HSBC voting advice
20 May 2003
| Company: | HSBC Holdings plc (HSBC) |
| Stock code: | 0005 |
| Meeting type: | Annual |
| Date of meeting: | 30-May-03 |
| Time of meeting: | 11:00 (UK time) |
| Advice date: | 20-May-03 |
| CCASS voting cut-off | 27-May-03 VOTE NOW |
| Notice of Meeting: | Click here |
| Voting method: | Webb-site.com will require a poll, all proxies will be counted |
| How to vote: | See our voting guide |
Note to journalists:
We have up to 4 proxy seats available inside this AGM. Please contact
us if you want one.
| Item | Description | Vote |
| 1 | Receive the accounts | FOR |
| 2.1 | Re-elect Raymond Ch'ien Kuo Fung | FOR |
| 2.2 | Re-elect Stephen K Green | FOR |
| 2.3 | Re-elect A W Jebson | FOR |
| 2.4 | Re-elect Brian Moffat | FOR |
| 2.5 | Re-elect S W Newton | FOR |
| 2.6 | Re-elect Helmut Sohmen | FOR |
| 2.7 | Re-elect C S Taylor | FOR |
| 2.8 | Re-elect Brian Williamson | FOR |
| 2.9 | Re-elect William F Aldinger III | AGAINST |
| 3 | Reappoint the auditor | FOR |
| 4 | Approve the directors' remuneration report | AGAINST |
| 5 | Mandate the directors to allot shares | FOR |
| 6 | Disapply pre-emption rights (special resolution, see comment) | FOR |
| 7 | Mandate the directors to repurchase shares | FOR |
| 8 | Authorise the company to make political donations and incur political expenditure (see comment) | FOR |
| 9 | Authorise HSBC Bank plc to make political donations and incur political expenditure (see comment) | FOR |
Reasons AGAINST items 2.9 and 4
Mr William F Aldinger III was appointed to the board following the completion of the acquisition of US consumer finance firm Household International, Inc. (Household) in March.
The circular detailing the acquisition, on pages 99-101, details Mr Aldinger's compensation arrangements, which are, by any reasonable standard, obscene. Despite continuing to act as CEO of Household, he was paid a "termination" fee of US$20.3m for severing his existing contract, and has entered into a new one which appears to be at least as favourable as the old one, so that payment cannot be justified as compensation for a reduction in the pay he would have received without termination.
He also received a one-time "special retention grant" of shares in HSBC worth US$10m, and is promised further grants of $5.5m on the first and second anniversaries of his contract, a total value of $21m. On top of that, he gets an annual salary and guaranteed annual bonus (why don't they just call it salary) totalling US$5m, and benefits of $518,000, not to mention pension contributions. Perpetuating the error, Mr Aldinger's new 3-year contract provides that if he is terminated other than for "cause", or if he resigns for "good reason" then he gets paid for the unexpired term (including bonuses), and he and his wife get free medical and dental benefits for life.
What we find most objectionable is the notion that just for arranging the takeover of his company, and without any change in his position or loss of a job, Mr Aldinger benefits to the extent of at least US$41.3m compared with the situation if Household had not been taken over. Takeover decisions should be driven by the merits to shareowners, not by the benefits that might accrue to management.
Shareholders have to wonder at the farce of the same person receiving both a "termination" payment and a "special retention grant" from the same company at the same time. Did his office throw him a leaving party and a welcome party on the same day?
No doubt HSBC will tell you that this was a price worth paying to get the Household deal, and that it's not their fault that executives in the US extract such extortionate packages from their shareholders in return for managing their assets - they will claim that this is the "going rate" - but even in the US, there is (at last) a backlash underway against such princely packages, led by value investors such as Warren Buffett.
Although the remuneration report relates to the pre-existing directors of HSBC (excluding Mr Aldinger), we recommend you vote against it as a protest vote to discourage HSBC from writing this kind of contract in the future, and against Mr Aldinger's re-election for the same reason. If he is not re-elected, he will still serve as CEO of Household, so we presume his termination clause would not kick in and give him another pay-off.
Comment
Item 6
HSBC is the only company in the Hang Seng Index which is incorporated in the UK (strictly speaking, England and Wales, as Scotland has its own laws) and is dual-primary listed in the UK and Hong Kong. As such, it has to conform to the highest of the standards in the two markets, which normally means the UK standards.
The UK Companies Act provides statutory pre-emption rights for issues of shares for cash to existing shareholders. The HK Companies Ordinance does not. Under UK law, these rights can only be waived by special resolution, requiring a 75% approval of those voting. Under HK law, it only requires a 50% approval to grant a general mandate for non-pre-emptive issues under the Listing Rules.
Under UK pre-emption guidelines, companies limit their dis-application of pre-emption rights (resolution 6 above) to a maximum of 5% of issued shares in one year, and to 7.5% in a rolling 3-year period, with a maximum discount of 5%. These are the standards we are calling for in Hong Kong, under Project Vampire.
Recently, a majority of independent investors in 5 Hang Seng Index companies: Cathay Pacific, Cheung Kong Infrastructure, China Unicom, CITIC Pacific and Swire Pacific have all voted against the Hong Kong issue mandate, which allows up to a 20% new issue size with no limit on discount. Their fellow index members would do well to take note of this.
So HSBC complies with this Project Vampire as a result of the UK standards, and we only wish that it would arrange for subsidiary Hang Seng Bank Ltd (0013) to do the same.
Webb-site.com can reveal that next week, a leading Hong Kong company will be announcing, at its AGM, that it is amending its general issue mandate to comply with Project Vampire's recommendations. We'll tell you who that is after the meeting.
Item 8 and 9
The corporate manipulation of the democratic process by political campaign contributions is a disease that should be stamped out at its root. We need a society in which people are elected in a competitive and fair market for ideas and beliefs on how society should be governed, not on how much money they can raise for advertising backed by corporate lobbyists who inevitably expect legislative and regulatory favours in return. The US political process shows the worst excesses of this system, and it is often said that where the US goes, the UK is often not far behind.
However, in 2002 no political donations were made by HSBC, and the board states:
"It is not proposed that the Company's long-standing policy of not making contributions to any political party be changed. The authorities are being sought only as a precautionary measure because of the uncertainty as to what might unexpectedly fall within the very broad scope of the Political Parties, Elections and Referendums Act 2000."
The resolutions seek authority to spend up to a total of GBP300,000 over the next 4 years, in case any expenditure is caught within the definition referred to above. In view of the policy of no contributions expressed in the above statement, we are in favour of the resolutions.
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