It’s Getting More Difficult to Vote

It’s certainly getting more difficult to vote of late, and I am not talking about voting at General Elections but just for resolutions at the General Meetings of companies we own. This seems to be a particular problem with Capita Registrars. Here’s some examples:

  1. Whitbread: As a personal crest member, I am on the register and expect to be sent an annual report and proxy voting form (and at least the latter on paper). But no longer it seems. Whitbread only sent me a single page letter advising me that the Annual Report and AGM Notice were available on-line and I could vote on-line. No paper Annual Report when I had not opted to not receive it. So I phone them up to ask for a paper copy and a proxy voting form. They (twice) sent me the previous year’s annual report by mistake and no voting form until reminded.
  2. National Grid. Similarly I only received a single page letter. So I tried to vote on-line. Even though the instructions were unclear, after speaking to Capita on the phone, they could not advise me how to get it to work. Simply rejected my ID. They seem to have a technical problem and clearly the system has not been adequately tested.

Is it not ridiculous that one should have such difficulties with voting, getting a notice of the meeting or an Annual Report? This is another example of how shareholder democracy is being undermined.

I will be raising these issues at the AGMs of these companies. But it is really annoying to have to waste time on such matters. If everyone on the register (or in a beneficial holding) was sent a paper proxy voting form, that would be one simple solution and should be mandated in law.

Roger Lawson

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,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.

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

A General Election – What Should Be In the Manifestos?

There is to be a General Election on the 8th June in case you have not heard. That has the unfortunate consequence on freezing Government business, with the prospect of changes of Ministers thereafter. Any formal consultations – for example on improved Corporate Governance and remuneration restraints – will be deferred. So the key question now is what would we like to see in the manifestos of the leading political parties? Here’s my list:

  1. A commitment to ensure that private shareholders in nominee accounts are fully enfranchised by changes to the Companies Act and a low cost “name on register” system mandated to be provided by all brokers with specific warnings about nominee accounts.
  2. The mandating of Shareholder Committees to improve Corporate Governance and ensure there is more restraint on pay. In effect return some more control on some matters to the owners of public companies, namely the shareholders.
  3. To cancel the proposed changes to dividend taxation and stop the double taxation of company profits (i.e. revert to the tax credit system) and properly index link capital gains taxes.
  4. To stop the proposed changes to Probate Charges so they more properly reflect the service being provided. It should not be turned into a tax, i.e. a fund raising measure to subsidise other Government legal services as recently proposed.
  5. To reform the insolvency rules so as to stop the abuses arising from Pre-Pack Administrations and ensure administrations are not just about protecting the interests of bankers.
  6. To improve the oversight of the auditing profession and strengthen the FCA and SFO so that frauds and false accounting are vigorously pursued. To ensure that companies and their directors are also accountable to shareholders by reform of the Companies Act and removing the Caparo judgement from law.

Now that would be a manifesto that would get my support, and no doubt that of many other people. It is of course very much the manifesto adopted by ShareSoc when it was set up – see http://www.sharesoc.org/ShareSoc%20Manifesto.pdf, and other issues have been covered by our campaigns on Shareholder Rights, Remuneration and Shareholder Committees. But progress on achieving our aims do date has been slow. Here’s a good opportunity to move them along.

Roger Lawson