2023

Corporate Governance in Europe

UK: Turbulent markets
enhance scrutiny
An interview with Tom Matthews and Sonica Tolani,
partners, and Alex Woodfield, counsel, White & Case.

How is U.K. activism being impacted by current market
conditions?

How do you expect the economic backdrop to impact investor
views on remuneration for U.K.-listed companies?

Sonica Tolani (ST): As with the wider global markets, the U.K.
has recently been facing turbulent market conditions, with M&A
activity and activism dampened by significant geopoliticaluncertainty, rampant inflation, and interest rate rises.

ST: Whilst remuneration is a perennially sensitive topic forlisted companies, we anticipate this year will see significant
attention paid to executive remuneration in view of the cost-ofliving concerns for companies’ own workforce and customers.
There is also expected to be particular scrutiny of remuneration
arrangements which have been impacted by geopolitical factors
and other considerations outside of management’s control.

Such dampening contrasts with the past few years, during which
the U.K. has otherwise seen many activists seeking to increasevalue through M&A solutions. The viability and attractiveness ofsuch transactions, and activists’ appetite to push for them at thecurrent time, are constrained by market conditions – particularly
those requiring debt or equity financing.
U.K. companies suffering from depressed valuations may beconsidered as potential takeover targets. However, takeoveroffers, particularly those considered to be opportunistic, areexpected to face increased scrutiny from shareholders, withpotential for opposition and opportunities for bumpitrage.
What about U.K. activism more broadly?

Tom Matthews
Partner
tom.matthews@whitecase.com

Sonica Tolani
Partnersonica.tolani@whitecase.com

Tom Matthews (TM): Whilst some of the most prominent recent
campaigns have been undertaken by long-established activists,
the universe of investors engaging in shareholder activism
continues to expand. Existing activists are entering new markets,
new activist funds are being established, and private equity, debt,
and other investment funds are increasingly adopting activist
techniques.
An increasing number of investors engaged in activism are also
willing and able to consider pursuing and/or financing takeovers
themselves, reflecting the broadening universe of activist
investors, and activist fund structures becoming more flexible.
Activists who are shareholders of U.K. companies with ongoing
depressed valuations may have an incentive to consider adefensive bid, to avoid crystallising losses in the event of a saleto a third-party bidder.
How may current developments affect future shareholder
voting?

Alex WoodfieldCounselalex.woodfield@whitecase.com

Alex Woodfield (AW): Some of the largest institutional
shareholders have been taking steps to pass through voting
rights to underlying investors in some of their funds. Although thisemerging trend towards “democratization” is currently in its earlystages, we anticipate it is likely to become more widespread overtime and may in the future impact proxy voting, particularly on
topics such as board remuneration and ESG.
INSIGHTIA.COM“Takeover offers, particularly
those considered to beopportunistic, are expected to
face increased scrutiny fromshareholders, with potential foropposition and opportunities
for bumpitrage.”
AW: In some cases, remuneration arrangements may appear
particularly generous due to using performance during thepandemic as a baseline, or as a result of companies profiting
significantly from dramatic increases in energy prices resulting
from the war in Ukraine. At the other end of the spectrum, many
companies have received significant financial support from thegovernment in respect of their energy bills.
How have recent developments been impacting investors’
focus on ESG?
TM: With the war in Ukraine giving rise to public focus on
unprecedented energy price rises and short-term energy security,some of the momentum behind environmental activism appears
to have dampened, at least temporarily. However, sustainability
remains a major focus for many investors and seems certain toreemerge as a key trend.
Through a combination of legal changes and voluntary guidelines,
regulators and investors are seeking greater consistency fromcompanies in their sustainability reporting, with a particularemphasis on clamping down on greenwashing.
CORPORATE GOVERNANCE IN EUROPE 2023

11

France: Embracing
activism
An interview with Diane Lamarche and Saam Golshani,
partners, and Simon Martin-Gousset, associate,
White & Case.

Diane Lamarche
Partnerdiane.lamarche@whitecase.com

How is shareholder activism evolving in France?
Saam Golshani (SG): 2022 activist campaigns provided further
evidence that activism is now firmly embedded within the Frenchmarkets. Market participants are more accepting of activists andwilling to engage. This is reflected in a number of campaigns
being undertaken behind closed doors on a confidential
basis, and dialogue between activists and issuers is becoming
increasingly effective in overcoming issues or concerns.
Activists’ tactics are also becoming more sophisticated from alegal perspective, with activists exercising their rights as minority
shareholders to their advantage. As an example, activists whoonce sought to minimise contact with the French regulator, theAutorité des Marchés Financiers (AMF), are now, at times, activelyseeking its support.
At TotalEnergies’ 2022 annual meeting, climate-related
resolutions proposed by a group of 11 investors were rejected by
the company’s board for attempting to dictate the strategy of thecompany in this area. The shareholders requested that the AMF
intervene, which it declined to do.
Nonetheless, seeking to involve the AMF in the first place canbe seen as a significant development when compared with pastpractice. This comes against the backdrop of public positions
taken by the AMF in 2020 and 2021, which pointed to thepotential benefits of shareholder activism as contributing to theproper functioning of markets and to an improvement in thecorporate governance and management of issuers.
Did 2022 spur any notable developments regarding “say onclimate” in France?

Saam Golshani
Partnersaam.golshani@whitecase.com

Simon Martin-Gousset
Associatesimon.martin-gousset@whitecase.com

Diane Lamarche (DL): As was anticipated, the “say on climate”
initiative gave rise to one of the most prominent campaigns of2022, that of TotalEnergies. The focus on “say on climate” andcorporate climate transition plans confirms the importance of ESG
and strongly suggests that ESG (climate change in particular) willremain a central issue in investor engagements in 2023. Without
existing legislation in place, influential market participants arelobbying issuers to include “say on climate” resolutions on avoluntary basis.
In response to the rise in such campaigns, the AMF published astatement on shareholder dialogue on environmental and climateissues. In its statement, AMF calls on companies to strengthenshareholder dialogue by presenting their climate strategy atINSIGHTIA.COM

each general meeting and facilitating discussion. The strategy
should be accompanied by precise targets with follow-ups
arranged at regular intervals. The AMF also noted that it would
be appropriate, in the future, for this information to be approvedby shareholders, similar to the approval of annual financialstatements.
Which debates and/or changes in the regulatory frameworkoccurred in France in 2022?
Simon Martin-Gousset (SMG): France has not seen any
substantive legislative developments directly impacting activism
in 2022. However, a strong debate arose concerning the abilityof shareholders to vote on certain corporate issues, in particularresolutions regarding the company’s climate strategy.

“The focus on ‘say on climate’and corporate climate transition
plans confirms the importanceof ESG and strongly suggeststhat climate change will remaina central issue in investorengagements in 2023.”
In the context of this debate, several prominent think-tanks andacademics have expressed the view that legislative reform inthis area is not necessary. In light of the AMF confirming that it isunable to rule on the allocation of powers between shareholders
and their board of directors (i.e. how shareholders should be able
to influence company strategy), it is anticipated that investors
whose proposed resolutions are excluded from annual meeting
agendas will instead seek to challenge such exclusions in thecommercial courts.
In addition, we note a strong trend in Europe of introducing
environmental- and social-related requirements into company lawand we would anticipate that investors will push for French
companies to comply with such requirements and/or use newlegislation as tools in future campaigns.

CORPORATE GOVERNANCE IN EUROPE 2023

12

Germany: Primed for
an ESG revolution
An interview with Dr Murad M. Daghles and Dr Thyl
Haßler, partners, White & Case.

What demands were made of German companies by activists in2022 and early 2023?
Dr Murad Daghles (MD): In 2022, there were a number ofhigh-profile campaigns mainly targeting blue-chip companies.
Demands ranged from calls for a change in leadership to urging
companies to split and/or divest business units to maximize
shareholder value.
Bayer faced demands from large investors calling for the CEO
to be replaced and for a vote of no confidence in the managing
board’s 2021 performance by refusing to ratify the conduct of theboard. These demands were not ultimately successful at the drug
manufacturer’s 2022 annual meeting.
In January 2023, Inclusive Capital Partners and Bluebell CapitalPartners continued to call for a change in Bayer’s leadership andfor a separation of the company’s pharmaceutical and agriculturalbusinesses. This ongoing market pressure ultimately led toBayer’s CEO being replaced.
Another campaign of note is Primestone Capital’s public call formarket leading chemical distributor Brenntag to end takeover
talks with its U.S. rival Univar Solutions, citing financial andoperational risks and antitrust concerns. Activist investor Engine
Capital joined the campaign in early 2023 and requested a seaton Brenntag’s supervisory board and a split of Brenntag. In March2023, Brenntag announced a share buy-back of up to €750
million ($808 million) and a 37% increase to its 2022 dividend.
In April 2023, PrimeStone Capital claimed a seat on Brenntag’s
supervisory board and a split of the group.

Dr Murad M. Daghles
Partner
murad.daghles@whitecase.com

Dr Thyl Haßler
Partnerthyl.hassler@whitecase.com

Did 2022 bring forth any notable developments in ESG-related
activism in Germany?
Dr Thyl Haßler (TH): Two landmark campaigns are noteworthy
for their ties to ESG. Enkraft Capital’s engagement with energy
company RWE involved an ESG-related demand which wasunprecedented for a German shareholder meeting. Enkraft (with ashareholding of 0.03%) demanded a vote to accelerate the spinoff of RWE’s brown coal business; the company’s most emissionsintensive unit. Enkraft argued that the move would realise around€16 billion ($17.2 billion) in value and turn RWE into a “greener”
company.
Ultimately, this motion and Enkraft’s demand for a seat on thesupervisory board both failed but demonstrate the ESG-driven
pressures traditional industry players can expect to face inthe future.
INSIGHTIA.COM

Similarly, at Volkswagen, various Scandinavian pension funds
and the Church of England Pension Board challenged the lackof transparency around Volkswagen’s lobbying on climate
rules. Volkswagen refused to include on its 2022 proxy ballot a
proposal to enhance the board’s reporting obligations in relation
to lobbying.
The investors have since taken legal action against the company
to test whether it has the right to refuse to include an item on
the annual meeting agenda. This is one of the first high-profile
examples in Europe of shareholders pursuing litigation regarding
a climate-related matter.

“In 2022, there were anumber of high-profile
campaigns mainly targetingblue-chip companies.”
Did the Russian invasion in Ukraine impact investor campaigns
in Germany?
MD: Many large German companies reacted with official
statements reporting a withdrawal from business activities with
Russia or Russian entities which helped avoid activist campaigns
that used ties to Russia as a tool to push for demands. At
the 2022 shareholder meetings of several large blue-chipcompanies, investors challenged exposure to Russia: Henkel
sold its Russian business after DSW (among others) claimed
reputational harm and Beiersdorf shareholders criticized its ties
to Russia (although Beiersdorf already ceased certain parts of its
business activities in Russia).
Notwithstanding the landmark developments described above,the current geopolitical landscape appears to have temporarily
diverted investor attention away from environmental and social
concerns to a certain extent. However, with the war in Ukraine
being described as a “historic turning point” in how European
countries source their energy, it is anticipated that ESG-focused
campaigns will take center stage in coming years.

CORPORATE GOVERNANCE IN EUROPE 2023

13

#1 Legal Advisorfor Activism inEurope and Asia
Insightia's 2022 Advisor Awards

White & Case LLP has been ranked #1 for activism
in Europe and Asia in Insightia's 2022 AdvisorAwards, cementing its reputation as the leading
global Shareholder Activism law firm.

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