Angry Shareholders
There is a distinct whiff of cordite in the air. Investors at this year’s AGMs have been expressing rage at the wholesale destruction of value. Eggs were thrown at the directors of Allied Irish Bank; protestors singing the Marseillaise stormed the stage at Belgian bank Fortis; and there have been confrontations over pay at BP, Provident Financial and Amec.
This has been the biggest backlash yet. In one of the most significant investor rebellions in years, 59% of Royal Dutch Shell shareholders voted to reject the company’s executive pay plan – evidence of the mounting anger over remuneration and bonuses.
Shell had it coming: the behaviour of the non-executive directors on the company’s remuneration committee was outrageous. According to their own rules, bonuses would be due if Shell came third or better in a league of five oil majors ranked by total shareholder return. When the company finished fourth, directors brazenly declared that the race was so close that fourth was as good as third. Shell moved the goalposts. But there are plenty of other cases where the goalposts were simply set in the wrong place, with shareholders’ approval, making it ridiculously easy for executives to claim huge payouts for mediocre performances.
That fact, one suspects, partly explains the sudden outbreak of rebellion. Investors are finally realising that the wool has been pulled over their eyes for years. Stock markets are back where they were a decade ago, dividends are being slashed, but boardroom pay has gone to the moon.
In boardrooms, in clubs – and at certain flower shows one might mention – you will hear much huffing and puffing from some directors about having their hands tied. Others will feel they can shrug off shareholder votes, which are non-binding, even when they’re made on the scale we saw at Shell. But Shell’s remuneration committee, led by Sir Peter Job, has taken shareholders for granted for the last time.
Other directors take note: next time, the protest could get personal. If that is what it takes to remind self-interested executives who really owns their firms, so be it. The crunch has highlighted a crisis of ownership.
Supine institutional shareholders, such as pension funds, were the handmaidens of recklessness, greed, corruption and destruction- and they allowed it to happen with our money. Regulation is only part of the answer: we need to move from a culture of entitlement to a culture of responsible ownership. Executives, like politicians, must be forced to realise that they work for us.