Standard Chartered is under pressure to back down on executive pay and overhaul its communications with shareholders, having suffered a rebellion at its annual general meeting.
Investors said the bank failed to consult them properly about new bonuses for chief executive Peter Sands and other top managers. The botched communication led to a 41% vote against its pay policy.
Leading shareholders said the vote should be a wake-up call for the board to listen to pension funds and other investors who own the business.
After weathering the financial crisis, Standard Chartered was regarded as a star of the British banking industry. But after mis-steps including a profit warning and £415m in fines for breaching US sanctions against Iran, shareholders accuse it of complacency and not being alert to shifts in sentiment.
A top 20 investor said: "The profit warning and a string of negative surprises took the halo off the management team's aura of invincibility and opened it up to criticism, and I don't think they have handled it very well. They are surprised they had such a high vote against. We will wait and see what they do to improve."
The shareholder revolt was aimed at bonuses linked to targets that could be hit in a single year. Investors and regulators want banks to pay top managers over a longer period in order to discourage short-term risky behaviour.
A top 10 investor said there was disquiet over other matters such as the large number of executive directors on the board, chairman Sir John Peace's dual roles as chairman of Standard Chartered and fashion group Burberry, and the lack of independence of some non-executive directors.
"If you are making the decision to pay your directors at a certain level, you have got to go and engage with your shareholders. Their long-term problem is that if they don't start engaging with their shareholder base they are going to lose more support. They have to take a step back and ask: 'How should we go forward on this question of remuneration, what are shareholders' wider concerns and how are we going to address them?'"
Investors compared Standard Chartered's approach with that of HSBC. When HSBC realised investors were unhappy about a potential £2.25m bonus for chairman Douglas Flint, it held talks with shareholders and staged a partial climbdown in an attempt to ward off a rebellion at this Friday's AGM. However, Standard Chartered failed to head off discontent before its AGM and came close to losing a binding vote on pay.
A second top 10 shareholder said: "The remuneration issue was really poorly conducted. Other banks like HSBC have handled the situation better."
Another investor said: "It was like they were making it up as they went along. They didn't communicate effectively or show any clear thinking behind their approach."
Although the pay policy was passed, investors expect the bank to come back with revised proposals.
Will Pomroy, policy lead at the National Association of Pension Funds, said: "It is vitally important that companies engage with their shareholders. It is even more important that they subsequently both listen to and reflect upon the messages they hear. A significant response would be expected."
Standard Chartered said: "We actively solicit and react to all feedback from our shareholders, and hold an extensive programme of meetings between shareholders and a range of senior management. At the beginning of May we had already undertaken over 150 meetings among our top 25 shareholders, while in 2013 we had 270 meetings among the top 25."
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