EssilorLuxottica needs to act

Time for the Board to act

As EssilorLuxottica heads towards its 2020 annual general meeting (AGM) on 25 Jun 2020, we call on the Board to address its ongoing governance issues. We do not believe the governance deadlock, first made public in March last year, has been resolved. Since the settlement agreement signed in May 2019, the Board has not given an update or made any visible improvements in governance despite assurance to shareholders. This puts their longer-term performance, including the delivery of merger synergies, at risk. We strongly encourage the Board to use the upcoming AGM to address shareholders’ concerns.

What we would like to see

1. Succession planning for key board members. Specifically, we would like to see at least two new non-executive directors appointed who do not have historical ties to either side. This would provide fresh oversight on behalf of all shareholders and, critically, help ensure more united leadership.
2. Issue a public update on the progress the Nomination Committee is making in appointing a new Chief Executive Officer.
3. Appoint a lead independent director to whom minority shareholders can turn for future dialogues.
4. Consult with shareholders on the current remuneration structure. Executive pay was significantly increased before the merger had delivered value to shareholders. There was a clear lack of shareholder support for the increases, as reflected in the significant level of votes cast against remuneration resolutions at the 2019 AGM.
5. Provide written assurances that the Members of the Board are able to uphold their duties to act in the best interests of all shareholders while at the same time adhere to the conditions of the Combination Agreement.

Shareholders should exercise their votes

Most of the resolutions in the upcoming AGM are related to executive remuneration, with the exception of those related to seeking shareholder ratification on the appointments of Mr. Laurent Vacherot (who retired in March) and Mr. Paul du Saillant. The Board of directors has a three-year term. We will vote against all items concerning executive remuneration in protest against the lack of progress in governance improvements.

Sarasin actions

We have written to the Board four times over the past 12 months and have received one reply. Unfortunately, the response we have received does not provide us with any comfort that the Board is addressing our governance concerns.

In April 2020, as per our Ownership Discipline, we wrote to two French regulatory bodies – the Autorité des Marchés Financiers and the Haut Comité de Gouvernement d'Entreprise – raising our concern that the company’s current governance arrangements, primarily the Combination Agreement, have impeded directors to carry out their duties in the best interest of the company and all its shareholders. We have not had a formal response yet.

Following a year of silence from EssilorLuxottica, shareholders need more clarity on how the Board plans to address governance concerns. Last year, EssilorLuxottica saw a majority of independent shareholders vote in favour of the appointment of two shareholder-proposed independent directors, sending an unequivocal message that the simmering board infighting needed to be stopped. As minority shareholders, we continue to worry that the power struggle between Mr. Del Vecchio and Mr. Sagnières is distracting management from their job of finalising their merger and delivering promised synergies. Given the more recent challenges of COVID-19, it is even more important that EssilorLuxottica’s leadership is united to ensure the business prospers. We, therefore, call on the Board to use this AGM as an opportunity to provide clarity over the future of the company’s executive leadership and update on plans to refresh the board with new independent directors – including the appointment of a dedicated lead independent director to lead dialogues with shareholders.

 - Alex Hunter, Partner, Sarasin & Partners