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FirstGroup plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: June 19 – Dec 19

Size: FTSE 250

Number of participants: 8

% of company: ~25%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • An activist called a General Meeting (June 25th), and the SID reached out to the Forum during this process to seek input.
  • Following the General Meeting, the Chair announced his intention to step down at the conclusion of the Annual General meeting (AGM) with the SID to become interim Chair at that point.
  • Following the AGM (July 25th) Members requested a collective engagement to send a clear message on the need for change, outlining the key priorities to restore shareholder confidence and realise group value.

Objectives
What did the Forum engage on?

  • Board effectiveness: Investors wanted to see a quick process to appoint a new Chair and refresh Board composition and skills.
  • Succession planning: Investors provided input into the criteria to identify a new Chair, as the skills that this person would bring to the Board were seen as critical for the company to navigate challenging industry dynamics, recover value, refresh the Board and address the unrest in the shareholder base.
  • Strategic direction and capital allocation: Investors called for the new Chair to provide an objective assessment to either validate or adapt the Group’s strategic plan. Investors were focused on the
    need to restructure the portfolio and the resulting implications for group profitability, leverage, pension arrangements, dividend policy and capital return.
  • Communication: The Forum was asked to remind the company that coherent and consistent communication was necessary with all stakeholders to rebuild trust and clarify understanding of the challenges that the Group faced.

Engagement Methods
How did the Forum engage?

  • The Investor Forum engaged extensively and constructively with the SID following both the GM and AGM, during the Chair search, and immediately following the Chair appointment. The SID engaged in detailed dialogue with all the largest shareholders throughout this period.
  • A new Chair was appointed in August and met with a large number of shareholders, as well as the Forum, within weeks of joining.

Outcomes
What did the engagement achieve?

  • The collective voice provided aclear message on the urgent need for change. It provided clarity on the range of concerns, and amplified the call for action.
  • The SID stepped up effectively into the role of interim Chair, took action to refresh the Board and delivered a well-received Chair appointment which avoided an elongated search process.
  • Investors were reassured by the qualifications and experience of the new Chair and the commitment to move quickly to address investor concerns.
  • The engagement was closed following the resignation of two NEDs and the appointment of a new Chair. Investors will now focus on the actions of the new Chair in response to the concerns which have been clearly communicated.

Lessons Learned
What has wider applicability?

  • A strong and effective SID isneeded to step up at times of crisis and can be instrumental in driving change.
  • The Forum’s involvement can be helpful in providing a clear message from long-term shareholders at a time of rapid change and when a company faces pressure from an activist investor.

GVC Holdings plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: June 19 – Dec 19

Size: FTSE 250

Number of participants: 8

% of company: ~35%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • Engagement participants were all supportive of GVC’s management and business strategy, recognising that the company was performing strongly in its core business.
  • However, there was a perceived disconnect between the operational performance and the Board’s effectiveness, particularly given the rapid growth. A number of decisions had impacted GVC’s reputation, leading to a significant share price decline.
  • Following individual engagement meetings, Members escalated their concerns and initiated a collective engagement to send a clear message to the Board of shareholder expectations.

Objectives
What did the Forum engage on?

  • Governance: Whilst recognising positive operational delivery, investors highlighted the need for the company to review and enhance governance structures and processes, to ensure that they were fit-for-purpose for the enlarged group.
  • Succession planning: Investors provided input into the criteria for selection of the new Chair.
  • Board effectiveness:Investors expressed a desire for the composition and skills of the Board to be reviewed.
  • Remuneration: Investors asked the Board to recognise and address concerns regarding remuneration structures, the alignment of remuneration policies with long-term strategic goals, and to enhance communication on these issues.

Engagement Methods
How did the Forum engage?

  • With the support of 35% of the share register, the Forum wrote to, and met with, the SID to outline these concerns and to discuss the qualities sought in a new Chair.
  • The SID also met directly with some of the largest shareholders.
  • The Forum requested that,as soon as the new Chair was appointed, meetings be arranged with investors to hear their concerns and listen to their views on future priorities.

Outcomes
What did the engagement achieve?

  • The timing of the engagement was opportune, ensuring that the company had a clear understanding of investor concerns and priorities in advance of appointing a new Chair.
  • The company recognised the need to strengthen the governance architecture and the SID stressed that the company’s approach had begun to evolve following the Ladbrokes Coral acquisition in March 2018.
  • The company announced the appointment of a new Chair in November, who has industry and plc experience, which suggests that he will be able to recognise and address the key issues identified.
  • Investors are pleased that an experienced Chair has been appointed but it will take time to judge fully the efficacy of such an engagement. The next phase will require the company to deliver on the changes outlined and to convince shareholders it has:
  • Taken appropriate steps to enhance Board effectiveness and Chair oversight; and
  • Reviewed the remuneration policy to address the concerns raised by investors.

Lessons Learned
What has wider applicability?

  • Engaging early in a selection process can provide clear and constructive input on the qualities and characteristics that investors believe are required

Imperial Brands plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: June 19 – Aug 19, Oct 19 – Dec 19

Size: FTSE 100

Number of participants: 9

% of company: ~22%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • The first phase of the engagement with Imperial Brands in 2018 was reported in last year’s Review. In February 2019, following the AGM, the company announced a process to appoint a new Chair.
  • A second phase of engagement was initiated in June 2019 with a focus on Chair succession, strategic direction and execution. Investors were frustrated with progress against the disposal commitments and the on-going decline in the share price.
  • In October 2019, with the Chair appointment still pending, the Group reported a deterioration in operating performance and subsequently announced the departure of the CEO. A third phase of engagement was initiated with a focus on encouraging the NEDs to take decisive action to avoid a prolonged leadership vacuum and to address the long-standing concerns.

Objectives
What did the Forum engage on?

  • Succession: Investors wished to clearly communicate their expectations that the new Chair should be an agent for positive change, prepared to make timely and, where necessary, tough decisions.
  • Strategic direction: Investors wanted to see a fresh assessment of the Group’s strategic plans and the capabilities of the management team to deliver outcomes that would recover shareholder value.
  • Capital allocation: Investors wanted a focus on the potential to release and reallocate capital, and the resulting implications for the dividend policy, leverage and capital returns.
  • Quality of earnings: The company was encouraged to move further to address investor concerns over the extensive use of exceptional items, the quality of earnings, and segmental reporting.

Engagement Methods
How did the Forum engage?

  • In Phase 2, the Forum engaged constructively with the SID to escalate investor concerns both in writing and in person. The Forum also facilitated a group meeting to provide shareholders with an opportunity to provide input into the Chair selection process, and to discuss wider concerns.
  • In Phase 3, following the October trading update, the Forum re-iterated and reinforced investor concerns and the appetite for change, in a letter to the SID in advance of the November results.

Outcomes
What did the engagement achieve?

  • This was a good example of the SID seeking shareholder input, taking those insights into the Boardroom and catalysing action. The proactive approach of the SID was well-received by shareholders.
  • The June group meeting was useful in consolidating and communicating investor views to the SID, and particularly the views of shareholders outside the top 10.
  • It was announced in November that the SID would step up to become Chair in January 2020.
  • Following the closure of the engagement, the company asked the Forum to organise an additional group meeting, to continue the constructive dialogue with Members.

Lessons Learned
What has wider applicability?

  • Maintaining a collective pressure on the company to take action on the material issues of Chair succession, strategic delivery and earnings transparency can be helpful in ensuring change.
  • Engagements can involve a number of phases, and investors need to wait and see what progress the company can deliver. If frustrations are not addressed, the Forum can re-engage.

Inmarsat plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: Feb 19 – Mar 19

Size: FTSE 250

Number of participants: 7

% of company: ~20%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • The Forum facilitated a group meeting with the Chair, SID, CEO and CFO of the company at its head office in December 2018, with an investor-defined agenda covering a number of areas.
  • Investors valued the opportunity to engage with the Board and Executive in a series of meetings, allowing them to evaluate strategic direction, governance and execution holistically.
  • Concerns remained following the meeting, and a formal engagement was initiated in February 2019.
  • In formulating this engagement, investors were mindful of the requirements of the new Corporate Governance Code, with its stricter rules about Chair tenure and independence.

Objectives
What did the Forum engage on?

  • Chair Succession: Investors wished to see an accelerated process to appoint a new independent Chair. They believed that this would be in the best long-term interests of the company.
  • Operational performance: Investors felt the company needed to be better at managing expectations.

Engagement Methods
How did the Forum engage?

  • The Forum spoke to the Chair and wrote to the Chair and SID in March 2019 to raise these concerns with the Board and engaged with the company secretary.

Outcomes
What did the engagement achieve?

  • The engagement objective was defined around Chair succession. The company responded to the engagement and addressed the issue of succession in its Annual Report which was published at the end of March and made various statements regarding the process for seeking a new Chair.
  • In mid-March, the company received a bid approach. Consideration of the offer superseded the objectives of the initial engagement and the engagement was paused until the outcome of the offer was determined.
  • There was no appetite for continued collective engagement in light of the corporate action.

Lessons Learned
What has wider applicability?

  • A group meeting with the Board and Executives can be helpful to address rising concerns before a full engagement is considered appropriate.
  • Succession of along-serving Chair who has been integral to the success of a company can be challenging to navigate, especially given the requirements of the new Corporate Governance Code.
  • Ultimately, the company recommended, and shareholders accepted, a private equity-backed deal to take the company private. While a deal delivered a partial recovery in the share price, it also resulted
    in the de-listing of a company which may have an attractive long-term growth potential.

Safestore Holdings plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: Aug 18 – Dec 19

Size: FTSE 250

Number of participants: 6

% of company: ~24%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • An impasse was reached following repeated significant investor votes against the remuneration policy and directors. At the 2018 AGM, 5 resolutions received votes against of more than 20%, which were recorded on the Investment Association register.
  • Safestore has a long track record of strong operational performance which has generated positive investment returns. However, concerns had mounted regarding the effective alignment between incentive plans, long-term strategic goals and shareholder interests.
  • There was particular concern over board challenge and effectiveness. Clearer succession planning was felt necessary to assist in building investor confidence in the long-term success of the company.
  • While the executive team had a strong relationship with large shareholders, the company had no dedicated internal IR team and an interim company secretary at the time of the engagement.

Objectives
What did the Forum engage on?

  • Board effectiveness: Investors were concerned over Board effectiveness and the Board’s ability to effectively challenge the executive.
  • Succession: Investors encouraged the Board to provide greater clarity around succession.
  • Remuneration: There were ongoing concerns over remuneration that needed to be addressed, following an unsatisfactory consultation process.

Engagement Methods
How did the Forum engage?

  • The SID engaged constructively with the Forum from the first meeting in December 2018. The engagement helped the SID better understand investor concerns and the need for improved communication on those issues.
  • The Forum discussed steps that the Board could take to demonstrate its understanding of investor concerns, and the need to be proactive ahead of the AGM. The Forum also highlighted the qualities that participants were seeking in the selection of a new Chair.
  • Following a joint meeting alongside the Investment Association in February 2019, the Forum wrote to the SID to emphasise participants’ focus on the crucial role that the SID needed to perform in the Chair selection process. Further, the Forum stressed the need for the Board to understand the necessity of a heightened focus on governance, and for the SID to create a greater alignment between the expectations of the Board, the executive and the shareholders.

Outcomes
What did the engagement achieve?

  • The new Chair has considerable experience running divisions of international corporations, chairing private equity portfolio companies and high growth international businesses. The Forum met him following the announcement of his appointment, reinforced investor priorities and encouraged him to meet with investors in early 2020, following publication of the annual results.
  • With the appointment of a new Chair in November, the engagement was closed.

Lessons Learned
What has wider applicability?

  • This engagement was paused for much of 2019, awaiting the appointment of a new Chair. It is difficult to balance a lengthy monitoring period with the need for a company to complete an external recruitment process. On balance, Members felt it more helpful to keep the engagement open and maintain a dialogue, with the option to raise any emerging issues.
  • As companies grow, investing in an internal IR capability to ensure the Board is fully briefed on all shareholder expectations is important.

Vodafone plc

Governance (by the Board)

Strategy
Leadership and Succession
Capital Allocation
Corporate Governance
Execution (by the Management team)

Operational performance
Management information
Reporting and communication

Engagement period: May 19 – Dec 19

Size: FTSE 100

Number of participants: 8

% of company: ~25%

Governance (by the Board)Execution (by the Management team)
StrategyLeadership and SuccessionCapital AllocationCorporate GovernanceCorporate ActionOperational performanceManagement informationReporting and communication

Basis of Selection
Why did the Forum engage?

  • Collective engagement was proposed to provide a clear message of investor concern after a credit rating downgrade and cut to the dividend. Investors were frustrated that amid a challenging industry environment the company had not made progress over an extended time period, which had been reflected in a long time decline in the share price.
  • Participants felt it was time for the company to build confidence in the investment case, given competitive challenges in several key markets.
  • Views were also expressed on the characteristics needed in the new Chair, given the upcoming succession.

Objectives
What did the Forum engage on?

  • Strategic plans and capital allocation: Investors wanted the Board to articulate a compelling plan to address the key issues that are most likely to enhance the company’s value and to execute decisively.
  • Board effectiveness and Chair succession: Investors sought to ensure that the process for Chair selection was grounded in a clear understanding of shareholder perspectives. Investors also called for greater visibility of the NEDs and Committee Chairs, and in particular the Audit & Risk Committee.
  • Communication:Giventheimpactoftheunexpected change in dividend policy, investors believed that action was needed to re-build credibility and ensure future support.

Engagement Methods
How did the Forum engage?

  • The Forum engaged with the Chair,who felt he had a clear understanding of the priorities of shareholders. The Board and the new Chief Executive were already focused on improving the consistency of the company’s commercial performance, and as a result the Chair pushed back on the need for collective engagement.
  • The Forum also engaged with the IR Director around the content, structure and participation at the “Meet the Board” investor event held in November 2019.

Outcomes
What did the engagement achieve?

  • The Collective Engagement stimulated the company to take a more comprehensive approach to its planned ‘Meet the Board’ event for institutional, governance and ESG investors at the end of the year. The event covered many of the areas identified in the engagement, addressing many of the material issues relating to Vodafone’s licence to operate and other long-term themes.
  • Under the new CEO, the company took a number of steps to sharpen delivery, with some early evidence of improvement in operational execution in late 2019. The company also set tangible long-term goals related to its recently defined corporate purpose, and announced portfolio actions to unlock shareholder value.
  • The company is confident that it is making progress in identifying Chair candidates through a well- structured process, and that the search criteria are aligned with investor priorities and expectations.

Lessons Learned
What has wider applicability?

  • Investor frustration with developments at Vodafone was high in May 2019 with the share price at a 10 year low following the dividend cut. Collective engagement provides a mechanism for investors to express their concerns with the company, even though the engagement itself does not guarantee direct outcomes.
  • Vodafone’s ‘Meet the Board’ event was an example of a company making a significant effort to describe its purpose and provide a holistic view of the long- term drivers of value. This type of event provides a valuable opportunity for a cross-section of the shareholder register to meet with Board members.
  • In terms of wider applicability, the Forum will evaluate investor appetite for a S-360 Project in 2020 to review issues surrounding ‘treating customers fairly’ and the regulatory expectations of Ofcom.
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