Gerben Everts (VEB): ‘Do Not Let Financial Analysts Guide You’

Let us start at the beginning, namely definitions: what is the difference between an investor and a shareholder?
‘Basically, there is no difference. Investing is one of the shareholder’s activities. He or she realizes a return on money through investing. As a result, companies can do business, jobs are created, and products are made that would not have been viable without that financing. But share ownership is more than just investing. It is not just putting your money away in the hope that a return will come from it. A shareholder should also be actively involved in a company. A shareholder is part of the company. The shareholders’ meeting, for example, is formally an organ of the company. A shareholder does in fact have rights. And we think the shareholder should make use of these.’

How is the relationship between companies and shareholders currently?
‘For the continuity of a company, a good relationship with external financiers is vital. In the ideal world, therefore, there is a symbiosis and members of the Executive Board and shareholders value the synergy between them. Shareholders keep a company on its toes. They must continually give a mandate for the upcoming period, so as an entrepreneur you must have a good story. An open relationship is crucial and creates trust. In practice, unfortunately, it does not always work this way. Sometimes there is tension. Then you notice that shareholders have questions that were not anticipated in time.’

Do shareholders take enough responsibility?
‘Share ownership is not without obligations. Certainly not for major shareholders. This is also how it is written in the corporate governance code. They get rights, they also get a voice in governance. Do shareholders take enough responsibility? This is happening increasingly and to a higher standard. Certainly, if you compare it to say 25 years ago, they are behaving more professionally.
But it will never be good enough as far as I am concerned. I think many large asset managers are still too passive. Last year we conducted a major survey on the voting behavior of large institutional investors. We do see a trend that they are becoming more critical. But quite surprisingly, it also showed that large institutional investors from our country, pension funds for example, are much more compliant than the large international asset managers, such as BlackRock. One might well ask questions about that.’

And the private investors? Are they taking responsibility?
‘The commitment is there, but it is a different story. Private investors are usually not professionals. They invest part-time. You cannot expect them to always attend shareholders’ meetings. The VEB was founded for them, among other things. Thanks to us, their voice is consistently and actively articulated.’

Looking ahead, are the shareholder’s interests sufficiently clear and sufficiently defined?
‘Much has changed for the better, but I am concerned about shareholder rights. Shareholder influence is under pressure - that is a clear trend I see. This is partly due to the flexibility that Dutch company law offers companies. Companies are entitled, for example, to a cooling-off time, to response time. Corporate management can hide behind this, for example in the case of a takeover bid. A reflection period of 240 days may be in the interest of the corporate management, but not necessarily in the interest of the shareholder. Also, the continued existence of the shareholders’ meeting is on the political agenda. And that kind of trend is politically becoming more and more acceptable. The rationale given is to protect the company, however, it comes at the expense of the shareholder. The shareholders’ interests are not given sufficient weight politically, while the CEO’s and their advisors have the mandate to write the relevant draft bills themselves.
This practice makes one lose sight of what good governance is. The Netherlands is pursuing competition with other countries in Europe in this area. There is a tendency for companies to move their headquarters to ‘the lowest pit.’ To an extent, this is now the Netherlands. This is enticing to an extent, as it yields some tax revenue and some employment opportunities for the Zuidas, the business district of Amsterdam. But I do not think it is ultimately beneficial to society, for confidence in business or for the functioning of Europe.

What will share ownership look like in ten years? What do you hope for?
‘I am particularly concerned about the voting rights of shareholders. These are continuously being eroded. In my opinion Europe should see this trend reversed. There should simply be a uniform way throughout Europe for how corporates behave towards shareholders. We want less fragmentation in Europe, we want a real European capital market, more clarity in the regulations, we want fewer politicians who are primarily weeding their own garden. We will have to move towards a European capital market with one set of rules. This is what we are making a strong case for.

Almost all companies are now making the transition to ‘climate neutral’. As a company, can you deviate much from your peers or competitors? Will that be accepted by the shareholder?
'Companies will have to map out a transition path that is realistic. If you do that and if you do it faster than the competition, you will soon be the big winner. If you do it faster, but it is not realistic, you will be bankrupt in five years. That's how it will be. Tata Steel may want to drastically change course and aim to switch everything to wind, solar, and geothermal within two years. But then Tata would temporarily not be a steel producer as such, but more a developer of extremely innovative, clean energy on an as yet unproven, spectacular scale. In that situation, shareholders are bound to ask questions, especially about the realism behind the strategy. There is no question that Tata Steel should change course. But even if they decided to do so today, implementation will take a number of years while the continuity of high quality steel production in the Netherlands is also (socially very desirable) of significant societal importance.'

But then how do you make sure you maintain speed? How do you make sure that shareholders do not take the impetus from the transition?
‘I do not think shareholders would soon do this. If a company accelerates greening in an ambitious but realistic way, shareholders only applaud it, you are guaranteed a huge plus on your share price. Conversely shareholders see companies that compromise continued existence because of climate requirements as eminently risky. When a company engages realistically with sustainability demands, the future stability of the company benefits. The moment such an announcement is made, the share price reacts positively.’

Many shareholders at present have an idealistic perspective. Do you also see yourself as representing their interests?
‘Those interests sometimes seem contradictory, but often they are not. I think everyone now gradually realizes that the transition to sustainability is crucial. That there is no way back. Ultimately, investing is about the future-proofing of a company. And this is not only about financial returns, but also about social returns. That is becoming far more important. Make no mistake: especially institutional investors themselves need to deal with stringent sustainability requirements. A pension fund itself must be at net zero by 2050. They are increasingly focusing on greening.’

And what if shareholders step in to perhaps shut down a company?
‘I am not worried about that. Pushing a company to the abyss through share ownership - it is almost impossible. Do not underestimate how much capital would then need to be invested in one company. That is an extremely expensive exercise, an exceedingly surreal investment. We should not be too anxious. On the contrary, it is positive that shareholders today also have interests other than purely financial ones. We as VEB also did a thorough recalibration recently. If you only look at a company in terms of profitability, dividend, and share price, you are doing it completely wrong.’

But surely investors will also want to see a bit of a value increase this year, they do want to get their dividends paid...
‘Surely a company does not have to incur all its costs in one year. A company must present a clear plan: this is what we are going to do to be ready in 2050. And this is how we are going to do it over the next few years. You will have to explain the strategy for each year. And yes, there are always people who say: immediately stop fossil, pull the plug on Shell, Total and BP. But that also means that Saudi Aramco will soon be calling the shots here. Or the trains will not run anymore. Is that what we want?
You can choose to do the right thing, but you must be realistic. The speed of transition is obviously too slow right now. The climate activists of Extinction Rebellion are simply right about that. The transition needs to be more radical and faster. The message from Extinction Rebellion and from VEB is the same in that regard: initiate the transition today. But in the implementation, we differ. We say: it is much better to do it through a transition path, helped by a government that sets clear rules.’

Whom all would an Executive Board member need to talk to?
‘Currently, Executive Board members are often guided by the judgments of financial analysts - and that is not good. Analysts think in traditional, rigid models. Those models are leading, and the practice simply has to adapt to them. But make no mistake: those models are almost all outdated. They do not consider the Paris Agreement. This is a new reality, in which more factors must be included in financial and risk considerations. So, executives need to broaden their view. They will have to speak to all stakeholders. As far as I am concerned, shareholders are a separate, not unimportant group within the stakeholders. After all, shareholders have invested money, but are completely dependent on the Board’s execution.’

Which shareholders should the CEO talk to?
‘It is a given to talk to the largest shareholders. Size matters, but you also need to have clear policies for dialogue with private investors. Their role in price formation is much larger than often thought. And you must talk to the representative organizations, such as Eumedion and the VEB. We analyze and follow every listed company in the Netherlands intensively. You should also definitely talk to the voting advisors of large, international investors. They have insight into international relations and regulations. You must make use of that. And you must talk to interest groups, not necessarily the most vocal ones. I do not necessarily think it possible to have a good conversation with Extinction Rebellion right now. But an activist, green investment club like Follow This is a party you can have an interesting conversation with.’

Can we leave the transition to the interplay between shareholders and companies, or do we need a clear direction role from government?
‘I think shareholders really need the government to play a role. We are not going to reach the 2035 or 2050 goals if we leave it to the dynamics between shareholders and corporate leadership. The desire and willingness of shareholders to succeed in the transition is there, but I fear it is going too slowly. We need the government, with clear policies on taxes, permits and subsidies.
I would argue for a basic and simple system. Do you contribute to warming? Then you will have to pay, whether you are an airline or an SME. We should not want to make exceptions, because it will end up with a huge lobby of all kinds of organizations and we will be back to square one. As government you must facilitate the market to get the innovation needed to make the transition. What that innovation is, is almost impossible to figure out in advance. But that innovation will come, I am convinced. And it will go much faster if the government creates the right preconditions.’

Which companies will play a bigger role in the transition: will it be the publicly traded companies, or rather those that turn to private equity, for example?
‘I currently sense some resistance to going public in a hurry. Because of administrative burdens, or because the company could become a plaything of all kinds of interests. As a result, companies nowadays often opt for a few rounds of private equity first. I find that a shame. We cannot afford to wait eight years twice. After all, in two times eight years, the transition must already be in the completion phase.
I am convinced that an IPO is much smarter. If you go into transition as a company, you have a huge interest in being listed on the stock exchange. Especially if your products contribute to sustainability, I would not hesitate. Those are immediately appreciated and embraced by investors worldwide. But: when going public, you have to think about the role of the company in society. If you think mainly in the old terminology of return and what is in it for me ... well, then maybe private equity is the way to go. But if you want to make progress, be transparent about it, have your feet planted in society - then you can make the biggest transition via the stock market.’

This interview was published in Management Scope 01 2024.