Inditex and Swedish AP funds crack open dividend vs. pay debate at virus-hit AGMs

Spanish proxy advisor Corporance says crisis builds case to oppose excessive remuneration

Inditex, the listed Spanish clothing firm that owns Zara and other popular fashion brands, announced yesterday that due to the Covid-19 pandemic any decision on dividend payments will be deferred to a later stage ahead of the AGM.

Inditex is one the very few Ibex-35 issuers that holds its AGM in July as it closes the financial year on 31 January.

"It is not the right moment to take a decision on the dividend to be proposed relating to FY2019," Pablo Isla, Inditex

This provides Inditex an extra month, within the required six-month period, to convene shareholders as well as to present annual consolidated results. The Spanish government, however, gave on Tuesday companies the option to hold AGMs for an extra four months (in most cases until 31 October).   

In a conference call yesterday, Inditex’s Executive Chairman Pablo Isla, said:

“It is not the right moment to take a decision on the dividend to be proposed relating to FY2019. Consequently, the net income generated will be allocated to reserves with a view to submitting a final proposal on dividends at a later board meeting prior to the AGM which will take place in July.”

Spain, which is in lockdown after declaring the state of emergency on Saturday 14 March, represents a test case for the UK and other countries that could soon follow suit in adopting similar draconian measures to fight the spread of the coronavirus.

Today Ibex 35-listed lender Bankinter, is holding its AGM today via streaming, while Siemens Gamesa has temporarily suspended its annual meeting until conditions are safe to do so with shareholders in attendance.   

The current crisis builds the case to vote against excessive executive remuneration, says Juan Prieto, Corporance

It is understood that the AGMs of Santander (3 April), Iberdrola (2 April), CaixaBank (3 April), Bankia (27 March) and TSB Bank’s owner Sabadell (26 March) will go ahead.

Unlike Inditex, those companies holding their AGMs during the lockdown period have not yet made any statements about their dividends.

Juan Prieto, CEO of Spanish proxy advisory firm Corporance, told RI that a potential change in the dividend policy might build the case for voting against excessive executive remuneration given the current crisis.

Corporance, the Iberian partner of the ECGS European network of proxy firms, has in the past recommended shareholders to vote against Spanish issuers when remuneration is excessive and when it also compromises the role of independent board directors.

“That’s why remuneration linked to long-termism is crucial,” Prieto said, adding that in testing times it might be expected that not only shareholders but also executives tighten their belts.

In that respect, Ossian Ekdahl, Chief Active Ownership Officer at Första-AP-fonden (The First Swedish National Pension Fund, AP1), stated on social media that the fundwill not oppose “reduced or scrapped dividends”.  

Ekdahl said that boards are in a better position to understand the liquidity needs of companies and make a judgement about dividends accordingly.

Ekdahl told Swedish media that AP1 would not like to prevent companies from doing the right thing for themselves and employees. Its peers AP2 and AP4 concurred with that opinion.

“We will not oppose reduced or scrapped dividends,” Ossian Ekdahl, AP1

Aniel Mahabier, CEO of CGLytics, a governance data firm which partners with Glass Lewis, told RI that issuers will have to “rebalance” dividends and executive pay, taking into account the continuity of the business and the talent to do so at extraordinary times.

Luke Hildyard, Director of the High Pay Centre think tank, told RI that some bosses such as the CEO of Australian airline Quantas, have made some form of salary sacrifice.

“It's a token gesture really. Most CEOs, certainly of large cap companies, earn enough in a single year to set themselves up very comfortably for life, so they'll be fine even if the business goes bust,” Hildyard said.

He added that from HPC’s perspective, the crisis highlights the extent to which everything is dependent on the collective action of society as a whole, co-ordinated by the state at a time of “a potentially apocalyptic crisis” for the second time over a decade. 

Hildyard said: “It's surely reasonable to ask businesses and their investors, who are being directly supported by society and state through this period, to behave in a way that reduces future burdens on state and society by behaving as responsible employers and corporate citizens.”

The HPC has just published a report calling for government bail-outs during the crisis to include ESG factors including fair pay, fair tax contributions and worker representation on company boards.