Georgeson and Cuatrecasas publish tenth “Corporate Governance and Institutional Investors” report

For the tenth consecutive year, Georgeson and Cuatrecasas have published “Corporate Governance and Institutional Investors: Preparing for the 2021 Pro...
Georgeson and Cuatrecasas publish tenth “Corporate Governance and Institutional Investors” report
February 2, 2021

For the tenth consecutive year, Georgeson and Cuatrecasas have published “Corporate Governance and Institutional Investors: Preparing for the 2021 Proxy Season,” which analyzes the behavior of foreign institutional investors and the proxy advisors in the IBEX-35 companies and the top 40 companies on the Spanish continuous market during the proxy season, to help these companies to prepare for their next shareholders meeting and anticipate the investors’ demands.

The exceptional nature of the past year due to COVID-19 has emphasized the importance of corporate social responsibility (CSR); aspects of environmental, social and corporate governance (ESG); and the search for long-term sustainability, involving new challenges for listed companies.

Online shareholders meetings

The use of new technologies is expected to continue to be reinforced in the 2021 proxy season and the seasons to come. Spain held the most online shareholders meetings in Europe in 2020, according to Georgeson’s analysis in its study Georgeson’s 2020 European AGM Season Review. Due to this experience and the new Recommendation 7 of the Spanish Good Governance Code (“CBG”)—updated last July—a significant number of listed companies have amended their bylaws and shareholders meeting regulations, to include the online shareholders meeting with participation and simultaneous voting as an additional mechanism to those used up to now.

The option of holding hybrid shareholder meetings, with attendance in person or online, and both with the same guarantees, is expected to become a best practice for Spanish listed companies, which will thus offer their shareholders and participants greater flexibility.

Gender diversity on boards of directors and in senior management

The presence of women on boards of directors will continue to gain relevance and, in parallel, the risk of a dissenting vote from the chair of the Appointments Committee for companies that do not reach the minimum threshold regarding the underrepresented gender. Recommendation 15 of the CBG, after the July 2020 review, advises that female members form at least 30% of the board of directors and that, before the end of 2022, this figure is 40%.

Increased responsibility of Appointments and Remuneration Committee

The Appointments and Remuneration Committee in the Spanish corporate governance model has steadily gained prominence in recent years. In the 2021 proxy season, some companies are expected to propose changes to their directors’ remuneration policy as a result of the COVID-19 crisis and transposing the EU Shareholder Rights Directive II (“SRD II”).

Entry of hedge funds and shareholder activism

The stock market crash caused by the pandemic resulted in changes to some companies’ shareholder structure during the 2020 proxy season, marked by the exit of long-term institutional investors and the entry of hedge funds and activist funds.

Social and environmental issues take leading role

Both proxy advisors and institutional investors have increased their interest in social and environmental issues due to the pandemic. Subjects such as employee health and wellbeing, and action taken to help suppliers, clients and society in general have come to the fore in this proxy season and will certainly continue under the spotlight in coming years.

Reform of Spanish Companies Act and transposition of SRD II

If the SRD II draft bill is passed in the coming months, asset managers and other institutional investors will have to publish an engagement policy and report how it has been applied, on an annual basis. The issuers will have the right to know the identity of the shareholders and the ultimate beneficiaries of the economic and voting rights related to the shares. Proxy advisors who have their registered office or main establishment in Spain, or simply have an establishment in Spain, when they do not have a main establishment in another EU Member State, will have new requirements regarding transparency and managing conflicts of interest. Cuatrecasas partner José Luis Rodríguez points out that, “the 2021 proxy season will be directly influenced by the SRD II draft bill and I regret the uncertainly being caused by not being sure of its content nor entry into force, at dates that are so close to when listed companies hold their shareholders meetings.”

Action plans to deal with high levels of dissent

In those companies that had a high level of dissent regarding a certain item on the agenda of the 2020 shareholders meeting, the proxy advisors and institutional investors expect a specific plan of action to reduce the amount of dissenting votes. This is particularly important regarding matters related to the board of directors’ remuneration, gender diversity and the level of independence.

Detailed explanation of remuneration adjustments caused by COVID-19 crisis and possible changes to board of directors’ remuneration policy

Traditionally, the subject of remuneration generates the most dissent at shareholders meetings and this tendency is expected to intensify in the next proxy season. The investment community expects there to be a certain alignment of the directors’ and senior management remuneration with business performance, a return of the shareholders’ investment and the situation of the rest of the employees.

Cuatrecasas partner Pere Kirchner highlights that, “in the area of corporate governance, the COVID-19 crisis has also accelerated changes that were reaching our listed companies: prioritizing ESG matters on the agenda and the generalized holding of online shareholders meetings are only a couple of examples of transformations that are here to stay.”


Download the full report


February 2, 2021