French Governance Snapshot
Lessons From 2023 and Areas of Focus for the 2024 AGM Season
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March 13, 2024
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As French companies finalise any potential amendments to governance and remuneration arrangements for the period ahead, we set out below our considerations on the areas most likely to draw scrutiny in 2024, including views on executive remuneration, director accountability, ‘pass-through voting’, ESG, shareholder activism and more.
28 SBF 120 companies experienced significant dissent (20% or more of the votes cast against the board’s recommendation) on at least one say-on-pay proposal in 2023 (2022: 30 companies), including seven companies that faced opposition on both their remuneration policy for the ongoing period and the remuneration paid to their executives in title of the previous fiscal year. Pay structures and disclosure were the primary sources of dissent in France in 2023, and this is likely to remain the case in 2024. The use of environment, social and governance (“ESG”) criteria is also likely to remain a controversial topic, in particular following the amendment of the AFEF-MEDEF Corporate Governance Code in December 2022 recommending the inclusion of at least one climate objective in executive pay.
Despite growing expectations on director accountability and time commitments from investors, 2023 was a quieter year in terms of shareholder dissent on director elections, with only seven companies experiencing significant opposition on one or more proposals (2022: 14). In 2024, French companies will face new expectations from proxy advisors regarding their management and oversight of climate-related issues, their responses to cybersecurity incidents, and their use of capital structures with unequal voting rights. Failing to meet these new expectations may result in these institutions recommending that investors oppose the re-election of certain directors.
In its annual review of governance and remuneration practices published in December 2023, the French Financial Market Authority also highlighted the rigour of evaluating board and director effectiveness, and disclosing those processes to investors, among areas of improvement for certain French companies. Over the last two years, a number of asset managers have started to roll out ‘pass-through’ voting solutions, allowing their clients to cast their votes either in alignment with the asset manager’s approach or according to different guidelines. With large asset managers potentially less influential in terms of voting at annual general meetings (“AGMs”), in the event of greater adoption of pass-through voting, companies will need to focus even greater energy on strong reporting, which will be reviewed by asset owners and proxy advisors, whose influence may be even greater as a result of these latest changes to the proxy voting landscape.
The number of say-on-climate proposals put forward by management in France remained relatively stable, with eight such proposals submitted in 2023 (2022: 10), in stark contrast with the substantial decline in the number of resolutions tabled globally (2023: 49; 2022: 26). In 2023, there were also two say-on-climate proposals submitted by shareholders at French companies, compared to nil in 2022. It remains to be seen whether this nascent trend will continue in 2024, but some of the conclusions from the report of the legal expert group “Haut Comité Juridique de la Place Financière de Paris”, delivered in January 2023, may provide a platform for an increase in shareholder proposals in the year ahead. In addition to increasing expectations on governance and ESG, French boards must also deal with a European-wide increase in traditional (value-focused) shareholder activism. Against this backdrop, taking a proactive approach to identifying any vulnerabilities (financial, governance or ESG-related), providing clear disclosures on boards’ decision making, and maintaining a regular dialogue with shareholders will be key to mitigating activism risk and securing positive outcomes at 2024 AGMs.
Published
March 13, 2024
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