Amazing, but true: shareholder meetings in the Netherlands are becoming fun. At Heineken’s annual meeting in April this year, the Shell Pension Fund made life difficult for Heineken’s management board. Shell’s pension arm (with some $12 bn under management, more than half of it in equities) has a big stake in the brewer and wanted to know why Heineken wasn’t more clear about its long-term strategy. The Heineken board didn’t seem very pleased by the nature of the questions.
A few days later, Shell itself came under scrutiny from PGGM, the pension fund for employees in the health and social services sector. PGGM is the second largest Dutch pension fund, with around $44 bn under management. It urged management at Shell’s annual meeting to accept the ‘one share, one vote’ principle, eliminating its ceiling on voting rights. Shell refused.
Active contact
‘Compared with just a few years ago, we are much more active in our contacts with the companies we invest in,’ says Roderick Munsters, PGGM’s managing director of investments. The fund grabbed the headlines again this spring when it openly criticized share option arrangements at some Dutch companies, among them the giant bank group ING (see opposite). ‘We are not against share options for managers as such, they can be very valuable. But there should be a clear relation with performance,’ explains Munsters. ‘What’s more, the company should not issue new shares to enable the exercising of options. That means direct dilution of profits for existing shareholders. We prefer the company to buy back shares on the market and charge the loss to the profit and loss account. Then it’s clear to everybody what share options actually cost a company.’
Newspapers focused their attentions on the share options row, but the new involvement of Dutch pension funds with corporate governance goes far beyond concerns about management remuneration.
‘Our relations with a company we have invested in are much more frequent than a couple of years ago,’ says Theo Jeurissen, managing director of allocation at ABP, the pension fund for Dutch public employees.
With $136 bn under management, ABP is the biggest pension fund in Europe. ‘We are long-term investors; voting with our feet is not an option for us. Therefore, we have to be proactive,’ Jeurissen adds. In his opinion, Dutch companies have a ‘reasonable feeling for investor relations. They don’t find it difficult to speak openly about their strategy and financial position. The atmosphere becomes a bit more tense, though, when you talk with them about share options and the one share, one vote principle.’
Chunky holdings
The change in the company/shareholder relationship is not surprising. In the early 1990s, Dutch pension funds typically had relatively small investments in equities – as a percentage of total assets they were negligible. Now, they are a very important chunk. The removal of legal and regulatory impediments to equity investment, low interest rates and booming stock markets have all caused a radical shift in asset allocation.
Take ABP and PGGM, between them accounting for roughly half of all assets of the 1,100 Dutch pension funds. In 1992, ABP had hardly any shares in its investment-portfolio. Now, it has 20 percent and the strategic target rate was recently increased from 30 percent to 40 percent. At PGGM, shares already represent 59 percent of the portfolio’s value, just over the target rate of 55 percent. In 1992, however, shares only made up 22 percent of the total.
According to Cees Westland at the Amsterdam office of WM, the pension industry consultants, this trend is not limited to ABP and PGGM. ‘At the end of 1997, shares represented 37 percent of the value of the portfolio of all bar the big two pension funds. In 1992, it was 24 percent.’
Direct contact
As big Dutch pension funds tend to manage their portfolios of Dutch shares themselves, rather than through external fund managers, they are directly responsible for contacts with the companies they are invested in. As the discussion on corporate governance in the Netherlands intensified, it was logical that the pension funds should take the lead.
Pension fund representatives actively participated in the Peters Committee which published corporate governance guidelines for the Netherlands last year. Following on from that, in March of this year, some big pension funds set up their own Foundation for Corporate Governance. The chairman is Peter de Koning, managing director of SPF Beheer, the $10 bn pension fund for the railway industry.
‘The Foundation helps pension funds in their efforts to improve corporate governance,’ explains de Koning. ‘We coordinate the presence of pension funds at annual meetings, to avoid the possibility of there being, say, ten pension funds at ABN Amro’s meeting one day and then none at ING’s the next. We’ve also ordered a study into the agendas of this year’s meetings at the 25 major listed companies of Amsterdam Exchanges. The funds can use the resulting report in their assessment of corporate governance practices in those companies. And through the Foundation, one pension fund like ABP can inform others about what they want to bring up at an annual meeting. If other pension funds, which aren’t going to attend, agree, they can transfer their voting rights to ABP. There is a growing tendency to give the proxy vote to a fellow pension fund rather than to the management of the company.’
The current big issues for Dutch pension funds, according to de Koning, are independence of the supervisory board in the two-tier board system and the principle of one share, one vote.
Although big sector-wide funds like ABP and PGGM are taking the lead in the struggle for more shareholder influence, some large listed company pension funds – like Shell’s – are also in the fray. ‘We look at investor relations in a purely business-like way,’ explains a spokesman for Shell. ‘It should be normal that the Shell Pension Fund asks questions at Heineken’s annual meeting and PGGM at Shell’s own meeting. The Shell Pension Fund can define its own strategy regarding corporate governance independently of Shell itself.’ Is this all part of the new ‘openness and honesty’ culture at Shell? ‘Let’s say things have changed a lot over the last years and Shell has changed with them,’ concludes the spokesman.
Group action
Shell is not alone. The Unilever, Philips, KLM and KPN pension funds have also joined the corporate governance foundation. All, however, remain adamant that they are not aiming for a radical overhaul of corporate governance in the Netherlands. For example, they are not intent on pressing for direct election of the supervisory board by shareholders.
‘I readily agree that we are lagging behind the Anglo-Saxon countries as far as focus on shareholder value is concerned,’ says PGGM’s Munsters. ‘But I don’t think the Netherlands wants to fully embrace the model of crude American capitalism. Yes, we want to maximize the return on our investment in the long run, but we want to link shareholder value to stakeholder value.’
