Making the best of shareholder activism

Navigating the shareholder spring.

Imagine the scene. You’re ready to sleepwalk your way through the yearly AGM ritual, you’re expecting a few shareholders to show up purely for the sarnies and the most exciting part of your day will be deciding what to wear. All of a sudden, reality breaks in and remuneration is in the cross hairs. The Association of British Insurers (ABI) issues a red top alert, ISS (Institutional Shareholder Services) issues a "vote against" recommendation, your shareholders are emboldened by the shareholder spring and vote against the remuneration report. Press coverage is destructive, you face public humiliation and although the vote isn’t binding, there’s so much pressure on you that you become yet another victim of anger about boardroom pay, another name in the hall of shame.

Sound familiar? Ask Sly Bailey of Trinity Mirror or Andrew Moss of Aviva, who are now seeking employment. Or Sir Martin Sorrell of WPP or Ralph Topping of William Hill, both of whom had their pay packets pummelled by shareholder anger.

Smaller companies have also been engulfed by this fury and are, in many respects, even more vulnerable. Cairn Energy took a roasting with 67 per cent votes against and 10 per cent abstentions on its pay report. AIM company Central Rand Gold was rocked by a 75 per cent revolt against its pay policy. Small cap Pendragon faced an ABI red top alert and an embarrassing climb down after a "no" vote.

That was the Shareholder Spring of 2012.

Shareholder votes on pay may only be advisory but directors who don’t listen to the message risk the ultimate sanction of being voted out. And it’s not just votes against which matter. Abstentions are often used to show a yellow card which directors should read as a clear signal to get round the table and talk to investors.

Remuneration consultants may be having a feeding frenzy advising on pay policy but the key area under the spotlight right now is the communication disconnect between companies and their shareholders.

Help is at hand

Investor activism is a way of shareholders flexing their muscles and demanding that you engage. Companies large and small should take to heart the need to talk to and listen to their shareholders so that they don’t end up with battle lines drawn, leadership resignations or picking up the pieces afterwards. Nobody wants to be hauled over the coals in public.

It can be tough being a CEO or an FD. You have to run the company, make hard decisions in a difficult economic climate, get your teams to implement them, deal with multiple claims on your time and somehow still find time to keep your investors happy. There are only 24 hours in a day and if you’re a smaller quoted company, it’s likely that your investor relations team is CEO and FD, both of you running at full stretch with no investor relations officer to support you.

The good news is that help is at hand. CEOs and FDs who want to avoid the sapping skirmishes of the shareholder spring can use a five-piece investor communications kitbag to put themselves on the front foot, selecting tools based on the amount of time available. Forward-planning helps smooth the way and reduces the risk of a public drubbing. And, it gives you a fabulous opportunity to bring your shareholders on side as cheerleaders for your company.

Tool #1 - Shareholder engagement

Dialogue matters. Planned, long term engagement puts companies in the driving seat. Regular dialogue with shareholders creates an atmosphere of understanding and builds trust; it enables directors to inspire confidence in the company and in the integrity of the executive team as you set expectations and educate investors about the value drivers of your business.

ABI director general Otto Thoresen told a recent Treasury Select Committee that company engagement with shareholders is “beginning to change but it’s not uniform and not fast enough”. Companies who only communicate when they have to are missing out on a great opportunity. Let’s face it, if you bump into someone you hardly know each year at an AGM and they ask you to lend them £1,000 for a business you know nothing about, you wouldn’t do it. If you meet a contact on a regular basis who tells you about their business in a way that excites and interests you, explains its strategy, prospects and progress against plan, then if that person asks you to lend them £1,000, there’s a higher chance that you’ll do it.

The reporting calendar provides the perfect framework for shareholder engagement. Quarterly results and interim management statements are part of a regular reporting cycle, giving you the opportunity to showcase your company to the market and helping reduce share price volatility.

Tool #2 - Perception study

Everybody wants to know what other people think of them and companies are no different. If directors want to manage their company’s profile and valuation, it’s essential to understand shareholders’ opinions about the company, the leadership team and the strategy so that you can ensure no nasty surprises at a vote.

John McFarlane, chairman of Aviva, lights the way. As he picks up the pieces in the wake of his former CEO’s resignation, his message to shareholders of 5 July recognises how important it is to find out what investors think about a company. McFarlane emphasises the importance of communicating and of listening when he says “over the past few weeks, I have met with our major shareholders and, in addition to their disappointment over our share performance, I believe there are legitimate concerns”.

Companies must communicate with buy side shareholders, listen to them and understand them, preferably before things get sticky. Even for companies with a good record of active shareholder engagement, a perception study is a powerful tool because it enables the board to take stock of the company’s current positioning in the eyes of the investment audience and it drives out those areas which need to be focused on in their IR strategy. It comes into its own when a board is unsure of where shareholder sentiment lies in the months ahead of a vote and wants to test shareholder mood, with time to act on the findings.

Tool #3 - Engagement with voting agencies

As the time of a vote draws near, companies may be blindsided by proxy voting recommendations. Proxy voting agencies are a section of the market many directors are not aware of and which require a nuanced understanding. They exist in the middle ground between a buy side shareholder and that shareholder’s vote.

Take the case of William Hill, which faced a difficult vote on its CEO’s retention package. Chairman Gareth Davis commented, "We consulted with the majority of our major shareholders and most recognised the importance of what was being put in place for William Hill's future. Whilst many of our largest shareholders supported the Remuneration Report resolution, one of the most influential vote advisory bodies recommended a vote against. It appears that a large number of shareholders across our share register voted in line with this recommendation.”

Savvy directors do not have to sit back and wait for a vote recommendation to happen to them: they can take the initiative and interact direct to ensure that the voting agency is in full possession of accurate information about the company and any areas of concern.

Tool #4 - Take it to the market

When a company has exhausted all other routes and still has concerns about shareholder understanding, then a board which is confident of its position can take it to the market. It can develop a tactical plan to proactively put information into the public domain to ensure full disclosure and transparency amongst all shareholders about any areas which may otherwise prove contentious. A recent example is easyJet, which earlier this year published and explained its remuneration policy and provided justifiable reasons for poor NED attendance at board meetings.

Tool #5 –Be ready for the future proposals on directors’ pay

The final tool in your kitbag is ensuring that your fellow board members are fully up to speed with Vince Cable’s proposals on directors pay. They are intended to address the disconnect between pay and performance and unsurprisingly they move the UK towards the US system of Say-On-Pay. Boards should proactively address the implications of these proposals as they start to firm up.

Conclusion

CEOs and FDs have some great weapons in their kitbag which they can organise like a military campaign to create winning strategies without hostilities. The messages emerging from the current levels of shareholder activism are that investor communication is all. Proactive, high levels of engagement and understanding are essential. Alignment of board strategy and shareholder interest is the guiding principle.

Rachel Maguire is the Investor Communications Director at Arko Iris. This article first appeared in economia.

Photograph: Getty Images

Rachel Maguire is the Investor Communications Director at Arko Iris

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Why is it called Storm Doris? The psychological impact of naming a storm

“Homes being destroyed and lives being lost shouldn’t be named after any person.”

“Oh, piss off Doris,” cried the nation in unison this morning. No, it wasn't that everyone's local cantankerous old lady had thwacked our ankles with her stick. This is a different, more aggressive Doris. Less Werther’s, more extreme weathers. Less bridge club, more bridge collapse.

This is Storm Doris.

A storm that has brought snow, rain, and furious winds up to 94mph to parts of the UK. There are severe weather warnings of wind, snow and ice across the entire country.

But the real question here is: why is it called that? And what impact does the new Met Office policy of naming storms have on us?

Why do we name storms?

Storm Doris is the latest protagonist in the Met Office’s decision to name storms, a pilot scheme introduced in winter 2015/16 now in its second year.

The scheme was introduced to draw attention to severe weather conditions in Britain, and raise awareness of how to prepare for them.

How do we name storms?

The Name our Storms initiative invites the public to suggest names for storms. You can do this by tweeting the @metoffice using the #nameourstorms hashtag and your suggestion, through its Facebook page, or by emailing them.

These names are collated along with suggestions from Met Éireann and compiled into a list. These are whittled down into 21 names, according to which were most suggested – in alphabetical order and alternating between male and female names. This is done according to the US National Hurricane Naming convention, which excludes the letters Q, U, X, Y and Z because there are thought to be too few common names beginning with these letters.

They have to be human names, which is why suggestions in this list revealed by Wired – including Apocalypse, Gnasher, Megatron, In A Teacup (or Ena Tee Cup) – were rejected. The Met Office received 10,000 submissions for the 2016/17 season. According to a spokesperson, a lot of people submit their own names.

Only storms that could have a “medium” or “high” wind impact in the UK and Ireland are named. If there are more than 21 storms in a year, then the naming system starts from Alpha and goes through the Greek alphabet.

The names for this year are: Angus (19-20 Nov ’16), Barbara (23-24 Dec 2016), Conor (25-26 Dec 2016), Doris (now), Ewan, Fleur, Gabriel, Holly, Ivor, Jacqui, Kamil, Louise, Malcolm, Natalie, Oisín, Penelope, Robert, Susan, Thomas, Valerie and Wilbert.

Why does this violent storm have the name of an elderly lady?

Doris is an incongruous name for this storm, so why was it chosen? A Met Office spokesperson says they were just at that stage in their list of names, and there’s no link between the nature of the storm and its name.

But do people send cosy names for violent weather conditions on purpose? “There’s all sorts in there,” a spokesperson tells me. “People don’t try and use cosy names as such.”

What psychological impact does naming storms have on us?

We know that giving names to objects and animals immediately gives us a human connection with them. That’s why we name things we feel close to: a pet owner names their cat, a sailor names their boat, a bore names their car. We even name our virtual assistants –from Microsoft’s Clippy to Amazon’s Alexa.

This gives us a connection beyond practicality with the thing we’ve named.

Remember the response of Walter Palmer, the guy who killed Cecil the Lion? “If I had known this lion had a name and was important to the country or a study, obviously I wouldn’t have taken it,” he said. “Nobody in our hunting party knew before or after the name of this lion.”

So how does giving a storm a name change our attitude towards it?

Evidence suggests that we take it more seriously – or at least pay closer attention. A YouGov survey following the first seven named storms in the Met Office’s scheme shows that 55 per cent of the people polled took measures to prepare for wild weather after hearing that the oncoming storm had been named.

“There was an immediate acceptance of the storm names through all media,” said Gerald Fleming, Head of Forecasting at Met Éireann, the Irish metereological service. “The severe weather messages were more clearly communicated.”

But personalising a storm can backfire. A controversial US study in 2014 by PNAC (Proceedings of the National Academy of Sciences) claimed that hurricanes with female names lead to higher death tolls – the more “feminine” the name, like Belle or Cindy, the higher the death toll. This is not because female names are attached to more severe storms; it is reportedly because people take fewer steps to prepare for storms with names they perceive to be unintimidating or weak.

“In judging the intensity of a storm, people appear to be applying their beliefs about how men and women behave,” Sharon Shavitt, a co-author of the study, told the FT at the time. “This makes a female-named hurricane . . . seem gentler and less violent.”

Names have social connotations, and affect our subconscious. Naming a storm can raise awareness of it, but it can also affect our behaviour towards it.

What’s it like sharing a name with a deadly storm?

We should also spare a thought for the impact sharing a name with a notorious weather event can have on a person. Katrina Nicholson, a nurse who lives in Glasgow, says it was “horrible” when the 2005 hurricane – one of the fifth deadliest ever in the US – was given her name.

“It was horrible having something so destructive associated with my name. Homes being destroyed and lives being lost shouldn’t be named after any person,” she tells me over email. “I actually remember at the time meeting an American tourist on a boat trip in Skye and when he heard my name he immediately linked it to the storm – although he quickly felt guilty and then said it was a lovely name! I think to this day there will be many Americans who hate my name because of it.”

Anoosh Chakelian is senior writer at the New Statesman.