Voting against these payouts seems wrongheaded at best, and ungrateful at worst
Watching the investors in the sector can at times be a frustrating experience.
You see some companies underperforming year after year, with ineffectual leadership and confused or ill-defined strategy. And you know that they are able to go on behaving in this way – with boards and management teams essentially running those companies in their own interests – because there is no effective oversight from capital.
Investors in the sector, taken in the round, are unwilling to get tough with boards and force change.
Which means that when investors do take a stand, my instinct is to applaud them for doing so.
Stands taken by investors – whether that is votes against boards, comments to the media, or proxy campaigns – are necessary for the chain of accountability to function properly.
But then sometimes you see the things that do finally elicit a little shareholder backbone and it makes you despair.
So, let’s take the resolutions put to Validus shareholders as part of the company’s proposed acquisition by AIG.
In a vote that will have absolutely no impact on anything, the shareholders voted 30.1 million to 29.7 million to say that “golden parachutes” should not be paid out to executives, including CEO Ed Noonan and CFO Jeff Sangster.
Regardless of the vote, Noonan will receive $16.8mn and Sangster $10.7mn as stipulated by contracts that have been in force for quite some time.
That’s a lot of money by most standards. But the question really is whether these are proper incentives, rewarding good behaviour and effective execution.
And here the answer is surely a resounding ‘yes’.
The Validus board and leadership team could have looked to spin out its existence as an independent business as so many companies do, regardless of shareholder interests.
Instead, chairman and CEO Noonan engaged with AIG when Brian Duperreault came knocking.
And as to the quality of the execution, there can surely be little question. Without the destabilising impact of talks becoming public, or the need to call a process, Noonan was able to negotiate a 46 percent premium to the undisturbed share price and an all-cash exit for his shareholders.
A little of the sheen may have been taken off the 1.6x multiple by Axa’s knockout 1.5x offer for XL, but nothing should be allowed to detract from the fullness of the valuation.
With returns in Bermuda stuck in single-digit territory, London far worse and the pricing response to Harvey, Irma and Maria lacklustre, Validus shareholders were somehow gifted the chance to cash out multiple years of returns all at once with zero risk.
It was a great deal for them – and remains a great deal for them.
And so voting against these payouts – fairly trivial in the context of a $5.6bn deal – seems wrongheaded at best, and ungrateful at worst.
When this is the shareholder activism you see, it almost makes you wish investors would just leave boards to get on with things.