Tuesday 30 October 2012

Barclays pay vote updated, again

OK, have found a few more

FOR - BlackRock, Goldman Sachs, Martin Currie, Standard Life
OPPOSE - Aberdeen, AXA, F&C, Fidelity, Henderson, Hermes (as disclosed via BTPS), Investec, JP Morgan, Jupiter, Kames, Legal & General, M&G, Royal London, Scottish Widows, State Street

Still looking like a big NO from big institutions.

Monday 29 October 2012

BSkyB - don't expect an upset

BSkyB's AGM takes place this Thursday and, inevitably, James Murdoch's re-election has become the focus of attention once more. At last year's AGM he was re-elected with a vote of almost 19% against. That would register as a big protest in any company as votes against directors are very low typically. But of course BSkyB isn't an ordinary company, as it has News Corp as a controlling shareholder. Once you take account of its 39% stake, the vote from other shareholders in favour of James Murdoch (ie excluding votes against and abstentions) was about 55%.

Since last year's AGM three things have happened. James Murdoch has stood down as chair, though he remains as a non-executive. He has been criticised by the DCMS select committee, which found his role in the hacking scandal unimpressive, and was unable to decide how reliable his evidence was. (It's worth noting, by the way, that his loudest defender on the committee is now a columnist for The Sun). Thirdly he has been criticised by the broadcasting regulator Ofcom, I think in stronger terms than the DCMS committee did. Ofcom ruled in BSkyB's favour, as expected, on the 'fit and proper' test, but there is an implication in its report that had James remained as chair then its thinking might have been different (though its decision might still have been the same, obviously).

Already there is a bit of noise around the AGM thanks to Fair Pensions' valiant efforts to keep this issue alive. But I would be surprised if the result of Thursday's meeting is anything other than an easy win for James. For some investors, giving up the chairmanship was enough. Others won't take a view on the hacking scandal, and essentially give James the benefit of the doubt. In addition, the fact that BSkyB cleared the 'fit and proper' test means that a big threat to the company has passed. Add all that together and you can see that there's enough wriggle room for mainstream investors to back off. (And bear in mind that some big players backed him last year anyway).

For what it's worth (and everybody look what's going down...)   I think this is problematic. It demonstrates, to me, the enormous gap between the idea that shareholders can/should play a quasi public interest role in companies and the reality on the ground. In other fields individuals in leadership positions subject to this level of criticism would be forced out, even if there was no 'smoking gun'. In a PLC, especially one with a powerful controlling shareholder, things are different. These kinds of judgments are easily ducked if you can construct a case why the individual remaining in post is good for the business, and thus shareholders. And when you consider that this will be the third time that James Murdoch has been awarded such latitude (appointment as CEO and appointment as chair previously) you realise how familiar the arguments for letting it happen are.

Sunday 21 October 2012

News Corp: inside the kessel

Last week I attended the News Corp annual meeting for the second time, so thought it would be worth reflecting on what happened.

First the background. A lot of shareholders have had problems with News Corp, for a number of reasons, for a long time. There's the dual class share structure which gives the Murdoch family effective control despite holding only a small minority of the issued shares (as they hold a lot of the Class B voting shares). This has inevitably led to the family's interests distorting some decision-making, especially with Rupert Murdoch as combined chair and chief executive. Many would argue that the board lacks independent voices, and there are too many personal connections.

So News Corp has long been considered by some investors as a problematic company because of governance concerns. In fact that undersells it significantly. Various analyses put News Corp near the bottom of the scale in terms of governance. And it's not as simple as saying 'if you don't like it don't buy it' because of the growth of index tracking.

Last year's AGM took place a few months after the hacking scandal blew up, leading to the closure of the News of the World, the dropping of the BSkyB, departure of Rebekah Brooks, Murdoch Snr and Jnr being called before the DCMS delect committee etc. As a result it was a very bad-tempered meeting. Shareholders asked a lot of critical questions, and Rupert Murdoch was quite combative in responding to them. Among the attendees was Tom Watson MP who warned the board that computer hacking could be the next leg of the scandal. (For info, Operation Tuleta is now up to 17 arrests, the most recent one taking place last week.)

A year and a bit on from the hacking scandal the feel of the 2012 AGM was very different and the number of investors attending was noticeably down. The Q&A was much more respectful, on both sides, and Rupert Murdoch was much more polite. Either the company has decided to change its approach, it's a bit of a PR/IR makeover, or a bit of both. But the overall effect was to make it feel like an environment in which aggressive questioning by investors was a bit out of order. Quite an effective pacification strategy if it was intended.

The reason I was there was because the Local Authority Pennsion Fund Forum had co-filed a resolution with Christian Brothers Investment Services seeking the appointment of an independent chair. A second resolution, filed by the Nathan Cummings Foundation, sought the elemination of the company's dual class share structure. In a sense, this represented a more focused approach from shareholders seeking reform than last year, when a lot of them opposed individual board members (with James Murdoch receiving a massive vote against).

On both resolutions Viet Dinh handled the company's response, and essentially defended the company's existing practices, though I personally felt there was a chink of light on the issue of an independent chair. I also think that when the company splits in two there might be movement, but we'll have to wait and see.

Last year the company delayed publishing the results of the meeting until the Monday following the Friday AGM. This time they managed to get the results out within hours of the meeting. Both resolutions received a clear majority of independent shareholder support (about 2:1). This is quite a big deal, as the votes of the likes of CalPERS, Hermes etc don't actually get you very far on their own. To get a vote of 30% plus of all Class B holders means that some big mainstream assset managers were onside. This is important because they could have simply concluded that there isn't much point challenging Murdoch at his own company. Instead they chose to support the introduction of an independent chair.  

I suppose that's the best point to conclude on. Given the structure and history of News Corp there is an understandable tendency to be pessimistic about the prospects for change. I personally think, given recent events, that we have to give it a try. Phone hacking (and computer hacking, payments to police etc) only got the exposure it derserves because some people decided that they had to keep pushing, even though the odds were stacked against them. The least that long-term shareholders can do is exert some effort, especially as the issues that are being fought over are mainstream governance concerns - splitting roles and equal treatment of shareholders. And if in general we only pick the easy targets we aren't going to achieve a lot.

Friday 19 October 2012

More Q3 voting data

Legal & General also have a new quarter's worth of voting data up. Unlike M&G, they opposed the Darty remuneration report that got voted down, and voted against the new incentive scheme for Mike Ashley at Sports Direct, which also bit the dust.

They don't seem to have held AEA Technology, which also lost the vote on its rem report in September, which I find odd given that they're an index-tracker. Any ideas, fellow governance geeks?

Meanwhile I can still spot a few big asset managers who have no 2012 voting data available at all. I don't mean the usual non-disclosing ones, I mean managers who haven't updated. 

Thursday 11 October 2012

Institutional Investor Committee update

There isn't one. It doesn't seem to have said anything publicly for more than 6 months.

However I think I'm right in saying that no significant issues relating to UK institutional shareholders have emerged during the period...

Wednesday 10 October 2012

Q3 voting data

M&G are the first asset manager I've seen who have put up voting data for the third quarter of 2012. A couple of interesting (ok, interesting to me) points stick out -

They voted for Darty's remuneration report. This being the company that had to issue an RNS because their previous reporting was deficient. The remuneration report was voted down at the company's AGM in September.

They didn't vote (or at least their reporting says 'no action') at the Sports Direct AGM where the proposed incentive scheme for Mike Ashley was defeated. There's a similar 'no action' report in their Q2 disclosure in respect of Capital Shopping Centres (which saw a pretty big vote against its rem report). I know some managers don't bother to vote where they have piddly holdings, maybe that's it?   

Actually I've spotted a few 'don't vote' disclosures in another manager's reporting, which I may explore further in another post.

Tuesday 9 October 2012

News Corp news

News Corp's AGM is approaching rapidly - it takes places this time next week - but what can we expect this year? Last year there were very large votes against a number of directors, with James Murdoch topping the unpopularity poll with a large majority of non-Murdoch shareholders voting against him. This year will inevitably be different as ISS, inexplicably, has recommended supporting the re-election of ALL board members. This comes after the DCMS committee report, Ofcom 'fit and proper' decision etc. I'm a bit gobsmacked that ISS doesn't think that this might raise questions about Murdoch Junior's suitability for the board.

Therefore perhaps this time around we ought to focus attention on the shareholder resolutions filed at the meeting - one seeking an independent chair (and thus also a split in Murdoch Senior's roles) and one seeking to abolish the dual class share structure which currently shields the company from minority shareholder accountability. We already know that both ISS and Glass Lewis, the two big advisers, have backed the resolutions, which suggests that they will get significant votes in favour. I reckon anything over 20% will be fairly good going given the way the deck is stacked.

There are also some rumblings about the FCPA, which is a potential threat to the company that hasn't yet been realised. This is all tied up with the payments made by News International journos to cops and others for info.On the face of it these payments were made to commercially benefit the company (since they elicited info which sold newspapers), so it does look like News Corp could indeed be on the hook. But the other question that has surfaced is whether the auditors (Ernst & Young) should shoulder any blame. (There's more going on here which I will blog about at a later date).

And fairly soon after News Corp we have the BSkyB AGM (1st Nov I think), where James Murdoch faces re-election as a NED (though no longer a chair, of course). He has been severely criticised by the broadcasting regulator, with a veiled suggestion that a decision might have been different on 'fit and proper' had he remained as chair. No surprise, but I think he should have left the board entirely, and I hope shareholders vote against his re-election, but, knowing the timidity of the asset management industry, I expect he'll get through fairly easily this year.

I'll post up more info on both AGMs as I get it. 

Monday 8 October 2012

Shares for rights

The latest announcement from the Chancellor of 'shares for rights' swap for employees is an interesting, and worrying, one. Here is the Treasury statement on the idea -
Companies of any size will be able to use this new kind of contract, but it is principally intended for fast growing small and medium sized companies that want to create a flexible workforce.
Under the new type of contract, employees will be given between £2,000 and £50,000 of shares that are exempt from capital gains tax.  In exchange, they will give up their UK rights on unfair dismissal, redundancy, and the right to request flexible working and time off for training, and will be required provide 16 weeks’ notice of a firm date of return from maternity leave, instead of the usual 8.
Owner-employee status will be optional for existing employees, but both established companies and new start-ups can choose to offer only this new type of contract for new hires. Companies recruiting owner-employees will continue to have the option of inserting more generous employment conditions into the employment contract if they want to. 
Now I assume from the above that HMT's part of the deal is tax relief, as I don't see how they could underwrite the share awards themselves (or why) without making a very large and and open-ended commitment, unless we see some qualifications later.

If we take this initiative at face value, perhaps it is aimed at mainly start-ups etc. But if so a) it could simply end up giving more tax relief to people who don't need it (what if the start up is a hedge fund set up by portfolio managers leaving a big asset manager who are on a serious wedge) and b) it will lock in poor employment rights at firms that become big employers (note it doesn't need to be optional for new hires). 

But what if this is intended to be bigger than start-up type situations? In simple terms this is a bribe to give up employment rights. There is no reason why a company can't have employee share ownership and decent employment rights after all. You can see various problems ahead. Presumably not all existing employees will take up the offer, so companies will likely end up with a two-tier workforce. If that were not divisive enough, it raises the question of how the employer (which must want to cut rights back to use this option) will look on employees who don't participate. But in the longer term if all new hires go onto these contracts this could have a major impact.

You get the impression that this is a way for the Tories to start chipping away at employment rights. Encourage employers to take them away voluntarily at first, with a token pay-off to employees in return. If it works and you reach a critical mass (perhaps just in a particular sector) you could formalise through some other strategy.

There's also the question of risk. As I've blogged previously, Margaret Blair has done a great job of clarifying that employees already shoulder a great deal of risk relative to shareholders, as they make firm-specific investments in training etc. This initiative means that they lose employment protection in return for a greater firm-specific investment, this time a financial one.

I don't like this at all.

Wednesday 3 October 2012

Labour and corp gov

There were only a couple of passing mentions in Ed's speech to corp gov type issues - including committing to the scrapping of quarterly earnings. However according to The Grauniad a briefing doc was issued alongside which had makes the following suggestions:
• Giving long-term shareholders a greater say in the direction of a firm by restricting votes on a takeover to those already holding shares when a bid is made. That would lock out hedge funds, which snap up shares in the hope of profiting from a takeover. Labour claims the takeover of Cadbury by Kraft was driven by such speculators.
• Abolishing rules requiring companies to produce quarterly company reports, since they force managers into short-term profit-making.
• Placing a duty on investors to act in the best interests of ordinary savers and to prioritise long-term growth of companies.
• Introducing a code forcing companies to publish their pay ratios, and placing a duty on directors to justify publicly why their ratio is 40:1 or more.
Points 2 and 3 are obviously already in the Kay Review - though, importantly, we still don't know if the Coalition intends to implement all of it. Points 1 and 4 have, essentially, already been considered and rejected since the Coalition took power. Takeover Panel was allowed to kill the first one off (well, govt chose not to challenge it's decision which said it's a company law issue & may not be a good idea). The Coalition itself chose not to pursue pay ratios.

As such Labour positioning on these issues is part occupying territory we know the Coalition now won't touch, and partly (it looks to me) goading it to enact key bits of Kay.

What we didn't hear (unless I missed it) was anything about other governance reform. I did see a couple of comments that suggested that Labour policy is for there to be an employee on every public company board (ie not just a rem comm member). If true, it's a further shift in thinking. Again, this is turf that the Coalition won't touch.

The Left and performance-related pay

The latest issue of Renewal has some pieces in it covering problems with relying on financial incentives for motivation. One is by Bruno Frey, who I've blogged  about before, another is by... err... me!

Sunder Katwala's piece on Jon Cruddas, which is free on the site, is also well worth a read.