At last year’s annual shareholder meeting, Bayer CEO Werner Baumann was hit with a historic no-confidence vote. This time, a top proxy adviser has once again heaped pressure on the exec team.
Glass Lewis is advising shareholders to abstain during a vote on management’s actions in 2019, citing risks around the Monsanto acquisition, Bloomberg reported. Luckily for Baumann, rival adviser Institutional Shareholder Services has endorsed his team, despite all the litigation claiming the Roundup weedkiller causes cancer.
Both advisory firms last year recommended a vote of no confidence, and more than half of the votes cast followed that advice, rebuking Baumann and his fellow execs for their actions in 2018.
The question has always been about Baumann’s decision to buy up Monsanto, and how the $63 billion deal brought along Roundup lawsuits that could end up costing billions of dollars in damages and settlements—and erode shareholder value in the process. As of Feb. 6, the litigation has grown to about 48,000 plaintiffs, and Bayer has lost all trials to date.
Even in its “cautious support” note, ISS researchers argued “the current legal situation still entails significant risk for the company and there is the potential for further damage to the company's value and reputation.” It also recognized that Bayer’s been providing “significant support for its claim that the management board fulfilled its fiduciary duties” in the Monsanto buyout.
Multiple independent opinions have concluded that Baumann’s team acted diligently in its Monsanto strategic move. Plus, Bayer recently reached an agreement with shareholder Christian Strenger, a founding member of the German Government Commission on Corporate Governance, for a special audit of the company’s M&A due diligence rules.
According to the analysis (PDF) performed by Hans-Joachim Böcking, a professor at the University of Frankfurt, “it can be stated that the internal group guidelines and requirements with regard to the performance of [due diligence] in the context of material M&A transactions are appropriate."
ISS noted that so far this year Strenger has not submitted a counterproposal recommending that shareholders vote against backing Baumann’s management. But apparently not all investors are satisfied: One committee of shareholders opposes Bayer’s commitment to Roundup and is calling for a no-confidence vote.
Still, Baumann might get a pass this time; after all, even Glass Lewis recommends abstention, not a hard vote “against.” After last year’s symbolic no-confidence vote, Bayer quickly embarked upon a roadshow that sought shareholder feedback on improving corporate governance, ISS noted. In total, it met with over 500 investors, representing about 60% of shares.
Right now, Bayer’s engaged in a court-ordered mediation to negotiate a settlement. The process has slowed, though, amid the coronavirus crisis. During a conference call on Bayer's full-year results, Baumann wouldn’t set a timeline because doing so could hurt its chance at achieving “optimal result,” the CEO said.
Should the discussions be successful, the company would avoid admitting any guilt and would be able to continue selling Roundup, ISS pointed out.
Although the pandemic has damaged Bayer’s stock market performance—just as unfavorable Roundup court rulings did last year—it could represent a chance for the German conglomerate to recover its reputation. For one thing, it has pledged to donate 3 million tablets of chloroquine to the U.S. government as a possible countermeasure against SARS-CoV-2.