Proxinvest, as proxy advisory agent, rarely presents written questions, points or resolutions. This is usually the role of large and small shareholders to publicly commit to contribute to debate the expected improvement in the management groups.
The Renault case, is however exceptionally serious as Proxinvest had foreseen as early as 1999 that the Renault Nissan governance would finally entrench management, as demonstrated this year by the new waiver by the company Directors in favour of Carlos Ghosn, the already powerful and ever overpaid chairman & CEO of Renault, Nissan Motor, Renault-Nissan B.V. and Avtovaz of any liability to the Renault or Nissan shareholders. Loïc Desaaint, the CEO of Proxinvest, a Renault shareholder for over twenty years, has therefore decided to present the following questions to the Directors of the company for the up-coming Apri 29th. AGM in Paris.
Attention : Mr. Carlos Ghosn
Chairman of the Board of Directors
RENAULT SA
13/15 Quai Le Gallo
92100 Boulogne-Billancourt
Subject: Deadline for written questions to the general meeting on April 29, 2016
Dear Mr Chairman, Ladies and Gentlemen of the Board,
Proxinvest , as registered shareholder of your company, is pleased to send you the following written questions in accordance with Article L.225-108 paragraph 3 and in Article R.225-84 paragraph 1 of the commercial Code.
We hope these questions will allow the board to inform its shareholders prior to the votes of the general meeting.
I. Questions on Resolution 5 (Agreement with the French State)
In the agreement with the French State subject to approval of Resolution 5, the French State accepts to cap its voting rights in ordinary general meeting on certain subjects. In view of the agreement, it appears that State sees cap its voting rights on matters of executive compensation (say on pay the CEO, the powers of stock options, free share grants) or on the issue of statutory age limit for the Chairman or the CEO.
The agreement also provides that the resolutions submitted by a shareholder other than the State, meaning shareholders external resolutions, are not subject to the cap mechanism if the State is voting as recommended by the Board of Directors of Renault.
Question 1: Why the Board he has prioritized in negotiations with the State on clauses that seems rather a protection for management?
Question No. 2: Has the State opposing vote of the State on Mr. Carlos Ghosn compensation « Say On Pay » resolutions at the past two AGMs influenced the Board in its negotiations?
Question No. 3: Was the Board agreement to keep the French State double voting right in case of solidarity against external resolutions submitted by one or more shareholders a kind of abuse of power and an obstacle to the rights of shareholders and a limit to the Board impartiality required for shareholder democracy?
II. Questions on Resolution 6 (agreement with Nissan)
The Resolution 6 of the Renault General Meeting proposes to the shareholders to approve the signing of a new agreement between Renault SA and its partner Nissan Motor. Renault has not responded to the Proxinvest demand of disclosing the full original agreement.
This agreement that claims, according to the company, to « perpetuate the Alliance » between the two automakers now requires Renault to vote in favor of the resolutions proposed by the Nissan Board of Directors to the General Meeting of Nissan for the appointment, removal and remuneration of Board of Directors of Nissan and not to submit to the General meeting of Nissan or not to vote in favor of a resolution that would not have been approved by the Board of Directors of Nissan. Renault agrees to vote as recommended by the Board of Directors of Nissan on external resolutions, in case of default Nissan would be entitled to acquire Renault shares without prior approval.
Question 4: The provisions of the agreement appear to allow Mr. Carlos Ghosn, President of Renault SA, Nissan Motor Co., the joint venture of the Renault-Nissan Alliance BV, to remain in office as Chairman and CEO of Nissan, even if he were ever to leave office at the Renault Board. How the Board of Directors of Renault, the 43.4% shareholder of Nissan, having a large majority in voting at the Nissan AGM, could renounce to freely participate to the governance and supervision of Nissan, abandoning here many shareholder rights in proportion to its economic investment on matters such as the appointment, the removal of directors and their remuneration ?
Question 5: Does the surrender of rights in favour of Nissan Board by the Renault Board make the current Chairman and CEO irremovable because of its current chairman positions now protected at Nissan Motor and at Renault-Nissan BV , except in case of breaking the rather beneficia Alliance l between the two groups?
Question 6: President Carlos Ghosn appears to receive a regular pay of € 8M from Nissan Motor seems unrelated to the performance of this subsidiary company. How does the Renault SA Board intend to exercise its responsibilities for controling the remuneration of the President & CEO of Nissan while the Board decides to abandon its free vote in this matter.
III. Questions on Resolution 8 (remuneration of Carlos Ghosn)
The AFEP MEDEF code to which Renault refers recommends in point 23.1 to respect the principles of completeness that « the determination of remuneration to be exhaustive. fixed part, annual variable part and / or multi-year shares or options plans, performance shares, directors’ fees, retirement conditions, special benefits and, in general, any other component of remuneration should be retained in the overall assessment of remuneration « . The same Code provides in paragraph 24.3 that the Consultation of shareholders is on the on the elements of remuneration or awarded for the financial year including » benefits in kind « .
Proxinvest observes that the figures submitted to Renault SA shareholders present again this year a few shortcomings. First, the general meeting brochure distributed to shareholders (notice) does not mention or footnote compensation received by Carlos Ghosn page under his duties as CEO of Nissan owned company to 43.4% by Renault this substantial compensation amount € 8 million paid by Nissan Motor (more or less half of his total compensation), although mentioned in the reference document is not included among the AGM shareholders information elements 29-31 this for the second consecutive year.
Question No. 7: is the absence in the information preparing the resolution 8 of the compensation received from Nissan, about half of the total remuneration and benefits received by Mr. Carlos Ghosnt a failure to comply withe the legal infromation rules and therefore a possible reason for a possible court cancellation of the April 29th. General Meeting?
Question No. 8: the Macron Act amended the section L225-102-1 the Commercial Code and now requires that « to indicate … on each managing director, the estimated amount of pension that would be potentially paid for these commitments and the costs involved. « .Contrary to other French companies Renault does not seem to respect this legal provision Can the Board clarify the general meeting, prior to the vote on Resolution 8, the estimated amount of annual pension that would potentially be paid by the Renault Group to Mr. Carlos Ghosn under his future retirement and why failed to respect the Macron Act ?
Question 9: Are these two breaches of communication a manifest non-compliance with the principle of completeness of the Reference Code AFEP-MEDEF?
IV. Question on Resolution 13 (bonus share):
If adopted, the resolution would allow 13 the grant of free shares to the CEO conditional upon performance conditions , including the Operational margin compared to the average of a group of competitors and a profitability of the shareholder (TSR) lower than the average of two indices comapraison (Stoxx Auto & parts and Euro Stoxx ex Financials). According to the document « Principles of remuneration of long-term incentive plans » posted on the group’s website in April 2016, no share would be granted to these two criteria if Renault performs worse than its peers. However, the brochure of the AGM on page 37 shows a partial bonus share will be possible even in the event of underperformance relative to comparable. These attached documents are contradictory and many shareholders voting by mail will have recived erroneous information.
Question No. 10: Which of the two documents is correct and there-he has a possible partial allocation of free shares in case of underperformance relative to the average company or comparison indices?
V.Questions on Renault’s investment in Russia
An article in the Wall Street Journal on April 11, 2016 describes the misadventures of Renault in Russia. In 2008, Renault has invested € 700M for 25% + 1 share stake in AvtoVAZ. Following the 2008 crisis and pressure from the Russian authorities, we had to accept in 2012 to reinvest, especially in 2014 alongside Nissan while investing as over time in line construction and production development Russia. The Wall Street Journal reported a total cumulative investment of $ 2.4 billion for Renault and Nissan. Despite the presence of Carlos Ghosn as Chairman of the Board of AvtoVAZ, the contribution of AvtoVAZ to Renault’s earnings was again negative in 2015 up to € -620M. AvtoVAZ having a loss greater than one billion euros in 2015, the share of Renault in the loss of € 395m (of which € 136M in operating loss) and the value of the investment was written down again, from -225M € in 2015 to be increased to € 91M only the end of 2015, value equal to its market capitalization. The reference document referred to a necessary recapitalization of Avtovaz under insufficient assets and a decision can control by Renault. During the presentation of its financial results, Renault reported a negative outlook in 2016 to Russia (-16%).
Question 11: What is the amount of accumulated investments in Russia since 2007, both in equity investments in investment in production and modernization?
Question No. 12: In view of the significant accumulated losses and bearish outlook in Russia, do you regret the investment in AvtoVAZ and do you think that we should continue the bailout losses that are caused to be consolidated by Renault if the group takes control? What is the level of loans and receivables on AvtoVAZ Renault at the end of the year? The risk governance is not it too high risk for this recapitalization?
VI.Question on the use of cash receivable from Nissan Motors.
As President of Nissan, Carlos Ghosn announced in February a share buyback program by Nissan’s own shares for 400 billion yen (3.2 billion euros) or 300 million shares February 29 and December 22, 2016 that will not change ‘respective shareholdings with Renault and will have no impact on the governance of the alliance. » « This should transfer large amounts of cash from Nissan to Renault because Renault’s share in Nissan (43% could fetch the equivalent of about € 1.3 billion.
Question 13: How will this exceptional cash be used : will it serve to pay a special dividend to shareholders or will serve it the bailout capital of Russian production units?
We thank in advance the members of the Board of Directors for the time spent on a careful reading of our questions and for the quality of the answer they will bring.
Loic Dessaint
General manager
Proxinvest April 25 th. 2016
