PRESS RELEASE 83 25/10/2016
ShareSoc (the UK Individual Shareholders Society) has today submitted its written evidence to the Business, Innovation and Skills Committee inquiry on corporate governance.
The goal should be to get more power back to the ultimate investors. This can be achieved by:
- Ensuring that individual shareholders can exercise their rights, even if their shares are held in nominee accounts.
- ShareSoc, if sufficiently well resourced, can play a role by ensuring that individual shareholders are educated about their rights and how to exercise them. There should be government and/or NGO support for representative organisations such as ShareSoc, in particular for educational work.
- Insisting that the London Stock Exchange properly regulate the AIM market.
- Requiring a binding annual vote on the remuneration report (which vote is currently only advisory and has proved to be ineffective).
- Requiring companies to disclose the Pay Ratios over the previous 10 years of the CEO to the average employee and of the CEO to the second-highest paid employee. The 10-year disclosure will create the right long-term emphasis on this ratio, in a similar way to the TSR graph and table of CEO remuneration.
- Introducing shareholder committees as outlined in the paper by Chris Philp MP “Restoring responsible ownership: ending the ownerless corporation and controlling executive pay”, comprising of the five largest willing shareholders and a representative of individual investors.
- Government stating its support for the ShareSoc Remuneration Guidelines, which recommend that the average FTSE 100 CEO pay should be reduced by approximately half and in particular that the maximum annual bonus should be 100% of salary and maximum long-term incentive award should be 100% of salary per year, except in the first year of appointment for external recruits.
The views of individual shareholders tend to be under-represented in many policy discussions, which is surprising as often they have very sensible opinions based on quite detailed knowledge of how business and the markets work. Part of the problem is the way that individual shareholders are disenfranchised through the way nominee accounts operate.
There is a particular problem in relation to some AIM companies. The AIM market, which is run by the London Stock Exchange (LSE), has been frequently criticised for the quality of some companies listed on the market and for the way it operates. ShareSoc and its Members think that some reform is necessary.
ShareSoc has recently issued its Remuneration Guidelines, which contain a number of practical actions that could be implemented easily and a number of other ideas for discussion.
Individual investors do not have effective power to curb directors’ pay. Fund managers, who are merely intermediaries in the ownership chain, have usurped this power: but have patently failed to provide effective stewardship. They are responsible for creating many of the current problems, yet to date seem to have avoided blame. Why should we expect them to suddenly change their behaviour? It is time for a strong input from Government and regulators of the London Stock Exchange to change the framework in which we are currently operating. The goal should be to get more power back to the ultimate investors and hence make capitalism work for everyone.
Our full submission to the Parliament BIS Select Committee Inquiry on Corporate Governance is present here: BIS-Committee-Submission
For more information, please contact:
Deputy Chairman, ShareSoc
Cliff Weight, Director and Remuneration Spokesman, ShareSoc