Stratega Day 2016 Boards, Executives & Shareholders - PowerPoint PPT Presentation

Strategía Day 2016 Boards, Executives & Shareholders -communicating to build trust and drive valuation Gillian Karran-Cumberlege, Fidelio Partners Iceland, Tuesday 6 th September 2016

Boards, Executives & Shareholders Agenda  Communicating to build trust and drive valuation – a distinct perspective  The historical context and the shifting balance of power  What good communication looks like

A Distinct Perspective What we bring to the discussion of building trust and driving valuation:  Regulatory background  Head of IR for leading European corporates at times of profound challenge and change  Regular dialogue with leading global investors  Most senior female executive at major global industrial company  International track record in shareholder and stakeholder engagement  Non-Executive Director with international experience  Advisor to Chairmen on Board effectiveness

Fidelio’s Universe Corporates Government/ Industry Regulators Bodies Professional Financial Services Institutions Business Schools NGOs Investors/ Asset-Owners

Fidelio’s Universe The Board Executive Committee Direct Reports Senior Corporate Governance Finance Corporate Affairs Roles

Board Effectiveness includes Shareholder & Stakeholder Engagement - Understanding shareholder and stakeholder expectations of the Board and Executive - Assessing how well placed the Board and Executive team are to deliver Evaluation Building - Board and Executive - Bespoke development Trust & succession planning programmes at Board and Driving - Sourcing high calibre Executive level to deliver candidates to meet Value Executive Development shareholder/stakeholder value corporate objectives - Tailored programmes on group Search - Enhancing corporate and and individual basis employer reputation Good communication with shareholders and stakeholders is key to Board effectiveness, underpins the license to operate and drives valuation

Boards, Executives & Shareholders Agenda  Communicating to build trust and drive valuation – a distinct perspective  The historical context and the shifting balance of power  What good communication looks like

The Historical Context – The Financial Crisis as a Turning Point The 2008 Financial Crisis was a turning point, resulting in erosion of trust in financial institutions, contributing to the rise of populism

The Shifting Balance of Power Shareholders Chair Executive The Board

Changing Role of the Shareholder  Institutional shareholders found wanting in 2008 – clearly not providing oversight  Dissatisfaction with investors resulted in the UK’s Stewardship Code - published in 2010 and updated in 2012. This sets out how investors should hold Boards to account and also how they should engage with investee companies  This UK initiative has extended to the Investor Forum which encompasses leading international investors operating under separate codes  Internationally we are seeing an increase in activism:  Passive investors focus on governance – LGIM in the UK £746 billion AUM  Sovereign Wealth funds drive change e.g. Norges with $894 billion AUM and focus on climate change  But also US style activism comes to Europe and drives disruptive change at Board level with an estimated $173bn AUM chasing activist opportunities globally Increase in engagement / increase in activism

Changing Role of the CEO  One consequence of 2008 Financial Crisis is fear of dominant CEO  Much governance put in place to prevent potential maverick CEOs:  Oversight by Board stepped up  Chairman required to engage with shareholders & regulators  Regulatory oversight of CEO and Executive team increased in particular with banks  But very clearly shareholders are most interested in engaging with CEO. Harvard Business School assistant professor Eugene Soltes argued in 2012 “Our results suggest that private meetings (with the CEO) help some investors make more informed trading decisions. ”  And the Executive pay argument across Europe indicates that public anger with senior Executives has still not subsided CEO remains pivotal though governance and regulation has increased; succession planning now in the foreground

Changing Role of the Chairman  The Chairman used to be very much in the background  Now we are seeing that Chairmen are being held to account and if the company runs into difficulty we frequently see Chairman as well as CEO stand down  Chairmen are being tasked to hold the Executive to account & the Chairman’s remit is increasing  Chairmen in Financial Services in particular also assuming regulatory engagement  Chairmen meeting with investors on governance issues – attitudes are changing here including in the two tier board system  Chairmen are being tasked with responsibility for culture across the organisation eg the recent FRC report Corporate Culture and the role of Boards. The FRC surveyed chairmen on how influential different individuals were on company culture in practice - 89% felt the role of the chairman is influential or very influential compared with 54% for NEDs  Effective Chairmen may have dotted line to Head of IR to hear what the market is saying Chairman’s role has changed most profoundly since 2008

Shareholder Sanctions & Engagement The Shareholder  Traditionally shareholders had two main sanctions: 1. To sell the holding 2. To vote against management at the AGM  The UK Stewardship Code 2010 urged investors to engage more intensively with the companies they invest in to observe good governance and improve performance “ Investors in the company […] play an important role in holding the Board to account for the fulfilment of its responsibilities” UK Stewardship Code, September 2012 The Board  As a consequence the expectation of Board level engagement with shareholders has increased, in particular for the following:  The Chairman  The Chair of the Remuneration Committee  The Senior Independent Director

Shareholder Value vs Stakeholder Value  Prior to the 2008 financial crisis: Stakeholder value Shareholder value  8 years later……….. License to operate

Diversity - Women on Boards Overview Country % of Women on Boards Iceland – OMX Iceland 44.0 Norway – OBX (Supervisory Board) 41.0 Sweden – OMX Stockholm 30 36.0 United Kingdom – FTSE100 27.0 Germany – DAX30 (Supervisory Board) 27.0 Australia – ASX-200 23.4 United States – S&P100 23.2 Canada – S&P/TSX60 20.8 Southern Africa – JSE Top 40 and SOEs 17.1 Ireland – ISEQ 16.0 Malaysia – FTSE Bursa Top 100 15.2 Hong Kong – Hang Seng-50 11.9 *Figures refer to highest decision-making body. In countries with two-tier governance this is the Supervisory Board

Boards, Executives & Shareholders Agenda  Communicating to build trust and drive valuation – my distinct perspective  The historical context and the shifting balance of power  What good communication looks like

The Board Challenge Regulatory Reward overload Shareholder recognition Succession activism and planning Audit remuneration Political requirements interference Board Employee composition needs Strategy and and diversity business Economic The Board development turbulence Disruptive NGO technology activism Delivering Access to growth Environmental capital risk Anti-business Consumer sentiment activism Boards face huge complexity and scrutiny

Is There a Single Shareholder Perspective? Sovereign Pension Hedge Mutual Wealth Funds Funds Funds Funds The Retail Strategic Corporate / Investors Investors The Board Proxy Intermediaries Analysts Consultants Advisors

The Corporate Interface with Investors Supervisory Board Financial Media Management Board Bondholders CEO CFO Shareholders Capital Corporate Markets IR Director Analysts Communications Strategy Advisers Treasurer Retail Investors CSR Director

The Importance of Good Communication in Valuation  The opportunity arising from high quality Board-level communication is a premium in the share price and valuation reflecting good governance Align and Communicate Attract and  The risk from inadequate to Retain Capital Board-level communication is Stakeholders increased volatility in the share price and exposure to aggressive activist Hedge Fund investors Drive Valuation  Boards be seen to balance the interests of shareholders with those of employees, and the company at large

What Good IR Looks Like “ Effective IR absolutely influences valuation” 86% of investors believe that the quality of a company’s investor communications is a driver of valuation - CNC Global Investor Insight Report, 2015