‘Say on Pay’ No More?

Two months into Donald Trump’s mandate, it has become clear that the new U.S. President is determined to go ahead with his pledge to roll-back parts of the Dodd-Frank act.

The move will not only mean lower bank costs and capital requirements for financial services players, but also lead to shareholders losing influence over CEOs’ pay packages. For those who gained the right to have a say on such decisions over the past few years this is a concern, and not only in the U.S.

Interestingly, the U.S. move contrasts with a trend we are seeing in the UK — whereby top City investors are beginning to pressure companies and ministers to get tougher on executive pay packages, with some going as far as introducing a proposal to force out the chairs of companies’ boardroom pay committees if a big minority of shareholders fail to back their annual remuneration plans.

A Financial Times article published last year shortly after Trump’s election victory, stated that scraping Dodd-Frank would reduce the leverage institutional investors have over corporate boards.

At a time when news items on shareholders’ revolt against management rewards make headlines across the world on a weekly basis, it is not outlandish to think that there will be resistance amongst shareholders to let go of the option to ban ‘reward failure’ proposals made by companies’ management teams.

Dodd-Frank’s say-on-pay rule introduced in 2011 allows shareholders of public traded companies to weigh in on executive compensation at least every three years. A similar rule also exists in the UK since 2013. To remove it, would mean a change in the engagement between companies and investors.

Above all, it would also mean that by pure shareholder pressure the say-on-pay option could stay in place even if Dodd-Frank itself is repealed. As Jon Lukomnik, from the Investor Responsibility Research Center Institute in New York, cautions: ‘proxy advisory firms could propose that clients vote against directors at companies without say-on-pay’ before adding that ‘a company that withdraws it is going to make itself a target’.

It is forecast that 2017 will be a year when several of the world’s most powerful shareholders will take tougher action on excessive bonuses for company bosses — a move that reached a five-year high in 2016.

With such cranked up pressure and a demand for greater transparency, Dodd Frank’s say-on-pay might be no more, but the threat of shareholder activism hitting the boardrooms of the corporate world probably also means that, regardless of Trump’s policies, shareholders will not give up ascertaining their rights and force their option to have a say on pay to stay put.

Chandos Communications wins Acquisition International Excellence Award 2016: Most Outstanding Strategic and Financial PR Agency

Chandos Communications has been named Most Outstanding Strategic and Financial PR Agency by the 2016 Acquisition International Excellence Awards.

The 2016 Global Excellence Award recognises commitment to outstanding and sustained performance in leading the way across the entire global corporate spectrum and in all sectors.

The award reflects Chandos’ recognised skills and ability in acting across borders for our clients in providing proactive strategic financial communications advice.

Read more about the 2016 Global Excellence Awards here.

The Emperor’s New Jeans – A new era for activist investing in Japan

Shareholder activism took its earliest forms in the1920’s in the US when Warren Buffett’s investing mentor, Benjamin Graham, launched his shareholder activism campaign against Northern Pipe Line Co. Over the past ninety years, activist investing has evolved in a considerable way.   With prominent industry figures like Carl Icahn being described as “Hollywood Material” by the media, these outspoken US investors have forged themselves an image that is more akin to movie stars than financiers. And like many things hailing from Hollywood – the trend has caught on, making US-style activism one of the most popular business exports around the world.

One of the first foreign destinations where this caught on in a substantial way is also home to the world’s last living emperor: Japan. With trillions of dollars on the balance sheets of Japanese corporates, the country presents a wide playing field for those investors daring enough to take on a conservative system characterised by male-dominated boards, and a media that is often described as timid and complacent.

According to joint research conducted by the University of Southern California, Kobe University and University of Virginia, between the years of 1998-2009, (the first ten years when US-style activism arrived in Japan) barriers to entry were at historically high rates. The presence of “insiders” on the boards of companies, the large quantities of passive domestic investors and a sceptical attitude towards any outsiders wishing to “disrupt” business in Japan created a challenging environment for investors looking to employ the mechanisms of their US counterparts. David Herro, who runs the $29bn Oakmark international Fund at Harris Associates described Japan by saying it is “30 years behind its peers in how its companies are run.”

However, a change in government, led by Prime Minister Shinzo Abe, led to raft of critical corporate governance reforms which paved the way for numerous activist success stories in the country.   Called “The third arrow of Abenomics” to refer to reforms aimed to make the economy more productive, Abe implemented it in order to encourage institutions to become more actively involved in the companies in which they invest.  This led to more than 100 investors signing Japan’s stewardship code, titled “Principles for Responsible Institutional Investors,” and introduced an index of 400 Japanese companies doing a good job of providing returns on investment.

The “third arrow” opened up the Japanese corporate environment and paved way for recent success stories including Third Point CEO Dan Loeb’s historic victory at Seven & i Holdings Co.(Japan’s largest retailer and owner of 7-Eleven in Japan) where he succeeded in prompting long-standing CEO Toshifumi Suzuki to step down. Just a year prior to his remarkable triumph at Seven & i., Loeb added another string to his bow when he successfully challenged Japanese robot maker Fanuc to use its enormous cash pile to buy back more shares. Fanuc proceeded to lift its dividend and boosted its payout ratio, prompting the Japanese stock market to surge.

Amidst all this positive change, the country still operates under a different set of rules depending on whether it is a local or foreign activist waging a campaign. Strict societal norms and business etiquette have meant that local Japanese businessmen must opt for a far friendlier approach than their foreign peers. Masaki Gotoh, CIO at Misaki Capital, which launched its first fund in 2014 and now manages some $300 million, doesn’t subscribe to the policy of publishing open letters and has never publicly spoken out against a CEO. He has been quoted as saying, “Dan Loeb got away with it because he’s a foreigner.  If I tried to do that, I would never be able to do anything ever again here in Japan, because I’m a local and people would basically say, ‘You should know better.’”

Other pioneers like Tsyoshi Maruki, have been more rebellious in following the social norms that are so heavily embedded in the local business culture. Since creating Strategic Capital Inc. in 2012, he vowed to swim against the tide and to speak out if he disagreed with the management team of one of his targets.  His credo is, “If one always adopts a friendly engagement style, such as having gentle and warm meetings, would the management really change? After the meeting, it would probably end at a comment like, ‘They were nice.”  Strategic Capital has posted strong returns over the past couple of years.

If Japan has demonstrated one thing throughout its young history in shareholder activism, it is the country’s remarkable ability to continuously reinvent itself. According to 2015 Preqin figures, of the activist funds launched, 22% were Japan-focused. Perhaps, Japan’s biggest rock star Yoshiki Hayashi is right, “The past can be changed by the future.”

Chandos shortlisted for the Best Strategic Communications or Corporate Brand Campaign in this year’s PRCA City and Financial awards

We are thrilled to be shortlisted for the Best Strategic Communications or Corporate Brand Campaign category in this year’s PRCA City and Financial awards. Being shortlisted recognises Chandos’ work done for CA Indosuez Wealth Management on the worldwide launch of their new global organisation and unified brand.

The full shortlist can be found here.

Chandos shortlisted for the Best Banking Communications Campaign in this year’s PRCA City and Financial awards

We are very pleased to be shortlisted for the Best Banking Communications Campaign category in this year’s PRCA City and Financial awards for the work we have done for UniCredit, a pan-European bank and the lrgest Italian bank by assets, on all communications aspects of its “Transform 2019” strategic plan.

The full shortlist can be found here.

Chandos Communications ranked top 3 PR advisor in Italy by MergerMarket

Chandos Communications has been ranked top 3 PR advisor in Italy in MergerMarket’s League Tables for 2016.

Mergermarket, an independent mergers and acquisitions intelligence and data service has published its annual global and regional league tables for Q1-Q4 2016.

According to the regional ranking, Chandos Communications is the 3rd PR advisor in the League Table by Value in Italy.

The full ranking can be found here.

Activism in 2017 – What to expect after a year of surprises

To state the obvious, 2016 proved to be a turbulent year in terms of both politics as well as financial markets. The after effects from the seismic events we saw over the year will continue to create ripples in 2017 and there will be plenty of opportunities for activists looking to capitalise on this. Where their focus will be remains to be seen, so this month we look at some of the areas where we should expect to see some activity.

With the US election now firmly behind us all eyes will be peeled for what the president-elect’s policy changes for corporations will ultimately look like. He is said to be considering lighter regulation for the financial industry as well as a possible tax holiday on cash repatriation – both of which could have a significant impact on how companies will fare over this year. The cash repatriation tax holiday would bring large, one-off cash injections to US companies making use of the holiday; not all of which will be able to immediately find attractive investment opportunities for it. While more cash may be a beneficial asset from a corporate point of view, this could open the door for activists for whom the use of cash is a traditional hook.

With the first seeds of change sown in 2016, activist campaigns in 2017 look poised to continue the return to their roots of targeting companies at the smaller end of the market and to shift away from the mega campaigns seen in recent years. Some believe 2016 was the peak year for these strategies. As large and mega-cap campaigns have seen a significant rise recently, there has also been a step up in the skill set of the companies targeted. Most corporates now recognise that if targeted, dialogue with investors will produce a better result than aggressive anti-takeover tactics such as poison pills or litigation. As such, we will likely see campaigns move towards the smaller end of the spectrum where an activist’s scope for change is greater.

Within individual sectors, in 2016 we saw the beginning of a rebound in commodity prices which is set to continue into this year. While well-positioned and well balance-sheeted players will start to emerge from the troubles of the past few years stronger, it will mean that those on not as strong a footing will become all the more visible and, as such, prime targets for activist investors. If the stronger players recover quickly enough, we could well see increased M&A in the sector, driven by activists’ initiatives.

In the retail sector, the march of online continues and we will see increasing pressure on those who have not yet been able to adjust to this dynamic. Recent news from the retail sector has shown the increasing struggles at companies where online capabilities have not yet caught up to the market and performance has suffered in consequence. Given these challenges and the fact that many traditional retailers still hold significant real estate, this sector is likely to be an attractive one for activists.

Diversity is increasingly on the corporate and political agenda, and similarly being an element of focus for activists. In the US we’ve seen smaller activists such as Arjuna Capital and Trillium Asset Management successfully push for diversity at large corporates, and while it may take a while before diversity questions make it to an actual vote, the attention that activist campaigns are bringing to the subject means conversations between companies and investors on it could happen more frequently as a way to avoid formal engagement.

Finally, as early signs of interest rates rising start to trickle from both Europe and the US, we will see this impacting the whole investment landscape, including activism. Alternative investment strategies will be under increased pressure to perform, as other yield sources will start to look more attractive than they have been in the past couple of years. On the other hand, as interest rates rise, the debt loads of companies and how they are managed will also come under more scrutiny. With the period of cheap debt we have had for some years now, debt has perhaps been less of a focus – though that is about to change. With the higher rates and a lack of liquidity, companies will face higher debt burdens and possible difficulties refinancing their debt, although this is unlikely to be as bad as it was I 2008. Nevertheless, we might see more campaigns focused on managing debt loads as we move into the new year.

While we anticipate that 2017 is likely to be dominated by responses to events that occurred in 2016, the new year will bring plenty of challenges, not least the outcomes of the French and German elections which will have an impact on how European companies will come to be viewed. The only thing that is certain is that this will be another year of important events that will (re)shape our world.