Heidelbergcement, Germany

Issue
We had noted the lack of female representation at the executive level at construction and materials maker Heidelbergcement. We believe that cultivating a diverse talent pipeline to feed into leadership roles is an important aspect of companies demonstrating good governance, and we have engaged on this topic over the past two years.

Action
In 2020, we engaged with management in order to address our concerns. The company explained that in the cement business it remains difficult to attract a strong female pipeline, but that they were seeking to address this issue. They had set targets for women to be in senior management roles and had recently hired a new female HR director who would be leading diversity projects. While the company lacked representation at executive level, the Supervisory Board had 42% female representation and so, we continued to engage and monitor the evolution of the company’s female talent pipeline.

We subsequently engaged Heidelbergcement in 2021, where the company noted that they had appointed the first female member of the Group Managing Board to take on the newly created role of Chief Sustainability Officer with responsibility for ESG, global research and development and new technologies. The company highlighted the background of the new appointee, which included being the Chief Sustainability Officer at another firm and being a trained ecologist and chemical engineer. At a subsequent meeting, the company highlighted that two areas of focus for the next few years will be sustainability and digitalization.

Outcomes and next steps
Heidelbergcement has demonstrated that they have taken into account feedback from shareholders in the appointment of their first female member of the Management Board. We welcome the positive trajectory on their diversity program. We will continue to monitor and engage the company concerning diversity within the broader business over the coming years.

Pan Pacific International Holdings, Japan

Issue
We have raised concerns around the structure and composition of the board at this Japanese retailing group. Issues focus around both the size of the board and the lack of diversity on the board which we feel could impede effective functioning and sustainable value creation.

Action
In 2021, against the backdrop of our vote against the elections of all directors at the AGM in 2020 due to concerns over the size of the board and lack of diversity, we sought to engage the company to address these concerns.

In the engagement meeting, the company explained that its corporate code of conduct endorses diversity and it has promoted the advancement of female employees in many occupational areas. Additionally, the company explained it has undertaken initiatives to support employees from different nationalities and this is of particular importance as the company has been growing its businesses across the Asian region. With this in mind, the company had just set up a diversity management committee to systematically promote diversity in the workplace and had nominated the first female executive director as the chair of the committee. We urged the company to enhance its board diversity and to address this issue at the newly established advisory nomination committee.

Outcomes and next steps
At the company’s 2021 annual meeting held in September, the company proposed to reduce the number of directors on the board and to appoint the chair of the diversity management committee as the first female executive board director on the board. We consider this positive progress in line with our engagement requests and we will continue to engage to encourage further diversity at the board level and throughout the business.

Akzo Nobel, Netherlands

Issue
The issuer announced a proposal to acquire a Finnish coatings company, Tikkurila, with the acquisition being both strategically attractive and having significant cost synergies. Subsequently, a counter acquisition proposal was submitted by a third party with the offer price above that proposed by the company.

Action
While we appreciated the company’s proposed offer for Tikkurila, noting the strategic attraction of gaining access to leading market positions and brands in the Nordic and Baltic regions, as well as potentially significant cost synergies being accrued, the counteroffer submitted by PPG, with the offer price significantly above that proposed by the company, caused us some concerns. As a result, we wrote a letter to the Chairman of the board to encourage the company not to raise its initial offer price. We believed that the company raising its offer further would result in value destruction. We expressed our belief that future shareholder value creation would best be achieved through executing on the current strategy and a balanced capital allocation policy that prioritizes internal investment and return of cash to shareholders, with scope for small acquisitions that complement the existing portfolio.

Outcomes and next steps
The company announced that it no longer intended to pursue the acquisition as the transaction no longer met the company’s criteria for superior value creation.

SK Innovation, South Korea

Issue
We have observed a series of corporate restructurings of South Korean industrial conglomerates in recent times. In July, SK Innovation (the listed energy, petrochemical and battery arm of SK Group) announced its intention to split off its fast-growing battery business. There have been issues with share price underperformance potentially attributed to concerns about the holding company discount (when a holding company's market capitalization is less than the sum of the investments and other net assets that it holds), stranded asset risk, and the potential for unfair treatment of minority shareholders.

Action
In light of this, we engaged the company to discuss the company’s restructuring prior to the company’s EGM to approve the split off. Although the company acknowledged the importance of addressing the holding company discount, we did not consider sufficient action had been proposed to resolve this matter. In addition to this, we wrote a letter to the independent board chairman suggesting a number of actions to address concerns raised, including that the company offer new shares in the subsidiary, if any, on a pre-emptive basis to existing shareholders and cancel the existing treasury shares. We also suggested the company disclose the newly established ESG board committee’s activities and how it considers minority shareholders’ rights and interests in the ESG checklist, and disclose board evaluation details to demonstrate board effectiveness.

Outcomes and next steps
Given our concern that the holdco discount would deepen over the long term, we escalated our action by voting against both management proposals at the EGM including the split-off resolution. Despite our voting action, the resolution passed. However, since then, we have been encouraged by the board chair’s letter in response and acknowledgement of the issues faced. In early 2022, the company announced a new board-approved shareholder return policy, which includes an annual dividend payout ratio at 30% percent or above from fiscal year 2021 to 2023. We welcome the company’s and the board’s consideration of shareholder value, and look forward to its further action to enhance governance practice and improve shareholder return.