Empower shareholders and face down the roadblocks to reform of corporate Britain - Umunna8 May 2012
Labour says Government reforms do not go far enough, as the Shadow Business Secretary sets out three steps to empower shareholders and reform corporate Britain in the wake of the departure of Andrew Moss from Aviva and the ongoing investor revolts on pay and remuneration.
Over the last fortnight shareholders at Citigroup, Credit Suisse, Barclays and Mann Group, among others, have protested and/or voted against senior executive remuneration. This morning Aviva CEO Andrew Moss resigned after 54% of Aviva shareholders voted against the company's annual remuneration report. This “shareholders awakening” is expected to continue this week at the AGMs of William Hill today and Unilever tomorrow.
Labour, investor groups like the ABI and business leaders like Sir Michael Darrington, have consistently called for a change in culture, more responsibility in the setting of executive pay and for more shareholder activism. The Prime Minister David Cameron and Chancellor George Osborne sought to argue that proponents of reform were being “anti business”. But the recent wave of shareholder revolts has shown just how out of touch Cameron and Osborne are with business and investor opinion on these issues.
The Department for Business Innovation and Skills (BIS) completed its consultation on shareholder voting rights on executive pay last month. Its proposals include: an annual binding vote on future remuneration policy; increasing the level of support required on votes on future remuneration policy; an annual advisory vote on how remuneration policy has been implemented in the previous year; and a binding vote on exit payments over one year’s base salary.
Labour supports these proposals and, in particular, agrees with the suggestion put forward by asset managers Fidelity Worldwide Investment that a 75% super majority be required in respect of the binding vote on future remuneration policy. Dominic Rossi, Chief Investment Officer of Fidelity has argued that this threshold is warranted “to ensure that companies consult widely with shareholders prior to a vote” and says it would “[encourage] all shareholders to express their views.”
However, BIS’s proposals do not go far enough. So today, Shadow Business Secretary Chuka Umunna has put forward three further steps the Government should take to reform corporate Britain and empower shareholders to take action:
1. Consider moving towards a system where Board nomination committees are composed of the four or five biggest shareholders in the company – to create stronger lines of accountability between non-executive board members and shareholders;
2. Legislate to make institutional investors and fund managers, who act on behalf of others, publish information on how they exercise voting rights attached to shares in publicly listed companies - to increase accountability between shareholders and agents acting on their behalves (meaning pensioners and ordinary investors would more easily be able to access information on how votes are cast on in their name);
3. Require the Financial Reporting Council to carry out and produce an annual report on the operation of the UK Stewardship Code to the Business Secretary – to keep shareholder activism, good pay and remuneration practice high on the national agenda.
Labour has already called for employee representation on remuneration committees, something which happens in Germany, Europe’s most successful economy, and which one of our leading and best known businesses John Lewis already practices. This would open up the recruitment of non-executives to a wider pool but the Government has opposed this sensible reform.
Chuka Umunna MP, Labour’s Shadow Business Secretary commenting, said:
“At the beginning of this year Labour and investor groups called for a change in culture and responsibility in the setting of executive pay, whilst David Cameron and George Osborne argued that proponents of reform were being ‘anti business’. The wave of investor and shareholder revolts we are now seeing shows just how out of touch the Prime Minster and the Chancellor are with business and investor opinion on these issues. While investors want change, they have criticised those advocating reform.
“Now is not the time to row back from reform – shareholders are becoming far more engaged and active, so policy makers should do all we can to support and encourage them. The latest shareholder revolts are a sign that there clearly needs to be a much greater alignment between what directors do and shareholder interests – we must promote that.
“We support Vince Cable’s proposals on shareholder voting rights, in particular the proposal for an annual binding vote on future remuneration policy. However, if the binding vote on future remuneration policy is to have teeth, the government should adopt the suggestion put forward by asset managers Fidelity Worldwide Investment that a 75% super majority be required. This would make companies consult far more widely with shareholders prior to the vote, maximising shareholder engagement.
“However the Government should go further. The Government should do three further things - consider changing Board nomination committees so they are composed of shareholders in the company, make fund managers publish information on how they exercise voting rights attached to shares in publicly listed companies, and get the Financial Reporting Council to produce an annual report on the state of corporate governance in Britain to keep shareholder activism and good remuneration practice high up on the national agenda.”