Ethos challenges TotalEnergies' decision not to include a shareholder resolution on the agenda of its next general meeting

Last week, the board of directors of TotalEnergies announced that it had decided not to place on the agenda of the annual general meeting (AGM) of 24 May 2024 the proposed shareholder resolution filed by the Ethos Foundation and a coalition of 19 institutional investors, coordinated by the FrenchSIF. This advisory resolution calls for the separation of the roles of chairman of the board of directors and CEO, a dual role held by Mr. Patrick Pouyanné since 2015.

The coalition of French and international institutional investors and asset managers, representing more than EUR 1.3 billion of TotalEnergies' capitalisation and 0.9% of its share capital – far more than the minimum required by French law – regret this decision. Faced with what they consider to be an infringement of shareholder democracy, the Ethos Foundation and several co-filers have decided to file an appeal with the Nanterre Commercial Court to assert shareholders' rights and allow all shareholders to express their views on a material corporate governance issue at the upcoming AGM.

In a statement released last Friday, the board of directors of TotalEnergies argued that the proposed resolution contravenes ‘the imperative legal rules governing the division of powers between the company's governing bodies’ and that it relates to a corporate governance issue on which ‘the board of directors has performed its duties in a relevant and reasoned manner (...) taking into consideration the best interests of the company’.

The shareholders who have decided to file an appeal believe that there is no legal argument or provision in the French commercial code that would prohibit shareholders from filing an advisory resolution for the agenda of a general meeting. Especially since there is no exhaustive list specifying what kind of draft shareholder resolutions can be filed.

Furthermore, they highlight that the resolution’s sole purpose was to allow all shareholders, whose interests the board of directors is responsible for protecting, to express their opinions on the company's governance. “Voting on this proposed resolution would have had no other consequence for the company than to allow shareholders to share their views, and in doing so to send a signal to the board of directors as it reflects on corporate governance”, stated Vincent Kaufmann, CEO of the Ethos Foundation.

Widespread good practice

The separation of roles is now widely recognised as good corporate governance practice. It separates responsibilities for management and control, ensures a balance of power within the company and strengthens the board's ability to take independent decisions and supervise management.

In France, only 12 companies in the CAC 40 index still combine the roles, 14 fewer than in 2016. In the UK, less than 5% of listed companies have a chairperson/CEO, while the practice is banned in Germany. In the United States, combining roles is also becoming less common as it now concerns 44% of S&P 500 companies, 13% less than ten years ago.

The possibility to file shareholder resolutions on the separation of roles is standard practice in the United States. Furthermore, the Ethos Foundation has already filed such resolutions at the AGMs of several Swiss companies in the past.

The board's decision not to accept the proposed resolution, despite compliance with all applicable rules, sends a very negative signal with regards to the company's willingness to dialogue with its shareholders. In light of the board of directors’ flagrant disregard for shareholder rights, the Ethos Foundation and several co-filers felt compelled to turn to the commercial court for protection. They are now waiting for a court ruling before the AGM so that the proposed resolution can be submitted to a shareholder vote.