New Year Resolutions? How About a New Resolution at RBS?

One of ShareSoc’s recent initiatives has been the promotion of the concept of Shareholder Committees as a way of improving corporate governance in public companies. To pursue this agenda we have today submitted a requisition for a resolution to be added to the Annual General Meeting of the Royal Bank of Scotland (RBS). A summary of what it said is given below (the full press release is here: ):

RBS Shareholders Demand Shareholder Committee

(A joint press release on behalf of Private Investors from ShareSoc and UKSA)

Over 100 shareholders in the Royal Bank of Scotland (RBS), supported and coordinated by ShareSoc and UKSA, have requisitioned a resolution to install a new “Shareholder Committee” at the company which will include shareholder representatives so as to improve the corporate governance at the bank.

Why are ShareSoc and UKSA doing this?

Mark Northway, ShareSoc Chairman, said: “One objective is to stop the events that took place at RBS from ever happening again! A dominant CEO; concealing the true financial position of the company from investors; proceeding with a reckless acquisition; and then publishing a rights prospectus which concealed the problems faced by the company. These are not examples of good governance. Shareholders, including individuals, deserve a new approach; one with greater involvement and more effective input from them as ultimate owners.”

ShareSoc suggests that this initiative will significantly benefit corporate governance at RBS, and represents a valuable opportunity for RBS to lead the way in exploring a concept which works well in other countries, which is under consideration by the UK Government, and which could have broad application in addressing the current breakdown in the agency model in UK public companies.

This proposal is in the public interest. There is evidence of a continuing breakdown in the corporate governance of UK public listed companies, as is underlined in the Government Green Paper published in November. RBS is an important asset and its ownership and the way it is governed is of interest to the wider public. There is a need for companies to step up and respond to Mrs May’s initiative to make capitalism work for everyone.

John Hunter, Chairman of UKSA, commented: “Most large shareholders are intermediaries who tend to act in their own interests and not those of the ultimate beneficial owners (i.e. the people they represent). This needs to change and this proposal is a step towards that. Transparency and formal engagement will help to prevent poor stewardship.”

Retail investors are beneficial owners of at least 12% of the UK stock market, and indirectly a much larger percentage through pension and investment funds. They have an independent long-term perspective, are generally unencumbered by conflicts of interests and by the time pressures that institutional shareholders might have. A member of the proposed committee representing retail shareholders might be jointly proposed by the two nationally recognised shareholder associations of ShareSoc and UKSA.

We hope RBS shareholders will support this initiative and vote for the resolution at the AGM in May. To register your interest in this campaign and receive further information as it arises, please go to the this web page:

Roger Lawson

Link Between Pay and Performance Is Negligible

A study commissioned and just published by the CFA Society gives a very good analysis of how the pay of public company directors bears little relationship to fundamental measures of company performance. It also highlights how they can game the system by accepting LTIPs and bonus systems that rely on performance measures such as earnings per share when what really matters is whether they achieve a good return on capital invested. The authors suggest this has in reality been less than 1% per year over the last 11 years.

The study was undertaken by Weijia Li and Steven Young of Lancaster University Management School. Here’s an extract from their report which highlights the issues:

“Collectively, our findings suggest a material disconnect between pay and fundamental value generation for (and returns to) capital providers. The research suggests the need to redirect the spotlight on CEO pay away from a focus on pay levels and broad calls for more performance-related pay arrangements, towards a more refined discussion about the type of performance measures employed.

Two key themes emerging from the results are: (i) the critical nature of performance measure choice in the debate over CEO pay arrangements; and (ii) the need for future recommendations on pay to focus more attention on linking incentives and rewards more directly to performance metrics that reflect long term value creation for capital providers.

At one level, the widespread absence of value-based metrics in CEO pay contracts is surprising given their compelling conceptual basis coupled with considerable evidence from consultants and academics on the benefits of value-based management systems. Practically, however, value-based metrics tend to be more complex to compute (particularly where cost of capital is concerned) and more difficult to implement (especially at lower levels of the organisation hierarchy).”

As many experienced investors know, it’s return on capital that really differentiates good management from bad. But when you have performance related pay schemes that are focussed on earnings per shares, or share price performance, it’s easy to go empire building so as to increase your pay. For example, borrow money for an acquisition so as to increase earnings.

This report is yet more evidence of how performance related pay schemes have led to massive increases in pay without matching improvements in performance (they report that median FTSE-350 CEO during the sample period was £1.5 million measured at 2014 prices). Pay has gone up by 82% in real terms over the review period.

For more information see:

Roger Lawson

Fenner AGM Requisition. Why Is It Not a Good Idea?

Fenner Plc (FENR) are the subject of a requisition of a resolution to appoint another director at their forthcoming Annual General Meeting on 11th January. ShareSoc is particularly interested in requisitioned resolutions at present because we are trying to get one added to the Royal Bank of Scotland AGM (see

In the case of Fenner, activist Swiss investor Teleios Capital Partners have put forward the requisition, with the support of a number of other investors. Teleios hold over 5% and have been investors for a couple of years. The requisitioned resolution nominates Michael E. Ducey as a new independent non-executive director who appears to be very experienced from an examination of his c.v. and has relevant industry experience, unlike much of the existing board of directors.

The board of Fenner, led by Chairperson Vanda Murray, promptly opposed the requisition saying that “the Board does not believe Mr. Ducey would be additive in terms of skills, experience and background and the Board does not consider him to be independent of the shareholder nominating him”. Teleios deny the latter view, saying they had no previous relationship with Mr Ducey.

To remind readers, nominating a director does not mean they act in your interests. They legally can only take the interests of the company into account.

Fenner also say that the search for a new CEO has been materially disrupted by “the current shareholder activity”, but it is not at all clear why the appointment of a new non-executive would create such difficulties.

This does not seem to be a dispute about strategy or operations at the company. Simply that they consider only directors who have gone through their formal recruitment process should be considered, i.e. they would oppose any requisition from a shareholder to appoint someone whatever the size of their stake. It would seem they do not accept that shareholders should ultimately dictate who runs the company that they own. Shareholder democracy should not be overruled by corporate governance niceties however much one believes in a proper recruitment process for non-executive directors.

The Board’s reaction is surely unreasonable and likely to result in a costly battle, when the addition of another director with relevant skills and experience could hardly do any harm. Bearing in mind the recent financial history of Fenner, who operate in areas affected by the slump in mining and the oil/gas sectors, it does not seem a sensible time to pick a fight with some of their larger investors.

At the time of writing I have been unable to contact anyone at Fenner for comment. It seems the Christmas holiday has already started. But investors in this company should probably support the election of Mr Ducey unless the Fenner board come up with better arguments to oppose it.

Postscript: It did not take long for Fenner to reconsider this matter. On the 28th December the company announced that they had decided it was in the best interests of the company and its shareholders to support the appointment of Mr Ducey as a non-executive director. A wise decision after all.

Roger Lawson

Alliance Trust Savings to Change Charges

Alliance Trust Savings, one of the more popular investment “platforms” for retail investors, is to raise some of its charges, while reducing others, effective from the 1st February 2017.

On-line trading charges will reduce to as low as £7.99 per transaction (if you qualify for the maximum loyalty discount – or £9.99 for no loyalty discount). But postal or telephone trading charges will be increased substantially, although these will be offset by the introduction of a loyalty discount on those also so some customers may even pay less.

The main impact though will be the increase in fixed account charges which will raise from £7.50 per month for ISA and Dealing accounts to £10.00 per month (i.e. a 33% increase!). SIPP charges will also increase substantially.

The above increases will be partly offset though by the fact that the fixed charges will now include 4 on-line trades per year.

Charges are also being introduced for those customers who desire paper communications such as statements.

Comment: This is the latest in a number of changes made by trading platforms to their charges as the market is very competitive at present as volumes have been declining. Few on-line brokers are really making a decent return on their assets with major investments in new IT systems required, costs otherwise increasing and interest on cash at historic lows. Alliance Trust Savings has historically lost money but is expected to be profitable this year. These changes may well contribute to that. The company claims that it is still one of the cheapest services available in the market, particularly for larger accounts as it does not charge a percentage of the value of assets but a fixed fee.

There is clear encouragement to trade at least a few times per year, but those who do not (for example those who used the platform to purchase Alliance Trust shares itself some years ago) will not be at all happy. But otherwise these charges still look very competitive for larger portfolios.

More information is present here:

Roger Lawson

Shareholder Rights Directive Agreed – But It’s Still Defective

There has been agreement within the EU on the final form of the Shareholder Rights Directive. What follows is the press release issued by Better Finance (a body that represents individual investors across the EU and of which ShareSoc is a Member).



14 December 2016 – On 9 December 2016 the EU presidency and the EU Parliament agreed on the final version of the new Shareholders Rights Directive (SRD). Better Finance welcomes the completion of the new SRD which took years to finalise.

This final version provides limited improvements in shareholders rights, in particular in the critical areas of shareholder identification and of the exercise of cross-border voting rights.

Companies will be able to identify their shareholders and to obtain information on shareholder identity from any intermediary in the chain that holds the information. But Member States will decide that companies within their borders are only allowed to request identification with respect to shareholders holding more than a certain percentage of shares or voting rights which will not exceed 0.5%. If such a high threshold of 0.5% is set by Member States, only a very small minority of shareholders of EU companies will be identified. In addition this right is reserved to issuing companies and not to their co-owners (its shareholders). Better Finance asks that Member States set a threshold that is as low as possible and that the shareholders of the listed companies have access to the same information as easily as those companies do.

An important barrier to cross-border shareholder engagement within the EU will virtually remain in place despite Better Finance’s efforts, since intermediaries will still be able to charge higher fees to shareholders wanting to exercise their cross-border voting rights, but admittedly subject to certain conditions: “any differences in the charges levied between domestic and cross-border exercise of rights shall only be permitted where duly justified and shall reflect the variation in actual costs incurred for delivering the services”. Better Finance asks that the EU Commission and the Member States effectively enforce this provision.

Furthermore, no action is really taken against nominee and omnibus accounts where the economic /beneficial owner of shares still does not get the voting rights, except perhaps for very big shareholders: those who own more than 0.5% of the company or over the threshold to be set by Member States. More generally, it remains doubtful that financial intermediaries will reveal the identity of the EU shareholders who are not resident of the same Member State as that of the issuer.

Finally, the new SRD does not recognize shareholder associations and their right to represent small shareholders in listed companies: this is a significant barrier to the engagement of small shareholders.

“It is doubtful that these new rules will encourage European individual shareholders – who are long term investors – to engage more with listed companies: a pity as this was precisely the stated aim of this review”, said Guillaume Prache, managing director of Better Finance.


Comment: A lot will depend on how individual states implement the Directive and it will be some time before it is needed to be introduced into UK law, by which time we may have left the EU. Indeed many of the provisions of this Directive, for example on remuneration votes, are already present in UK law although it would require some changes to comply with it. However, as the above press release points out, the Directive is deficient in many respects and would certainly not guarantee that all shareholders (e.g. those in nominee accounts) have the rights they should receive. Neither does it guarantee access to those shareholders by third parties so shareholder democracy is still hopelessly undermined.

In essence, this is a typical example of EU bureaucracy as applied to financial services. A basic lack of understanding of the market environment , particularly in the UK, and the proposals excessively influenced by large financial organisations. The political process and democratic input to EU decision making is also grossly deficient, resulting in a half-baked compromise which satisfies nobody.

The directive may improve matters in some countries in some areas. But so far as the UK is concerned, it is not particularly helpful and does not even catch up with UK thinking and regulations in this area. After years of work on this directive (and more to come), it is a very unsatisfactory outcome.

Roger Lawson

FCA Consultation on Changes to FSCS Scheme Compensation

The Financial Services Compensation Scheme (FSCS) pays out if you have lost money as a result of an authorised financial services firm going bust or otherwise being unable to pay compensation for various failings – for example a bank or stockbroker. The scheme is funded by a levy on services firms. The Financial Conduct Authority (FCA) is currently undertaking a public consultation on changes to the scheme.

At present there are limits to the protection FSCS provides which vary by financial product. In simple terms, it protects:

  1. Deposits up to £75,000 per person per firm;
  2. Investments up to a limit of £50,000 per person per firm. These include for claims relating to bad investment advice, poor investment management or misrepresentation. That is obviously a very low limit for what many people have invested via a stockbroker, either in a pension (SIPP), ISAs or directly.

It is proposed to increase those limits for certain product types (to as much as £1 million for pension funds such as SIPPs in drawdown which would more closely be aligned with the current lifetime allowance). That certainly seems a more realistic figure when the new pension freedoms are known to be promoting lots of dubious investment propositions.

In addition one of the complaints by services firms that the risky firms are subsidised by the safe ones is being tackled. One of the biggest financial burdens on the scheme has been a few very large failures of companies which many in the industry viewed as likely to fail from their dubious business practices. Why should conservative businesses have to pay high levies as a resul? So the proposal is to introduce levies that match the risk profile of the subscribers.

The consultation document is available from here:

It’s a typical lightweight document from the FCA to give us something to read over Xmas – only 185 pages. We seem to be snowed under with consultations at present – any ShareSoc Members who would care to assist in dealing with them should contact me. Or you can of course put your own individual responses in using their on-line response form.

Roger Lawson

IDOX and Prejudicial Placings

One of the things that private investors hate is placings made by companies to raise money in which they cannot participate. In other words, the issuance of shares that dilutes your interest in the company when it is not a rights issue and there is no “open offer” alongside. Sometimes those placings are done at a price which is a considerable discount to the open market share price, thus enabling institutional investors to pick up shares at a big discount to what you may have paid for your shares, or less than you can buy them in the market.

On the 14th December, IDOX announced their preliminary results and a placing to raise up to £20.5 million for the proposed acquisition of 6PM. There was no Open Offer included. Incidentally I do have to declare a interest in IDOX as I have been a long-standing investor in the company – indeed this was a “ten bagger” for me until the share price fell after the announcement. My holding is therefore not trivial.

The company has been well managed by Richard Kellett-Clarke who only recently stepped down from CEO to become a non-executive director so I don’t doubt the possible merit of the acquisition. The acquisition is likely to be earnings enhancing. 6PM produces software for medical applications and IDOX already has interests in this area as local government (in which it specialises) are heavily involved in delivering care. But 6PM seems to be more into clinical applications sold to the NHS which is somewhat new.

But that does not mean that a small open offer could not have been included alongside the placing. As it was the placing was completed on the day of the announcement at a price of 60p per share – that’s a discount of 14.3% to the previous days closing price and 3.8% to the average over the prior 20 days. The market offer price at the time of writing is about 66p, so private investors have definitely missed an opportunity while institutions can realise an instant profit.

Having communicated with Mr Kellett-Clarke on this matter his argument for not including an open offer was the necessity to be sure of raising the funds in the timescale required to close the deal with 6PM. Also the costs of producing a prospectus are high. However, I do not fully accept those arguments. An immediate placing to institutions followed by a small open offer for other investors (at the agreed placing price) does not seem impossible to me bearing in mind that the take up by retail investors on such offers is often low (and could be scaled back if excessive). I believe a full prospectus is not required for a smaller share issue.

In essence it’s likely to be about “can’t be bothered”, or “it will cost something” to meet the demands of small shareholders when their main interest is in keeping institutions happy. In other words, shareholders are not being treated equally with larger ones benefiting at the expense of smaller ones. Even larger private investors have been excluded I understand.

If other companies can do it properly (recent examples are AB Dynamics, a much smaller business than IDOX, and Tritax REIT) then why not IDOX?

Now there will be a vote on the placing because this is a larger financial transaction and hence there is a General Meeting scheduled for the 5th January. Shareholders should consider whether they should vote against this transaction on the basis that the directors have not tried hard enough, as I am likely to do.

Roger Lawson