Expert View: Shareholders say 'off with his head'

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The Independent Online

"An invitation to a beheading". That was what it said on the card handed to me by my PA. And Granada chief Charles Allen put on a good show: the axeman had a starring role at the gory first night for the TV serial on Henry VIII. This was a few weeks ago; last Tuesday came the real thing as Carlton's Michael Green, Mr Allen's rival in the newly merged ITV, was very publicly dispatched.

There were no villains in this real-life drama. I've met both men and they are exceedingly nice. But when the merger between Carlton and Granada was announced, it soon became City wisdom that the two simply couldn't work together. A lengthy referral to the regulators gave shareholders time for reflection, and once the all-clear had been given, a junta of them decided one of the two had to go. Anthony Boulton, of major shareholder Fidelity, issued a call for Mr Green's head with a deadline of Tuesday. Mr Boulton is also a very nice man - albeit he is known as "the quiet assassin".

No, last week's events may have contained interesting characters but they were not really about personalities. There is a bigger theme. Shareholder rebellions are not new, but there is something of a revolution in the size and scale of them and in their publicity (though one of the junta who spoke to me on Wednesday pointed out that it wasn't the rebels who leaked the ultimatum to the press).

We've had a whole string of shareholder revolts. Corus, HSBC, Glaxo, Reuters ... all have involved protests over executive pay and rewards for failure. Even the mighty Rupert Murdoch has been challenged over his decision to appoint his son James as BSkyB's new chief executive. Nor is Mr Green's the only corporate head to end up on the shareholders' platter. Think of Bob Mendelsohn of Royal & SunAlliance.

"Who do they think they are?" Listening to three company directors discussing this revolution in shocked terms, they seemed to be equating shareholder activism with corporate vandalism. But I'm afraid this had to happen. And while it may just be that the bear market has spurred investors into action, the "fat cat" rows were starting to get beyond a joke.

In the Anglo-Saxon corporate model, "sovereignty" has come to rest far too much in the hands of the board. Theirs is the executive power, with shareholders left holding the rubber-stamp. This works to some extent, but is it really ideal? It's not just the investors who are disenfranchised; where do employees fit, and where is the interaction with customers and the community? Also, because so much power has been concentrated in so few hands, corporate chiefs have tended to "emerge" from within a charmed circle.

Fat cattery was just waiting to happen. This became clear to me when a previous merger was struck between two companies where, again, the two chiefs couldn't get on but investors failed to act. I had lunch with one executive in the company's house in Belgravia and listened patiently to one man's ego change the direction of two great corporations employing tens of thousands. It was some years before the merger finally happened after a period of underperformance. He walked away with millions.

This revolution is long overdue. As the custodians of countless ordinary people's pensions and savings, institutional investors have a duty of care to insure that companies are well run, and run other than in the interests of their boards. Like all revolutions, more thought must be given to the direction of change once we've had the initial bloodshed. But as we watch the heads roll, this is no time for shareholders to stick to their knitting.