BARCLAYS BANK yesterday emerged bruised but unbowed from its annual meeting
after shareholder activists campaigning against “fat-cat” pay awards swooped
on the meeting.
Ahead of the meeting, the National Association of Pension Funds (NAPF) advised
its members, who own a fifth of the UK stock market, to abstain on a
resolution handing Matt Barrett, chief executive, a two-year payoff in the
event that the bank is sold to a third party.
However, shareholders representing more than 80 per cent of the outstanding
equity voted in favour of Mr Barrett’s remuneration package. In a second
vote, 30 per cent of shareholders voted against the remuneration policy of
the whole board but the protest, though vocal, was not enough to block the
resolution.
The NAPF’s failure once again to slow the pace of pay rises in British
boardrooms casts something of a shadow over the effectiveness of the
association as a lobby group for shareholders.
Geoff Lindey, the JP Morgan Fleming fund manager brought in by the NAPF
earlier this month as a strategic adviser on voting issues, says: “My
ambition is to get to the point where companies are rewarding handsomely
those executives who do well, as well as not rewarding those who do not.” He
said it was “too early to tell” in this AGM season if the association’s
abstention policy was having any effect on corporate behaviour.
Lindey says a number of the major companies that have been publicly censured
by shareholders have privately said they would consult more on contentious
issues ahead of the next season of annual meetings.
The NAPF has recommended annual meeting abstentions at 32 companies in April
alone, but only four no votes, against resolutions from Schroders, Provident
Financial, Wyevale Garden Centres and Shell. Some critics suggest that
abstentions are a pointless protest and shareholders should vote no if they
want to make an impact.
Lindey says: “Remuneration is extremely important, but it is only a small part
of governance as a whole. Voting against a resolution means calling for the
constructive dismissal of someone who may be a good director but have a bad
contract.”
Alastair Ross Goobey, chairman of the International Corporate Governance
Network, says that the proxy voting forms used by shareholders should have a
specific “abstain” column. At present, the conscientious abstainers are
lumped together with those who cannot be bothered to vote at all.
He says: “It is a bit of a nuclear option to vote against the board — it would
be a vote of no confidence — but I think the yellow card approach saying
“we’re not comfortable with this” works. It’s a bit like Soviet elections
used to be — if you don’t get 99.9 per cent of the vote you’re on the skids.
I think companies are beginning to understand that, and it’s a foolish one
that doesn’t.”
However, Ross Goobey remains unconvinced by the value of the NAPF’s voting
recommendations. He says: “The NAPF has recruited Geoff Lindey, and he’s
highly respected, which helps add weight to their views, but I don’t think
it’s a substitute for thought within an individual institution. You can’t
just subcontract all this to someone else.”
Institutions, both the big pension and insurance funds and their managers, do
appear to be taking governance more seriously. The long-held image of the
corporate governance team sitting in a basement room for compliance
purposes, while the real players ignored them and made money elsewhere, has
begun to fade.
Karl Sternberg, chief investment officer Europe and Asia at Deutsche Asset
Management (DeAM), says its clients have asked for the firm to take a
longer-term approach to investment. That means trading less, holding a
concentrated portfolio of stocks and keeping faith with the management of
companies for a longer period. “The clients no longer want
benchmark-huggers, they want stockpickers,” he says.
Sally Bridgland, head of research at Hewitt Bacon & Woodrow, the actuarial
consultants, says pension fund trustees increasingly want managers to ignore
the benchmark in favour of picking and holding favoured shares. This in
itself should improve governance, as the managers levitate towards the
stocks that meet shareholder approval.
Sternberg says that DeAM, which is custodian of more than 2 per cent of the
London stock market, has floated the idea of an investment trust that would
pool its holdings in particular companies. This would give the asset manager
a greater say on corporate issues.
A shareholder representative on boards is vital, he says. “A lot of managers
have been corrupted by corporate finance departments and the advice given by
mergers and acquisitions people. The academic evidence shows that deals do
not always work. A representative would keep boards pure.”
Shareholders take the lead
Vodafone: faced a shareholder revolt two years ago over
executive pay. It withdrew the plan and launched a “model” consultation with
shareholders last year.
GlaxoSmithKline: forced last year to drop a plan to double
the pay of chief executive Jean-Pierre Garnier, after investors threatened
revolt.
Prudential: last year shelved a bonus plan for executives
after a threatened rebellion. Withdrew the plan a second time this year.
Reed Elsevier: modified bonus plans last month after
shareholder anger.
Tough nuts to crack
Schroders: NAPF advised voting against chief executive’s
contract, and said six out of the ten non-execs were not independent. Large
family shareholding means it is less influenced by shareholder activism.
Daily Mail and General Trust: NAPF advised voting against an
executive bonus scheme. Substantial family holding again means institutional
views under-represented.
Barclays: vowed to stick with chief executive Matt Barrett’s
contract, which gives him a two-year payoff if the company is sold, despite
NAPF calls for abstentions.
