Doug McMurdo | Interview
If audits were better performed on compa- nies, we would identify failure much sooner. The auditing industry needs to up its game alongside broader reforms to ensure not just competition within the sec- tor but also higher standards and quality audits overall. We will continue to push for prompt action before the next recession hits. Can you give us an example of suc- cessful engagement that you are particu- larly proud of?
LAPFF has had a lot of success in a range of areas, from climate change to executive pay to human rights. A recent example where we have had significant success is budget airline Ryanair.
There had been ongoing concern around how pilots and cabin crew were treated, and the board had not connected the dots in terms of how this was affecting financial performance. Part of the problem is that there is an outspoken chief executive and a relatively silent, long-standing chair. LAPFF recognised that the board composition at Ryanair was not creating the culture of accountability that we like to see. We started talking to a range of stakehold- ers – the company, fund managers and other investors, unions – to see if we could get Ryanair to refresh its board. This included announcing an intention to file a shareholder resolution if matters did not improve.
It worked. The chair, David Bonderman, announced he is stepping down next year, along with the senior independent director. With union recognition agreements at the company, we are hoping the new develop- ments on the human capital management front and a refreshed board will help set Ryanair on a more sustainable trajectory.
Are there any topics that LAPFF is not cov- ering but where you would like to see fur- ther engagement?
LAPFF’s workplan is wide-ranging, but, of course, we do not have limitless resources. Truly effective engagement requires focus and persistence. There are issues continu- ally emerging that can pose challenges to investors and we always have an open ear for these.
High on the agenda – five topics LAPFF is campaigning on:
Climate change: Earlier this year, LAPFF met with executives at steel giant Arcelor Mittal to discuss setting science-based emissions targets in line with the Paris Accord. LAPFF also met with the Rio Tinto chair Simon Thomson where the discussion included the supply of iron ore to the steel sector and how low-cost renewables will make hydrogen technol- ogy for steel possible. LAPFF’s also advised members to oppose the re-election of all ExxonMobil directors at the 2019 AGM reflecting the lack of adequate steps taken to have the company preserve and protect shareholder value within the ongoing energy transition.
Accounting standards: LAPFF is member of an investor coalition which has called for the Financial Reporting Council (FRC) to be disbanded in the wake of prominent accounting scandals. Earlier this year, the govern- ment responded to public pressure and confirmed that the regulator will be replaced by a new authority called the Audit, Reporting and Govern- ance Authority (ARGA) which will have a broader mandate and reinforced statutory powers.
Remuneration: LAPFF aims to challenge disproportionate performance- based pay among executives, arguing that it often fails to lead to mate- rial improvements in performance. Recently, LAPFF opposed the 10-year performance award for Elon Musk at Tesla which had the estimated realisable value of $55.8bn (£45.3bn). It has also made proposals for senior executives at Arcellor Mittal to include carbon emissions metrics in executive remuneration incentives. Earlier this year, LAPFF responded to the EU’s consultation on remuneration, which is aimed at standardising the presentation of remuneration reports under the Shareholders’ Rights Directive.
Diversity: As a member of the 30% Club, LAPFF puts pressure on indi- vidual companies to ensure that at least 30% of their board members are female. Recently LAPFF met hotel group Millennium & Copthorne and shortly afterwards the group appointed a female non-executive director. LAPFF also backs the Parker Review Consultation, which calls for more ethnic diversity on UK boards. Among others, it put pressure on Tullow Oil, an oil firm that operates in West and East Africa, which only had one African executive, who was due to resign. The group has since appointed two executive directors from Botswana and South Africa.
Employment Standards: Following the collapse of the Vale tailings dam in Brumadinho, Brazil, resulting in the death of more than 248 people, LAPFF teamed up with the Church of England and the Swedish Council of Ethics to discuss the causes of the disaster. LAPFF is also engaging with Santander and Nestle on more socially and environmentally responsible standards. Nestle has been asked to ensure that the UK Modern Slavery Act is considered in its supply chain management.
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