A tale of three AGMs

by Cliff Weight

Last week I went to 3 AGMs. Aviva on Wednesday, 10 May in London and then Lloyds in the morning of the 11th and RBS in the afternoon, both in Edinburgh.

Aviva was very well attended with about 600 people in the Queen Elizabeth Centre. There were plenty of displays of the Aviva products, lots of staff to explain them and deal with any customer issues or complaints. There were also stands explaining the business (noticeable by its absence was Aviva Investors) and how Aviva contributes to the community. For those arriving early, and many did, there was plenty to see and do and to mingle with fellow shareholders and directors who also graced this pre-AGM event.

I wanted to ask a question. I was asked to register the question with a summary and was asked when I would like to ask the question and it was agreed I would ask not as one of the first but later in the meeting. There were 2 question stations and questioners were directed by staff to station A or B in an orderly fashion.

Sir Adrian Montague, the chairman, opened the meeting by saying he regarded this as one of the most important if not the most important day of the year for the company and stressed the importance of shareholders without whose money the company could not exist. After excellent presentations from the Chairman, Chief Executive and one other director, Sir Adrian opened the meeting for questions and introduced his “three strikes and you’re out rule”. I commend this! Questioners were allowed to ask a maximum of three questions or speak for three minutes but not to exceed either. He pointed out that, if you could not make your point in three minutes, you will have probably lost the audience’s interest by that stage. He also said that this was a shareholders’ meeting and that questions about customer issues were not appropriate and could be raised upstairs with staff who were there ready and prepared to deal with such issues. The meeting appeared to me to nod with approval at this approach which he maintained with almost 100% success. This led to a good series of questions and all those who wished to ask questions appeared to be able to do so.  Sir Adrian was an excellent AGM chairman.

A goody bag was provided to all shareholders including discounts for Aviva products, with coffee and biscuits beforehand and an excellent lunch afterwards. This was a very happy, informative AGM and Aviva are to be congratulated.

Lloyds was the second-best AGM of the three, with about 250 attendees, at the Exchange Centre in Edinburgh. The large auditorium was only about 20% full. There was no goody bag but there were plenty of handouts including bars of chocolate with the Lloyds motto “Helping Britain Prosper”, which were to be highly useful later in the day. There were a number of stands but the emphasis seemed to be on history and charitable foundations, together with a number of examples of businesses where Lloyds had helped them prosper. I would have like to have seen more stands explaining the different business lines, particularly Scottish Widows and how the Bank creates shareholder value.

The meeting was timed at a convenient 11 AM, which meant I could fly up from Gatwick on an early morning flight.  There are, however, no plans to change the articles of association to permit the AGM to be held in London which would of course be far more convenient for the vast majority of the Lloyds shareholders and might even encourage more fund managers to attend.

I registered my question and was given a yellow form which enabled me to sit near the two microphones. Staff called questioners in turn and this process worked well.

The chairman opened the meeting by setting the scene well, stating the purpose of the company was to help Britain prosper and to be the best bank for customers and shareholders. He said this requires creating a positive culture and removing older parts of the culture that were not appropriate, including dealing fairly and openly with past problems. He referred to the HBOS Reading trial and said now the trial had finished they will try and compensate claims as quickly as possible, in weeks not months. I mention this as it was relevant to how he answered questions later.

He spoke for 24 minutes, followed by the chief executive who spoke for 20 minutes and the CR update from Sara Weller of about eight minutes.

The chairman then opened the meeting for questions saying that it was a shareholders meeting and questions about customer issues were not appropriate. Clearly there is a balance to be struck here, as some customer issues are examples of generic problems in the bank which need to be highlighted and resolved. However, the Chairman, Lord Blackwell was far too liberal in indulging questions about specific customer issues and hence the meeting rambled on.

It was not all tedious. One amusing episode was when Gavin Palmer, when asking a question, apologised that he would have to leave before the meeting ended to go to the RBS AGM and he said, “he felt like he was going from the sunny side here to a dark place over there.” Much laughter ensued.

I and others left the meeting in full swing at 1:10 PM in order to go to RBS.  We were not able to partake in the lunch offered by Lloyds.

RBS’s AGM was the worst that I have attended, by a long way. It was scheduled to start at 2 PM, which meant it was impractical to attend all the Lloyds meeting and all the RBS meeting. This could have been a cock up or a conspiracy. I suspect it was the latter, as a means of reducing the number of attendees. There seemed to be lots of employees and advisers and hangers on, some of whom owned shares, but I doubt if there were more than 50 other shareholders.  It is extremely disappointing that such a large company has such a poorly attended AGM and does not seem to care.

Coffee and biscuits were served before the meeting, which was rather meagre for those who had had no lunch at Lloyds!

It is clear that, unlike Sir Adrian, RBS do not regard this as the most important day of the year. After a 12 minute introductory speech from the chairmen (Sir) Howard Davies, the chief executive spoke for eight minutes and then Sandy Crombie, the remuneration committee chairman spent some time explaining the changes to be remuneration arrangements in quite some detail.

(Sir) Howard Davies opened the meeting to questions saying customer issues should not be raised and that there was a customer services desk in the room outside the meeting staffed with people ready to answer such questions (I could not locate this, but it may have been there). However, he allowed a very large number of questions which I would’ve considered to be customer service questions or customer complaints and should have been deemed as outside the scope of the meeting. I felt that most shareholders would view this is a waste of their time. It was also clear that there were very few institutional shareholders represented.

To ask a question, you did not have to pre-register it. Everyone was given a handset and when questions started we were asked to press buttons on the handset if you wanted to ask a question. So, you had no idea when you would be called or where you were in the queue. In the event, it worked OK and ShareSoc’s chairman, Mark Northway, asked the first question and I was allowed to ask two questions later in the meeting.

One questioner asked why the Chairman was badged as plain Howard Davies when he had a knighthood. (Sir) Howard meekly confirmed he had this honour. This was another sharp contrast to Sir Adrian and Lord Blackwell who proudly displayed their deserved honours.

After a mostly tedious two and half hours, the meeting closed and we returned to the pre-meeting room where I was amazed(!) to find there were no drinks and no food. Somewhat starved, I did however have my bar of chocolate emblazoned with the Lloyds bank logo which I was able to share around!

More detailed reports on these meetings are available to full members of ShareSoc, on our members’ network, here: http://sharesoc.ning.com/xn/detail/6389471:Comment:43628 (RBS report to follow).

http://www.sharesoc.org/How_To_Run_General_Meetings.pdf is a useful guide and can be sent to companies to help them improve their AGMs.

BP PLC Remuneration Policy – ShareSoc’s comments prior to the AGM

In preparation to BP’s AGM tomorrow (17th May 2017), ShareSoc’s Remuneration spokesman has prepared this post on the company’s remuneration policy and many other issues.

Overall, the changes proposed by the Company, discussed in detail below, should be considered positive.

The discontinuation of the matching share awards and simplification is particularly welcomed, as is the downward discretion applied by the remuneration committee during the year to reduce pay. However, even after the reduction Dudley’s aggregate incentive forward-looking opportunity could still be deemed to be excessive at 725% of salary.

I have commented with more detail (available to full members of ShareSoc) in the Remuneration Forum: http://sharesoc.ning.com/xn/detail/6389471:Comment:43625 . Full members will also find the Manifest reports referred to below at that location.


At BP’s 2016 AGM, the remuneration report was defeated with 60.85% of the shareholder ballot failing to back its approval.

The defeat was connected to CEO Bob Dudley’s remuneration increasing by 20% to $19.4m during a year in which the Company reported record losses amid a global slump in oil prices, cut thousands of jobs and froze its employees’ pay. Following the defeat, the remuneration committee has undertaken consultation with shareholders and has put forward a revised remuneration policy for a binding shareholder vote at the 2017 AGM.

Revised Remuneration Policy

The Remuneration Committee has made several changes to the remuneration policy:

  1. Matching awards will cease to be granted from 2017 resulting in simplification;
  2. LTIP participation limit for the CEO decreased from 550% to 500% of salary. Under the old policy, the aggregate cap was 700% (matching shares + LTIP);
  3. LTIP participation limit for the CFO’s has been increased from 400% to 450% of salary;
  4. Post departure share retention policy of 250% of salary for two years introduced for executives;
  5. Pay-out for target performance under the annual bonus plan has been reduced by 25%;
  6. The mandatory deferral of bonus payouts has been increased from 33% to 50%;
  7. A maximum annual bonus will only be earned where stretch performance is delivered on every measure;
  8. The bonus performance scale for executive directors will be the same as the wider professional and managerial employee population; and
  9. The performance measures utilised in incentive pay have been amended.

Total Pay

The Company’s reported Single Figure for CEO Bob Dudley for the year stands at $11.6m, 40% lower than $19.4m in 2015. The fall in pay is due to lower performance-related pay and a discretionary reduction of $2.2m applied by the remuneration committee.

The bonus formula outcome was assessed at 81% of maximum, however, the Remuneration Committee reduced this to 61% of the maximum. In addition, the Committee exercised discretion to reduce the vesting outcomes of 2014 LTIP awards from 57% to 40% of the maximum. It should be noted that even after the fall in pay of $8m, Dudley’s pay remains above that of his European peers, including Royal Dutch Shell (£7m), Total SA (€€3.8m).


The remuneration committee has amended the performance measures for incentive pay and removed overlap between plans.


From 2017, the annual bonus will be measured on:

  1. Safety measures (20%) – split between recordable injury frequency and tier 1 process safety events;
  2. Reliable Operations (30%) – split equally between upstream operating efficiency and downstream refining availability
  3. Financial performance (50%) – operating cash flow (excluding Gulf of Mexico oil spill payments) 20%; underlying replacement cost profit 20%; and upstream unit production costs 10%

During the year, the bonus was measured on Safety (30%, split between loss of primary containment events, recordable injury frequency and tier 1 process safety events) and value creation metrics (70% split between operating cash, underlying replacement cost profit, corporate and functional costs, major project delivery).


From 2017, awards will be measured on:

  1. Relative TSR (50%);
  2. Absolute ROCE (30%); and
  3. Corporate targets (20%). Corporate targets include; Shift to gas and advantaged oil in the upstream; Market led growth in the downstream; Venturing and low carbon across multiple fronts; Gas, power and renewables trading and marketing growth.

Previously, awards were measured on relative TSR (33%); operating cash flow (33%) and strategic imperatives (33%). The Company has provided forward-looking disclosure of performance targets this year whereas targets were not previously disclosed until at the end of performance-periods.

The Remuneration Committee will also incorporate the Group’s longer-term safety and environmental performance as an underpin as well as absolute TSR. This will include consideration of several measures, including loss of primary containment (LOPC) and input from the safety, ethics, and environment assurance committee (SEEAC) to inform the exercise of the committee’s discretion. Previously safety was used under the strategic imperatives condition. The environmental underpin for performance shares will include consideration of issues around carbon and climate change.

The TSR measure utilises a small peer group of only four companies (Chevron, ExxonMobil, Shell and Total). Threshold vesting of 25% of maximum occurs at 3rd place, 80% of maximum vests at 2nd place and 100% vests for 1st place.


The Remuneration Committee does not directly consult employees on executive pay.

Explanation: ‘The committee does not consult directly with employees when formulating the policy. However, feedback from employee surveys, that are regularly reported to the board, provide views on a wide range of employee matters including pay.’

The Company used an employee comparator group comprising professional/managerial grade employees based in the UK and US which represents some 22% of the global employee population. This may not be sufficiently representative.

The CEO to average employee pay multiple is estimated to be 131 times.

Outstanding Issues

Although remuneration has been reduced there could still be perceived to be potential excessive levels of incentive pay;

  • High pension contributions (35% salary for FD);
  • No employee consultation and unrepresentative employee comparator group utilised; and
  • There is a lack of disclosure regarding outstanding equity awards and the fair value of equity awards granted.


In response to ShareAction’s report “Analysis of BP’s 2017 Remuneration Policy”, we believe that BP is proposing a prudent overall business approach which is trying to foster climate change protection as well as profitability aims.

The company’s prudential approach may be a direct result of the tumbling oil prices, the tight OPEC grip over the oil market, the late UK full ratification of the Paris Agreement (18 Dec 2016), and political uncertainties.

The latest Manifest “Say on Sustainability” framework assesses BP as having:

  • Good disclosure on GHG emissions (reporting available for the last 18 years);
  • Disclosure of progress against GHG emissions; and
  • Senior responsibility for ESG issues.

In addition, there is a public disclosure that the Company is investing into the low carbon economy and is implementing concerted efforts to address risks associated with climate change.

Whilst ShareAction’s report highlighting long-term climate change risks faced by BP and ways to address this via strategic alignment in pay policy is commendable, Manifest believes that some of the recommendations are set beyond current remuneration good practices, specifically extending performance measurement to reflect climate change risk horizons to 10-20 years; the Company’s current 6-year time-horizon (3 years-performance plus 3-years post-vesting holding is beyond best practice recommendation of 5-years) and may be technically challenging when remuneration awards are vested.

Comments by Cliff Weight, ShareSoc Director and Remuneration Spokesperson. Disclosure: Cliff Weight is also a non-executive director of Manifest, the global governance experts.

RBS, Akzo Nobel and Hornby

The Royal Bank of Scotland (RBS) AGM is tomorrow and it will be interesting to see what excuses the board of directors give for rejecting the requisition of a resolution to establish a Shareholder Committee. ShareSoc believes the rejection has no sound legal basis and ShareSoc directors will raise this issue at the meeting.

Another similar case is that of Akzo Nobel in Holland where Elliott Advisors have been pushing the board to consider a takeover offer from US company PPG Industries. But they have stubbornly refused to entertain it. Elliott submitted a requisition for a General Meeting to consider the removal of the Chairman of Akzo, Antony Burgmans. Elliott had the required support of over 10% of the shareholders. The company rejected the request so Elliott are taking the matter to the Amsterdam Court of Appeal. The legal position is complicated by the presence of “priority” shares held by a foundation which was established as a defence against hostile takeovers.

Comment: this looks like a similar blatant attempt to defeat shareholder democracy by the directors, as at RBS. Let us hope that it is not successful.

Meanwhile the extraordinary General Meeting called by Hornby following a requisition to consider changes of directors by Alexander Anton and other shareholders will be adjourned indefinitely as the requisition has been withdrawn. That follows a declaration by the company that they had committed votes to defeat the resolutions proposed.

Roger Lawson

Rolls-Royce – Audits Investigated and AGM

Yesterday (4/5/2017) I attended the Rolls-Royce (RR.) Annual General Meeting in Derby. In former years they used to hold the meetings in London but it’s been Nottingham and Derby the last couple of years. As a result, from talking to a few attendees it seemed to be mainly Rolls-Royce employees and retirees attending rather than the normal private investor crowd. The choice of venue may of course be deliberate so as to achieve a more sympathetic audience.

But the story promoted by the company is much the same – orders up, sales down and profits down, but the company says it has a bright future in summary. In the last year we have also had the settlement of past bribery in the company, and the issue of needing to change their revenue recognition on maintenance contracts (these issues have been well covered in past ShareSoc blog posts). In addition there was a massive reported loss arising from foreign exchange hedges being revalued.

The same day it was announced that the audit of the company’s accounts by KPMG in 2010-2013 are to be investigated by the Financial Reporting Council. Which seems very appropriate bearing in mind what was disclosed at the AGM.

Here is a brief summary of what was said by Chairman Ian Davis and CEO Warren East, and what I said in the Q&A session (not verbatim – summarised for brevity) . There is a fuller report on the ShareSoc Members Network:

Ian Davis confirmed the outlook for 2017 was unchanged – a trading statement was issued in the morning which said trading was in line with expectations but that profit and cash flow would be weighted towards the second half of the year. Cost savings were given as being “on-track” and the company priorities includes continuing to “rebuild trust and confidence in our long-term growth prospects” which is a clear admission that investors had lost faith in the company. The share price has improved over the last few months but it’s still considerably lower than it was back in 2013-2015.

Mr Davis said he was impressed by Warren East’s building of his management team, and that the long-term prospects for the company remain outstanding. The order book has grown to £80 billion.

After that short presentation, Warren East spoke at more length. He said that 2016 was a year of stabilisation and was a great foundation for moving forward. Underlying revenue was down slightly but underlying profit was down significantly [49% down in fact]. He explained the large “headline” fall in profits has being due to derivative contract revaluation. But he did say that underlying profit (which excludes derivative charges) fell due to significant headwinds in the civil aviation business. However they have grown the wide-body engine market share from 30% to 50%. There was a once in a generation transition to more efficient engines. The launch costs will decline and the installed base will grow.

They are losing mid-range and corporate jet market share, and defence is still a challenging market. In power systems there was a stable performance and the installed base grew. Marine suffered from extreme weakness due to a dearth of orders for new vessels and servicing. There have been major job losses. In nuclear there had been some investment in the development of small modular reactors.

Mr East continued by saying they had invested a lot in 2016 in R&D, in assets and in operational excellence. But they had not forgotten cost control. He said investors were now more confident in the company now – hence the improvement in the share price. They have restored trust in the company.

Mr East then talked about the new management appointments and said they still need to follow through on strategies set in 2016 while also thinking about the future.

He explained the deferred prosecution agreement over the bribery allegations (£671 million in fines, plus an obligation to change their behaviour). There had been extensive action within the business to change policies in this area.

I covered a number of issues when questions were invited:

1) I questioned whether the former management (e.g. the CEO) should be subject to clawback on bonuses because of the bribery and other issues. The answer given by Ruth Cairnie (Chair of the Rem Comm) was that the management who were involved in the bribery scandal had lost all their bonuses and options and that clawbacks had been introduced. But the Chairman said that the former CEO knew nothing about the matter at the time. Incidentally there was an amusing comment from Matthew Vincent in the FT today which was “All of this prompts the question: which euphemism did Rolls-Royce use for the £100,000 or so it spent on a Silver Spirit car to indulge the automotive appetites of an Indonesian intermediary? Miscellaneous travel?” That question was directed at KPMG but it might just as well be directed at the former CEO surely.

2) I suggested a shareholder committee would perhaps help Rolls-Royce deal with the various problems they faced.

3) As regards the accounting change to future maintenance, which had been explained away as a “technical accounting issue”, I said that it was not just a technical matter but a question of prudence. In my view it was not prudent to recognise future sales and profits in the current year. And it was certainly not clear in the past that this dubious accounting treatment was being used.

4) I also commented negatively on the complexity of the Remuneration Policy. Ruth Cairnie said it had been simplified but I pointed out that the maximum salary multiple in the LTIP had actually been increased. I spoke to Ruth at some length after the meeting on remuneration. I pointed out that such LTIPs result in enormous payouts at companies like Persimmon and Berkeley Group (WPP is another example incidentally) and that a recent Commons Committee said they should all be scrapped. She responded that they had to pay a competitive “package”. I agreed with that but said it would be better to have a higher fixed base salary and do away with LTIPs, or pay bonuses in cash or shares annually. There was no incentive provided by LTIPs as anyone familiar with business management would know – rewards for good performance need to be made soon after achievements. I also said to her that if public companies did not reform their attitude to pay and the levels they considered appropriate that the Government might take a hand. I did say to her that it was her responsibility and she could do something about it. She did not seem happy with my comments but reiterated the usual stance about having consulted all their major investors. Indeed they did achieve 95.6% support on the Remuneration Policy vote and 98.7% support on the Remuneration Report vote.

It was only a moderately useful meeting to attend. As in previous years, treated more like a PR exercise for company pensioners than a serious meeting for investors by the Chairman. Bearing in mind that the Chairman has been Chair of this company for several years, it surprises me that he is still there when the company has had so many problems on his watch. I would certainly prefer a new Chairman. Matters such as remuneration tend to be driven by the Chairman and his response to criticism of any kind is not helpful. But he still got 99.5% of votes to re-elect him. Surely an example of how corporate governance by institutions tends to be brain-dead. The votes on remuneration also demonstrate a pathetic response to the pay issue.

In essence the old problems are still there. Orders going up, but sales falling, i.e. orders not able to be delivered and turned into cash. They need to start using a different measure of likely future business. With such a large and complex business, it is difficult to say yet whether Warren East has really got to grips with reforming the company. We will have to wait and see.

Meanwhile there was a good editorial in the FT on how the defects in auditing at companies such as Rolls-Royce “highlight the failure of the accountancy profession and its regulators to resolve in the intervening 15 years [since Enron and the demise of Arthur Andersen], the fundamental question of how far auditors should be expected to go in their efforts to uncover bad behaviour”. One cannot but agree with that and with their view that 4 major audit firms is not enough to ensure competition and that it tends to encourage cosiness between auditors and their clients. But there are surely more substantial reforms necessary to really improve auditing standards which the profession itself seems to not accept as being required in any way.

Roger Lawson

Hornby Requisition Opposed

Investor Alexander Anton previously requisitioned a General Meeting of Hornby (HRN) to have Chairman Roger Canham removed from the board and get himself appointed as a director. Mr Anton has the support of the second largest investor in Hornby in New Pistoia, but the largest investor is Phoenix Asset Management. The long standing Chairman of Hornby, Roger Canham, is also Chairman of Phoenix which Mr Anton suggests is not a good arrangement so far as corporate governance is concerned. Hornby, the maker of train sets and toys, has had a poor financial performance in recent years with production difficulties and consistent losses. The company undertook a strategic review in early 2016 and has been working to a “turnaround plan” since then. The company has been reporting “good progress” against that plan, although the last interim results still reported a loss of £4.7 million on revenues which were down at £21.9 million. But debt was reduced. A pre-close trading statement for the March year end confirmed there would be a loss for the year but noted a positive cash position after stock reductions and disposal of the Margate site. There were also positive noises about current trading.

Mr Anton was involved in the board revolution at Victoria, the carpet company, a few years ago. That was very successful and the company has gone from strength to strength since then under the new leadership of Geoff Wilding. There are some similarities between the problems at Victoria and Hornby. Excessively large product range, very high stock levels in relation to sales, stagnant or declining sales (revenue is forecast to be £45m at Hornby this year when it was £65m five years ago) and management who seemed incapable or unwilling to tackle the issues vigorously although Hornby might say that they have now been doing so.

The company has now published a circular for the EGM to consider the requisition on the 16th May. As was not unexpected the company has recommended shareholders vote against the resolutions on the basis that the current strategy is working and there is nothing amiss as regards corporate governance. They also say they already have the committed and irrevocable support of 54% of shareholders to vote against, so it seems very unlikely the resolutions will pass. But even if they do not, if the company’s final results do not improve substantially that may not be the end of the matter.

Comments: Having spoken to both Mr Anton, and to David Adams, the Senior Independent Director at Hornby, these are my views:

One only has to look at the product range (Hornby trains, Scalextric cars, Corgi models, etc) to realise that the company seems to be stuck in the past. Do steam engines and World War II planes really appeal to kids nowadays? Or even to the parents that might buy them for their children? One can see exactly why sales revenues have been declining for many years and are likely to fall further with product rationalisation taking place, while the product range is still enormous. The web site which is now the key “shop-front” for most retailers also looks old-fashioned.

So this looks to be a company with major sales and marketing problems and possibly problems with its IT/ERP systems also. Now the new CEO is an accountant and it looks like he is doing a sound job of getting the company back into stable financial position. But is he the right person to otherwise revitalise the company and get revenue moving in a positive direction?

The key question for shareholders is what good or harm would a change of Chairman and the appointment of a new non-executive director do? As the current Chairman has been there 5 years and the decline in the company over that period has been substantial, it surely would be beneficial to have a change in that regards. Would he still be there without the support of Phoenix? As regards the appointment of Alexander Anton, having a new independent view on the board can surely do no harm and might do some good.

So as usual in these kinds of circumstances, the prompt rebuttal by the board of the proposed changes does not appear positive for the future of the company when this writer remains to be convinced that all the issues are resolved.

Roger Lawson

RBS AGM Voting Recommendations

ShareSoc has today issued the following press release giving voting recommendations for the Annual General Meeting of the Royal Bank of Scotland (RBS):

ShareSoc recommends voting against the following resolutions at the Annual General Meeting (AGM) of RBS: 2 Remuneration Policy, 3 Remuneration Report, 4 Chairman Howard Davies, 12 NED Penny Hughes and 24 General Meetings at 14 day notice.

RBS have continued to resist our request for a shareholders’ resolution to be put to the AGM for the establishment of a Shareholder Committee, and have steadfastly refused to share their legal opinion.

We consider the behaviour of the RBS board in this matter to be undemocratic. Shareholders should be able to consider our resolution and decide for themselves whether the company should implement a Shareholder Committee. RBS will have seen how seriously the concept of a Shareholder Committee has been taken by many players in the financial world, and that there is a good possibility that the idea will gain further traction.

ShareSoc has observed a more conciliatory tone in communications with RBS in recent weeks; however we note with regret that this has not resulted in the tabling of a motion to discuss the benefits of a Shareholder Committee. This is a missed opportunity for RBS to lead from the front.

Mark Northway, ShareSoc Chairman, said “It is very disappointing that RBS are effectively taking the position that they will only make substantial improvements to their governance models and shareholder engagement processes if such improvements become mandatory. This is a missed opportunity for RBS to lead from the front”.

Voting recommendation re Resolutions 4 and 5 (re-election of Howard Davies and Penny Hughes): VOTE AGAINST

ShareSoc cannot simply ignore the fact that RBS is refusing to put a validly requisitioned members’ resolution to the AGM. The legal reasons given for such refusal are tenuous at best, and make it clear that the board’s issue lies more with the concept of the Shareholder Committee than with the form of the resolution; alleged minor technicalities are being used as a foil to prevent a discussion and a shareholder vote on an important matter (see below).

It is not reasonable to expect shareholders to simply roll over on this matter when we believe that the company is actively obstructing our legal rights on both counts. We recommend a vote against the company Chairman Howard Davies who has ultimate responsibility for this action; and against Penny Hughes who chairs the Sustainability Committee, whose ambit covers stakeholder engagement.

Remuneration Resolutions 2 and 3: VOTE AGAINST

Target pay for the CEO is £3.8 million versus a going rate of around £7 million for a company of this size so RBS should be praised for adopting a pay policy which follows ShareSoc’s remuneration guidelines that FTSE100 CEO pay should be reduced to roughly half of current levels.

However, RBS have adopted an inadequate share ownership guideline of 400% of salary. This means that the CEO is able to sell all but £4million of his shares whenever he likes. Where is the alignment with shareholders in this approach? How can shareholders be sure that he will be retained and motivated? CEO MacEwan does not have enough skin in the game. He should be highly incentivised to manage and resolve the legacy issues for the benefit of shareholders. These questions are not discussed in the remuneration report, which fails to get to grips with the key issues of motivation, alignment and succession.

RBS should require executive directors to hold their shares until 2 years after they leave. Such time will enable any legacy issues to show through before the executives cash in their shares. That is the best way to create alignment with shareholders.

Resolution 24, permission to reduce notice of general meetings to 14 days: VOTE AGAINST

ShareSoc disapproves of such provision for any company as we believed it reduces shareholders rights. We recommend that shareholders vote against this resolution.

More Information

More information on our campaign to obtain a Shareholder Committee at RBS and the benefits of such committees is present on our web site here: http://www.sharesoc.org/rbs.html . Shareholders in RBS can register their interest on that page.

Roger Lawson

Hard Hitting BEIS Report on Corporate Governance and Pay

The BEIS Commons Select Committee have today published a strongly worded report on Corporate Governance after its recent hearings on the subject. Here are some of the key points they make:

  1. They agree with the Prime Minister that high levels of executive pay need to be tackled “for the benefit of society as a whole”. They forcefully recommend that Long Term Incentive Plans (LTIPs) should be abolished as soon as possible because they create perverse incentives and are often a way to conceal high headline pay levels. They suggest pay structures should be simplified and deferred stock options should replace LTIPs.
  2. They support the “comply or explain” basis of the UK Corporate Governance Code but they wish to see some changes made to it so as to improve shareholder engagement and make non-executive directors more accountable plus more powers be given to the FRC so as to assist. They are concerned that Section 172 of the Companies Act which concerns the obligations of companies to their stakeholders is being ignored. They think boards should be required to explain how they have considered the issues.
  3. They came out in favour of “Stakeholder Panels” to assist boards and improve engagement. This is somewhat disappointing when ShareSoc has suggested Shareholder Committees would be better (they mention the actions by ShareSoc and UKSA in respect of RBS). Stakeholder Panels are a very watered down version and in our view are not likely to prove effective in influencing boards although other witnesses supported them. Interestingly they mention that several witnesses mentioned the possibility of “digital engagement via online forums” which would be a novel approach.
  4. They do not directly support having workers’ representatives on boards although they do suggest that employees might be considered for the roles of Non-Executive Directors, and that employee representatives should be appointed to Remuneration Committees.
  5. They support the publication of annual pay ratios, but they are opposed to the introduction of annual binding votes on pay simply because past experience of such votes does not suggest they would be effective in controlling pay. However, they do suggest that a binding vote on pay be invoked in the following year if more than 25% of votes are cast against the Remuneration Report (presumably in addition to the three yearly binding policy vote already present). They also suggest a rule that the Chairman of a remuneration committee be required to resign if pay proposals do not achieve the support of 75% of shareholders.
  6. They suggest more disclosure is made about advisors engaged by companies and their pay.
  7. They propose that the appointment of new directors be explicitly done by open advertising or the use of external search firms rather than the currently common “informal” which is surely a positive move and in accordance with ShareSoc’s recommendations.

My personal comments: In summary they are not proposing any radical reforms to the whole approach to UK corporate governance, but they are putting forward some significant improvements. But they are proposing more reporting and more FRC regulation so bureaucracy will be increased further which may not be helpful and will certainly add to costs. In addition the use of “Stakeholder Panels” would add to the corporate governance burden while how they would operate and their benefits is not actually very clear. They could just turn into “talking shops” with no real impact on the behaviour of directors or influence over their recruitment.

But the scrapping of LTIPs and the other proposals on remuneration are certainly positive recommendations.

They unfortunately failed to tackle one reason why votes on pay have not been as effective as hoped. Namely that private shareholders are mainly disenfranchised and do not vote. In addition fund managers do not represent the views of their underlying beneficial owners in the funds they control.

No doubt there will be formal public consultations on these proposals if the Government adopts the Committee’s recommendations, to which ShareSoc will respond. So if you have any comments on them, please let us know by adding your views to this blog post.

The full report of the Business, Energy and Industrial Strategy (BEIS) Committee is available here: https://www.publications.parliament.uk/pa/cm201617/cmselect/cmbeis/702/702.pdf . It’s well worth reading.

Roger Lawson