A bad argument against a 75% threshold

One of the elements proposed in the BIS package of reforms relating to shareholder powers over executive pay is raising the threshold needed to pass a pay vote. Though (if I remember right) the consultation does not actually specify what it ought to be, 75% has been knocked about.

One argument that has been put forward against this proposal is that it would effectively allow controlling shareholders to hold companies to ransom, and the example of Stelios at easyJet has been used as an illustration. It does sound convincing, and certainly Stelios has been a pain for the easyJet board. But....

If you think about it, a 75% (0r whatever higher threshold) actually empowers minority shareholders in their ability to reject inappropriate pay policies where there is a controlling shareholder. After all, isn't it more likely (knowing what we do about the typical relationships in place) that a controlling shareholder would be in favour of whatever pay policy was proposed? Think of companies like Xstrata or BSkyB where minority shareholders have had concerns about the pay policy but, because the company only needs 50% to get it through, they can effectively assume they will never get defeated.

In the case of Xstrata I think that for at least the last couple of years a majority on minority shareholders have opposed the remuneration report, but have been unable to defeat it. With a 75% threshold in place they would have been able to do so.

In practical terms a 75% threshold for the backward-looking advisory vote might not matter - the company might be able to ignore a defeat if it could demonstrate to independent shareholders that it was the controlling shareholder messing about. (Essentially easyJet did ignore its defeat in 2011 I think?) A defeat of the forward-looking binding vote would prevent the company from making changes, but in that case existing arrangements would be kept in place (I admit this might be difficult in some cases).

But it is striking, when you think about it, that some folks immediately cotton on to one example that demonstrates a potential problem with a 75% threshold, rather than equally valid cases where it would be empowering. Almost like there was some kind of inability in my corner of the world to see anything other than (negative) unintended consequences from any reform.

PS - if this controlling shareholder misusing a 75% threshold is a real problem, there must be numerous cases of authorities relating to share structure getting blocked, right? That's a much more fundamental way to frustrate a company, and plenty of special resolutions to get stuck into.