Labour and capital at National Express

As some people will be aware, there was a shareholder resolution filed at the National Express AGM last week. This was the culmination of long-running complaints about anti-union activity in the company's US schoolbus business Durham. The resolution made pretty modest requests -  give responsibility for oversight of human capital strategy to a board committee, adopt a workplace rights policy based on recognised global standards, and report to shareholders on implementation.

The resolution received a vote of almost 13% in favour plus abstentions taking the total to 15%. But remember too that the Cosmen family have a fair chunk of National Express shares. Once you take this into account the votes in favour plus abstentions are getting close to 20%. That's pretty impressive, especially when most shareholder resolutions on environmental and social issues fail to get a vote in favour that makes it into double figures.

A good result all round.

Official executive pay shareholder revolt terminology

As we're in AGM season I thought I'd do a short note to help people writing about voting results on executive pay issues choose the correct description for a given outcome.

I start from the point that a vote of less than 10% should not really be reported, except perhaps if you really need to talk it up, in which case anything 8%+ could at a pinch be tagged as a "minor revolt".

When thinking about which cliche to deploy, bear in mind the metaphorical content employed. My rough guideline is that, if you're using the typical 'physical violence' metaphors, you have three basic choices - near physical contact, mild physical pain, severe physical pain. There are also some different options when we look at actual defeats.

So let's get started.

As I said, at a pinch, if you must write about a sub 10% vote against, you should use "minor revolt"

For votes of over 10% but less than 20%, my suggestion is to use a "near miss" physical metaphor, so the official tag here should be "a shot across the bows" or "a warning shot"

When we move into votes of over 20% but less than 30% we can imply real physical contact, but only mild pain. So the correct terminology should "a rap across the knuckles" or, perhaps if at the lower end of the range, "a slap on the wrist". If you want to add a bit of colour (literally) then the result could leave the company "looking red-faced".

When we get into the territory of votes over 30% against but short of a defeat, then severe physical pain should be suggested. Wherever possible, votes of this scale should be described as "a bloody nose". Again, to build on the original cliche, try to think of a pun related to the nature of the company. For example a poor result for a transport company can be a "car crash".

Also with votes of this scale you may want to describe them as "a message", "a clear message" or even "a strong signal" to the board, just to give it a little more weight.

Actual defeats are a special case. All defeats should be described as "hugely embarrassing" for the company. They are also "a strong message", but in this case one which "the board must listen to" or which "the board cannot ignore". The defeat can also be described as "damaging" and can be said to have "left the company reeling".

Finally, if the defeat is not the first one in the season then a further bit of work is required. If this is the second or third actual defeat then it can be described as part of "a wave of shareholder revolts". You might also want to describe the wave as "looking like it might turn into a second shareholder spring".

If the defeat is the sixth in the season, you may officially describe the events in totality as "a second shareholder spring". A larger number of defeats (more than six on the main market) should be described as "a revolution". This is important, as in 2012 unfortunately City AM erroneously described "the wave of shareholder revolts" as "revolution" whereas technically it only merited a "shareholder spring".

Watch the bonus birdie

I'm a pessimistic person instinctively, so perhaps my naturally negative take is colouring my view, but I do wonder whether coverage of today's Barclays AGM isn't framing it as something that it isn't.

There has been a bit of a ding dong in the meeting by all accounts. Standard Life, which has voted against the rem report, had a public pop at Barclays over the size of the bonus pool, something which has aggravated some shareholders given declining profits. In return, the board seem to have told Standard Life it shouldn't raise these issues publicly, which would seem to call into question the whole idea of an AGM, but hey.

In the meantime, Saint Vince has written out to rem comms telling them to exercise restraint, several  months too late to have any realistic hope of having an impact this year. And he's got his name in the Barclays story, suggesting that it's a bit of a test for shareholders too.

Reading the runes, it seems that we can expect a big vote against the Barclays rem report, so everyone is a winner. Shareholders demonstrate they are cracking down on pay, Vince can say 'my reforms are working, shareholders are getting active' and the bank wins too.

You get that last bit right? Because while you were looking at the advisory vote on the rem report, there was also a forward-looking binding vote on remuneration policy, and a vote on raising the bonus cap from 100% to 200% of salary. Which of those three actually sounds like the least important one? To me it's the backward-looking advisory vote on the rem report. And, of course, it's the one of three votes on pay that already existed before this AGM season. So it's hard for Cable to claim it's a vindication of his policy, though he may try.

If votes go as expected, then Barclays can pay a higher proportion in bonuses and its current rem policy is potentially locked for three years. They get a day or two of bad press for sure, but their freedom of movement on pay has actually just increased compared to the worst case scenario, because shareholders will have assented to it.

If shareholders really wanted to bring Barclays to heel, surely the binding policy vote was the place to put pressure? And if bonuses are a genuine concern, wouldn't it make sense to vote against them being higher as a percentage of salary?

Ho hum.

UPDATE: the results couldn't be more stark. rem report has 24% vote against, and large number of abstentions, but the rem policy passes with 93% in favour, and the increase in the bonus cap gets 96% in favour.

Voting for bigger bankers' bonuses

There's an interesting piece on Financial News here about shareholder voting intentions on pay at Barclays and other banks. The short version is that asset managers are going to vote in favour of bankers being able to receive bonuses of up to 200% of salary, essentially raising the bonus cap of 100% of salary.

There's not much surprising about this, or the arguments that are used to justify it (war for talent, cost flexibility). But it does illuminate a very important point that left-of-centre types interested in corporate governance should be aware of - shareholder oversight of pay is a very limited tool.

It's a huge mistake to assume that tooling up shareholders, or providing them with more information, will by itself make any real difference. All this can really do is to make pay more like what shareholders think it should be like. And, given that most asset owners delegate responsibility for this stuff along with investment management, in practice it means that whatever influence such reforms have will be in the direction of making pay more like what asset managers think pay should be like. Woo and indeed hoo.

In terms of the bonus cap, asset managers are essentially being asked whether they think banks should be allowed to pay bankers a lot of money, with a large variable element. It seems the answer they are going to give is Yes. There's this year's shareholder spring then - voting to liberate the bankers from the tyranny of the bonus cap.

Whilst asset managers control the votes we're not going to get much of a bang out of binding votes and similar reforms. Other approaches are needed.

Fidelity's voting conflict

I blogged previously about the the tricky spot that Fidelity Investments puts itself in by making political donations to the Conservative Party. Digging around a bit I've found a second (here's the first) example where it voted in favour of a resolution seeking authority to make political donations put forward by a PLC that made political donations to the Conservative Party.

The 2010 annual report of Enquest is available here. If you turn to page 44 (or just search for 'Conservative Party') you can find the following statement:

Political and charitable donationsThe Company made charitable, social, community-related and political donations totalling US$71,145 during the year, which includes a political donation of US$13,300 to the Conservative Party.

Faced companies that make party political donations, many shareholders will oppose resolutions seeking authority to make them. But I have checked Fidelity's voting disclosure for May 2011 - which was the opportunity to vote against the company - and it voted for the resolution on Enquest's AGM agenda seeking the authority to make donations.

It should be noted that many shareholders did not feel the same way. The AGM results are no longer available on the company's website but I blogged at the time that the vote against was 30%. (For completeness, Enquest now states that it makes no party political donations, see page 17 here.)

So we have two real life examples of an asset manager that makes donations to the Conservative Party voting in favour of political donation authorities put forward by companies that made donations to the Conservative Party.

Doesn't look great does it?

Policing the pay gap

As I've blogged before, there's a consensus amongst left-leaning corporate governance types that the bit in the UK Corporate Governance Code that says that companies should be "sensitive to pay and conditions" when setting executive pay is widely ignored. Boilerplate reporting is commonplace, and it has been this way since the Code first had this clause. And most asset managers have zero interest in this issue so non-compliance has gone without challenge.

But in recent years the disclosure requirements on companies have become more than voluntary. Companies now have to show how they have taken account of employees' views, so this is a legal reporting requirement. And that, in turn, ought to mean that if companies don't do what they are asked they can be held accountable.

So hats off to the High Pay Centre for organising a letter to the Financial Reporting Review Panel to test the water. They have also come up with a couple of real-life examples where companies have skewed the sample of employees they look at.

The HPC's blog on this is here.

Let's see what happens.

Conflicts of interest of political donor shareholders

The more I think about it, the more troublesome I find it that Fidelity, and other institutional shareholders that make party political donations, have the right to vote on resolutions put forward by companies seeking authority to make political donations.

The important question is, how objective can an organisation that funds the Conservative Party (or any other party) be when voting on resolutions seeking authority to donate to the Conservative Party? In a real-life test case, we can see that Fidelity voted in favour of such a resolution. 

I am sure the intention behind giving shareholders a vote on political donations was not that politically networked asset managers could assist companies in making party political donations. So I think this does need dealing with.

I think there are two simple steps that would address this - 

1. Fidelity should disclose in its Stewardship Code statement that it has a conflict of interest when voting on resolutions relating to political donations. (It currently makes no mention of this conflict as far as I can see)

2. Fidelity should outsource the vote on such resolutions to a third party.  

This model could be applied to other asset managers faced with the same conflict.

More generally, maybe it would be a good idea for Fidelity and others to poll their clients on political donations. I suspect the large majority are unaware that it makes them. Given ongoing reforms to the funding of political parties, such as those relating to the unions' funding of the Labour Party, it seems a little odd that conflicts in financial relationships like those between Fidelity and the Conservatives are not being addressed.