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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After the defeat of Hillary Clinton, what should the US left do next?

For disappointed Bernie Sanders supporters and others on the left, the big question is now: should they work within the Democratic party?

For the majority of the US left, Hillary Clinton’s electoral defeat came as a surprise. Sure, they’d had doubts about her candidacy from the start. They’d expressed disgust at her platform, history, priorities and dubious associations – not least, at her campaign’s focus on cosying up to wealthy elites, courting the support of billionaires such as slum landlord Warren Buffett, at the expense of trying on to hold on to the party’s core working-class vote – but the general belief was that, however undeservedly, she’d still manage to pull it off.

After all, polling suggested she maintained a fairly consistent lead in key swing states even as Trump somewhat narrowed the gap, and there was reason to think that demographic trends would work against her competitor, who openly courted white supremacist votes.

Hindsight is 20/20, but many now feel they took their eye off the ball.  Leslie Lee III, a writer from Louisiana currently residing just outside Washington DC, argues that people “got so worn down by the polls that we forgot our message, that Clinton was the worst possible candidate to put against Trump”. For him, identifying what went wrong is simple:  “Trump promised people something, the establishment candidate was telling people America was already great. It doesn’t matter if he was doing it in a dishonest, con-artist, racist, xenophobic, sexist way – he said he’d fix people’s problems, while Clinton said they didn’t have problems”.

Leslie isn’t alone in believing that a wonkish focus on polls and data distracted from what was really going on. Everyone I speak to feels that the supposed ‘experts’ from the liberal mainstream aren’t equipped to understand the current political landscape. “We are witnessing a global phenomenon,” suggests writer Amber A’Lee Frost, who first got involved with the Democrats to support the Sanders campaign but voted Obama in 2008. “The UK offers the most clear parallel to the US. Nationalism, racism and xenophobia are festering.” Student and Democratic Socialists of America activist Emily Robinson agrees: “All across the world we’ve seen massive right-wing upswells, from Trump, LePen and May in the West to Modi and Erdogan in the East.” Whatever differences exist between these respective politicians, it’s hard to argue with the contention there’s been a widespread shift to the right.

US left-wingers argue that liberals fail to understand their own role in the current situation. From a British perspective, it’s hard to disagree. Repeatedly, I’ve seen discussions shut down with the claim that even acknowledging economy policy may have contributed to the resurgence of ethno-nationalist ideology amounts to apologism. Nor can faulty data be held entirely responsible for any complacency. In the run-up to the Brexit vote, polls suggested that the result would be too close to call; nonetheless, within the liberal bubble almost everyone assumed we’d vote to remain. The fact the value of the pound rose on the eve of the referendum was seen as evidence for this belief, as if currency traders have some sort of special insight into the mind of the average UK voter. Looking back, the whole thing is laughable.

Over in the US, the disconnect seems to be much the same. “People in the street weren’t following that stuff,” Leslie says of the finer details of both the Trump and Clinton campaigns. “Trump said he would fix their problems, Clinton said they didn’t have any. If we’d stayed focused on that it would have been obvious.” Instead, many of her supporters believed that it was Hillary’s turn and consequently dismissed substantive criticisms, sometimes claiming the vast majority of opposition was simply latent sexism. Even the campaign slogan “I’m With Her” seemed to be about what voters could should for Clinton, not what Clinton would do for them. As polls narrowed, party insiders continued to insist that Clinton was the rightful heir to Obama’s voting coalition, however little she actually did to earn it. 

A lack of message simplicity definitely seems to have been part of the problem. When I speak to Christian, who currently works in outreach and recruitment for the Democratic Socialists of America’s national office, he admits he was barely aware of the platform Clinton was campaigning on. “I’d ask my friends, and sometimes she’d talk about stuff, but it’s so vague,” he explains. “The average working-class person shouldn’t have to go to a website and read a 30 page policy document. It feels like it’s written that way for a reason, it’s muddled, neoliberal bullshit that lobbyists have written.” It’s true that media coverage probably didn’t help, with reporting frequently focuses on gossip and overblown scandal over substantive policy issues, but an effective political communicator must ensure their core messages cut through. Obama managed it in 2008, and however abhorrent we might find it, pretty much everyone heard about Trump’s wall.

It’s also hard to ignite excitement for the continuity candidate when many people don’t believe that the status quo actually benefits them. “I think neoliberalism no longer works as an electoral incentive to voters, especially working-class voters,” argues Amber. Emily tells me that prior to this election she’d worked on two Democratic campaigns, but before Sanders she’d been ready to give up on the party. “When they had the power to, the Democrats failed to implement policies that helped the working class, Hispanic, Black and Muslim communities, and women.”

She explains her disappointment during the early part of Obama’s first term, when the Democrats held the House, Senate and Oval Office. “They jumped away from the single payer option for healthcare, which would have helped the entire American population. The implementation of the DREAM act would have helped immigrant communities. There’s also a lot they could have done on policing and carceral reform, repealing federal use of private prisons, for example, and labour rights, by introducing federal protections for trade unions and effectively repealing so-called ‘right to work’ laws in many states. They did not mandate free, universal pre-kindergarten nor did they even attempt to work forwards free collect – or, at the bare minimum free community college.”

For Douglas Williams, a graduate student at Wayne State University, it was Obama’s relationship with labour unions that caused him to drift away from the party. “In 2013, Barack Obama appointed a union buster to a federal judgeship in the District of Columbia. I started to think, labour gave $1.1 billion to national Democrat party politics between 2005 and 2011, and labour got literally nothing from it.”

One left-leaning activist, who prefers to be identified by his blogging pseudonym Cato of Utica, campaigned door-to-door for Clinton. He explains in visceral detail his disillusionment with the party he’d worked within for roughly a decade: “I was heavily involved in North Carolina in places where the recovery never even touched. These were working poor people, and the doorbells didn’t work. If the doorbells are broken, what else is broken inside the house? What else isn’t the landlord taking care of? I looked at our candidates and none of the people I was pushing were going to address the problems in these people’s lives.”

Much ink has been spilled trying to pin down exactly what motivated people to vote Trump, whose campaign rhetoric was more explicitly xenophobic, racist and sexist than any other recent presidential candidate. Most of his supporters also voted Republican in previous elections, but two other groups are more interesting from a left-wing perspective: those who previously voted Obama but opted for Trump this time round, and non-voters who were inspired to make it to the polling booth for the first time. Overwhelmingly, both groups are concentrated in lower income categories.

“I think people voted for Trump because he acknowledged that there is something very wrong with America,” suggests Amber. “I obviously disagree with Trump voters on what is wrong with this country, and the fact that his campaign was fuelled by nationalism and racism certainly gave it a terrifying edge, but I know why they voted for him, even though he will ultimately betray his most vulnerable supporters.”

It would be absurd to discount racism as a factor in an election where the winning candidate was endorsed by the official newspaper of the Ku Klux Klan and its former leader David Duke, but Leslie disagrees with those who claim it was the primary motivation for the most Trump voters. His earliest political memory is from around 4th or 5th grade, when David Duke was running for Governor of Louisiana. “As one of the few Black kids in your class,” he recalls, “it really makes you realise how important politics is early on”. One of his closest friends was a previous Obama voter who opted for Trump this election, and the common factor seems to have been a message of optimism.

“Obama offered something more important than these people’s prejudices: hope and change, basically. He didn’t deliver it but he offered it. Romney was seen as the establishment. Obama said, ‘I’m an outsider and I’ll bring something new to the table’. There’s a line between Trump and Obama in that vein – and my friend will tell you the same.”

At a time when many people have a strong desire to kick out at the political establishment, Clinton was the ultimate establishment candidate. Leslie is scathing about the extent to which she actively highlighted this in her campaign: “She talked about being experienced – what does that mean? It means you’ve been part of the establishment. She attacked Obama with her experience in 2008 so I don’t know why she thought it would work. It’s not like being the local dog catcher, you don’t turn in your resume and if you have the most experience you get it. You need to have a message and get people inspired, and she didn’t have it.”

Most of the people I speak to believe that Sanders would have had a better chance of beating Trump, and many poured significant time, effort and money into his campaign. They note that polling showing Sanders had consistently higher approval ratings amongst the general public than Clinton throughout the primaries, and argue that people citing recently released unused opposition research as evidence he’d have lost don’t understand voter motivations. The idea that Sanders’ experience of being poor and unemployed would have worked against him is seen as particularly mockable. Whatever the truth, the more relevant question now is what the left does next.

Opinion is split between those who think working within the Democratic Party is the best approach and those who believe its unaccountable, bureaucratic structures make it a lost cause. Emily is in the first category. “I think leftists should, in a limited capacity, be running within what is now the desiccated carcass of the Democratic Party, rather than naively attempting to build a party from the ground up and risking splitting the left-liberal vote,” she tells me. “They should be prepared to run for elections with a (D) next to their name, even if they refuse to bend at the knee to the neoliberal, imperial tendencies of the Democratic elite.”

Particularly exciting right now is the work of the Democratic Socialists of America, an organisation which aims to shape the future of the party in a leftwards direction. Membership had increased by a third since the election – aided partly by support from celebrities such as Killer Mike and Rob Delaney. “We’re planning on Trump being a one-term president,” DSA representative Christian tells me. “We have a 50 state strategy, but right now we only have chapters in 31 states. It’s not just about elections, it’s threefold: electoral, workplace and community organising to win on all counts.”

Douglas is sceptical about whether it’s possible to restructure the Democratic Party in the way he considers necessary, but he agrees with the DSA’s focus on community organising: “Why can’t an organisation be like ‘we’re going to sponsor a little league team’? Why can’t we open a soup kitchen? We’re making noise, we’re out here, but we heard your aunt is having trouble with her roof. We’ve got guys who can fix that, and then we’ll leave a little sign saying it was us.” Cato of Utica references something similar that happened in Flint, where the Plumbers and Pipefitters Union visited people’s homes to make sure their water filters were properly fitted.

“We need to rebuild the labour movement,” agrees Emily. “Not only to carry out all the normal functions of unions, but also to provide a community, and spaces for education, child care and other forms of support. If we don’t build solidarity among the working class – not just the white working class, but the Hispanic working class, the Black working class and so on – we risk allowing another reactionary movement caused by cleavages promoted by the ruling classes.”

Left-wing organisations traditionally target places like New York, Los Angeles and Chicago, where it’s easier to build support. Christian argues that the Democratic Party, and the DSA specifically, need to “focus on the Rust Belt, where the Democrats lost, and the South, where Bernie lost”. There’s a widespread belief that Southern states which have been Republican for decades now could be winnable in future presidential elections, partly because of demographic trends pointing towards increasingly ethnically diverse voting populations. As for the Rust Belt, it’s hard to argue with the claim that a different candidate could do better than Clinton – who didn’t even bother to visit Wisconsin, which swung Republican, in the months preceding the vote.

The DSA’s 50 state strategy involves creating a national framework, but with devolved power allowing local chapters to focus on the issues most relevant in their area. “In Texas our chapter is really strong and we do a lot of work on immigration reform, working with undocumented communities, whereas Boston obviously doesn’t have to deal with that so much,” Christian explains to me. “In places like Kentucky and West Virginia, coal country, Republicans like Trump will say coal is coming back. We say we actually need to transition to a new economy and create green jobs, and places where people live where they don’t get cancer from coal.”

Christian believes that the unexpected success of the Sanders campaign indicates there’s an appetite for the kind of politics the DSA is offering, and that a similar candidate could gain the Democratic nomination in four years time. “Having a candidate announce earlier than Bernie did, and with a good ground game in place, we could have 50,000 volunteers ready to go. We wouldn’t be scrambling around this time, we’d be ready to go to war with [Trump]”. Like many on the left, he thinks that Keith Ellison’s selection as DNC chair is a crucial part of the puzzle. Ellison was the first Muslim elected to Congress and is chair of the Progressive Caucus. “He’s a way better politician than Bernie,” Christian contends. “He understands the intricacy of talking about labour, poverty and unions very well.”

Others I speak to argue that focus should be on working from the ground up. “I’m not even talking about state legislatures,” explains Douglas. “I mean city councillors, school boards, things like that. This is going to be a long-term project and has to start at the absolute lowest level and work its way up. People don’t even realise, in some of these cities you can get elected to the city council on 500 votes. We want to start on the big stuff but it has to be an independent, left local movement. We can run all the candidates we want, but unless we’re out here informing people ‘it’s not actually about Mexicans or Muslims, it’s your boss, it’s his fault you can’t afford to save the money to send your kids to college,’ what’s the point?”

Whatever disagreements about strategy exist, the US left seems to be united by two things: fear of Trump’s presidency and a determination to succeed. Many members of the DSA are worried about their involvement with the organisation being publicly known. Unsurprisingly, this is more acute for members of groups attacked in Trump’s rhetoric. “We see apprehensiveness with some of our Latino membership,” Christian tells me. “People don’t want to out themselves because that's risking your own livelihood. We’re a working class organisation and most people have other jobs.”

With Trump associates making noises about recreating the House Un-American Activities Committee, some fear left-wingers could be targeted as dissidents as in previous decades. However realistic the threat of government persecution, there’s already a far-right website, KeyWiki, that keeps tabs on members of socialist organisations. Everyone I speak to agrees that groups particularly vulnerable to being targeted by Trump and his supporters – including Muslim, Latino and African American communities – must be defended at all cost. “The aim of the left should be to make it impossible for Trump to govern,” says Cato of Utica. “Establishment Democrats are already making conciliatory noises. If the Democrats aren’t going to do it in the Senate, the people have to do it in the streets through direct action.”

When I ask Amber what happens next, her response seems to sum up the mood amongst the US left: “To be honest, I have no idea. I’m terrified but I am ready to fight.”