Debenhams: The Fall of a High Street Chain

Following the entry into administration of Debenhams, CGLytics takes a look at some of the key governance analytics, and how they could have been indicators that change was needed

Debenhams is a well-known British multinational retailer which operates primarily through its numerous department stores in the United Kingdom and Ireland with franchise stores in other countries. The company was founded in the eighteenth century as a single store in London. On April 9, 2019, Debenhams went into a pre-pack administration deal in which the company was handed over to hedge fund lenders. As a result, equity holders like SportsDirect, the company’s biggest shareholder, saw their value wiped out.

Timeline of a Potential Takeover

In January 2014, Mike Ashley surprised the market by acquiring a 4.63% stake in the then struggling retailer. Despite the value of his equity dropping by 8% in January 2015, Ashley increased his stake in the company to 21% in August 2017. Two months later in October Debenhams announced that their profit dropped 44%. This decrease was largely due to the costs incurred from the implementation of a new turnaround strategy. In January 2018, the woes of the company continued when they issued a shock profit warning after weak Christmas sales and a failure to entice shoppers with cut-price goods. The market responded, and the company’s share price decreased by as much as 20%, wiping almost GBP 70m off its market value. In March 2018, Mike Ashley increased his stake to 29.7%. The move sparked takeover conjecture as a stake of more than 30% requires the launch a formal takeover bid.

Debenhams announced another profit warning in June 2018 (the third in a row for the year 2018) and then announced plans to shut down up to 50 of its of its under-performing stores over the next three to five years, putting around 4,000 jobs at risk.

With this turn of events, then-CEO Sergio Bucher and Chairman Ian Cheshire would be forced to step down from their respective offices following an activist campaign led by Michael Ashley. At the company’s AGM on December 10, 2018, the CEO had only 44.15% of support for his re-election, while the re-election of the Chairman received a similarly low level of support at 43%. The Board however asked Sergio to stay on as CEO but not as a director, serving as a blow to shareholders expectations.  In response Ashley launched a formal takeover bid which was designed to install himself as Debenham’s CEO. Most interestingly, his efforts were warded off by bondholders who handed the firm a GBP 40m lifeline. The overdraft facility from its banks and bondholders proved useful to pay its onerous quarterly rent bill and give it some much needed breathing space.

Financials sourced from CGLytics performance data

The company and its directors went into advanced talks with its lenders over a GBP 150m bailout, as a move to fend off Ashley’s offers. SportsDirect offered Debenhams an alternate GBP 150m deal if the fashion house would issue five percent of new shares to the company and appoint Mr. Ashley as director and CEO.

The company however rejected the deal, putting itself into administration on April 9, 2019.

Possible reasons for entry into administration

Lack of a clear strategy: Debenhams had about 165 stores in the United Kingdom, a seemingly large number at a time when its sales were falling and costs were rising. The company had previously outlined plans to close 10 loss-making stores within five years as its finances continued to deteriorate. Increasing consumer preference for online shopping also dealt a huge blow to the company’s overall strategy.

Aging Product Line: The retailer is best known for the Designers at Debenhams collections created over the past two decades by designers including Jasper Conran and Julien Macdonald. Some brands, including Betty Jackson, have been discontinued because they had become dated; however, replacement fashion ranges have so far lacked pulling power as shoppers take a cautious approach to spending as the uncertainty created by Brexit continued. Other factors that led to the Company’s demise include being outsmarted by more agile competitors, failure to embrace change, and their tarnished brand image. This naturally raises the questions of how and why the company’s business strategy was allowed to deteriorate to such a detrimental degree.

Conflicts of Interest on Board: Utilizing CGlytics interlocks tool, it can be noted that before the shareholder rebellion at the 2018 AGM that witnessed significant opposition against the CEO and Chairman, there were two independent directors who sat on the boards of companies in competition with Debenhams. These individuals included Ian Cheshire and David Adams. Cheshire serves as the current chairman of Maisons Du Monde while David Adams also remains the current Senior Independent Director of Halfords Group Plc.

Source: CGLytics Data and Analytics

Using the skills matrix functionality available on the CGLytics platform, we see that in December 2018, the majority of company directors lacked Technology expertise. Only one member of the Board out of nine members held technology expertise. This reaffirms the previous notion that the company has failed to catch up with market trends, especially when tracking changes in consumer preference has become so heavily reliant on technology. Moreover, board members with key positions such as the Chairman, CEO, and the Senior Independent Director all lacked financial expertise, potentially suggesting that the company’s top leadership were unable to provide sufficient oversight of the company’s accounting procedures and financial health.

Source: CGLytics Data and Analytics

Lessons Learnt

The fall of Debenhams has shed light on how having the right skills set on the board can influence the strategy and ultimate direction and of a company. Corporate boards increasingly require a broader range of analytical tools to identify the skills gap of their members, potential overboarding and competing directorships. For more information regarding how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.

Sources:

CGLYTICS DATA AND ANALYTICS  FT  MSN

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McKesson Versus the State of West Virginia

Drug distribution companies are experiencing significant reputational and financial risks as a result of the Opioid Crisis in the US. In this article we take a look at how a lack of regulatory and risk experience may have impacted the McKesson Corporation.

Opioid overdoses accounted for more than 42,000 deaths in 2016 (more than any previous year on record), prompting the United States Department of Health to declare a public health emergency. An estimated 40% of the reported overdose deaths involved prescription opioids.[i] While there are multiple socio-economic factors at play in such a wide-spread public health crisis, the role of pharmaceutical manufacturers and distributors has repeatedly come into question.

The Opioid Crisis has created significant reputational and financial risks for drug distribution companies; with McKesson Corporation currently in the eye of the storm. The company recently reached a USD 14.5 million settlement with the state of West Virginia, with an additional USD 4.5 million per year to be paid over the next five years. The funds will be used in support of state initiatives to combat the opioid epidemic, including rehabilitation, job training, mental health and other important public health efforts. In addition, a USD 150 million civil penalty was imposed on the company for alleged violations of the Controlled Substances Act regarding the distribution of opioids. The company was also ordered to suspend sales of controlled substances from four distribution centers. However, this is not new litigatory territory for McKesson, as the U.S. Department of Justice imposed a USD 13.25 million civil penalty in 2008 for similar violations.

The most recent settlement however did lead to a call for governance changes at the company, as the International Brotherhood of Teamsters General Fund proposed a shareholder resolution at the company’s 2017 annual general meeting requesting an Independent Board Chair.[ii] As the proposal received approximately 40% of shareholder support, in response the board set up an independent Special Review Committee in 2018. The Board disclosed that the Committee in its findings revealed a strong company culture that encouraged ethical and compliant conduct, as led by management and reinforced by the Board.[iii]

Potential Red Flags

However, given the substantial reputational risk and significant fines imposed on the company, the question is raised if there were any red flags that could have warned both management and the board, as well as investors, to the potential for such regulatory breaches. Specifically, was the board appropriately equipped to sufficiently perform its risk and compliance oversight function, particularly with regards to regulatory and legal matters within the pharmaceutical industry?

Source: CGLytics Data and Analytics

Utilizing CGLytics’ board skills matrix assessment analytical tool, we see that McKesson’s Board is currently composed of nine members in total, with six individuals having sector experience. However, the relevant sector/industry experience for these six individuals has been primarily garnered through operations and executive roles in the healthcare sector. Most interestingly, we find only one board member, Bradley Lerman, with actual experience in regulatory and risk compliance within the pharmaceutical industry, in which McKesson does play a significant role. Mr. Lerman’s previously held positions include Senior Vice President, Corporate Secretary of Medtronic Plc until 2014 and Senior Vice Price, Associate General Counsel and Chief Litigation Counsel of Pfizer Inc until 2012. The lack of a broader base of directors with significant experience in regulatory matters should have served as a bullhorn to investors, the board as a whole, and the company’s executive team regarding the potential for legal issues to arise.

Aftermath and Lessons Learned

During its most recent quarterly earnings call, McKesson reported that it expects to spend USD 150 million defending itself in state and national opioids lawsuits into FY 2021, up from more than USD 100 million this year. This however is just an estimate, as the total amount may go up into the billions as several states have already stated that they currently intend to file similar suits against the company. The recent settlement that the company has been engaged in only highlights the need to actively and vigorously evaluate board composition and skill set in the face of significant risks that the company faces, or otherwise pay the reputational and financial price.

Would you like to learn more about how, you too, can have instant insights into more than 5,500 globally listed companies’ board composition, diversity, expertise and skills? Click here to find out about CGLytics’ boardroom intelligence capabilities and obtain the same insights used by institutional investors and advisors.

[i] https://www.hhs.gov/opioids/about-the-epidemic/index.html

[ii] 2017 Proxy Statement

[iii] 2018 Proxy Statement

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Barclays, Bramson, and Lessons Learned

Barclays, one of the UK’s largest banks recently has recently come under attack by activist investor Edward Bramson. CGLytics takes a look at the drivers behind the attack and how Barclay’s responded.

Barclays, one of the UK’s largest banks recently has recently come under attack by activist investor Edward Bramson. Bramson threatened major changes in the boardroom after announcing plans for a shareholder vote on the company’s leadership and strategy. In order to push his agenda forward, Mr. Bramson spent approximately GBP 900m building a 5.5% stake in Barclays through his investment vehicle Sherborne Investors. After acquiring this stake, he told his own shareholders that such vote was necessary at Barclay’s, given that “consistent engagement” with the bank had failed to yield results. At the time, Bramson’s argument touched on the classic activist stance of reorganizing a company’s capital allocation and growth strategy in this instance by pushing the company to scale back its investment banking business, which he said has “strategic weaknesses”. Instead, he argued that resources should instead be funneled towards the bank’s “attractive” consumer retail operations.

Bramson’s attempt to ascend to the board

In a letter to shareholders, Edward Bramson, submitted a resolution to ask shareholders to appoint him to the board at the company’s annual general meeting, which was scheduled to be held May 2, 2019.

This move represented the first formal attempt by Bramson to win shareholder support for his campaign, after Barclays rejected his previous request to become a non-executive director in September 2018. In a letter to Sherbrooke investors in December, Bramson indicated that he would seek board changes at the meeting in May or call a special meeting of shareholders.

Barclays counters attack with improved financial results

In February 2019, Barclays announced its full year results for the financial year ended December 31, 2018. The financial year results disclosed the following key highlights:

  • Excluding litigation and conduct charges, Group profit before tax increased 20% to GBP 5.7bn despite the adverse effect of the 3% depreciation of average USD against GBP.
  • Barclays UK profit before tax increased to GBP 2.0bn (2017: GBP 1.7bn).
  • Barclays International profit before tax increased to GBP 3.8bn (2017: GBP 3.3bn).
  • Attributable profit was GBP 1.4bn (2017: loss of GBP 1.9bn)

When Barclays released the full year results for 2018, market watchers praised it as a victory for the company in its fight against Bramson. Aviva Investors, formerly a staunch supporter of Edward Bramson as a candidate, said it will support the Bank and vote against Edward’s election to the Board.  The announcement from Aviva came as Barclays’ markets division reported fourth-quarter results that were better than European peers. This strong performance punched a hole in Mr Bramson’s theory that the unit should be scaled back.

Barclays board composition and company performance, Classic Activist Red Flags?

A key feature in the consideration of the initial launch of Bramson’s campaign represents an almost formulaic approach for activists. Historically, lowered financial returns have motivated activist entities to seek a board seat or management change in order to influence the company’s capital allocation or business strategy. Initial research by CGLytics to be published in a forthcoming article on the red flags for investor activism indicates that lowered financial returns often allows a crack in the door for activists to enter into the debate over company strategy. Once a part of the argument, the activists push change at a higher corporate level. This is often compounded by a lack of technology expertise on the board, as technology is being incorporated into the vast majority of business operations. A cursory look at the board composition of Barclays indicates that it used to fit these two criteria, with at least two of the red flags present: initial lowered financial returns and a lack technology expertise on the board.

Day of Reckoning

At the Annual General Meeting on May 2, 2019, the resolution to elect Edward Bramson to the Board only received the support of 12.79% of shareholders. Although an anticlimactic end to a six-month campaign, many found the results unsurprising. The influence of proxy advisors could not also be overlooked. Ahead of the meeting, Bramson’s attempt was dealt a heavy blow when the two largest proxy advisors, ISS and Glass Lewis, came out in support of Barclays and recommended against the election of Bramson to the board.

As indicated above, corporate boards increasingly require a broader range of analytical tools to identify the red flags that may potential make them a target for activists such as Bramson.

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Growing Expectations of Director Responsibilities and Evolving Attitudes Towards Overboarding

CGLytics takes a look at how the role of the board is changing, and how directors are having to rapidly become experts in a range of topics in which they have little to no previous experience.

Overboarding has been recognised as a potential governance issue for some time, with questions over the ability of directors to discharge their duties effectively if they are over-committed to more responsibilities than they have the capacity to manage. As scrutiny increases, this issue has become a greater focus for investors as directors face an ever-increasing set of new responsibilities for which they are expected to provide oversight.

Historically, the responsibilities of board members included participation in regularly scheduled management strategy reviews, often followed by robust debate of such strategy, reviewing of financial statements, assessments of enterprise and industry-specific risks, facing the companies at which they serve, as well as legal compliance issues. However, new threats from a variety of vectors are requiring directors to rapidly become experts in a range of topics in which they have little to no previous experience. Among these new areas of potential risk that boards are increasingly expected to address, we find the most pertinent topics to be:

  1. cybersecurity risks,
  2. the impact of disruptive technologies,
  3. board members’ increasing role in investor relations,
  4. competitive intelligence, and
  5. international business experience.

The ensemble of these new responsibilities requires corporate boards to assess the skills set requisite for its own composition in order to remain competitive in an increasingly fierce global environment. The expectations of this type of board accountability, known as “supergovernance”, assumes that board members are capable of peering around every corner in order to counter all possible threats to their company.

Balancing Act 

While investor-specific policies towards the maximum number of public boards on which a director should serve are not new, increasing responsibilities for board members are leading investors to re-evaluate their previous thresholds of overboarding. Most prominently, Vanguard, the world’s second largest asset manager, has recently publicly disclosed that its voting policy stipulates to vote against an executive director (defined as a Named Executive Officer who serves on the board at which they hold the role of executive) at any outside board at which they serve. Moreover, their updated overboarding voting policy also states that they will vote against any non-executive director who sits on more than four boards in total at all boards on which they serve.

Blackrock has taken a similar position in its 2019 U.S. voting policy, allowing non-CEO directors to hold a maximum of four directorships in total at public companies. However, Blackrock will still allow a public company CEO to serve on a total of two public boards, and currently makes no distinction in the U.S. between executive directors (other than the CEO) and non-executive directors in the total number of boards on which they may serve.

Taking Vanguard’s holdings of 4,861 companies across the U.S., Europe, Canada, Japan and Australia, the CGLytics research team performance an exercise utilizing CGLytics’ data and analytics platform to assess the potential impact of this new overboarding policy on Vanguard’s proxy voting activities. We find that, globally, the implementation of Vanguard’s new guidelines would potentially lead to fairly high levels of opposition, upwards of 23%, for NEO director nominees, who sit on boards outside of the company at which they currently serve as an executive.

Source: CGLytics Data and Analytics

An examination of the current composition of Vanguard’s top 25 holdings also reveals that the implementation of their new guidelines will have an even sharper increase in potential votes against NEOs due to overboarding than during the hypothetical exercise across the full universe of Vanguard’s holdings.

Source: CGLytics Data and Analytics

Not Such a Hard Line

While such an approach may appear rather restrictive for corporate directors and many institutional investors alike, some investors mitigate the perceived severity of this approach by indicating that they will evaluate director appointees who fall outside their overboarding thresholds on a case-by-case basis. Moreover, the language included in their voting policies also makes certain exceptions should the director nominee indicate that she/he will step down from one of the outside boards on which he/she serves within a certain period after their election. Investor engagement also provides corporate directors some leeway, as the issuer-investor dialogue may allow one-off exceptions from opposition to a potentially overboarded director’s election based on the outcome of the engagement.

Finally, the question is raised as to whether these lowered thresholds might benefit corporate board members? Long gone are the days when the expectations for the role of corporate director would be to approve management’s agenda for the company, with cursory corporate oversight capacity. Due to the increasing pressure that board members face in their oversight duties, reducing the number of acceptable directorships from the investor community might provide some breathing room for directors to fully engage in their responsibilities as director. This extra breathing room could potentially allow them to better educate themselves about emerging threats facing the companies on which they serve.

Conversely, the increasing expectations and responsibilities placed on corporate boards often spring directly from the investor community itself. The growing momentum within the investor community implies and often explicitly expects directors to be fully educated on enterprise and material industry risks, as well fully focused on their responsibilities as board members in order to maximize the value of their investments.

As the balancing act between these two perspectives plays out, the issue of potential overboarding for any individual director may prove not to be black or white, but a distinction between various levels of grey. In order to help investors, corporate boards, and executive alike to distinguish between these various shades, CGLytics offers an extensive database with smart analytical tools, to easily screen for potentially overboarded directors. Being able to instantly view the board composition, and that of peers, provides insights into areas of governance practices that may pose a potential risk. In addition, CGLytics’ provides skills matrices to highlight skills and expertise strengths and shortages, director interlocks and smart relationship mapping tools to leverage networking opportunities: all in the one system.

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Corporate Governance Risk Report

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Uber: Culture Clash

CGLytics takes a look at the recent IPO of Uber and how negative stories and scandals led to lower than expected interest

Uber launched its IPO on May 10th, with an initial share price of USD 45.00 per share. Despite a potential undervaluation of the business of at least USD 25 billion, Uber failed to attract the attention of investors and only managed to raise USD 8.1 billion. An array of scandals and controversies that the company had to contend with over the past several years may have led to the company’s uninspiring launch. Examples hereof include Kalanick referring to his desirability as “Boob-er”, proven allegations that the company booked fake rides on Lyft’s app, spying on the movements of celebrities such as Beyoncé, and even launching a self-driving program without having obtained the necessary permits. These events eventually culminated in a series of revelations in 2017 that ended with Travis Kalanick stepping down as CEO.

Kalanick and Company Culture

In February a former employee released a blog post in which she detailed her experience working for the company which involved sexual harassment and gender bias. Shortly thereafter the New York Times released an article which described Uber employees indulging in illicit substances, in addition to a manger being fired for sexual misconduct. The article would appear to be the tip of the iceberg and by June that same year over 20 employees were fired due to inappropriate behavior. Founder and CEO Travis Kalanick was also forced to step down amid pressure from investors.

Determined to regain control, Kalanick promised to return to the helm of his company. Kalanick’s super-voting shares, which gave him 10 votes per share, had previously allowed him to drastically influence corporate decisions. This was evidenced when Kalanick spontaneously appointed two new directors without informing the board. These appointments came amidst a lawsuit against Kalanick by venture capital firm, and major Uber shareholder, Benchmark. The VC firm sued for fraud, breach of contract and breach of fiduciary duty. The firm further pledged to reject a critical USD 9 billion investment proposal from multinational conglomerate SoftBank.

Ultimately, Uber’s Board approved a series of changes in order to counter Kalanick’s influence, appease Benchmark, and lock in the Softbank investment. These changes included a reform of the company’s by-laws which implemented a “one-share one-vote” rule and led to an increase in size of Uber’s board from an original 11 members to 17. Two of these seats are reserved for representatives of SoftBank, and three are to be filled by independent directors. Of the 17 board positions available, five remain unfilled. This is in part due to the deal still being in review by the Committee on Foreign Investment in the United States (CIFUS), although the deal is expected to eventually be approved.

Board Size: Bigger Does Not Always Equal Better

Although these reforms were implemented in the hopes of instigating better governance practices, studies have repeatedly shown that companies with a smaller board size (9.5 directors) outperform companies with a large board (14+) by as much as 8.5% in terms of return.  Utilising CGLytics’ governance data and analytics, an examination of the two industries in which Uber operates (Information Technology and Consumer Discretionary) appears to corroborate the correlation between a smaller board size and higher shareholder returns.

Source: CGLytics Data and Analytics

As the legal frameworks for companies leveraging the concept of a “sharing economy” are still developing, much of Uber’s future lies in the hands of market regulators. Many European countries such as Greece, Belgium, and Romania have outlawed Uber from operating in their countries. Moreover, if Uber drivers were to be classed as employees rather than independent contractors, as is currently under debate in the United States, then Uber’s bottom line would be significantly impacted.

Although the company has come a long way since its “Bro-Culture” days, the company’s inability to enforce a professional corporate culture have led to the installation of what may appear to be inconsistent governance measures. Primarily, it has increased the size of the board (which could potentially affect the company’s ability to provide returns to shareholders) in an attempt to counterbalance the influence of the company’s former CEO. The clashes between Softbank, Benchmark, and Kalanick have left an enduring impact on Uber’s reputation, valuation, and governance dynamics, with the company’s share price currently feeling the most pressure.

Get access to the same insights as investors and proxy advisors with CGLytics’ boardroom intelligence capabilities. With easy to use comparison tools and standardised data, instantly perform a governance health check against regulatory norms and market standards.

Corporate Governance Risk Report

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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Tesla: a lesson in lion taming

In this article, CGLytics takes a look at the governance of Tesla and the measures in place to ensure consistent shareholder engagement.

Tesla’s IPO in June 2010, focused primarily on the variety of visions offered by founder, current CEO, and largest shareholder, Elon Musk. However, over the previous few years Musk’s vision has increasingly become overshadowed by the growing tensions regarding his comments on social media and mounting frustration among Tesla’s investor base.

In August 2018 Mr. Musk proposed via Twitter to take the company private at a volatile stock price of USD 420 after growing frustration with his shareholders, primarily those engaged in short-selling Tesla stock. Following this tweet, the Securities and Exchange Commission (SEC) then accused Musk of misleading shareholders, an action that eventually cost Musk USD 20 million in fines, as well as his position as Chairman of the Board.

During the first quarter of 2019, the SEC claimed Musk violated the court settlement via his statements on Twitter, which required him to receive board approval before making any public statements that may potentially effect Tesla’s stock price. This drama played out over March and into May 2019. However, a U.S. Federal judge recently held that Musk was not in contempt of court following the tweet, and approved a settlement between Musk and the SEC. The details of this settlement outline that Musk must now seek pre-approval from a securities lawyer for the content presented by Musk in social media, as well as his communications during investor calls.

Turnaround

Earlier in 2019, Musk informed reporters that he did not expect Tesla to post a profit in Q1 2019, even though the company has only experienced two profitable quarters since going public. In a potential reaction to this, Tesla has switched its market strategy and is repositioning itself to appeal to mass affordability, dropping prices on certain models to as low as USD 30,000. The company is also planning to raise funding through both debt and equity issuances, with plans to sell 3.1 million shares, with Musk himself buying 102,880 shares at a total of USD 25m.

In addition to the change in business strategy and fundraising efforts, Tesla recently announced a reduction in the size of its board from 11 members to seven. Consequently, Brad Buss, Antonio Gracias, Stephen Jurvetson, and Linda Johnson Rice will not seek re-election at the 2019 and 2020 AGMs. The reduction has been positioned as a measure to increase the board’s agility and efficiency.

A re-orientation of the company’s executive compensation practices also might have had an impact on the change in the company’s business strategy. According to CGLytics corporate governance data, since going public in 2010, Musk only received stock-based awards, with the first such award taking place in 2012. In 2012 the Board of Directors okayed the “2012 CEO Grant” to Musk, approving the purchase of five percent of the outstanding common stock, or more than five million shares. These shares consisted of ten vesting periods, implemented in order to incentivize Mr. Musk’s future performance. However, the performance criteria for this plan were limited to increases in market capitalisation and developmental milestones for the company’s Model X and Model 3 production. Diving further into the company’s 2017 financials shows Mr. Musk’s approximately 6.7 million shares realised a value of USD 1.34 billion.

The most recent equity award to Mr. Musk, the “2018 CEO Performance Award”, parallels the 2012 grant in many ways. The award is structured with a 10-year maximum term stock option to purchase 20,264,042 shares of common stock, divided equally among 12 separate tranches that are each equivalent to one percent of the issued and outstanding shares of Tesla’s common stock at the time of grant. However, this grant has several new twists to greater align Musk’s varieties of vision and investors’ expectations of economic returns from Tesla. Performance criteria for the grant continue to require increases in the company’s market capitalisation, but the company has also added concrete measures of increasing Revenue and Adjusted EBITDA for the awards to fully vest.

CGLytics’ executive compensation data and relative pay for performance modeler (chart displayed below) shows that, following the redesign of the company’s CEO performance-based awards in January 2018, growth in Tesla’s EBITDA appears to be steeply on the rise compared to  the change in the median EBITDA of S&P 500 companies.

Source: CGLytics Data and Analytics
Year Total realised pay
[Tesla, Inc.] (USD)
Total realised pay
(median) [S&P 500] (USD)
2012 10.620.552
2013 33.280 10.385.744
2014 52.138 12.862.746
2015 37.584 11.746.158
2016 1.340.149.856 11.340.365
2017 49.920 13.658.883
2018 56.380 11.829.150

We also see an almost identical positioning of Tesla’s growth in Revenue and EBITDA when compared to its sector peers with market caps between USD 25 and 100b.

Selected Comparator Peer Group for Tesla
Bayerische Motoren Werke Aktiengesellschaft (BMW)
Bridgestone Corporation
Continental Aktiengesellschaft
Daimler AG
DENSO Corporation
Ford Motor Company
General Motors Company
Honda Motor Co., Ltd.
Nissan Motor Co., Ltd.
Volkswagen Aktiengesellschaft
Year Total realised pay 
[Tesla, Inc.] (USD)
Total realised pay (median) 
[Tesla Peers] (USD)
2012 0 11.079.766
2013 33.280 9.918.984
2014 52.138 8.927.229
2015 37.584 10.021.969
2016 1.340.149.856 12.071.052
2017 49.920 10.845.296
2018 56.380 7.062.198

Despite the recent turnaround instituted at Tesla, questions do remain regarding Musk’s ability to mollify his investor base, remain in good standing with the SEC, give Tesla his full focus, and ultimately to meet the expectations of running a public corporation: economic and otherwise. Shareholders and board members alike have been on a wild ride with Tesla, and the future seems to appear just as wild, but with (hopefully) fewer bumps in the road.

Sources:  CGLytics, CNBC    THE WASHINGTON POST    TESLA COMPANY WEBSITE    FOX BUSINESS

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Sainsbury’s and Asda: The Monopoly That Never Was

CGLytics examines some of the key drivers behind the rejected merger of Asda and Sainsbury’s.

In April 2018, Sainsbury’s and Asda announced that they were planning to join forces and merge into a single entity in a deal worth GBP 7.3 billion (USD 10 billion). If successful, the newly combined entity would have surpassed Tesco as the largest supermarket chain in the United Kingdom.

According to the terms of the agreement, proponents of the merged entity stated that the combined business would have generated at least GBP 500 million (USD 688.62 million) in cost savings and led to a reduction in retail prices of about 10%. Despite these touted benefits, the Competition and Markets Authority (CMA) concluded the merger could lead to a “poorer shopping experience”. In February 2019, the CMA also raised a catalogue of concerns in a very strongly worded report on the potential consequences of the merger, focusing primarily on higher prices and reduced choice for customers.

On April 25, 2019, Asda and Sainsbury’s announced that the proposed merger was formally blocked by the CMA. The CMA rejected the proposed merger following their conclusion that customers would pay higher prices due to the projected dominance of the new entity in the market, as well as significantly increasing pressure on retail suppliers to the proposed entity.

CEO Compensation: Potential Catalyst for Proposed Merger?

In 2017 Sainsbury’s Chief Executive Mike Coup’s total realized compensation grew by 63% compared to financial year 2016. As part of his increase in realised compensation, Mr. Coupe received a cash bonus of GBP 499,428 (USD 678,677), despite Sainsbury’s reporting an almost 19% drop in profits for that same year. Although company profit accounted for 50% of Mr. Coup’s STI performance criteria, he received a bonus award as the company hit the remaining targets linked to the company’s acquisition of Argos, the company’s Nectar loyalty card scheme, as well as a minimum profit target per the company’s remuneration policy. Mr. Coupe was criticised for receiving such a payout while also removing employee benefits, such as paid breaks and bonuses, negatively affecting 9,000 employees.

Most importantly, it could be suggested that the performance criteria for Mr. Coup’s LTI awards may have had a hand in his decision to pursue the merger with Asda. His current LTI performance awards include five performance criteria with weights of 20% each: ROCE, EPS, Cash Flow, Cumulative Strategic Cost Savings, and HRG Acquisition Strategies.

Upon examining Sainsbury’s performance since 2012, we find revenues for Sainsbury’s have remained relatively flat; net income took a dip in 2014, but is slowly bouncing back; and free cash flow appears to have been decreasing slowly since 2012. These three financial performance criteria have a direct impact on the first three previously-mentioned performance criteria for the vesting of Mr. Coup’s outstanding awards. Consequently, we find that the remaining criteria, Cumulative Strategic Cost Savings and HRG Acquisition Strategies, to be the last areas where Mr. Coup would be able to directly influence his ability to exercise his outstanding LTI awards.

Interestingly, the Cumulative Cost Savings performance criterion had a target and maximum goal of GBP 450 million and 550 million, corresponding roughly to the same cost savings that the proposed merger would bring to the combined entity (GBP 500 million). These savings would have potentially resulted in a higher level of vesting of Mr Coup’s Outstanding STI and LTI Awards, as detailed in the graph below generated from the CGLytics’ pay for performance modeler:

Despite Mr. Coup’s public statements that the primary goals of the proposed merger were to reduce prices and provide customers with greater choice, a deeper dive into the performance criteria for his outstanding STI and LTI awards appears to provide a different perspective.

In the Sainsbury’s financial statements for the year ended March 9, 2019, it was revealed that the company had spent GBP 46 million (USD 60.6 million) preparing for the deal. Moreover, on May 1, 2019, Sainsbury announced a drop in pre-tax profit of 41.6% to GBP 239 million (USD 314.8 million), as it counted the cost of restructuring and the failed merger with Asda. Mr. Coup stated recently that he had the full backing of the board for the proposed merger, and current Chairman of the Board, Martin Scicluna, is on record to have said that the attempted merger was “absolutely the right decision”.

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The Top 50 Highest Paid CEOs

As proxy season progresses and companies file their annual reports, CGLytics surveys the world’s highest paid CEOs (so far) and looks at how executive compensation has grown since the last year.

CEO pay and compensation continues to be one of the most hotly debated topics in the 2019 Proxy Season with companies and individuals regularly under scrutiny by investors and the media.

Utilising our deep, global data set, sourced from the filings and published returns of over 5,500 publicly listed companies, CGLytics examines the top 50 highest paid CEOs across the globe to have had their 2018 Total Granted Compensation (TGC)[1] and Total Realized Pay (TRP) published in 2019.

Key findings:

  • Total Granted Compensation for the top 50 CEOs was over $1.82bn, more than the GDP of 21 National Economies.
  • Average Total Granted Compensation for 2018 was $37,030,673.71, an increase of 62% from 2017.
    Average Total Realised Pay was $37,909,498.5, an increase of 4.4% from 2017.
  • The top 5 CEOs accounted for over 27% of the total Total Granted Compensation for 2017.
  • Total Shareholder Return decreased by an average of 6% across the group, indicating that this season, Pay for Performance is going to be a contentious topic as shareholders continue to challenge misaligned compensation packages.

 

This research is updated on a bi-weekly basis, with the latest information taken from May 3, 2019. It will be updated to reflect the top 50 CEOs as companies publish their annual results through to the end of the 2019 Proxy Season.

Trending Top 50 CEOs

 

Ranking

CEO

Company

Change in rank (since 18 April)

Total Granted Compensation

Total Realised Pay

TSR in %

TSR 1YR growth in %point

1

Zaslav, David

Discovery
Communications, Inc.

 

 $129,499,005 (5207%)

 $33,498,259 (662%)

11%

29%

2

Hurd, Mark

Oracle Corporation

 

 $108,295,023 (5165%)

 $26,690,273 (583%)

63%

628%

3

Catz, Safra

Oracle Corporation

 

 $108,282,333 (5166%)

 $162,740,735 (520%)

63%

628%

4

Hodler, Bernhard

Julius Baer Group Ltd.

 

 $78,813,367 (54544%)

 $2,979,804
(576%)

640%

675%

5

Levine, Jay

OneMain Holdings, Inc.

new

 $71,532,583 (516913%)

 $71,532,583 (516913%)

67%

624%

6

Schwarzman, Stephen

The Blackstone Group L.P.

-1

 $69,147,028 (645%)

 $69,147,028 (645%)

0%

27%

7

Iger, Robert

The Walt Disney
Company

-1

 $65,645,214 (581%)

 $66,065,073 (68%)

4%

61%

8

Charlès, Bernard

Dassault Systèmes SE

new

 $51,098,970
(564%)

 $65,983,199 (564%)

18%

66%

9

Heppelmann, James

PTC Inc.

-2

 $49,969,163 (5403%)

 $17,041,464 (5107%)

36%

5%

10

Freda, Fabrizio

The Estée Lauder Companies Inc.

-2

 $48,753,819 (0%)

 $9,387,109
(683%)

3%

665%

11

Handler, Richard

Jefferies Financial
Group Inc.

-2

 $44,674,213 (5105%)

 $5,951,709 (5339%)

633%

649%

12

Kilroy, John

Kilroy Realty Corporation

new

 $43,624,774 (5282%)

 $18,204,958 (622%)

614%

618%

13

MacMillan, Stephen

Hologic, Inc.

-3

 $42,040,142 (5275%)

 $12,231,622 (656%)

64%

610%

14

Hogan, Joseph

Align Technology, Inc.

new

 $41,758,338 (5256%)

 $69,763,660 (5504%)

66%

6137%

15

Schulman, Daniel

PayPal Holdings,
Inc.

new

 $37,764,588 (596%)

 $41,295,115 (5328%)

14%

672%

16

Lawrie, John

DXC Technology Company

-5

 $32,185,309 (572%)

 $7,105,877
(676%)

635%

17

Dimon, James

JPMorgan Chase &
Co.

new

 $30,033,745 (56%)

 $18,136,934 (687%)

67%

633%

18

Stephenson, Randall

AT&T Inc.

-6

 $29,118,118 (51%)

 $21,606,548
(614%)

622%

618%

19

Narayen, Shantanu

Adobe Systems
Incorporated

-6

 $28,397,528 (529%)

 $67,297,455 (555%)

29%

641%

20

Moghadam, Hamid

Prologis, Inc.

-6

 $28,201,397 (546%)

 $35,887,540 (56%)

66%

632%

21

Greenberg, Robert

Skechers U.S.A.,
Inc.

new

 $27,361,406 (5252%)

 $11,157,656 (515%)

640%

693%

22

Garrabrants, Gregory

BofI Holding, Inc.

-7

 $26,975,924 (5299%)

 $12,708,360 (568%)

616%

621%

23

Strangfeld, John

Prudential
Financial, Inc.

-7

 $26,696,966 (62%)

 $15,525,376 (649%)

626%

640%

24

Milligan, John

Gilead Sciences Inc.

-7

 $25,961,831 (568%)

 $21,781,701 (54%)

610%

613%

25

Nadella, Satya

Microsoft
Corporation

-7

 $25,843,263 (529%)

 $34,874,210 (517%)

21%

620%

26

Nooyi, Indra

Pepsico, Inc.

-7

 $24,491,117 (621%)

 $26,276,686 (668%)

65%

623%

27

White, Miles

Abbott Laboratories

-7

 $24,254,238 (528%)

 $31,646,904 (51%)

29%

623%

28

Chenault, Kenneth

American Express Company

-7

 $24,208,661 (530%)

 $54,431,474
(642%)

63%

639%

29

Bush, Wesley

Northrop Grumman
Corporation

-7

 $24,185,259 (528%)

 $34,319,926 (51%)

619%

653%

30

Corbat, Michael

Citigroup Inc.

-7

 $24,183,714 (536%)

 $20,164,941 (534%)

628%

656%

31

Wren, John

Omnicom Group Inc.

new

 $23,945,128 (0%)

 $23,633,099 (59%)

4%

16%

32

Lance, Ryan

ConocoPhillips

-8

 $23,406,270 (57%)

 $21,852,860 (528%)

16%

4%

33

Muilenburg, Dennis

The Boeing Company

-8

 $23,392,187 (527%)

 $31,334,957 (519%)

12%

683%

34

Blankfein, Lloyd

The Goldman Sachs Group, Inc.

-8

 $23,390,658 (56%)

 $6,617,836
(677%)

634%

641%

35

Moynihan, Brian

Bank of America
Corporation

-8

 $22,754,510 (54%)

 $25,330,434 (525%)

615%

651%

36

Hewson, Marillyn

Lockheed Martin Corporation

-8

 $22,717,004 (61%)

 $34,148,718 (53%)

616%

648%

37

Miller, Alan

Universal Health
Services, Inc.

new

 $22,588,883 (54%)

 $6,324,536 (683%)

3%

64%

38

Osuna Gómez, Juan

Obrascón Huarte Lain, S.A.

new

 $22,331,445 (5755%)

 $22,331,445
(5755%)

686%

6137%

39

Tyagarajan, NV

Genpact Limited

new

 $22,299,191 (5608%)

 $1,738,855 (664%)

614%

646%

40

Nanterme, Pierre

Accenture plc

-11

 $22,299,174 (513%)

 $29,414,791 (531%)

66%

640%

41

Messina, Carlo

Intesa Sanpaolo
S.p.A.

-11

 $22,182,562 (5193%)

 $5,842,684 (523%)

625%

647%

42

Holmes, Stephen

Wyndham Worldwide Corporation

new

 $21,479,166 (542%)

 $50,161,004 (553%)

629%

684%

43

Johnson, R.

HCA Healthcare, Inc.

-12

 $21,419,906 (524%)

 $109,050,692 (51407%)

43%

25%

44

Novakovic, Phebe

General Dynamics Corporation

-12

 $20,720,254 (64%)

 $41,885,999 (513%)

621%

641%

45

Brown, Gregory

Motorola Solutions,
Inc.

-12

 $20,348,558 (533%)

 $69,555,180 (5137%)

30%

18%

46

Gorsky, Alex

Johnson & Johnson

-12

 $20,097,572 (633%)

 $46,428,340 (555%)

65%

630%

47

Read, Ian

Pfizer Inc.

-12

 $19,549,213 (630%)

 $47,042,550 (567%)

25%

9%

48

Casper, Marc

Thermo Fisher Scientific Inc.

new

 $18,607,103 (616%)

 $85,476,755 (5161%)

18%

617%

49

Allen, Samuel

Deere & Company

-13

 $18,525,667 (515%)

 $44,767,370 (5155%)

63%

658%

50

Hammergren, John

McKesson Corporation

-13

 $18,143,017 (610%)

 $63,161,402 (635%)

628%

640%

[1] Compensation in USD – exchange rates based on single point of time, end of tax year 2018.

[2] Excludes executives appointed since 2017 season.

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The EU Shareholder Rights Directive: The implications for executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. In this article CGLytics takes a look at the implications of the EU Shareholder Rights Directive on executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. Part of the call for greater transparency applies to the compensation of top executives of listed companies. Shareholders now have the right to an extended say on pay under the Revised Shareholders’ Rights Directive (SRD II) through their votes on the remuneration policy and report.

The EU SRD II: It’s Main Purpose

  1. To encourage long-term shareholder engagement by facilitating the exercise of shareholder rights
  2. To enhance transparency
  3. To increase directors’ accountability and reinforce the link between pay and company directors’ performance

Impact for companies

Under SRD II – Extension of shareholders’ right to say on pay

The SRD II requires the compensation of all directors to be reported on an individual basis. This will impact Belgium listed companies as previously it was deemed sufficient to provide this information on an aggregated basis.

Another change is the impact of shareholders’ votes on the remuneration policy, empowering them to oversee and influence directors’ remuneration. The shareholders’ vote on the remuneration report is not new, however, the content of the remuneration report will have to be more extensive and explicit to comply with SRD II. In particular, next year’s report will have to explain how the shareholders’ vote on the remuneration report was taken into account.

The most innovative change is the requirement to explain the changes in directors’ pay in relation to the evolution of the company’s performance and employees’ average pay during the period under examination. This will put the emphasis on the compensation committee to provide increasingly data driven analysis against a variety to financial and non-financial KPIs.

In the future – Disclosure of the CEO pay ratio?

The CEO pay ratio is the indicator of CEO compensation compared with employees’ pay, usually expressed by a multiple of the median annual salary of the employees of the company concerned. Currently, the pay ratio is not part of the disclosure requirements under European corporate governance regulations, in contrast with the US and the UK.

In the US for example, public companies are required to disclose the ratio of CEO pay to median employee pay in their proxy statement. In the UK, listed companies with more than 250 employees are required to disclose the ratio of their CEO’s total remuneration to the median (50th), 25th and 75th percentile full-time equivalent remuneration of their UK employees.

The future will tell us whether the disclosure of CEO pay ratios affects companies’ executive compensation practices. It cannot be ruled out that other governments will follow the path taken by the US and the UK in order to manage the perception of executive remuneration being increasingly out of step with the average employee pay.

Fair pay

Fairness in pay is not only about being transparent on the remuneration and the wage gap between CEOs/executives and employees. Fair pay also means non-discrimination between employees.

Significant developments are occurring worldwide regarding gender discrimination. Measures adopted to tackle this issue vary from country to country. Such measures may consist of transparency requirements (e.g. in Germany), the obligation to report on the gender pay gap in the company’s annual report (e.g. in the UK), the requirement to have a gender pay gap analysis conducted by independent and external bodies (e.g. in Switzerland) or mandatory equal pay certification (e.g. in Iceland – such legislation is under discussion in the Netherlands).

In Belgium, equal treatment is enshrined in the Belgian Constitution and in the Non-Discrimination Act, which prohibits any direct or indirect discrimination based on certain grounds, including in employment relations. Under the Gender Non-Discrimination Act, companies employing at least 50 employees are required to conduct a detailed analysis of their remuneration structure – to ensure a gender-neutral remuneration policy – every two years and deliver their report to the employee representative body.

To date, Belgian companies are not required to disclose their gender pay gap in their annual report or in their remuneration policies or report. Nevertheless, the information contained in the company’s social balance sheet must be broken down by gender. In addition, listed companies are required to describe their diversity policy in their Corporate Governance Statement.

In Luxembourg, labour law prohibits companies from using criteria other than knowledge, experience and responsibilities to determine remuneration. Despite initiatives of the Ministry of Equal Opportunities to raise awareness on the gender pay gap, no further legal provisions exist on this matter.

To this end, companies in Belgium and Luxembourg will be required to show greater transparency of executive and director pay, not just in comparison against the performance of the organisation, but also ensuring that it is benchmarked against the growth (or decline) of the average employee. Shareholders will have more information and greater powers to curtail excess pay, while holding companies to account against more financial and non-financial KPIs.

Take a deeper dive into executive compensation practices

With a wealth of global data, analytics and insights, review executive pay against an array of key financial indicators.

Replicate the peer groups of leading proxy advisors and investors, and instantly compare CEO pay against company performance and their peers.

Click here to download the Corporate Governance and Executive Pay: Legislative landscape and market insights report, produced together with PwC.

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The case of Superdry: The dynamics of corporate governance and equity control

CGLytics reviews the recent upheaval of the Superdry board, and how these developments have set an unprecedented case in Corporate Governance.

Superdry was founded from a creative partnership between entrepreneurs Julian Dunkerton and James Holder in Cheltenham, UK in 2003. From an initial collection of five t-shirts, which included the iconic Osaka 6 worn by British superstar David Beckham, the company has grown to offer seasonal collections comprising thousands of items and over 500 distinctive logos. Currently, they represent a global community and have developed a cult celebrity following. It is currently a constituent of the FTSE 250, becoming one of the biggest fashion retail success stories in recent times.

2014 – Change for Growth

In October 2014, the company announced the appointment of Euan Sutherland as their new CEO, replacing founder of the company Julian Dunkerton. Julian stayed on as a Brand Director of Superdry. At the time, the company said that as a business with huge growth opportunities, the need for an experienced CEO was paramount. Euan became the preferred choice as he knew the business well, having been a Non-Executive Director since 2012, and was instrumental in implementing and driving a five-year global strategy that delivered more of the incredible growth that Superdry has become renowned for.  The company’s financial success is well documented. From 2012 to 2019, the company’s revenue grew from GBP 329M to GBP 886M while net income grew from GBP 31M to GBP 63M. For share price growth however, the company experienced a sharp dip from GBP 19.03 in 2017 to GBP 4.68 in 2018. (Year-end)

In March 2018, it was announced that Julian was to step down as a director from the Board. In January 2018, Mr. Dunkerton took advantage of Superdry’s impressive stock market performance as shares rose to a five-year high in December and sold part of his stake, making almost GBP 18m. However, he remained the largest shareholder, with control of about 19% in the company. After his departure, the Board comprised of 9 members including 2 women forming about 22% of the Board composition. Just before the General Meeting, the Board comprised of 8 directors and proportion of women of the Board therefore increased to 25%.

2018 – Tensions Surface

In December 2018, Julian censured the business model of the company he cofounded and launched a campaign to return to the company. In an unusual intrusion, Dunkerton disapproved the firm’s business model in comments to the Liberum analyst Wayne Brown, a former head of investor relations at Superdry. The retail entrepreneur stated in the note that he quit the company’s board in March 2018 because he could not “put his name to the strategy”. In another comment to the BBC, Dunkerton said that he’s willing to return to the company “in any capacity” to turn the company around.

Following growing tension between Julian and the Board, the Board announced a general meeting for April 2, 2019 to decide whether the former should be reinstated to the Board. The Board unanimously asked Shareholders to vote against the return of Julian Dunkerton and against the appointment of Boohoo Chairman Peter Williams, which Julian was seeking to bring to the Board as a chairman to overthrow the current. The Board listed various reasons for their decision among which they stated that Mr. Dunkerton’s return would have damaging business impacts because his views have not evolved with the needs of an increasingly international multi-channel brand business. The Board also added that his return will be divisive and distract from the delivery of the Global Digital Brand strategy. For Mr. Williams, the Board said that though he is being nominated as an Independent Director, they cannot trust the transparency of the action because it is not clear if he’s being nominated to serve the interests of Mr. Dunkerton and James Holder; and (ii) is NOT INDEPENDENT and does not represent the interests of all shareholders equally. Again, his appointment will be in a manner that which circumvents good corporate governance and the established policies and procedures of the Company.

2019 – Dunkerton Returns

The outcome of the meeting was quite different from the Board’s recommendation as shareholders voted to elect Julian to the Board by 51.15%. Peter Williams was also elected to the Board by 51.15%. This subsequently led to the resignation of then Chairman Peter Bamford, CEO Euan Sutherland, Chief Financial Officer Edward Barker and Independent Director Penelope Hughes. Subsequently, Peter Williams was appointed Chairman and Dunkerton, interim CEO. With the current composition of the Board, women form only 14% of the Board, a drop from the initial female composition of 25% before the disruptions. Dennis Millard, Minnow Powell, Sarah Wood and John Smith who are all Non-Executive Directors have also given three months’ notice and will stand down as Directors on July 1, 2019.

The board expertise diagrams, produced directly from data and analytics in CGLytics’ platform, show Superdry’s board expertise matrix before and after the mass resignations that happened after the April 2nd 2019 General Meeting. The information used for producing CGLytics’ expertise and skills matrices in the SaaS offering is standardized and applied consistency to more than 5,500 companies globally for easy comparison, analysis and benchmarking of boards composition.

It is evident, from CGLytics’ Board Expertise matrix, that the expertise of the board has reduced since the resignations of Directors. Before their General Meeting in April 2019, 25% of the Board had Technology expertise; with the current Board composition, approximately 14% of the Board has Technology expertise. With today’s retail business climate, the connection and interaction between traditional stores and the internet is fundamental to the growth of businesses in this sector. With the company’s struggling performance over the years, having directors with technology expertise could bring another dimension to the company’s strategy with adapting to changing customer needs and preferences as the it solidify itself as a “global digital brand”.

Another interesting insight is that after the resignations there is now no Executive board member who has financial expertise, however some of the non-Executive board members do including the new Chairman, Peter Williams. Previously Superdry’s CFO had a seat on the board, which may have an impact on the financial decision-making.

The board expertise diagrams, produced directly from data and analytics in CGLytics’ platform, show Superdry’s board expertise matrix before and after the mass resignations that happened after the April 2nd 2019 General Meeting. The information used for producing CGLytics’ expertise and skills matrices in the SaaS offering is standardized and applied consistency to more than 5,500 companies globally for easy comparison, analysis and benchmarking of boards composition.

Before the General Meeting of the company, approximately 75% of the Board served on 8 other listed companies’ Boards in total, compared to 57% of the current Board members holding 6 other seats on listed Boards. Again, of these, the new Chairman of the Board, Peter Williams, serves on three other listed Boards including one other chairmanship position. Though he is not considered overboarded according to the UK corporate Governance code, there may be some reservations over his ability to discharge his duties given his other time commitments. The composition of the Board before the General Meeting also had directors who served on two other Boards; these includes the former chairman of the Board Peter Bamford and Penelope Hughes, who is also the current chair of Aston Martin Lagonda Global Holding Plc.


Lessons learnt and key takeaways from Superdry:

The Superdry development has shed light on how large shareholders influence voting outcomes. Specifically, Julian Dunkerton and his co-founder who owns about 28.1% between them could influence the resolution to change the direction of the company. According to the statement released by the company after the general meeting, 74% of shareholders other than Julian and James have voted against the resolutions. Two big institutional shareholders – Investec and Schroders, which together control about 10% of the shares also supported Mr. Dunkerton’s return.

But the company’s second largest shareholder, Aberdeen Asset Management, sided with Superdry management, and influential investor advisory firms PIRC and Institutional Shareholder Services (ISS) had both recommended that shareholders should reject Mr. Dunkerton’s re-election. What cannot be ignored is that this development has set an unprecedented case in Corporate Governance.

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