Increasing numbers of CEOs are feeling the wrath of shareholders as investors realise that they can influence executive salaries, their policies or their tenures.
Previously, the shareholder’s choice of contention was a vote through the market by offloading holdings. Despite some corporate governance reform guidance throughout the last decade, it took the government’s recent regulation to bring the biggest change since the original legislation over a decade ago…
No longer can shareholders be considered a necessary nuisance at the AGM to be accommodated once a year with glossy prospectus and the ambiguous chairman’s speech; increasingly, they are exercising their rights and demanding more governance.
This shifting relationship between shareholders and their companies will continue as the EU is also planning legislation to make all companies report non-financial data, and allow shareholders to hold businesses to account over a broader range of issues.
The centre of shareholder activism seems likely to stay in the UK because of the high number of majority institutional investor ownership in its companies.
It’s Not Just Pay
An increasing number of revolts have been directed at other issues besides over-inflated pay packets — factors such as dissatisfaction around company performance and the leadership of the business are gaining attention.
Mining giant Glencore (LSE: GLEN) saw 10% of its shareholders reject the appointment of ex-BP CEO Tony Hayward as chairman after criticism of the firm’s failure to appoint any female board members. It is producing a current dividend yield for shareholders of 2.7% and is forecast to deliver a yield of 2.9% for 2014 and 3.2% for 2015.
Sir John Peace is facing a revolt at the three companies where he is chairman. Remuneration is the issue at Burberry and Standard Chartered, but investors at Experian (LSE: EXPN) failed to support the election of his successor, Don Robert, after the intervention of the Institute of Directors warned the appointment breached City codes of independence for the chairman role. Experian delivers a dividend yield of 2.13% to shareholders and is expected to increase this to 2.3% and 2.5% for the years 2014/15.
Most institutional investors have previously been reluctant to criticise board policy publicly and instead preferred to work behind the scenes with firms; however, Barclays (LSE: BARC) (NYSE: BCS.US) suffered a scathing slap-down from major shareholder Standard Life, as it publically voted against the bank’s remuneration report, saying the 10% hike in bonuses cannot be defended.
Alison Kennedy, governance & stewardship director at Standard Life Investments, said: “We are unconvinced that the amount of the 2013 bonus pool was in the best interests of shareholders, particularly when we consider how the bank’s profits are divided amongst employees, shareholders and ongoing investment in the business.”
Dividends from Barclays were 6.5p for 2013 and are expected to grow to 7.73p for 2014 and 10.68p for 2015, giving a yield of 3.7% and 5% respectively.
