M&S appointment

Well well well.... it's an external candidate for new chief executive after all that. Funny that, as one of the reasons given for Rose combining chair and chief exec roles was that by doing so he could delegate some of his executive functions to the internal candidates to prove themselves. It sounded like cobblers at the time and either it was just guff, or it didn't work.

Notably whilst we have a date for Bolland to start (Feb), we don't have a date for Rose to leave. At a push he could stay till July 2011 remember, so it's by no means an ideal situation. Chief exec going on to become chair and all that. And M&S hasn't started the process of recruiting a chair by the sounds of it.

It is pretty clear that the company never had any intention of appointing the chair first, though some investors felt this was still achievable for some reason at the time of the AGM. Now the focus has to be on getting an independent chair in place. Whilst I'm sure Bolland can stand his ground it's not an ideal situation to have his immediate predecessor as chair.

Why how shareholders vote matters

I'm at home looking after The Boy today, and he's currently in mid-snooze so thought I would bung up a link to a paper (PDF) on 'corporate voting' that looks interesting, though I don't share its approach. I found this remark particularly interesting:

"[I]n principal-agent settings, voting provides legitimacy to a system by which agents act for the larger group. It serves both to legitimize the choice of the agent as well as a means to monitor the work of the agent."

There is a really bad argument advanced in some quarters that voting doesn't matter that much. I understand the point - though I would counter that it is often made by organisations whose own voting is sometimes questionable - and it has some validity. But I think it hugely underestimates the legitimising function voting performs. All those votes fund managers cast in favour of executive remuneration policies matter, those votes against trade union-backed resolutions matter, and their votes against governance-related resolutions matter. Unless it genuinely is the case that the issue being voting on has been dealt with, a vote in favour is an endorsement, will be read as such by the company, and will be portrayed as such to the market. When Stuart Rose survived the LAPFF resolution at the M&G AGM this year he didn't say "I take on board the scale of the vote in favour" he said "we won". Companies know this, so should trustees. And they should hold their fund managers accountable for questionable voting decisions.

Institutional investors should 'do something', just not sure what

This piece by Jeremy Warner on the M&S vote and investor engagement is interesting, if only for the complete confusion about what exactly shareholders should be doing as owners. First up he seems to argue that institutional investors have been asleep at the wheel (he does after all use the words 'sleep' and 'slumber'):

There's to be a new set of proposals next week from the former City regulator, Sir David Walker, on how to improve governance in the banking sector, Sir Christopher Hogg, chairman of the Financial Reporting Council, is beavering away at improvements to the Combined Code, and as if finally awakened from a long sleep, institutional shareholders are flexing their muscles. All a bit late, I'm afraid.

What's more, these calls to action rarely last longer than the downturn itself. The codes soon become irrelevant, or ignored, and institutional shareholders rapidly slip back into slumber.

But then he says that shareholders expressing concerns about governance is 'grand-standing':

Wednesday's vote at Marks & Spencer instructing Sir Stuart Rose to split the roles of chairman and chief executive amounted to no more than completely pointless corporate governance grand standing.

In fact he says that the Combined Code is pretty much a waste of time:

As for the narrow point of corporate governance concern around Sir Stuart's combined position as chairman and chief executive, this is basically just a lot of officiously driven nonsense prescribed by the City Code....

Now we've had another, very much more serious series of corporate failures, this time chiefly in the banking sector, and the Code duly proved powerless to prevent them. As far as the Code was concerned, both Royal Bank of Scotland and Halifax Bank of Scotland were paragons of virtue, with all the prescribed checks and balances and a star studded board of non executives.

But the problem with these banks is that shareholders didn't... err... engage enough:

Yet shareholders did nothing. Worse, they allowed Sir Fred to push ahead with his disastrous top of the market acquisition of the worst parts of ABN Amro even as the banking system was imploding around him. It is a problem that Lord Myners, the City minister, has characterised as that of "the ownerless corporation". When fund managers sense trouble, rather than try and fix the problem, as a private equity owner normally would, they instead just vote with their feet and sell the shares. Remuneration structures in fund management tend to be set in a way that deliberately or otherwise encourages such behaviour.

And the answer is... err... to beef up the Combined Code:

There are twenty pages of rules and regulations governing the conduct of boards in the Combined Code and not a blind bit of difference did it make as RBS and HBOS. Yet there is only one on the duties of shareholders. In the interests of the health of our economy, as well as the safety of our money, it is about time this deficiency was rectified.

Eh?

I'm really not sure what the point of this piece is. Shareholders are castigated for not engaging, for engaging, and then for not engaging again. The Code is portrayed as pretty worthless, but also as the solution to the lack of engagement.

Obviously I have sympathy with the argument that shareholders don't act like owners. I also have sympathy with the argument that governance issues can be a bit abstract. But in thrashing around like this he attacks shareholders for both doing nothing and doing something, blasting the Code but also calling for it to be increased in length. I'm really not clear what he thinks shareholders should be doing. And he doesn't even attempt to get into the meat of the M&S argument - why are the combined roles necessary at all.

ho hum

M&S shareholders register major protest vote

Well, 37.7% vote in favour, and abstentions probably take the total over 40%. The one bit I got wrong was that the abstentions were actually a pretty small chunk in the end. Stuart Rose said at the meeting that by winning a majority the board took that as an endorsement of its strategy. I'm not sure many shareholders would agree.

In addition if the total is about 40% then this poses some interesting questions for LAPFF. Afterall, one big institution abstaining, or voting in favour of the resolution, might have meant that the board did not win a majority. I can think of one institution in particular which opposed the resolution, whose % holding was indeed enough to have reversed the result.

Remember again that this resolution was really only seeking that the company revert to compliance with the Combined Code by this time next year. So the explanation for oppose votes will be interesting.

M&S vote tomorrow

The M&S AGM is tomorrow, and there is a lot of speculation about what sort of vote there might be on the LAPFF resolution seeking the appointment of an independent chair. Just to recap LAPFF filed this resolution in order to address the issue of Stuart Rose combining chair and chief executive positions, in breach of the Combined Code. Its stated reason for doing so is to enable shareholders to demonstrate concern about the company's governance with having to vote against Rose himself. LAPFF has called on its members to back Rose's re-election at the AGM, making clear that this isn't a personal issue.

It's also worth remembering why M&S said that the combined roles were necessary - apparently in order to succession plan. I say apparently as I can't think of another company ever having used this argument, and literally not a single shareholder I have talked to about this issue says that they accept that as a valid argument.

All of this info is in the public domain, and has been for weeks, so it's a bit disheartening to read in a few places that LAPFF is seeking to oust Sir Stuart. Even Robert Peston gets it a bit wrong today -

So it is possible to characterise the LAPFF position as a preference for finding a chief executive in panicky hurry rather than in a methodical and sensible fashion (the LAPFF would of course say that it wouldn't want Rose to evacuate the building immediately).

Not really, since the LAPFF resolution is about the role of the chair, not the chief exec. Rose giving up the chair's role need not have any impact on the hunt for the new exec.

Equally it appears that the company has talked a few investors round by arguing that a big vote on the resolution might mean that Rose walks, rather than simply gives up the chair and reverts to just chief executive... within 12 months!

As to what kind of level of support the resolution might attract, it's impossible to say. The support of RiskMetrics is pretty significant, as it will inevitably swing a chunk of the vote. And a sizeable number of institutions look set to vote in favour. But equally some fund managers would rather bite their own hands off than vote for a shareholder resolution. I suspect that the real story will be, like last year, a large number of abstentions.

M&S battle heats up

RiskMetrics has come out in favour of LAPFF's resolution seeking an independent chair. Given that a large number of UK institutions take RiskMetrics as a feed (and some just follow their recommendations) this will inevitably boost the level of support for the resolution. I bet the board aren't happy. Game on.

M&S gives ground... on pay

Interesting move by M&S to say Stuart Rose and Steve Sharp will waive part of their potential entitlement to share awards because of investor unease.

There are two possible readings of this. Maybe the company was facing a serious revolt from shareholders, and the ABI in particular, over this issue and therefore had to cave in.

But my cynical side wonders whether there isn't some horse-trading going on. Has M&S chucked investors a bone on remuneration policy to stave off a bit of pressure on the rather bigger issue of combined roles? Giving ground on pay gives the ABI something to show for its engagement. It has still amber-topped its report on M&S because of the LAPFF's shareholder resolution, but it has said that it always does this when there are such initiatives.

The fact that both M&S and the ABI issued public statements on this is what surprises me. It's unusual. But then maybe once M&S had put out its statement, which refers obliquely to 'shareholder representative bodies', the ABI really had to put something out and wanted to control the message by issuing a quote.

Intriguing!