Annual ‘shareholder spring’ would hurt firms, says IMA chief

A SENIOR City figure has warned MPs of the risks of regular “shareholder spring” rebellions against excessive pay and poor corporate governance in Britain’s blue-chip boardrooms.

Dick Saunders, chief executive of the Investment Management Association (IMA), the trade body for the UK’s £3.9 trillion asset management industry, told the Treasury select committee yesterday that the phenomenon had been “really striking” in triggering corporate change.

Saunders said it had been “a wake-up call for boards” and the IMA supported those, like Business Secretary Vince Cable, who have argued for shareholders to have a binding vote on executive pay.

But the IMA chief, who steps down at the end of the year, said such companies were big contributors to the health of the UK economy and it would not be good for the country for them to be bogged down in regular arguments with shareholders.

“We want companies to be well-run, not continually mired in controversy with shareholders,” Saunders said. “The sort of season we have seen, we would not want to see happen every year for that reason.”

Treasury committee chairman Andrew Tyrie expressed surprise that Saunders seemed to be suggesting that the shareholder spring “might have eroded shareholder value or might be at risk of doing” so. But the IMA boss denied that was the impression he sought to give.

However, Saunders disagreed with a suggestion from Tyrie that the institutional investor rebellions at a raft of FTSE 100 businesses might be due to investors wanting less rewards given to executives and more paid out in dividends.

“My belief is that, short-term, it [the shareholder spring] will not make any difference [to extra dividends being paid out],” he said, although he added that, over the longer term, it was likely to contribute to more shareholder value.

The investor rebellion that has rocked Britain’s boardrooms has been fuelled by anger that stratospheric salaries and bonuses have been paid against a backcloth of falling earnings and share prices.

The fallout has included: Andrew Moss, chief executive at insurance giant Aviva, being forced out; nearly a third of shareholders refusing to back Barclays’ remuneration report; and David Brennan, boss of drugs group AstraZeneca, announcing he would step down after slashing full-year profit forecasts and being criticised for allegedly procrastinating in tackling a shortage of new blockbuster drugs.

Otto Thoresen, director general of the Association of British Insurers (ABI) and former chief executive of Edinburgh-based insurer Aegon UK, told MPs that boardrooms’ engagement with shareholders was “beginning to change but it’s not uniform and not fast enough”.

Thoresen contended that most insurers, with long-term assets and savings, were not a systemic threat to the macro economy except when they began offering services and products, like AIG in America, outside of traditional insurance.

The ABI chief, meanwhile, warned that those arguing for non-executive directors to be more forcefully independent in challenging company strategy could risk them “stepping over a line into executive management”. He said: “That balance could go in the wrong direction.”

Thoresen added critics should also “not get too hung up” about the desirability of a single remuneration figure.