India-based Tractors and Farm Equipment Ltd. (TAFE) on Thursday, Dec. 4, escalated a campaign targeting AGCO Corp.’s (AGCO) governance, arguing that the agricultural machinery manufacturer in which it holds a significant equity stake should separate the role of chairman and CEO and consider a new lead independent director candidate.
“TAFE continues to believe that separating the role of chair and CEO is needed to reset the governance standards at AGCO and ensure independence of the board at the time of CEO succession,” the tractor manufacturer said in a statement.
TAFE is AGCO’s largest holder with a 16.2% stake. Its chairman and managing director Malilka Srinivasan has held a position on AGCO’s board since 2011.
In August, AGCO said its chairman and CEO, Martin Richenhagen, was retiring while Eric Hansotia, AGCO’s COO, was installed to replace him in both the chairman and CEO positions effective Jan. 1, 2021.
AGCO on Dec. 3 launched changes to its governance and pay structures. In a letter to shareholders, AGCO said it was making some board changes, including the appointment of Mike Arnold, a former president and CEO of metals producer Ryerson Inc., as the company’s lead independent director on Jan. 1, 2021.
In addition, it installed three new subcommittee chairs and set up five-year term limits for board leadership positions including for the lead independent director position.
TAFE, which also issued a presentation to back its efforts, said the changes are a “step in the right direction” but aren’t enough. The investor argued that Arnold isn’t a good candidate for lead independent director because he “does not have the requisite board leadership and governance experience for this critical role and has limited public company board experience.”
According to relationship mapping service BoardEx, a sister company of The Deal, Arnold, 64, has been an AGCO director for 7 years and does not have any other board positions.
TAFE doesn’t have experience launching director contests. The deadline to nominate directors for AGCO’s 2021 annual meeting, expected in April, is March 1, according to research company Deal Point Data LLC.
In a 13D filing on Nov. 12, TAFE said that separating AGCO’s role of chairman and CEO would foster “better governance.” But the Indian company also said it sought “better alignment of compensation programs for senior management with long term performance” and “increased focus by the company on long-term strategy.”
TAFE had previously said it was considering submitting a shareholder proposal to ask shareholders if they thought the separation of CEO and chairman made sense. So far, it hasn’t submitted a proposal, but could do so by March 1 with its own dissident proxy cards.