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

ELLIE FOREMAN-PECK FOR NEW STATESMAN
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Craig Oliver, Cameron's attack dog, finally bites

A new book reveals the spiteful after life of Downing Street's unlikely spin doctor.

It must be hard being a spin doctor: always in the shadows but always on-message. The murky control that the role requires might explain why David Cameron’s former director of communications Craig Oliver has rushed out his political memoirs so soon after his boss left Downing Street. Now that he has been freed from the shackles of power, Oliver has chosen to expose the bitterness that lingers among those on the losing side in the EU referendum.

The book, which is aptly titled Unleashing Demons, made headlines with its revelation that Cameron felt “badly let down” by Theresa May during the campaign, and that some in the Remain camp regarded the then home secretary as an “enemy agent”. It makes for gripping reading – yet seems uncharacteristically provocative in style for a man who eschewed the sweary spin doctor stereotype, instead advising Cameron to “be Zen” while Tory civil war raged during the Brexit campaign.

It may be not only politicians who find the book a tough read. Oliver’s visceral account of his side’s defeat on 24 June includes a description of how he staggered in a daze down Whitehall until he retched “harder than I have done in my life. Nothing comes up. I retch again – so hard, it feels as if I’ll turn inside out.”

It’s easy to see why losing hit Oliver – who was knighted in Cameron’s resignation honours list – so hard. Arguably, this was the first time the 47-year-old father-of-three had ever failed at anything. The son of a former police chief constable, he grew up in Scotland, went to a state school and studied English at St Andrews University. He then became a broadcast journalist, holding senior posts at the BBC, ITV and Channel 4.

When the former News of the World editor Andy Coulson resigned as No 10’s communications director in January 2011 because of unceasing references in the press to his alleged involvement in the phone-hacking scandal, Oliver was not the obvious replacement. But he was seen as a scandal-free BBC pen-pusher who exuded calm authority, and that won him the job. The Cameron administration, tainted by its association with the Murdoch media empire, needed somebody uncontroversial who could blend into the background.

It wasn’t just Oliver’s relative blandness that recommended him. At the BBC, he had made his name revamping the corporation’s flagship News at Ten by identifying the news angles that would resonate with Middle England. The Conservatives then put this skill to very good use during their 2015 election campaign. His broadcast expertise also qualified him to sharpen up the then prime minister’s image.

Oliver’s own sense of style, however, was widely ridiculed when he showed up for his first week at Downing Street looking every inch the metropolitan media male with a trendy man bag and expensive Beats by Dre headphones, iPad in hand.

His apparent lack of political affiliation caused a stir at Westminster. Political hacks were perplexed by his anti-spin attitude. His style was the antithesis of the attack-dog mode popularised by Alastair Campbell and Damian McBride in the New Labour years. As Robert Peston told the Daily Mail: “Despite working closely with Oliver for three years, I had no clue about his politics or that he was interested in politics.” Five years on, critics still cast aspersions and question his commitment to the Conservative cause.

Oliver survived despite early wobbles. The most sinister of these was the allegation that in 2012 he tried to prevent the Daily Telegraph publishing a story about expenses claimed by the then culture secretary, Maria Miller, using her links to the Leveson inquiry as leverage – an accusation that Downing Street denied. Nevertheless, he became indispensable to Cameron, one of a handful of trusted advisers always at the prime minister’s side.

Newspapers grumbled about Oliver’s preference for broadcast and social media over print. “He’s made it clear he [Oliver] doesn’t give a s*** about us, so I don’t really give a s*** about him,” a veteran correspondent from a national newspaper told Politico.

Yet that approach was why he was hired. There was the occasional gaffe, including the clumsy shot of a stern-looking Cameron, apparently on the phone to President Obama discussing Putin’s incursion into Ukraine, which was widely mocked on Twitter. But overall, reducing Downing Street’s dependence on print media worked: Scotland voted against independence in 2014 and the Tories won a majority in the 2015 general election.

Then came Brexit, a blow to the whole Cameroon inner circle. In his rush to set the record straight and defend Cameron’s legacy – as well as his own – Oliver has finally broken free of the toned-down, straight-guy persona he perfected in power. His memoir is spiteful and melodramatic, like something straight from the mouth of Malcolm Tucker in The Thick of It. Perhaps, with this vengeful encore to his mild political career, the unlikely spin doctor has finally fulfilled his potential. 

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories