In a speech made in 2016, Theresa May said:
…And I want to see changes in the way that big business is governed. The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough. So if I’m Prime Minister, we’re going to change that system – and we’re going to have not just consumers represented on company boards, but employees as well…
Well, she certainly correctly diagnosed the problem of a narrow clique governing UK corporations, and of that clique having failed to deliver, as exemplified by the financial crisis and the unjustifiable ratcheting up of executive pay over recent decades.
So, we had reason to be hopeful when the government launched a consultation on corporate governance in February this year. Our hopes were further raised when Conservative MP and Treasury committee member, Chris Philp, published a paper advocating shareholder committees, broadly in line with ShareSoc’s own recommendations. You can read ShareSoc’s response to the consultation here.
Our short term hopes were dashed, however, when the government published its conclusions from the consultation earlier this week. On the shareholder committees proposal the government states:
1.61 On the Shareholder Committee option, the Government recognises the concerns of companies, many investors and other respondents that this option would be difficult to implement practically and could moreover undermine the UK’s unitary board system.
So, what is the justification for this apparent U-turn?
1.14 On the ‘shareholder committee’ option, three in ten of those who commented on it saw merit in the idea. It was supported predominantly by retail shareholder groups, by some private individuals and by some wider society groups. Their rationale was that it would drive more informed and pro-active stewardship of companies by major investors, augmented by a retail investor perspective, and that the Swedish model it is based on could be adapted to fit the UK’s more fragmented and international shareholder base.
1.15 The option was opposed by institutional investors, companies, most business representative bodies, some think-tanks and some private individuals. A common argument against was that it would be difficult to find a group of investors that could represent the views of the hundreds of investors typically holding shares in any large quoted company. Some smaller institutional investors expressed concern that such committees would entrench large investors, making it harder for smaller investors to have a say on the running of companies. Both companies and investors expressed concern that a shareholder committee with strategic oversight of a company board and advance say on draft pay and nomination proposals would blur the lines between stewardship and executive decision-making, and undermine the UK’s unitary board model.
I.E. whilst the concept was supported by retail investors and wider society groups, the vested interests of powerful groups such as the corporates and fund managers were given priority. It is hard to think of a more blatant betrayal of promises!
Whilst the vested interests may have won this battle, ShareSoc will keep fighting, by exposing this hypocrisy and keeping up the pressure for change.
To do this, we need your support through your membership subscriptions and donations.
We will not give up the fight!
Three in ten’ in fact represents tremendous support for the Shareholder Committee idea when consultative responses are numerically dominated by industry members determined to keep the status quo. It is disingenuous of a government department to misuse statistics in this way in order to kick an idea for which there is strong independent support into the long grass. In general the dismissal of the Shareholder Committee concept is superficial, illustrating a determination to yield to special interests rather than search for solutions
Re 1.14 ‘three out of ten’ in fact represents tremendous support for the Shareholder Committee idea when consultative responses are numerically dominated by industry members determined to keep the status quo. It is disingenous of a government department to misuse statistics in this way in order to kick an idea for which there is strong independent support into the long grass.
Re 1.15 it won’t undermine the UK’s unitary board model if the shareholder committee is not given any decision making powers by the Board. The only power needed is being able to report back to shareholders on what the committee has done, e.g. what advice it has given the Board and whether the Board took notice. A model where the shareholder committee appoints directors, would impact the unitary board model, but this is not the model I favour. The Government should be looking for ways to make shareholder committees work, not looking for feeble excuses to justify their sucking up to the fund managers and company directors who favour the status quo.
I plan to continue our campaign for shareholder committees. We will do this by talking to those companies that will listen to our views and where companies are unwilling to listen, we will requisition a shareholders resolution to demand a debate and a vote on a shareholder resolution. RBS will be receiving a requisition for a resolution for a shareholder committee. If you think other companies should have a shareholder resolution, then please let me know by leaving a reply here or by emailing me directly at firstname.lastname@example.org
There are a range of alternative ways to implement a shareholder committee. Given the growing attention that stakeholders receive then it may be appropriate to include some stakeholder representatives on the shareholder committee or call the shareholder committee a stakeholder committee/panel. However the primacy of shareholders must not be forgotten nor allowed to slip.
The government is rather self congratulatory in its inrtroduction to the Green Paper response. It says we have the best corporate governance framework in the world which is admired around the globe. But it fails to mention the FTSE 100 corporate governance failings, examples are:
BP – insufficient attention paid to safety
Tesco – accounting anomalies, pre booking revenue
GlaxoSmithKline – bribery in China
Shell – overstatement of reserves
G4S and Serco – overcharging for prison services. G4S also failed to meet the London 2012 Security Contract.
RBS – acquisition of ABN Amro; 2009 rights issue with misleading statements
Lloyds – acquisition of HBOS
Barclays, various directors being prosecuted by SFO over 2008 fund raising.
Its also interesting to note that the main argument against a Shareholder Committee is :-
“ it would be difficult to find a group of investors that could represent the views of the hundreds of investors typically holding shares in any large quoted company.”
Whilst I can see some challenges, it will still be an improvement on the present system of shareholder influence which is non-existent. Companies presumably define their regular meetings with fund managers as “investor meetings”. But, lets not forget that the institutions are NOT INVESTORS because they are putting other people’s money at risk rather than their own. So, one could argue that investee companies presently don’t talk to investors at all – they only talk to intermediaries – and these intermediaries only represent a small proportion of the shareholder base. Things might be different if most institutions could demonstrate that they have a robust consultation process with their beneficiaries that steers their voting and other stewardship behaviour but I’m not aware of such consultations? Is anyone else? Is there a best practice fund manager out there we could praise and emulate?
So, unless I’m mistaken, the present system is far less representative than the one ShareSoc and UKSA proposed.
Very good that The People’s Trust will have a Shareholders’ Committee. This Committee will meet both on its own and with the Chief Executive and Independent Directors. It will seek feedback from Shareholders on issues that it wishes to have raised with the Board and will have the right to request any information it requires. It is intended that the Shareholders’ Committee will be asked to give its opinion on remuneration and, possibly, nomination proposals, before they are finalised. Every year, the Shareholders’ Committee will be allocated space in the Annual Report & Accounts to report on its interactions with the Chief Executive and the Board and to express its satisfaction or dissatisfaction with the Company’s approach.
It is in their fund raising prospectus on page 65: https://www.thepeoplestrust.co.uk/application/files/7215/0480/2942/The_Peoples_Trust_prospectus.pdf
Let us hope this is the start of a trend.
#GavinPalmer is today at the Conservative Party Conference lobbying for #ShareholderCommittees. Today he has spoken with Nicky Morgan, MP Treasury Select Committee, BEIS Minister Margot James, MP and Sir Gerry Grimstone, Chair of Aberdeen Standard Life, who today attacked Theresa May’s executive pay reforms as too weak. Good Work Gavin and Gerry.
RBS’ decision to ignore a significant minority of its shareholders shows contempt for ownership, a paradoxical stance as, I assume, RBS’ board favours sound capitalism. RBS’ response implies that shareholders abdicate all rights and power to the board. It is a logical step, from the board’s perspective, that it can reward at will regardless of shareholder dissent.
It looks as if RBS is still at the box-ticking stage when it comes to corporate governance, justifying decisions through negative statements, as in the FTs’ article of the 24th March:
– ‘RBS said it did not believe creating a committee “would be in the best interests of the company”’
What does RBS think the company is? The Board = the Company? RBS, I suspect, believes it would not be in the interests of the board and senior execs. Owners are clearly an irrelevance.
– But, given RBS’ amazing innovation to get into the mess they did, surely they can address ‘the difficulty of finding a representative panel’?
– As to ‘“undermining” the unitary board structure’, the board members have done that for themselves.
All of this proving that, if not laid down in law, it won’t happen. Equitable treatment, fairness and good corporate governance do not matter.
If the RBS approach gains traction, share-ownership seen abdication of rights will be treated as the norm.