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ISS and Glass Lewis recommend voting against Bayer management board (Amended)

Recommendations highlight further concerns over governance

(Amends to clarify that Glass Lewis’s recommendation for the merger was for specifically for shareholders of Monsanto).

Both ISS and Glass Lewis have recommended a vote against Bayer’s management board on a procedural vote which gauges shareholder support of a company’s management and policies.

This follows the filing of two shareholder countermotions similarly calling for a vote against management over the recently completed merger with US group Monsanto which has resulted in Bayer losing approximately 40% of its market value and an impending loss of 12,000 jobs.

This is a result of two US court rulings which have linked glyphosate – a component of Monsanto’s Roundup product – to cancer, potentially exposing Bayer to significant litigation risk.

Currently, there are approximately 11,300 cases reportedly making their way through the legal system.

Under the German Corporate Governance Code, shareholders vote separately to “discharge” the management and supervisory boards at annual meetings over their performance for the relevant year.

Although it does not have any legal standing, the “discharge” vote is hugely symbolic. In 2015, both of Deutsche Bank’s co-CEOs offered their resignation mere weeks after 40% of shareholders voted against their discharge over a number of financial scandals.

While Glass Lewis recommended voting against both of Bayer’s boards, ISS concurred with their verdict only with regards to the management board and recommended the discharge (i.e. approval) of the supervisory board.

In its proxy paper, Glass Lewis did not reject the management board’s claim to have fully assessed the litigation risk from lawsuits relating to the use of glyphosate prior to the merger.

However, it recommended that the discharge vote for the management board be postponed until there was greater clarity on Bayer’s potential future legal liabilities.“Given the potential long-term reduction to shareholder value that may occur from potential developments in glyphosate-related lawsuits, we do not believe that shareholders are currently in a position to meaningfully assess whether the ratification of the acts of management board members for the past fiscal year is currently in their best interest.”

Glass Lewis also warned Bayer that its legal woes have contributed to a “further loss of trust in company management” particularly as shareholders were not offered a vote on the Monsanto merger.

Both ISS and Glass Lewis had recommended that Monsanto shareholders should vote for the 2016 merger.

Justifying a vote against the management, ISS affirmed the board’s accountability “for the ongoing negative developments, legal risks, and share price losses at the company”, pointedly observing that “possible future shareholder action may nevertheless be more difficult to pursue if discharge is widely granted”.

When asked for a response to the proxy recommendations, a Bayer spokesperson pointed to a recent statement which upheld the proposal to discharge the management board, saying both boards “are firmly convinced that the acquisition of Monsanto was the right decision”.

The company reports a review undertaken by New York law firm Linklaters, which concluded that “the Board of Management had complied with their legal duties in every respect” in all stages of the merger.

Bayer continues to believe that science will bear it out, listing a number of authorities, including the UN’s Food and Agricultural Organization, the European Chemical Agency, the European Food Safety Authority, and the US Environmental Protection Agency, which do not classify glyphosate as a carcinogen.