Institution Theme Category Industry
  • Aberdeen Standard Investments
  • Governance
  • Board & Governance
  • Utilities
Company Year Market Link
Galp Energia 2019 N/A https://www.aberdeenstandard.com/en/insights-thinking-aloud/article-page/galp-energia

…We have engaged with Galp for some years on a number of issues around board composition, including board size, board independence and the board nominations process. The group elects directors for a four-year board term and board elections were due to take place this year. We had previously encouraged the company to reduce the board’s size and to increase independence. In conducting our voting analysis ahead of the AGM, we were disappointed to note that the company had not addressed these issues.
There are 19 board directors, of whom only five are independent. Five of the directors represent a significant shareholder, Amorim Energia, which owns 33% of the share capital. Given that the company only holds board elections every four years, we felt it was important to register our concern about the size of the board and the lack of independence. Hence, at the AGM, we instructed our clients’ shares to vote against the election of the board of directors.
This is because we believe large boards are not conducive to good decision-making. Meanwhile, the low level of board independence raises concerns as to whether the interests of minority shareholders are being fully represented. This is particularly the case since the significant shareholder has five board directors. We would also like to see a more robust and transparent board nominations process. At the AGM, there was a 33% vote against the board election. Assuming Amorim Energia voted for the election, it would seem that a majority of the independent shareholders voted against the election of the board of directors – a significant outcome.
Following the AGM, we spoke to the director of the group secretariat and the head of investor relations. We explained our ongoing concerns regarding the size of the board. While we respect the right of Amorim Energia to have board representation, we are unclear why it requires five board representatives. Reducing this number would help cut board size and increase independence. Additionally, there is now a recommendation in Portugal that listed companies should have a nomination committee and we encouraged Galp to consider this. Currently, shareholders, specifically Amorim Energia, conduct the nomination process. The company could also improve the level of transparency around this process. Galp is keen to continue our engagement and we will arrange a further face-to-face meeting. We will continue to press for the improvements that we believe would enhance board effectiveness and accountability.

Details

  • Proponent
  • Management
  • Resolution
  • Election of directors
  • Vote
  • AGAINST
  • Rationale
  • N/A
  • Details
  • There are 19 board directors, of whom only five are independent. Five of the directors represent a significant shareholder, Amorim Energia, which owns 33% of the share capital. Given that the company only holds board elections every four years, we felt it was important to register our concern about the size of the board and the lack of independence. Hence, at the AGM, we instructed our clients’ shares to vote against the election of the board of directors.
    This is because we believe large boards are not conducive to good decision-making. Meanwhile, the low level of board independence raises concerns as to whether the interests of minority shareholders are being fully represented. This is particularly the case since the significant shareholder has five board directors. We would also like to see a more robust and transparent board nominations process. At the AGM, there was a 33% vote against the board election. Assuming Amorim Energia voted for the election, it would seem that a majority of the independent shareholders voted against the election of the board of directors – a significant outcome.