Erikka Askeland: Changes afoot as shareholder activists wake up and smell the coffee

Published on Thursday 10 December 2009 20:02

SHAREHOLDERS: who would want them? Aside from their money, stock owners often have prickly questions about remuneration and, seemingly, a lot of time on their hands.

For most listed companies, the typical annual general meeting is a chance for the board to have a nice cozy chat about the company's exciting prospects. If it is doing well, then shareholders might be treated to a glass of wine and a finger buffet. If it is not doing so well, the after-meeting treats are likely to be limited to coffee and biscuits.

AGMs at the Scottish banks have taken on a festival air to become a parade ground for investor anger. And the quality of the biscuits? Definitely downscale.

But shareholders with a bone to pick are everywhere. Yesterday, Ronnie Hanna, the chairman of oil and gas company Bowleven, refused a shareholder entry to the firm's annual meeting.

The company braced itself for the arrival of Peter Garnham, who has a grievance with the board stretching back ten years. His notes, prepared in advance of the event, even described his visit as an "ambush".

Bowleven barred Garnham on a technicality – his shares purchased a few days earlier especially to give him access had not yet appeared on the share register. Hanna explained he wanted to ensure that the meeting ran smoothly and that other shareholders were given the opportunity to ask questions.

But Bowleven got lucky. One can only imagine, after the series of bruising shareholder meetings that Eric Daniels from Lloyds Banking Group and Stephen Hester from Royval Bank of Scotland have endured recently, that their minders might have pulled eye teeth to find the same sort of technicalities barring the loudmouths.

But company executives must at least give a good show of listening. A recent study by researchers at Duke University, in North Carolina, found that, since Enron, boards have listened more responsively to shareholders and their proposals.

Gone are the bad old days of the 1990s, when, for example, Bristol-Myers Squibb could ignore a shareholder proposal to declassify the board – despite the proposal achieving a majority vote over six consecutive years.

Shareholder activism is not new. But not all activists have other shareholders' best interest at heart. Going back nearly a decade, activism in the mutual sector was often associated with greedy carpetbaggers.

Many will recall Fred Woollard, an Australian fund manager who led a – failed – attempt to make the mutual life insurer Standard Life go public. That the company itself gave up the "benefits of mutuality" some years later was for, mainly, different reasons than a quick pay out.

But shareholder input is on the verge of being institutionalised. For FTSE 100 financial services companies, Sir David Walker, the City grandee hired by the government to sort out banker pay and corporate governance, wants to see a stewardship code for investors enshrined in company law.

But this is not for your average pensioner who puts on a good suit to quiz the board about a detailed reading of the remuneration report. When it comes to the banks and other companies, these folk tend to make their case very clear. And often at length.

But as any activist shareholder of a bank has bitterly come to know, you can say all you like, and vote down the remuneration report, or vote against the reappointment of a certain director. However, nothing will happen, as 99 per cent of the shareholders are institutions – pension funds and investment banks.

There are those who argue that sleepy pension funds waved through what we now know to be bad board decisions, such as RBS's takeover of ABN Amro, or the pension deal paid to former chief executive Sir Fred Goodwin.

For the big, hot-blooded asset managers that hold investments in companies, you can see why they might get worked up when an aggressive chief executive starts describing macho plans to take over the world.

But grandiose plans, big takeovers and big pay-outs often work against the interests of the pension funds, which prefer a long, slow show of growth over a couple of decades. Anything else sets the pulses racing which, sustained over a long period, is not conducive to a long life.

Now pension funds are being asked to act more like the pesky pensioners who come to AGMs. But it will take more than coffee and biscuits.