Small but perfectly formed dissidence at Santander AGM

Spanish global banking giant Santander is likely to have received overwhelming support from its shareholders in all management resolutions voted on during last Friday’s virtual AGM. Pending the final results, votes well below 90% are expected.

Yet it is worth having a closer look at concerns raised by some investors, proxy firms and campaigners over governance and climate issues.

The question seems relevant on the back of the European Central Bank’s call for banks to suspend dividends (and similarly by the Bank of England) to ensure an additional ‘cushion’ while the coronavirus crisis lasts.  

"We have serious concerns over the concentration of powers on the Board of Banco Santander, as the Chairwoman is primarily responsible for the management of the Bank." — ECGS

Santander’s shareholders were going to vote on the payments of outstanding dividends for 2019, but the day before the AGM management withdrew the resolution and postponed any decision until next year, when the consequences of the crisis would be clearer.

What Santander did not update on the ballot, however, was its announced commitment on remuneration. The bank said Executive Chairwoman Ana Patricia Botín, and CEO José Antonio Álvarez, will forgo 50% of their total compensation (salary and bonus) for 2020 and non-executive directors will have their compensation reduced by 20%.

Presumably, Santander’s top executives and directors would still have a shareholder mandate to cash in their remuneration if things change during the year and a speedier recovery looks likely.

In light of these developments, what did these shareholders and stakeholders object to at Santander?

First, the California Public Employees' Retirement System (CalPERS) voted against two directors and against the 2020 variable remuneration plan. CalPERS has not disclosed the rationale of its vote. A spokesperson told RI that they do not comment on specific company votes.

The spokesperson said that generally speaking, CalPERS “vote against remuneration plans for misalignment of pay and performance over a five-year period and other factors” further referring to its executive compensation analysis framework. 

When it comes to voting against directors, the spokesperson referred to CalPERS’ proxy voting guidelines, and listed among reasons “non-independence on key committees, over-boarding, failure in oversight, etc.”

Similarly, California State Teachers' Retirement System voted against five directors, including the Executive Chairwoman.

CalSTRS told RI that they “voted against those board members because the company did not meet the 2/3 board independence standard described in our Corporate Governance Principles”

Second, the European group of proxy and governance advisors Expert Corporate Governance Service (ECGS), had recommended investors oppose the re-election of Executive Chairwoman.

"We voted against those board members because the company did not meet the 2/3 board independence standard described in our Corporate Governance Principles" — CalSTRS

ECGS said there are “serious concerns over the concentration of powers on the Board of Banco Santander, as the Chairwoman is primarily responsible for the management of the bank.”

ECGS took issue with the remuneration of the Lead Independent Director, supposed to counter the executive powers of the executive chairs, saying the €700,000 pay package in 2019 “may undermine his independent judgement”. 

In addition, ECGS described as “disproportionate” the fees paid to non-executive directors, which can also contribute to compromising their independence.

As such, ECGS proposed: “We also recommend opposition to item 9, binding vote on the Directors' Remuneration Policy, due to the excessive executive and non-executive fixed remuneration, the egregious termination benefits (golden parachutes) and the high discretionary power of the Board in determining the final variable remuneration (+/-25%).”

And finally, a group of stakeholders and campaigners reminded Santander that it is still financing fossil fuel projects that are not Paris-compliant.

Among them are Madrid-based Instituto Internacional de Derecho y Medio Ambiente (International Institute for Law and the Environment, or IIDMA) and BankTrack, which questioned Santander last year on the same issue.