FTSE executives brace for battle with shareholders as AGM season nears

The Battle for Middle Earth II screen

Corporate Britain’s least favourite time of the year is almost here.

Each spring, the bosses of the UK’s biggest companies traipse to conference centres to be interrogated, abused and occasionally praised by shareholders at their company’s annual general meetings. Weeks of preparation go into a big AGM – from rehearsals for the chairman and chief executive to negotiations with big investors to head off potential revolts.

There has never been such a range of pressures on companies at AGMs as there are now. During the so-called shareholder spring of 2012, large investors, blamed for not holding boards to account before the financial crisis, rebelled against pay and other governance matters at some of Britain’s biggest companies. Bosses were humiliated and some were forced out.

Political pressure has mounted over the outsize pay packages earned by bosses. Business secretary Vince Cable forced companies last year to publish more detail on pay and to put their policies to a binding shareholder vote.

Companies also face protests from activists on environmental and social questions such as climate change and the treatment of workers. Disgruntled small shareholders whose dividend has been cut, and the possibility of raids by activist investors, are further headaches. One City investor says: “BG, AstraZeneca, Prudential – for anybody who is in the headlines there will be a sizeable vote against all sorts of things.”

Here are some of the potential flashpoints at this year’s AGM season.

HSBC

The reputation of Britain’s biggest bank has been battered in the past year, not least by the Guardian’s revelation that HSBC’s Swiss arm enabled tax evasion and aggressive tax avoidance. Chief executive Stuart Gulliver and chairman Douglas Flint, who said the Swiss affair was “totally humbling”, will face tough questions. Shareholder groups may also target Rona Fairhead, who chaired the audit and risk committee, at the AGM on 24 April. They argue Fairhead, who also chairs the BBC Trust, could not have scrutinised the bank’s activities independently because it paid her £513,000 last year. HSBC has also said it wants to increase Flint’s salary. There are likely to be protests at that and Gulliver’s £7.6m pay package.

BG GROUP

The oil and gas company was forced to stage a partial climbdown in December over a £25m pay deal it had agreed with new boss Helge Lund. But the matter didn’t end there. The former boss of Norway’s Statoil national oil company could still get the full amount, albeit for more stretching targets, and his annual salary of £1.5m is higher than those of the chief executives at bigger rivals BP and Shell.

BG admits investors are still furious about the affair. Now they could vote against BG’s remuneration report and the re-election of chairman Andrew Gould, who also heads the nominations committee. Paul Hewitt of shareholder advisory group Manifest says: “Some of BG’s largest shareholders were given minutes’ rather than days’ or weeks’ notice of their intentions. If I was a significant investor I would be very, very disappointed.”

WPP

Sir Martin Sorrell, WPP’s chief executive, was one of the bosses caught up in the 2012 shareholders’ revolt. Investors voted down his pay package, forcing the world’s biggest advertising company to replace its long-term share scheme. But it has continued to pay out, and Sorrell’s £36m share bonus for 2014 will take his total earnings for the year to more than £45m. Nearly 30% of shareholders refused to endorse Sorrell’s £30m payout under the scheme at last year’s AGM and a further rebellion is expected in June. A fund manager at a big City investor says: “The people who opposed it last year will oppose it this year.”

BP

BP has accepted a resolution proposed by environmental campaigners and pension funds, including the Church of England, requiring the oil company to report on whether its business complies with an international agreement to limit global warming to 2C. Royal Dutch Shell has already accepted the resolution, which also bans executive bonuses for climate-harming activities. BP’s board has recommended a yes vote for the resolution.

But when it comes to executive pay, BP is less popular. Bob Dudley, its chief executive, was paid $12.7m (£8.5m) last year – 25% more than in 2013. The increase was mainly due to a deferred bonus from 2011, but in 2014 Dudley cut jobs, froze employees’ salaries and missed all his safety targets. Pirc, the shareholder consultancy, recommends investors oppose BP’s remuneration report at the AGM on 16 April.

TESCO

It is hard to imagine how the time since the last AGM could have gone any worse for Britain’s biggest retailer. Phil Clarke was ejected as chief executive in September after a string of profit warnings. His replacement, Dave Lewis, uncovered a £263m hole in its profit projections. Tesco faces a series of inquiries over the scandal, including by the Financial Conduct Authority. Lewis decided to close or abandon almost 100 stores and half-year profits fell 92% to £112m.

Lewis and his new team will probably get support at the AGM in June but small shareholders will probably be very vocal over Tesco’s decision to slash its dividend by 75%. The grocer will also be the main target of campaigners trying to get big retailers to pay employees the living wage.

SPORTS DIRECT INTERNATIONAL

Last year it took threats of a shareholder revolt to force the retailer to back down on a plan for a multimillion-pound bonus plan for its founder, Mike Ashley. Since then the billionaire, who is Sports Direct’s deputy chairman, has lent credence to the belief that there is no check on his power at the company. Last month he insisted he was too busy to appear before MPs to answer questions about zero-hours contracts – about 80% of the retailer’s staff are on them – and the closure of a subsidiary in Scotland. The Institute of Directors said last week that Sports Direct’s board was dysfunctional and did not check Ashley’s powers. It urged shareholders to use the AGM to show their dissatisfaction.

ALLIANCE TRUST

The FTSE 250 investment trust is under attack by Elliott Advisors, an aggressive US investor. Elliott says Alliance’s chief executive, Katherine Garrett-Cox, has been regularly overpaid for poor financial performance. The activist fund is trying to woo at least 50,000 small shareholders to vote for three new directors it has nominated. With Garrett-Cox holding firm, expect fireworks at the AGM on 29 April.

Powered by Guardian.co.ukThis article was written by Sean Farrell, for The Observer on Saturday 4th April 2015 16.00 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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