies on their progress. Around environmental concerns, for instance, companies could publish greenhouse gas targets. For cybersecurity, they could pledge to appoint IT experts to the board, especially urgent with those SEC changes, an approach are increasingly extending to AI.

Openness is doubly important for corporate compensation. Publishing financial or other goal data for short-term incentive schemes is one good example. And though firms may worry that publishing puts them at a competitive disadvantage, transparency means they can prove their metrics are fair, especially when payouts are higher than expected.

It’s a similar story elsewhere: publishing shareholder feedback and issuing follow-up statements are both ways of keeping investors engaged long after the shareholder meeting season ends. Another tactic is leveraging expert advice, helping busy executives keep abreast of stumbling blocks all year round. Given how many investor challenges US executives now face, getting outside help surely makes sense.

, Managing Director of 新月直播app Global Advisory Group, has 22 years of experience providing consultative services on Shareholder Engagement & ESG topics.

Wherever you look, shareholder activism is on the rise. As a recent uncovered, 2023 saw situations reach a four-year global high, with almost 1,000 companies subjected to activist demands publicly. Yet if this trend is set to continue – nearly a quarter of companies disclosed the potential for activism in their 10-K reporting – executives must equally understand the precise threats they’re likely to encounter.

In practice, these risks are largely dependent on location. From environmental campaigns becoming more prominent in the US, to governance reforms in Asia, these vary significantly, and leaders must grasp the issues they’ll encounter before entering the boardroom. 新月直播app explores what executives across a trio of geographies should expect, and how they can keep shareholders at bay.

North America

In March 2024, the US Securities and Exchange Commission (SEC) on climate disclosure. Among other things, companies are now expected to report both direct and indirect carbon emissions, as well as how they plan on managing climate risk. And though the final requirements are somewhat less stringent than some insiders feared, the prospect for environmental activism remains.

As sustainability nonprofit Ceres , a record 263 climate-related shareholder resolutions have been filed across North America so far this year, with JPMorgan and Citigroup among the giants under pressure. Other regulatory changes, notably , presage greater ESG activism in other areas too. Triggered when a shareholder plans to solicit at least 67% of voters, the so-called ‘universal proxy card’ rule obliges both executives and dissidents to list every board nominee on a single slate. Especially for remote voters, that makes activism easier, as evidenced by the between unions and Starbucks.

Shadowed by the potential for M&A activism in Canada – with an economy concerns, climate-conscious shareholders are inclined to worry – and executives will obviously be busy. Beyond carefully understanding the updated rules, securing expert outside expertise can help, especially around securing intelligence on how institutional shareholders are likely to vote.

Europe

Europe has traditionally been a hotbed of boardroom activity, a trend that’s set to continue through 2024. As a poll by , over half of European respondents expect a rise in shareholder activism over the next year, while two-thirds of activists expect their organisation to be involved in at least three campaigns. And if financial and political uncertainty stymied some proxy battles in 2023, that looks set to change too, with a full 98% of executives predicting a resurgence in visible, public disputes.

That’s clear enough in practice. At the end of March, for instance, shareholders in AstraZeneca said they a planned ?18.7m compensation package for the pharma giant’s CEO. That speaks to a broader trend: between lacklustre economic performance and concerns for social justice, stakeholders across the continent are less likely to tolerate large executive pay deals, particularly when needing to compete with dynamic American rivals. In the case of companies like Unilever, that’s when rebellions over pay intersect with broader disputes over corporate direction – the British multinational was criticised for botching a buyout involving GSK.

There are, of course, ways forward for concerned European executives. One is to embrace pay performance schemes, an tactic across the continent. Another is leveraging external expertise to understand exactly what shareholders are planning – then acting to stop opposition before it crystallises.

Asia

A longstanding corporate cliche is that Asian shareholders are less inclined to activism than their colleagues elsewhere. But this is changing fast. In March, for example, the Federation of Korean Industries boardroom battles in the East Asian country have risen nine-fold since 2019.

Markets as varied as and are moving in the same direction, and though the specifics vary across borders, executives should nonetheless be conscious of common themes. One example involves governance reform. In Japan, after all, the Stewardship Code and Corporate Governance Code aims to align shareholder and corporate interests, for instance by discouraging cross-shareholdings. That’s echoed by similar pushes in and , with the results already impacting individual boardrooms. In February, to give one example, shareholders at Korean conglomerate Samsung pushed the company to , among other changes.

From the perspective of squeezed executives, it doesn’t help that Korean stocks perennially underperform, with activists across the region increasingly vocal in their criticisms of poor executive management. Ariake Capital recently in Chiba Kogyo Bank to lobby for bolstered employee incentives, while Fuji Soft has faced pressure to sell non-core holdings. Suffice to say that company leaders must robustly engage shareholders in advance, much easier if they can rely on outside professionals.

Overall, it seems clear that shareholder activism through 2024 will be even more prominent than in 2023 – something that’ll inevitably cause problems for executives unwilling to listen and act upon their concerns. Fortunately, expert advice is available, ensuring executives emerge from activist campaigns stronger than before.?

Winning favorable vote recommendations from the proxy advisors, ISS and Glass Lewis, certainly make a company’s annual shareholder meeting easier. However, when faced with an adverse vote recommendation, issuers should know there are still options on the table. The window for action is tight though, so preparing in advance is critical. Issuers can begin thinking through the following steps, so they can quickly move into action should there be opposition to any ballot items.

Conclusion

Receiving an adverse recommendation from ISS or Glass Lewis can be stress inducing, but utilizing advisors who are experienced in navigating similar situations will ensure the best possible outcome while allowing company personnel to focus on running the company’s core business.

According to ISS, inadequate board responsiveness was the probable leading vote driver for 17 directors who received less than majority support from shareholders during the first half of 2023.

With January 2024 in the books, most companies have concluded their shareholder and proxy advisor engagement sessions and are commencing the unenviable task of drafting their annual proxy disclosures. These engagements were centered on hearing what compensation, governance, environmental and social (E&S), or sustainability risks an investor may perceive and ways to avoid future negative voting decisions. With this feedback in hand, companies are now asking themselves how much of it they ought to disclose in their 2024 proxy statements.

While for many companies investor outreach has become an annual practice, aimed at building relationships and staying attuned to evolving investor expectations, others undergo this process to demonstrate board responsiveness following a low vote or to get ahead of a potential issue during proxy voting season.

For those companies, thoroughly communicating the engagement process and the board’s response to feedback received from investors is a critical exercise that if not completed adequately can land directors in hot water.

In fact, perceived lack of responsiveness following either a management proposal with low support or a shareholder proposal with majority support is a key driver of low director support the following year. According to ISS, inadequate board responsiveness was the probable leading vote driver for 17 directors who received less than majority support from shareholders during the first half of 20231. For context, within the Russell 3000, 38 directors failed to receive majority support during the first half of 2023.

To get any type of credit from investors and proxy advisors, proxy disclosures must disclose engagement efforts in detail. Companies should acknowledge the scope of the outreach, which includes disclosing the number of shareholders contacted and the number of shareholders the company engaged with. From the company side, many engagements are led by an independent director. Particularly for companies attempting to rebound from a poor vote, it is important to note the company participants, including independent directors. It is also critical that the proxy disclosure note the feedback the company heard from investors, both the positive and negative, and, most importantly, how the company is reacting to shareholder concerns. Are changes being made based on this feedback and if not, why?

This type of information not only reinforces cooperation by demonstrating actions through dialogue, but it also exhibits to those shareholders that the company didn’t interact with that it can change its policies. Companies, for their part, hope that the recent conversations will result in support at their shareholder meetings, be that board elections, say-on-pay, equity grants, article amendments or even the support against any shareholder proposals.

One obstacle that some companies run into when making decisions on changes to reflect shareholder feedback is that many institutional investors will not have published their updated proxy voting guidelines. Meaning that companies may not know if their stakeholders will have adopted new red line policies or whether they have moved the goal posts on another guiding principle, such as the number of external mandates for non-executive board members. Furthermore, this timing on the publication of updated guidelines complicates even the addressing of comply-or-explain matters, as companies are not able to determine what shifts have occurred in proxy voting guidelines.

This again is another area where professionally managed shareholder engagement pays effective long-term dividends. By speaking with governance/stewardship teams in late fall or early winter, companies may be able to determine where the pressure points are going to be in the next voting cycle. Additionally, 新月直播app’ experience has been that should an investor have pre-existing concerns with a policy, they will be forthcoming in their feedback and offer suggestions for improvement.

Retail investors play a major role in stock markets today, propelled by a surge in investor activity that has continued to accelerate in a post-pandemic market. For public companies, this constituency group is a powerful, and necessary, force to harness.

According to data from the World Economic Forum, retail investors accounted for 52% of all global investments in 2021, which is expected to grow to over 61% by 2030. Further data from Visual Capitalist revealed that peak net retail flows in 2023 were 84% higher than in 2019, and the highest in-flow of retail capital in history on a single day exceeded $1.5 billion in the United States.

Retail investors not only affect stock prices due to their massive buying powers but also have become a major force in the outcome of many key corporate votes, especially proxy battles. Public companies, especially large public companies, that know how to engage and communicate with retail investors effectively can mean the difference between gaining the votes necessary to support their corporate agendas or losing a critical battle.

What’s important for public companies to realize is that there are a wide variety of retail investor groups, each with their own investment goals and interests. Messaging that appeals to one constituency might not appeal to another. This speaks to how critical it is to tailor engagement with each investor group appropriately, depending upon the company’s agenda or type of industry.

The first step, then, toward successfully communicating and engaging with retail investors begins with understanding their unique profiles, identifying under which constituency group the company or industry’s retail investors fall, and then catering to that constituency group’s specific investment goals and interests.

Communication channels.

In the digital age, communication channels also have changed, including ways of engaging with shareholders. The traditional route of the chairman or CEO writing a lengthy “to our shareholders” letter to investors to remind them to vote has little to no impact anymore. It’s akin to burning money in the trash can, where these letters often go.

Oftentimes, letters to shareholders fail because they contain the same boilerplate language sent to all investors. There is no customization.

One of the best ways for a public company to effectively get its message across to compel retail investors to act is to better understand the demographics of its shareholder base by obtaining and researching shareholder lists periodically. This is quite important, as it allows management to formulate the necessary public relations strategy in advance of a possible proxy campaign and even possibly predict the voting outcome of their retail base.

Another effective way to appeal to retail investors is to approach it much like a political campaign by seeking to more clearly understand which constituencies the company seeks to target, how this targeting campaign needs to happen, and what key messages the company is looking to get across.

It’s also very important that public companies get very creative with the messaging channels they use to reach out to these constituency groups. To effectively engage with today’s retail investors, it’s important to utilize communication channels like social media, email and text messaging.

Lastly, because large-scale retail engagement campaigns are costly, especially to retail investors imbedded in “street” name, performing a cost-benefit analysis and tracking the outcome is another important step. Gone are the days of just dropping a drab message to “street” name shareholders, its simply too expensive and produces no measurable result
Keep in mind that the biggest issue many public companies face isn’t “against” votes by shareholders, but that many often do not vote at all. Public companies often will not even pull shareholder lists until they need a vote. Ongoing communication with shareholders is severely lacking, and there is no real call to action. This is a missed opportunity.

Companies should not fear communicating with retail investors but rather think critically and deliberately about how to harness the power of this silent majority.