UK activist investors lag Europe - but are catching up
Last year's shareholder spring was not a one-off, says Roger Aitken, and more is on the way.
Friday 08 March 2013
Ahead of the annual general meeting (AGM) season, the National Association of Pension Funds warned big companies this week that they face another shareholder spring.
It wrote to the chairmen of all FTSE 100 and 250 companies warning them to clamp down on bonuses or face protests from investors.
Successful shareholder revolts last year led to the resignations of Andrew Moss at Aviva and Sly Bailey at Trinity Mirror.
To exercise shareholder rights at a company you need to hold at least one share, and you can then attend the AGM and ask questions directly of the senior management.
Shareholder activists no longer need to cover their faces in war paint or protest loudly outside the AGM to make their point. Instead investors can let shareholder associations do the job for them.
But can this new shareholder activism, consisting of dialogue and formal shareholder proposals, work to make companies stay on track and behave?
Across Europe shareholder associations have seen mixed fortunes, but Britain is certainly lagging behind, according to Roger Lawson, the chairman of the UK Individual Shareholders Society (ShareSoc).
He says there are a "number of reasons" why associations in Britain have not blossomed to the same extent as in continental Europe. "Often it tends to be stimulated by specific issues such as excessive pay, which has been a hot topic of late," Mr Lawson says.
European success stories include the Swedish Shareholder Association and its counterpart in Denmark which have some 70,000 and 20,000 members respectively. That is far larger than ShareSoc, spun out of the UK Shareholder Association two years ago, which has a membership hovering at just over 2,500.
And the Scandinavian societies are not alone. Deutsche Schutzvereinigung für Wertpapierbesitz, a German society formed in 1947, has about 25,000 members today.
More than anything else the disparity between the UK and the rest of Europe can be attributed to a "cultural problem", according to Mr Lawson. "There is an inherent reluctance among the English to complain, tied to a faith that directors are seen as doing the right thing by their companies," he says.
"It's also generally viewed as bad form to challenge the directors or attack them for incompetence. And nobody likes to vote against any resolutions."
However, it sometimes comes down to the efforts of shareholders themselves to force issues. Aside from direct action, the shareholder activism model includes individuals signing up to shareholder societies to leverage their collective clout. Typically members receive various benefits – such as investment education and policy advice – for a small annual fee.
For example, the Danish Shareholder Association, formed in 1984, has the stated objectives of "educating members through investment education, lobbying for the rights of and influence by Danish private investors, and promotion of investment in general."
Klaus Struwe, a political adviser to the association and a consumer member of EIOPA Occupational Pensions Stakeholder Group, says: "From AGMs in 2013 there is now the possibility of having a consumer representative. That's something we pushed hard for and succeeded in securing."
ShareSoc got involved in a diverse range of contentious issues last year. These included attacking the CEO's £4m pay package at mid-cap Premier Oil's AGM in May and successfully securing a U-turn from management over a long-term incentive plan (LTIP) initiated by Intercede Group, an AIM-listed software company.
Roger Lawson says: "There is a demand for intelligent and unbiased comment on stock market investment but the investment world is dominated by organisations and companies promoting their own agenda for commercial purposes. Our not-for-profit basis and focus on individual investors sets us apart."
Pensions Investment Research Consultants (Pirc), an independent research and consultancy which provides services to institutional investors on corporate governance, echoes ShareSoc's stance on Intercede, and revealed last month that it planned to oppose the introduction of all new LTIPs, claiming that they were "not long-term" and did not incentivise.
While many observers advocate greater shareholder engagement to solve the ills on the corporate governance scene, UK shareholders who feel short-changed by companies they invest in might ponder the merits of joining a shareholder activist organisation.
For more information on ShareSoc visit sharesoc.org. Associate membership is free. The organisation's next event is a seminar where technology companies are presenting to members in London on 20 March.
FairPensions, which campaigns for responsible investment, also runs regular seminars on AGM Training for potential shareholder activists. For more information go to fairpensions.org.uk.
Roger Aitken is an associate analyst at the benchmarking firm BISS Research in London
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