Disclaimer: Views in this blog do not promote, and are not directly connected to any Legal & General Investment Management (LGIM) product or service. Views are from a range of LGIM investment professionals and do not necessarily reflect the views of LGIM. For investment professionals only.

26 Apr 2022  5 min read

By Investment Stewardship team

Our voting intentions on ESG issues at upcoming shareholder meetings, including Twitter Inc, McDonald's Corporation, JPMorgan Chase & Co, Universal Health Services, BP, TP ICAP and PepsiCo.

Voting allows shareholders to appoint the directors that run a company, approve executive pay, agree climate transition strategies, and encourage better reporting on other environmental and social topics. We believe, therefore, that holding companies and boards to account for their actions through our voting is a fundamental part of being a good steward of our clients’ assets. 

In our view, transparency over how we have voted on companies helps us to drive change, as well as hold ourselves and the market accountable.

But sometimes we declare our vote intention ahead of meetings, to draw the attention of the market, clients and other companies to a particular issue, resolution or outcome. The decision to do so can be undertaken as part of an escalation strategy; where we deem the vote to be particularly contentious; or as part of an engagement programme. 

Over 2022, we will be updating this blog on a regular basis to highlight such instances.

Twitter Inc.*

Meeting: AGM: 25 May 2022 

Summary of resolution: Resolution 5 – Report on Risks Associated with Use of Concealment Clauses

LGIM’s Vote Intention:  For (against management recommendation)  

Rationale:

LGIM intends to support the proposal as a report on the company’s use of concealment clauses and any associated risks and impact on employees may bring information to light that could result in improved recruitment, development and retention of employees.  Additionally, the company does not specifically state that it does not use concealment clauses, and clarification on this point would be beneficial.

Summary of resolution: Resolution 6 - Nominate Candidate for Board Elections with Human and/or Civil Rights Expertise  

LGIM’s Vote Intention:  For (against management recommendation)  

Rationale:

The same resolution was on the ballot at last year’s AGM, which we supported. LGIM intends to vote in favour again this year, as although the company is undertaking work to learn about human rights risks, to have a champion on the board may help to shape the strategy in a way that the protection of human rights is always considered.

Summary of resolution: Resolution 7 - Commission a Workplace Non-Discrimination Audit

LGIM’s Vote Intention:  For (against management recommendation)  

Rationale:

Although the company appears to be taking constructive action to address the issue of racial inequality and injustice, LGIM intends to place a vote in favour of this resolution as carrying out a non-discrimination audit by an independent third party would serve the company by demonstrating that its policies and procedures are sufficient.

McDonald’s Corporation* 

Meeting: AGM 26 May 2022 

Summary of resolution: Resolution 6 – Report on Public Health Costs of Antibiotic Use and Impact on Diversified Shareholders

LGIM’s Vote Intention: For (against management recommendation)

Rationale:

A similar shareholder proposal was filed last year at McDonald’s by Shareholder Commons, Amundi Asset Management and Trinity College, Cambridge. As last year, we intend to vote in favour of the proposal as we believe the proposed report will contribute to informing shareholders and other stakeholders of the negative externalities created by the sustained use of antibiotics in the company’s supply chain and its impact on global health, with a particular focus on the systemic implications.

Antimicrobial resistance (AMR) continues to be a key focus of the LGIM Investment Stewardship team’s engagement strategy. We believe that, without coordinated action today, AMR could prompt the next global health crisis, with a potentially dramatic impact on the planet, people and global GDP. This is unfortunately further substantiated through the recent study published in the Lancet at the beginning of 2022 by the Global Research on AntiMicrobial resistance (GRAM) project: Global burden of bacterial antimicrobial resistance in 2019: a systematic analysis.

While we note the company’s past efforts to reduce the use of antibiotics in its supply chain for chicken, beef and pork, we believe AMR is a financially material issue for the company and other stakeholders, and that concerted action is needed sooner rather than later. By supporting this proposal, we want to signal to the company’s board of directors the importance of this topic and the need for action.

JPMorgan Chase & Co*

Meeting: AGM, 17 May 2022 

Summary of resolutions:

Resolution 2 – Adoption of Executive Officers’ Compensation (Say on Pay vote)

Resolutions 1a-1c and 1j – Re-election of Compensation Committee members

Resolutions 4 and 9 – Adoption of Fossil Fuel Financing Policy and Report on Absolute Targets for Financing GHG Emissions

LGIM’s Vote Intention: Against Resolutions 2 and 1a-1c and 1j (against management recommendation)

For shareholder-proposed Resolution 4 (against management recommendation) but against shareholder-proposed Resolution 9 (with management recommendation)

Rationale:

Every year, we vote against a number of important proposals at JPMorgan’s shareholder meeting, reflecting our concerns with their governance structures. Our votes range from the rejection of Jamie Dimon’s re-election in the dual role of CEO and Chair, the re-election of other directors and auditors, and our dissent regarding their ‘Say on Pay’ vote, amid uncapped, overly generous pay structures.

This year, alongside similar concerns, we are particularly aggrieved by the one-off time-based share incentive granted to Jamie Dimon. This awards 1.5m shares – estimated value between $52.6m and $64.6m – above Dimon’s other variable pay opportunity, and is not subject to rigorous pre-set performance criteria. The company’s explanation suggests it is essentially a retention award. LGIM expects variable pay to be majority performance-based, and we do not approve of retention awards to directors who should be remunerated as part of their regular annual pay.

In light of this time-based award and our persistent worries about pay structures, we will escalate our voting sanction by holding the entire Compensation Committee to account, consequently voting against the re-election of Stephen Burke (Committee Chair), Linda Bammann, Todd Combs and Virginia Rometty.

There are a number of shareholder proposals on the agenda. Focusing on the climate proposals, we have carefully considered these against our own expectations of the sector, as well as the bank’s current practices, commitments and disclosures. While we recognise JPMorgan’s recent commitments and improved disclosures, reiterated in its 2021 ESG report, we note that these currently only include interim targets for emissions intensity covering a small number of sectors. We are yet to see the Company’s Scope 3-financed emissions disclosure to determine the strength of its targets and the trajectory of emissions reductions, to enable us to ensure these targets can indeed achieve 1.5C alignment.

Notwithstanding these commitments and disclosures, we consider that the call for the Board to set a policy to ensure its fossil-fuel financing is aligned with the IEA NZ2050 scenario is desirable and in line with our expectations, while leaving the Board room to determine its own path to 1.5C alignment.

By contrast, regarding the call for a report on absolute emissions targets: while on the surface this is supportable, the wording is loosely drafted in such a way as to be overly prescriptive and to seek to micro-manage the Board’s actions here. We will therefore support shareholder-proposed Resolution 4, but vote against Resolution 9.  

Universal Health Services, Inc* 

Meeting: AGM, 18 May, 2022  

Summary of resolution: Resolution 1 – A vote against the re-election of the Board Chair, or the next highest ranking Director up for election 

LGIM’s Vote Intention: Against Resolution 1 (against management recommendation)  

Rationale:  

Following an 18-month engagement campaign, a vote against is applied because of a lack of progress on ethnic diversity on the board.  LGIM expects the boards of the largest US companies to include a minimum of one ethnically diverse director. 

Board diversity is an engagement and voting issue, as we believe cognitive diversity in business – the bringing together of people of different ages, experiences, gender, ethnicity, sexual orientation, and social and economic background – is a crucial step towards building a better economy and society. 

There are other persistent governance concerns we have had with the company including classified board structure and misaligned remuneration.  

BP PLC*

Meeting: AGM, 12 May 2022

Summary of resolution: Resolution 3 – Approve Net Zero – “from ambition to action report”

LGIM’s Vote Intention: For (in line with management recommendation) 

Rationale:

In 2021, we publicly called on companies to propose a ‘Say on Climate’ vote, allowing shareholders to cast their verdict on the climate-transition plans proposed by management.

This year, we laid out our criteria for supporting management-proposed climate transition plans. By doing so, we want to encourage ambitious and credible plans to be put forward, and we feel it is important to be transparent about how our voting policy will be applied.

The oil & gas sector is an integral component in the transition towards a net zero world, and as such, a great level of scrutiny is applied when assessing the credibility of say on climate proposals submitted to a shareholder vote this year by companies in this industry, with BP being one of them.

Following long-standing and intensive engagements, both individually and collectively through the CA100+, BP has made substantial changes to its strategy and approach. This is evident in its most recent strategic update where key outstanding elements were strengthened, including raising its ambition for net zero emissions by 2050 and halving operational emissions by 2030, as well as expanding its scope 3 targets and increasing its capex to low carbon growth segments. Nevertheless, we remain committed to continuing our constructive engagements with the company on its net zero strategy and implementation, with particular focus on its downstream ambition and approach to exploration.

We must bear in mind that achieving a perfect solution in an imperfect world is challenging, and on some occasions, the ‘carrot’ can drive better results than the ‘stick’. By supporting BP’s plan, we hope to see a similar level of upward trajectory across the industry, and we will keep using the tools at our disposal to encourage companies to meet our expectations.

TP ICAP Group*

Meeting: AGM, 11 May 2022 

Summary of resolutions:

Resolution 3 – Approval of Remuneration Policy

Resolution 8 – Re-election of Tracy Clarke (Remuneration Committee Chair)

Resolution 19 – Approval of Restricted Share Plan

LGIM’s vote intention: Against Resolutions 3, 8 and 19 (against management recommendation) 

Rationale:

TP ICAP reached out to key shareholders in an early consultation in summer 2021 with proposals for a new restricted share plan (RSP) to replace annual grants of performance-based long-term incentive plan (LTIP) awards, with a view to holding a special General Meeting to approve the new plan later that year. 

During the consultation process, we questioned the rationale for the change in incentive plan and the suitability of a non-performance-based share award to incentivise management in its integration of the recently acquired Liquidnet Holdings, given the substantial execution risks of this sizeable deal.

Warning flags were also raised in this case, given year-on-year concerns with the link between pay and performance at TP ICAP – including a 10% increase to the CEO’s salary last year given that he is now looking after a larger company, no matter the success of the acquisition. Moreover, the substitution of a performance-based plan with time-based awards, when LTIP awards have historically lapsed in full or were replaced with new awards before their maturity, does not sit well with long-term shareholders who have seen their investment value decline over years of poor total shareholder return.

While we acknowledge the need to pay directors for their hard work, we believe that a substantial amount of executive pay should remain aligned with company performance and shareholder value creation. We therefore do not consider the payment of free shares appropriate, especially as management should be directly incentivised in line with the successful integration of the Liquidnet acquisition and should not obtain rewards when shareholders may not see any positive returns from these management decisions.

We were initially pleased to see the proposal withdrawn and the idea of an EGM dispelled, but we were dismayed to see the proposal resurface ahead of the May AGM, with merely a 50% reduction in award size compared with the previous LTIP – a concern given the historic zero LTIP vesting levels at TP ICAP and the additional certainty over payout of the RSP. 

We are therefore voting against the adoption of the RSP and the Remuneration Policy that would facilitate this plan. We are also noting our concern over the broadly unchanged proposal being put to a vote despite its initial withdrawal following consultation with shareholders. We are therefore withholding support from the election of Remuneration Committee Chair, Tracy Clarke.

PepsiCo*

Meeting: AGM, 4 May 2022 

Summary of resolutions:  

Resolution 5 – Report on Global Public Policy and Political Influence

Resolution 6 – Report on External Public Health Cost

LGIM’s vote intention: For Resolutions 5 and 6 (against management recommendation)

Rationale:

Resolution 5:

We intend to vote in favour, following our engagement with the company, as LGIM expects companies to provide sufficient disclosure on both direct and indirect lobbying activities globally, including jurisdictions where lobbying transparency disclosure is not mandated.

While we acknowledge PepsiCo’s lobbying disclosure, including on political contributions in the US, the company does not provide further disclosure with regards to non-US indirect lobbying, such as payment amounts made to non-US trade associations and the purpose/rationale for such activities.

Various organisations, including Corporate Accountability, and academic papers have pointed out the soda/fizzy-drinks industry’s indirect influence in scientific research via memberships in the International Life Sciences Institute (ILSI). The ILSI is considered to have downplayed the role of consuming sugary sodas as a cause of obesity in the past. While PepsiCo’s competitor, the Coca-Cola Company*, reportedly cut ties with the ILSI in 2021, PepsiCo appears to have remained as a member of ILSI Europe as of January 2022.

We believe further transparency surrounding PepsiCo’s non-US advocacy activities would be beneficial for its shareholders and other stakeholders, justifying our vote in favour.

Resolution 6:

We intend to vote in favour as the proposed study will contribute to informing shareholders and other stakeholders on how actions the company takes (or does not take) may contribute to long-term negative human-health impacts, such as obesity.

Health is a key focus of the engagement strategy of LGIM’s Investment Stewardship team. While we welcome the steps that PepsiCo is already taking – for example, by working with the Access to Nutrition Initiative (of which LGIM is a signatory) and its collaborative investor programme – we believe health, and obesity in particular, are financially material issues for the company and other stakeholders.

LGIM has also voted for similar shareholder proposals related to public health and lobbying transparency at the Coca-Cola Company this year.

Credit Suisse*

Meeting: AGM, 29 April 2022 

Summary of resolutions:

Resolution 2.1– Discharge of the members of the Board of Directors and the Executive Board for the 2020 financial year

Resolution 9 – Shareholder proposal for an amendment of the Articles of Association regarding climate change strategy and disclosures (fossil fuel assets)

How do we intend to vote? 

Against Resolution 2.1 (against management recommendation) 

For Resolution 9 (against management recommendation)

Rationale:

We will be voting against resolution 2.1: this resolution was withdrawn last year pending a report on Greensill Capital, and this year we believe that the investigations and settlements, the risks and control issues revealed, and the consequent reputational costs and costs to shareholders mean that a vote against is justified.

We will be voting for shareholder proposal Resolution 9, brought by a group of shareholders, including ShareAction, seeking a management report to improve Credit Suisse’s reporting on climate risks, such as disclosure of additional information on the strategy set to align the financing activities with the Paris Agreement, as well as the company’s strategy on reduction of exposure to coal, oil and gas assets. We note that the proponents have kept this proposal intentionally at a high level, in order to ensure there is no concern over micromanaging the board’s ultimate strategy. A vote in support of this proposal is warranted as LGIM expects company boards to devise a strategy and 1.5C-aligned pathway in line with the company’s commitments and recent global energy scenarios. In this regard, we note some important shortfalls in Credit Suisse’s current commitments and policies, such as the exclusion of capital markets financing from its net zero trajectory analysis, as well as underdeveloped Scope 3 emissions disclosures and weak sector exclusion policies.

Carnival Plc*

Meeting: AGM – 8 April 2022 

Summary of resolutions:

Resolution 1 – to re-elect Micky Arison (Executive Chairman)

Resolution 2 – to re-elect Sir Jonathon Band

Resolution 7 – to re-elect Richard Glasier

Resolution 9 – to re-elect Sir John Parker

Resolution 10 – to re-elect Stuart Subotnick

Resolution 11 to re-elect Laura Weil

Resolution 12 – to re-elect Randall Weisenburger (Lead Independent Director and Chair of Remuneration Committee)

Resolution 13 – advisory vote to approve executive compensation

Resolution 14 – to approve the remuneration report

How do we intend to vote?

LGIM will be voting against all these resolutions, meaning our vote intentions are not aligned with management’s recommendations. 

Rationale:

Resolution 1 – to re-elect Micky Arison – A well-governed board should have a sufficient balance of independent directors and demonstrate diversity: we expect a FTSE 100 company to have at least one-third of the board represented by female directors. The board only has one-third independent representation and 25% female representation. 

Resolution 2 – to re-elect Sir Jonathon Band; resolution 7 – to re-elect Richard Glasier; resolution 9 – to re-elect Sir John Parker; resolution 11 to re-elect Laura Weil. None of these directors are considered independent and their presence on the board impacts the level of board balance. Some are members of key board committees, such as audit and remuneration. These committees should be comprised entirely of independent directors.   

Resolution 10 – to re-elect Stuart Subotnick – He is not considered independent but is nevertheless chair of both the nomination and governance committees. He is responsible for ensuring the board has a diversity of skills and gender representation, but the board only has one-third independent representation and 25% women. At executive committee level there are no women.

Resolution 12 – to re-elect Randall Weisenburger – As he is not considered independent, he should be neither chair of the remuneration committee nor the lead independent director. We also have concerns about executive pay (Resolution 14).   

Resolution 13 – advisory vote to approve executive compensation; resolution 14 – to approve the remuneration report.

The continuing impact of COVID-19 meant that Carnival’s remuneration committee had to change the metrics used to determine the annual bonus for 2021 as it was “impractical to develop financial operating performance goals”, resulting in the CEO being awarded US$6m (approximately 4x salary). This payment was made despite the company making use of furlough schemes, not paying dividends and having made employees redundant. 

In addition, the company made a grant of restricted shares over approximately US$7.5m or 5x salary, with one-third vesting annually and not subject to any level of performance. The size of the award did not take into account a number of factors, including the fall in the share price since the pandemic. The annual vesting of awards, combined with the fact that vesting is not linked to any performance condition, means it fails the requirement that pay should be linked to long-term performance. 

For live information about our voting actions and rationales, please visit our dedicated website: https://vds.issgovernance.com/vds/#/MjU2NQ==/

More information about our Investment Stewardship activities, policies and engagement activities  can be found on our website: Investment stewardship & governance | LGIM Institutional    

*For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.

Equities ESG Environment, Social and Governance

Investment Stewardship team

Our Investment Stewardship team comprises professionals with experience in areas including responsible investment, corporate governance, and public policy. The team is made up of both sector specialists and experts on ESG themes, such as sustainability, and has a global remit with members in the UK, Japan and the US. The team exercises LGIM’s voting rights globally, holding companies to account. In 2020, LGIM cast over 138,600 votes at over 14,000 meetings. Here’s what they voted for and against.