Comment: Green shoots in ‘Shareholder Spring’

Bill Jamieson
Bill Jamieson
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Shareholder activism may be on the march, but some features of the company annual meeting never change.

After a disastrous year at the Co-op, including the scandal over “crystal Methodist” former Co-op bank chairman Paul Flowers and pre-tax losses of £2.5 billion reported for the wider group, immediate uproar might have been expected at this month’s annual meeting. Instead the opening questions centred on groceries: “When will the Co-op start stocking Fairtrade bananas?” Even better was the follow-up, which might not have had the directors quaking in their boots. “Why doesn’t it sell eggs laid by ‘happy chickens’?”

There weren’t many happy chickens at the Barclays annual meeting last week – the continuing storm over bankers’ bonuses and executive pay has left scrambled eggs on several fronts.

So is serious change in corporate pay now under way at last? Or, since bank shareholder rebellions have still to win an AGM vote, is anything really changing? Noisy though last week’s revolt may have been, given Barclays’ decision to hike bonuses by 10 per cent to £2.38bn during a year when profits had fallen by more than a third and the dividend was frozen, the remuneration report was still passed.

But several features are indeed changing and will, I believe, bring greater accountability to boardrooms.

Two were notable last week. One was the abandonment of the effective “hands off” stance of UK Financial Investments (UKFI), the government body that holds the taxpayers’ 81 per cent stake in Royal Bank of Scotland.

Until now earnest pledges had been given that UKFI would not interfere in the decisions of the bank. But George Osborne – previously opposed to European Union regulation on bank bonuses – was able to veto the request of RBS to breach new EU rules and pay its bankers bonuses worth more than twice their salaries. And he has allowed bumper bonuses to be paid by Lloyds Banking Group, where UKFI also retains a shareholding. So, UKFI’s “arm’s length” neutrality having been breached once, it will be difficult to resist future pressure to breach it again.

A second change was the decision by Alison Kennedy, a director of Standard Life Investments (SLI), to go public on its opposition to the bonus awards at Barclays and to vote against the remuneration report. This prompted the ire of Sir John Sunderland, outgoing chairman of Barclays’ remuneration committee, and later the bank’s chairman Sir David Walker.

Top marks. Until now, SLI and its governance chief, Guy Jubb, have preferred to work discreetly behind the scenes. This, they believed, was the more persuasive route rather than public rancour at AGMs. That position has now changed. And if other institutional investors follow, it could pave the way for more public shareholder revolts and stormy times for companies deemed to be paying sky-high salaries and bonuses undeservedly.

Now come reports that Jubb is to meet Barclays for “peace-keeping talks” after the clash. I do hope he sticks to his guns, and firmly resists accusations that SLI has acted precipitously or without due consideration.

More than 20 years have elapsed since the earnest Greenbury and Higgs reports on corporate governance, yet executive pay and bonuses outrage investors more than ever. Particular ire has been vented against the seeming passivity of big institutional investors. When it comes to shareholder protests at annual meetings, many are seen to stay on the sidelines or abstain where they have not voted in favour of continuance of the status quo. Enormous forces of passivity and inertia seem ranged against small shareholders seeking to achieve change.

But the climate is shifting. As I reported here on 9 December last year, Standard Life was instrumental in setting up an institutional investors forum for long-termism and collective action – the Collective Engagement Working Group – to identify how investors might work together in their engagement with listed companies to improve both sustainable, long-term company performance and overall returns to savers.

I warned back then that the problem with the “behind-the-scenes” approach – in addition to its evident failure to catalyse culture change within the banks – is that too many investors and would-be investors have lost confidence not only in institutional shareholder activism but also in the oversight of all manner of “soft touch” regulatory agencies. There is now a fateful resignation that only the law with its hefty fines and penalties will bring about the changes required.

If the board of Barclays thinks that Kennedy and Jubb are the darkest forces ranged against them, it could usefully ponder the alternatives.