FT One-Sided on Brexit?

Do you read the Financial Times? If so have you found the repeated articles on Brexit (including many editorials) somewhat one-sided? Well yesterday the Financial Times actually published a letter from Campbell Gordon complaining about it, and it’s not often that editors publish letters critical of what they are issuing.

But what do we get today? Yet another editorial on the same topic and with the same slant – in this case explaining why scientists are unhappy with Brexit and should not vote to leave. The reason being that they simply get lots of funding from EU science programmes.

Now as a long time reader of the FT I have also found it somewhat tiresome of late. There is only so much one might wish to read on this topic, particularly when it seems to give a somewhat unbalanced view.

As Editor of the ShareSoc Informer Newsletter I have restrained from saying anything on Brexit for two months. But you are warned (this is a “trailer”) that ShareSoc will be publishing my analysis of the issues soon. And it will be taking a somewhat innovatory approach to the subject rather than confuse you even further with more information overload.

In the meantime, and despite the best efforts of the FT, the tide seems to be moving in favour of Brexit with an ICM poll published in the Guardian showing the leave camp in the lead. It is suggested that today’s fall in the FTSE, in property shares, and in the pound are linked. But it could be coincidence of course. It is getting to the point where anything you read on Brexit should be taken with a large pinch of salt.

Roger Lawson

Teathers Financial – Requisition to Remove Directors

Investors in Teathers Financial (TEA) have requisitioned an EGM to remove all the current directors and appoint new ones, which was accepted by the company on the 25th May. Teathers was an AIM listed business called C.A.Sperati that turned itself into an investment company and was then renamed (a common route for those giving up on their original business). However under AIM listing rules it needs to make investments within a year of becoming an investment company which it failed to do and therefore the shares were suspended last December.

The directors who might be removed if the shareholders win the vote at the EGM include Jason Drummond (Executive Chairman) and Jilesh Jagatia who were both involved in another AIM company called Media Corporation whose shares became worthless. ShareSoc published several articles in our Newsletters on the affairs of Media Corporation from 2011 to 2013 which was a very sad tale indeed.

Teathers response to the EGM requisition was to say that “investors may not have the opportunity to support the potential £1million equity investment in the Company…….as the directors do not believe that the investment would proceed if the current directors are removed”. The company will be issuing further announcements in due course, but it would not be surprising to see that there is a threat to put it into Administration as tends to happen in such cases.

ShareSoc gave some advice to the investors on submitting the required requisition.

Roger Lawson

Alliance Trust and RIT Capital

Several newspapers reported this morning that Alliance Trust (ATST) has been approached by RIT Capital Partners (RCP) about a possible merger. Both companies are listed investment trusts favoured by private investors. Alliance Trust has been going through some difficult times of late after a period of poor relative performance resulting in a high discount to net asset value (currently over 10% according to the AIC despite an active share buy-back programme whereas RCP is on a 6% premium at the time of writing). This caused an attack by Elliott Advisors and a campaign by ShareSoc to promote the interests of private investors in ATST (see http://www.sharesoc.org/alliance.html  for more background).

These actions resulted in very substantial changes at Alliance Trust including a complete change of board members and the departure of the high profile CEO Katherine Garrett-Cox. It still left some problems unresolved such as what to do with the two subsidiaries Alliance Trust Investments and Alliance Trust Savings which appeared to be “non-core” to investors in the Trust and which have consistently lost money in the past.

Neither Alliance Trust nor RIT Capital have been available for comment, but a merger with another trust might surely make sense. Alliance Trust has been shrinking in size because of the share buy-backs and the lack of new investors meant that the discount was likely to persist for some time. Mergers of investment trusts can of course reduce overall costs as administration and investment management costs are spread over a larger asset base.

Whether it would be attractive to the shareholders in RIT Capital (in which Lord Rothschild, the Chairman, and his family are significant investors) very much depends on the terms for the merger and the future board representation – Lord Rothschild is aged 80 with no obvious successor.

Other news from Alliance last week was the appointment of Clare Dobie to the board. This restores some female representation on the board which was previously dominated by ladies. Clare had an initial career in financial journalism and was City Editor of The Independent for a time. More recently she has sat on the boards of other investment trusts and hence appears well qualified for the role.

Roger Lawson

Reaction to ShareSoc Remuneration Guidelines

We are delighted that our guidelines, launched last week have been widely covered and well received. Here is some of the press coverage:

Financial Times: FTSE100 CEO pay “too high”: ShareSoc

Daily Mail: Salaries of ftse 100 chiefs should be slashed says ShareSoc

Scottish Daily Record: Investor group warns FTSE100 pay “too high”

CNN Money: British CEOs should take a 50% pay cut

You can also find an interview with ShareSoc remuneration spokesman, Cliff Weight, on Share Radio, here: https://audioboom.com/boos/4593130-why-are-ftse100-ceos-being-paid-so-much-cliff-weight-of-sharesocuk-talks-bonuses-executivepay-and-the-shareholderspring-cliffw8

 

Key opinion formers also gave their views:

 Sarah Wilson, Chief Executive of Manifest, the corporate governance experts, said “Manifest welcomes ShareSoc’s remuneration guidelines. Retail shareholders are an important but often overlooked constituency in the governance debate having been significantly marginalised by the broker nominee arrangements in recent years which make voting unduly burdensome. We are delighted to be able to support their active ownership and very much value their thoughtful contribution.”

Tim Ward, Chief Executive of The Quoted Companies Alliance commented “The ShareSoc guidelines provide detailed guidance on levels of salary, incentives and the percentage of equity dilution.  These guidelines give companies an insight into what private shareholders expect to see regarding the remuneration of directors in public companies. We are pleased that the ShareSoc guidelines reflect the principles set out in the Quoted Companies Alliance’s Remuneration Committee Guide for Small and Mid-Size Quoted Companies, reflecting mutual support of remuneration disclosures that build trust between investors and companies.”

Oliver Parry, head of corporate governance at the Institute of Directors said, “We welcome ShareSoc’s report, which represents an important intervention in the debate on executive pay. Companies do need listen to shareholders more and respond in a constructive manner. Today’s report highlight’s a number of ways to simplify pay in large companies. The guidance for smaller companies is also a very practical and applicable to both quoted and unquoted companies.”

Catherine Howarth, Chief Executive, ShareAction said “ShareAction endorses and fully supports the guidelines on corporate pay developed by ShareSoc. ShareSoc’s membership is made up of people investing their own money, which gives them a perspective on executive pay that has a good deal more common sense and prudence about it than many professional fund managers who invest other people’s money. We hope the fund managers that invest on behalf of UK pension savers will take a good look and indeed themselves adopt this valuable guidance from ShareSoc.

Paul McManus, Managing Director & Founder of Walbrook PR said: “ShareSoc’s guidelines for smaller companies is incredibly helpful. Working with AIM listed companies Director Remuneration is a hot topic with investors and Boards alike and these pillars give Boards of growing companies access to the concerns and recommendations of their smaller shareholders, alongside their larger institutional investors who have greater access to remuneration decision makers.”

Peter Costain, former CEO of Costain Group Plc and NED of Wessex Water, National Provident plus some others, commented: “Unrestrained greed ultimately will undermine the capitalist cause. How some of the chairs of remcos keep their role defeats me.”

Mark Bentley

 

 

 

ShareSoc Launches New Director Remuneration Guidelines

ShareSoc has issued the following press release on its new Remuneration Guidelines. These Guidelines have been developed by ShareSoc Director Cliff Weight who has substantial experience in these matters, supported by other ShareSoc directors.

In summary the press release said:

  • FTSE100 CEO pay is too high. It should be less than half of current amounts.
  • FTSE 100 CEO’s maximum bonus should be 100% of salary (currently 200% is common) and the LTIP maximum normal annual award should be 100% of salary (currently 300% is common).
  • Remuneration creep needs to be reversed.
  • Share Options have a role to play in Directors’ remuneration.
  • ShareSoc has specific guidelines for smaller companies. Small companies will find these simple guidelines helpful. We suggest companies should follow these guidelines.
  • ShareSoc Members will criticise companies who do not follow the ShareSoc guidelines and will raise questions at AGM’s on compliance.
  • The full Guidelines are present in this document on the ShareSoc web site: http://www.sharesoc.org/ShareSoc-Remuneration-Guidelines.pdf

Commentary

Mark Northway, Chairman of ShareSoc, said “Members of ShareSoc, The UK Individual Shareholders Society, have a right to expect a fair return on their investments. We are deeply concerned by the continuing trend towards excessive and unnecessary CEO remuneration. ShareSoc has therefore developed simple, equitable guidelines, which we would like to see adopted by listed companies as an integral component of their governance framework.”The ShareSoc guidelines contain broad best-practice principles for larger companies and specific guidance for smaller companies (defined as those with a market capitalisation of less than £200 million).

Mark Northway added “We hope that, as a result of our initiative, ShareSoc members will be even more vocal about poorly designed and overly generous remuneration policies. We will continue to question remuneration reports at AGMs, placing further pressure on the directors of underperforming companies.”

Sarah Wilson, Chief Executive of Manifest, the corporate governance experts, said “Manifest welcomes ShareSoc’s remuneration guidelines. Retail shareholders are an important but often overlooked constituency in the governance debate having been significantly marginalised by the broker nominee arrangements in recent years which make voting unduly burdensome. We are delighted to be able to support their active ownership and very much value their thoughtful contribution.”

Tim Ward, Chief Executive of The Quoted Companies Alliance commented “The ShareSoc guidelines provide detailed guidance on levels of salary, incentives and the percentage of equity dilution.  These guidelines give companies an insight into what private shareholders expect to see regarding the remuneration of directors in public companies. We are pleased that the ShareSoc guidelines reflect the principles set out in the Quoted Companies Alliance’s Remuneration Committee Guide for Small and Mid-Size Quoted Companies, reflecting mutual support of remuneration disclosures that build trust between investors and companies.”

Oliver Parry, head of corporate governance at the Institute of Directors said, “We welcome ShareSoc’s report, which represents an important intervention in the debate on executive pay. Companies do need to listen to shareholders more and respond in a constructive manner. Today’s report highlights a number of ways to simplify pay in large companies. The guidance for smaller companies is also very practical and applicable to both quoted and unquoted companies.”

Summary of the ShareSoc Remuneration Guidelines.ShareSoc has adopted different guidance for large and small companies, because there are significant differences in the way remuneration is approached between large and small companies.

For larger companies, ShareSoc believes and recommends:

  • FTSE100 CEO pay is too high. It should be less than half of current amounts.
  • FTSE 100 CEO’s maximum bonus should be 100% of salary (currently 200% is typical) and LTIP maximum normal annual award should be 100% of salary (currently 300% is typical). It may be necessary to offer more to externally recruited CEOs, in their first year.
  • Remuneration creep needs to be reversed. Remuneration has tripled over the last 18 years, but the FTSE 100 share index has barely increased at all.
  • To strengthen the focus on the genuine long term, share options should be an element in the remuneration package, while also toughening share-holding requirements so that a meaningful portion of share incentives must be held to retirement or beyond.

ShareSoc have agreed with Manifest to publish Manifest’s reports on the ShareSoc Members’ website. Manifest’s reports contain a detailed analysis of remuneration in main market and larger AIM companies.

For smaller companies (those with market cap less than £200 million), ShareSoc have developed specific recommendations:

  • Salaries should not be more than median of comparable sized companies. For a CEO, we give specific guidance on what is reasonable.
  • Bonus. Fast growth companies should conserve cash. ShareSoc prefers such companies to reward management through equity incentives. Once a company is profitable, a bonus may be appropriate. For a profitable company, the maximum bonus for a CEO should be 100% of salary: a lower limit is often sufficient.
  • Share Incentives: Share Options are a simple and clear incentive for managers of small companies. The exercise price of share options should be set at not less than the market price at the date of grant. LTIPs and nil cost options, with complex performance conditions are unnecessary for small companies and should not be used. Value Creation Schemes should also not be used.

Dilution should be less than 10% of equity over a 10-year period. This can be front ended, but some should be reserved for top ups and new recruits. A typical structure might be 2% for the CEO with another 3% for top team, so the CEO and top team have 5%, but how this is shared out will depend on the roles and skills of the top team.

Disclosure. There should be clear disclosure of remuneration in the annual report and shareholders should be asked to vote on remuneration and share schemes.

Roger Lawson

Pay at WPP

ShareSoc has issued a press release advising investors to vote against the Remuneration Report at WPP Plc. In particular we think the pay of CEO Sir Martin Sorrell is excessive (£70 million in 2015). See http://www.sharesoc.org/pr79-wpp-remuneration.html for the full press release.

This is one of several advisory notices on pay we have issued to ShareSoc Members recently. The previous ones were on Reckitt Benckiser, Anglo American and BP. It is very clear that the reforms to tackle excessive pay introduced by Vince Cable, which were more disclosure and votes on remuneration, have not been sufficient to restrain the growth in the pay of directors of public companies. Surely more needs to be done. As this writer said in a previous blog post on pay at Weir, it needs to be simplified, reduced in magnitude and set by people who are not beholden to their fellow directors. The activities of remuneration consultants have also contributed to both the complexity and racheting up of pay in recent years. These are my personal opinions of course. But there are surely solutions that need to be seriously considered.

In the meantime ShareSoc has been focussing on remuneration of late with new ShareSoc director Cliff Weight who has experience in this field contributing substantially. Indeed he has written a number of analyses of pay in companies which are present in a new on-line Forum available to ShareSoc Members.

Roger Lawson

Systems Go to Serve You Better!

Thanks to the generous donations received, we now have sufficient funds to start work on the next phase of ShareSoc’s IT upgrade project. Special “thank you”s go to Leon Boros and to Ideagen Plc, who have both made major contributions to the project. I’d also like to thank all the other contributors of smaller donations.

To proceed  with later project phases delivering more useful features for members, we will however, need to raise substantially more so, if you’d like to help, we would warmly welcome your donation here: http://www.sharesoc.org/donations-it-project.html. You can also find further details about the project by clicking the link towards the bottom of that page.

So, I’m raring to go with the next phase of the project, which will involve the professional design and creation of a modern, mobile-friendly, website. The objective is to make our content much more attractive, accessible and maintainable. I’m still looking for volunteers to beta test the new site, so if you’d like a “sneak peek” before the new site goes public, please drop me a line at mark.bentley@sharesoc.org .

Mark Bentley