Changes to ShareSoc’s Board

In recent months your chairman has found it increasingly difficult to reconcile the views of the ShareSoc board in certain areas of style and presentation, and this has started to impact the effective functioning of the society.

Following a lengthy discussion at the May board meeting, it was agreed that Roger Lawson will cease to be a director of ShareSoc.

ShareSoc owes a huge debt of gratitude to Roger. As founding chairman, he set the strategic direction for the Society and presided over its development into a multi-faceted organisation providing its members with information, education and networking facilities while campaigning on your behalf at both policy and company level. Roger is extremely knowledgeable and diligent, and has put an immense amount of work into the society. He has done all of this without receiving any form of remuneration.

Roger will be a lifetime honorary member of ShareSoc, and we hope that he will continue to be involved in specific campaigns and to provide input into the society’s blog and newsletters.

The board has recently undertaken a skills audit, and we are looking to attract new directors in the coming weeks.  Our intention is to further deepen the knowledge and resources available to your society, thereby increasing its appeal to a broader membership base.

Mark Northway
Chairman

RBS Potential Settlement: Where’s the Justice?

It seems that the major players in the RBS Action Group have accepted the latest RBS offer. See http://files.constantcontact.com/2fe662f5101/de78446f-b327-4d5e-9eee-5fcd584c7e8c.pdf

This has, in effect, enabled RBS to bully the small individual shareholders into also accepting the settlement. I say “bully” because RBS are threatening anyone who pursues the case to risk having costs awarded against them.

So now the case will be settled. No-one will be found guilty. RBS will pay out £800 million (of shareholders’ money) to a group of its shareholders without admitting any culpability or liability. It all gets swept neatly under the carpet and no one goes to jail. It has taken 9 years for this to happen. It is not just RBS – the HBOS Reading trial took nearly ten years to be investigated and brought to court.

The key players do not come out of this well. Something is wrong with the SFO, CPS, FCA, FRC, BEIS, etc when £12 billion of RBS’ shareholders’ money raised in a rights issue can disappear so quickly.

Very, very few people in the UK have gone to jail as a result of their actions that led to the 2007/08 Financial Crisis, yet millions of people have suffered severe hardship as a result. The SFO, Crown Prosecution Service and/or BEIS should be given more resources and told to pursue problem cases much more speedily. Companies should not be allowed to hide behind expensive lawyers. The whole process of settlements where management admit no blame and shareholders pay the fines/settlement amounts mean management get off scot free and also needs a review. These steps (plus others no doubt) are required to rebuild trust in business and to tackle what Mrs May calls the “anything goes” business culture.

Cliff Weight

ShareSoc Foresight 4 Campaign update 26 May 2017

We recommend (with reservations) that shareholders vote in favour of the resolutions to merge Foresight 3 & 4 and to raise additional funds of £50 million, and possibly up to £100 million, (including a possible over-allotment facility for an additional £50 million).

In summary, we acknowledge the recent communication and documents outlining the terms of the merger, but we are disappointed that the directors were unable to negotiate better terms for shareholders. There are positives but also negatives: on balance we think shareholders should not oppose the merger, but going forward there need to be changes to the Board of Directors and/or improved corporate governance. ShareSoc may put forward proposals via resolutions at the next AGM to address these outstanding issues.

Considering these points, we think it is better to support the directors at this time. There are a number of good points, highlighted in the Companies’ shareholder letter. The good points include:

  1. Dividend
  2. Tender
  3. Regular buy-back programme
  4. Commitment to narrow the share price discount to below 10%
  5. New monies remove lack of liquidity concern.

However, we have a number of remaining concerns, which we think should have been addressed:

  1. Directors should have negotiated better terms, i.e. high ongoing management fees and incentives. The fees for the fund manager are still high by industry standards (n.b. the AIC publish fees data).
  2. Historically the directors have made some mistakes, such as paying dividends which may have been in contravention of CA 2006 S847 which requires companies to have distributable reserves in filed accounts. Foresight dispute this claim, but they may have mistakenly stated the distributable reserves on the balance sheet which, in turn, may have impacted the directors’ explanations of why they were not willing to pay higher dividends. Those responsible have avoided the blame and this merger will provide the opportunity to sweep these issues under the carpet.
  3. The manager seems to be benefiting more than the shareholders. The benefits for the shareholders should be more. The contribution to costs by Foresight is very small compared to the fees they will earn from the fundraising both as promoters and on higher net assets.
  4. Merger costs are too high and higher than elsewhere.
  5. Cash drag (assuming significant levels of cash will be raised) as a result of having lots of cash for some time, by raising so much new money at an opportune moment. This may create an incentive and temptation to make risky investments.
  6. New chairman was previously a board member of Foresight 4, so has been involved with two badly-performing VCTs. We question his value and hope that he will step down after, say, 12 months.
  7. New director (Mr Gray) has no relevant experience and appears to have been hired by the two exiting directors – both of whom stepped down after ShareSoc’s campaign. (Note: Michael Gray qualifies as independent by all parameters used to determine independence, under corporate governance and listing rules.)
  8. Tender offer is too low in size and no reasons given for why so. No detail has been given as to which assets are being realised/sold to raise the funds for the dividend/tender, but the most obvious and simplest would be Datapath, in total or in part, an investment which is by far the largest holding in both funds.
  9. No information was provided in the shareholders’ letter on the NAVs of the two VCTs on which to judge recent performance (last is Dec 2016).

We had hoped that the above issues would be addressed but they have not been.

However, we think it best to support now and to reserve our position to oppose the re-election of the new director Mr Gray and possibly others at the next AGM; and possibly to propose alternative directors or a shareholders’ committee.

A number of shareholders have worked hard on this campaign and their efforts are much appreciated. There are complex issues involved and we do not all agree on everything. One important view (but a minority view of those shareholders involved) was that the ShareSoc Campaign should not be happy to endorse this untimely merger.

Individual shareholders will make their own decisions but we hope the above guidance is helpful and lays out the main arguments we have considered.

Cliff Weight, ShareSoc Director

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

Pearson Pay Vote Lost

Shareholders in Pearson (PSON) yesterday rejected the Remuneration Report on a vote at the company’s AGM. That was by 61% opposed to 32% supporting with 6% abstaining. But they approved the Remuneration Policy.

Opposition to the Report seemed to be based on the fact that CEO John Fallon achieved a 20% rise in total pay despite a record loss and several profit warnings.

However the share price rose on the day substantially by 12% perhaps because of a positive first quarter trading statement issued in the morning in certain areas, although the overall 2017 outlook guidance was unchanged.

What is puzzling is that the remuneration votes at Rolls-Royce the previous day were passed with ease, where there were similar negative comments by ShareSoc, some proxy advisory services and the media on the bonuses achieved by CEO Warren East even when underlying profits fell substantially. See my previous blog post for more information. Why did that revolt turn into a damp squib, when it was just as justified as the opposition to pay at Pearson?

Is this simply the perversity of institutional voting, better communications from the company or was there some other specific reason?

Roger Lawson