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Hermes EOS outline voting recommendations and topics raised at German automotive AGMs

Hermes EOS will work with the Australian Council of Superannuation Investors to provide engagement services

The Shareholder Rights Directive survey, A step towards sustainable capitalism, conducted with 175 European institutional investors to gauge levels of awareness and readiness for the Shareholder Rights Directive II, reveals that only a staggering 3% believe their organisation already meets all the requirements of the Directive.

The perceived divergence of priorities between bondholders and shareholders has led some to believe that these investors cannot engage with companies on the same issues. Some – remarkably - even question the legitimacy of bondholders (or other creditors) engaging with companies in the first place. However, given their financial stakes in a company, both types of investors not only have legitimate cause to engage, but also a professional duty to do so. So say, Mitch Reznick, Co-Head of Credit, and Dr. Hans Christoph-Hirt, Head of Hermes EOS, in We Can All Get Along, a new report dispelling myths surrounding joint company engagements between bondholders and long-term shareholders. Writing in the paper, the authors argue that the difference in the payoff profile of equities and bonds is sometimes cited as a reason that bondholders focus less on long-term factors, while shareholders want to see growth. However, there are strategic issues which the pair highlight as being relevant to a company’s current and likely future health and value creation, including the management of ESG (environmental, social and governance) factors. Arguing that although the cash flows from bonds held to maturity will not alter unless operating cash flows are substantially impaired, the authors highlight that unmitigated risks can weaken a company’s ability to fulfil its debt-service obligations.

With nine months until the implementation of the European Commission’s Directive on shareholder rights (‘SRD II’), Hermes EOS, Hermes Investment Management’s stewardship and engagement team, raises concerns that asset owners are underprepared to meet their obligations. The enhanced Directive sets out to empower shareholders, enhance the efficiency of the chain of intermediaries and encourage long-term shareholder engagement, with the ultimate aim of contributing to the sustainability of publicly traded EU companies.

Ahead of the Deutsche Bank AG AGM on Thursday 24 May, Dr. Hans-Christoph Hirt, Head of Hermes EOS at Hermes Investment Management, highlights the questions the Chair needs to answer and explains why the Chair is ultimately responsible for the company’s limited progress in the implementation of a value-creating strategy. He also raises concerns about the high turnover of management and supervisory board members and urges a review and improvement of the selection and nomination processes for management board members and non-executives. The Chair needs to answer serious questions regarding CEO turnover and other management board changes Given the catalogue of challenges Deutsche Bank currently faces, more effective leadership and continuity is needed in its management board. Unfortunately, there continues to be high churn: •The appointment of Christian Sewing as the new CEO in April, which was preceded by rumours and leaks, means that Deutsche Bank has now had four CEOs/co-CEOs during the six-year tenure of the Chair, Paul Achleitner. He hand-picked John Cryan, who was initially appointed as co-CEO in mid-2015 (when he was a member of the company’s supervisory board), after overseeing the previous co-CEOs for three years following his own election in 2012

Following its publication in 2010, the UK Stewardship Code quickly became a global trendsetter. Similar guidance has since followed in Brazil, Canada, Japan and other Asian countries, Kenya, South Africa, several European countries and even in the US. As stewardship codes continue to surface across the globe, Dr Hans-Christoph Hirt, Head of Hermes EOS at Hermes Investment Management, assesses the impact and success of implementation in the UK in comparison to its Asian and American counterparts.