James Moore: It’s time for shareholders to hold companies to account once again
March heralds the beginning of annual meeting season in earnest and ought to provide some indication as to whether this year’s will resemble the limp affair of 2013 or something more meaningful, as in 2012. That was when institutional investors remembered their fiduciary duties to the people who pay their fees (us in other words) by occasionally using their votes.
The biggest fuss heading into this year’s season has yet again been provided by the banks, but is this really justified? Much has been written, including in this column, about the sector’s addiction to unjustified and unjustifiable bonus payments, particularly given that the fact that profits are privatised whereas losses are socialised.
But banking is far from being the only sector in need of reform. And it is at least having to abide by new regulations designed to ensure that money can be clawed back from undeserving executives whose activities leave their employers, and taxpayers, in a sticky situation.
In fact the travails of the banking industry have arguably enabled City money managers to take their foot off the gas elsewhere, where pretty much anything still goes.
Bonuses are still showered upon the occupants of boardrooms with scant apparent regard for whether they are merited. Then there are the so-called long-term incentive schemes – supposedly aimed at ensuring bosses think beyond the next quarterly trading update – that are anything but. They typically dole out free shares worth millions of pounds after only three years, even though the decisions of the recipients can impact on the businesses they run for many years beyond that period.
Things might change a bit for the better thanks to Fidelity, the fund manager which wants executives to hold the freebies for at least five years before they cash in.
It plans to use its votes to ram the point home, and with shareholders having the power to throw out companies’ remuneration policies, that actually matters.
However, while having Fidelity voting against them will be embarrassing to many companies, particularly blue-chips, it won’t mean a lot if others don’t back it. Fidelity’s most obvious supporters ought to be insurance companies and pension funds, both of which need long-term investments to match long-term liabilities.
Their voting records will make interesting reading in three months’ time.
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