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What's behind the rise of the rebel investor?

Shareholders are becoming increasingly more rebellious, with more voting in greater numbers against motions. We explore what might happen this year.

What's behind the rise of the rebel investor?

As shareholders get increasingly fed up with corporate strategy, executive pay and companies’ climate change stance, more rebellions are expected in the 2019 AGM season.

According to Investment Association numbers, there was a 25% increase in the number of individual resolutions added to the public register in 2018. Among FTSE 100 companies, 18 pay resolutions attracted over 20% shareholder dissent, double the amount in 2017.

According to Ashley Hamilton Claxton (pictured), head of responsible investment at Royal London Asset Management (RLAM), there is now a greater willingness among shareholders to vote against motions.

She said: ‘Shareholders are more willing to vote against and companies are increasingly more immune to those votes. It used to be embarrassing for companies to get 10-15%, but now 20-30% doesn’t seem to be as big a deal. Higher votes against are becoming normalised.

‘I think there’s more public scrutiny on asset managers to hold companies accountable. However, we will have conversations behind closed doors with companies that never make it to the public vote, so it’s not a case of asset managers not raising issues.’

According to research analysts at global governance services provider Glass Lewis, the trend of enhanced scrutiny will continue in the 2019 AGM season, particularly in relation to auditors.

In a Governance Institute piece, research manager Natasha O’Connor and research analysts Bernadette O’Donoghue and Cian Whelan said that following Carillion’s collapse it was ‘not surprising that this year’s AGM season saw a more focused appraisal of auditors and their roles as scrutineers of publicly presented information’.

They added: ‘We have seen increased scrutiny of companies’ succession planning, with analysis relying heavily on nuanced aspects of a company’s disclosure, particularly the corporate governance statement and the nomination committee’s report.’

They also expect to see more guidelines from companies on engaging with their workforce in 2019, the meaningful disclosure of which ‘will play a vital role in evaluation efficacy and compliance with the new [UK Corporate Governance Code]’.

Euan Stirling (pictured below), global head of stewardship and ESG investment at Aberdeen Standard Investments said in the wake of the failures of Carillion and Patisserie Valerie, the firm supports the BEIS Committee inquiry into the future of the audit market.

He added: ‘It is essential that investors are able to rely on company financial statements and audit reports as a source of accurate, considered and impartial information.’


Pay revolts


Among asset managers setting out engagement priorities for 2019 is BlackRock. Its investment stewardship team outlined five key points they hope company boards will embrace. These are: governance, corporate strategy and capital allocation, compensation that promotes long-termism, environmental risks and opportunities, and human capital management. 

Remuneration of executives was a significant issue last year and it continues to be highlighted as a key concern for a number of asset managers.

On compensation issues, BlackRock noted: ‘We are interested in how boards establish and explain performance metrics and hurdles in the context of the aforementioned long-term strategy setting.

'We expect executive incentives to use performance measures that are closely linked to the company’s long-term strategy and goals.

'This should ensure that executives are rewarded for delivering strong and sustainable returns over the long-term, as opposed to short-term hikes in share prices.’

Elsewhere, Hamilton Claxton said RLAM has repeatedly voted against remuneration reports from house builder Persimmon.

‘We wrote to Persimmon about pay and were voting against it for quite a number of years – we only own them in our passive fund, but voted against the original proposal in 2012 and against it ever since,’ she explained.

In April 2018, shareholders voted against the firm’s Long Term Incentive Plan for the sixth consecutive year, which awarded a £75 million bonus to chief executive Jeff Fairburn.

Other companies that saw shareholder revolts over executive pay included AstraZeneca, Royal Mail and River & Mercantile.

With the Investment Association warning 32 FTSE All-share companies to expect fresh shareholder revolts if they do not respond sufficiently to investor views, it is likely that there will be more rebellions in 2019.

However, Stirling said that he does not expect a similar ‘shareholder spring’ to the one witnessed a few years ago ‘as the majority of companies realise that excessive pay awards have a negative impact of the reputation of the company which in turn has an adverse effect on the share price’.

Another company actively engaging with companies regarding climate change is Legal & General Investment Management (LGIM), which made a climate impact pledge in 2017, calling 84 of the world’s largest companies it invests in to adapt to a low carbon economy.

It is an ongoing effort by LGIM to put pressure on firms and head of sustainability Meryam Omi (pictured above) said they have seen many companies, from banks to oil and gas producers, take positive steps after a year.  

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