8 | RESPONSIBILITY MATTERS | OCTOBER 2018
A FIERY SUMMER IN BRITAIN’S BOARDROOMS Ashley Hamilton Claxton, Head of Responsible Investment, Royal London Asset Management
Whisper it if you dare, but after several years in the spotlight, executive pay is no longer the hottest topic in corporate governance. The most egregious remuneration practices still saw investor dissent and media turmoil during this year’s AGM season, but two things ensured that remuneration wasn’t the only thing fighting for space in the headlines. This was partly down to better governance practices, with plenty of firms consulting shareholders on pay and acting on their feedback when necessary. The key reason however, was that as spring rolled into summer and the weather outside became stifling, a number of boardroom dramas of a very different sort were kindled.
BOARDROOM BATTLES The first sparks were lit at WPP, where after years of engagement with the company over succession planning, we got a chance to see how WPP looked ‘Post-Sorrell’. Steamy rumour, heated exchanges and hushed intrigue might have fuelled the departure of the firm’s founder and CEO, but as investors our primary concern was a smooth transition process while a replacement was appointed. WPP’s internal appointment of a pair of joint COOs to manage the sprawling empire on an interim basis offered it some breathing room. The company has now appointed a permanent CEO, Mark Read who is now tasked with steadying the ship and restoring investor confidence in the struggling ad firm. Even as the dust settled over WPP’s Mayfair headquarters, this febrile atmosphere began to be replicated in a number of further management spats that ignited up and down the FTSE.
Former directors and activist investors teamed up in various combinations in an attempt to oust existing management from the boardrooms. The Board of Russian-focused gold miner Petropavlovsk fell to a shareholder revolt, when two anonymously owned investment vehicles and a cryptocurrency entrepreneur narrowly succeeded in ousting the entire board in favour of three former directors, including a recently departed CEO. Meanwhile at Stobart Group, the company’s former CEO led a failed campaign to install a new Chairman while succeeded in getting himself (albeit briefly) re-elected to the board of the company before once again being dismissed at the company’s AGM. A second failed attempt to evict a director took place weeks later at Premier Foods, with the firm’s CEO barely surviving a fiercely fought attack from a hedge fund.
PAY PERSISTS Although executive pay was not the most interesting or exciting aspect of this year’s AGM season for once, private and public conversations about how (and how much) to pay Britain’s CEOs continues to persist. Some of the highest votes against pay stemmed from compensation plans designed several years ago, where poorly structured legacy plans led to inappropriate awards. Although WPP often tops the list of pay villains, Persimmon, the Yorkshire housebuilder, was the one that caught everyone’s eye this year. At the firm’s general meeting six years ago in October of 2012, 85% of shareholders voted to approve a share plan that allowed for a potentially eye-watering pay-out. Fast forward a few years and Persimmon’s share price, galvanised by the impacts of the government Help to Buy scheme, was set to hand executives a record pay-out.
As recently as the 2017 AGM, while we spoke out in opposition to the plans (and in some cases were commended for it), just 9% of shareholders voted against the firm’s remuneration report. A year on, after a swathe of political attention, media outrage and the resignation of the firm’s Chairman and Chair of the Remuneration Committee, almost half of Persimmon’s shareholders voted against the 2018 remuneration report.
Good governance is top of mind in our smaller companies funds What’s surprising to us is that nothing in the structure of the legacy scheme had changed. Shareholders would have known back in 2012 what they were approving, yet many voted for it anyway. Our approach has been to consistently focus our remuneration analysis on the structure of pay awards and vote against on those grounds. So perhaps it was the glare of outside scrutiny which compelled other shareholders to act and vote against the company’s 2018 pay report, but by that point it was too late.
CODED MESSAGES So where do we go from here? The Financial Reporting Council’s new Corporate Governance Code published in July should hopefully refocus attention on the things that matter the most in governance. The new Code’s focus on corporate culture and the recommendation to consider the views of a wider range of stakeholders will encourage companies to take a more wholesome view. From the requirement for remuneration committees