29th August 2012
The Financial Times reports that this unusual opposition – it is generally institutional investors who lead the way – wants to claim the scalps of four directors to add to that of former chief executive Andrew Moss. Moss stood down in May after his performance came under fire – his £1.75m exit deal was immediately slated as "obscene".
Four months later, the The Norwich Union (Aviva's former name) Policyholders' Action Group, which has 181 members, claims four other directors were as equally to blame for the firm's "underperformance" and should "do the decent thing" by quitting. The group is unusual in consisting of investment customers and private investors as most groups feature institutional shareholders or "activists" aiming to get onto the board and split up the company.
Those targeted include former Association of British Insurers director-general Mary Francis, also on the Centrica board, Scott Wheway, who chairs the Aviva remuneration committee, Richard Goeltz, former chief financial officer of American Express and NatWest, and Russell Walls, a former finance director of BAA. All have been Aviva non-executives for several years.
"Barmy and blurred vision"
The group says: "There is no evidence available to show that they ever challenged Moss' barmy and repeatedly changing blurred vision for the development of Aviva. " Wheway, a former Boots executive is accused on "presiding over excessive board remuneration plans."
Shareholder democracy campaigner PIRC says: "Remuneration continues to be the most controversial issue at UK AGMs, according to our voting analysis."
It looked at 300 AGM results for FTSE All-Share companies in the first two quarters of 2012. It calculates: "The average vote against a remuneration report is 7.64%. The figure for the same period in 2011 was 6.1%. Defeats this year include Aviva, Cairn Energy, Centamin, Central Rand Gold, Pendragon and WPP." Abstentions have increased marginally.
PIRC adds; "What is really striking is that the four highest year-on-year increases in opposition to remuneration policy came at companies that were defeated on their reports – Pendragon, Centamin, Cairn and Aviva. All four received oppose votes on their remuneration reports last year of less than 3%. In contrast, both Robert Walters and Afren, which were both defeated last year, saw very large reductions in the level of opposition compared to last year." So once rebel shareholders have success, their anger subsides.
Few vote against re-elections
But few shareholders in general are voting against director re-elections – the average vote against is virtually unchanged for the first half of 2012 at 1.88%, compared to 1.7% in 2011. But easyJet saw four of its directors receive 42% votes against their re-election, although this is explained by the poor relationship with its controlling shareholder Sir Stelios Haji-Ioannou. Notably, a number of companies that received large votes against their remuneration reports also saw large votes against directors, including Pendragon, WPP, UTV and Barclays."
Other anti-votes such as opposing auditors were small.
In Aviva's case, the running has now come from small-scale investors with institutional investors, who played a major part in unseating Moss, happy to sit this one out, at least until the new recovery plans have had time to be tested. These go-forward ideas include stripping out layers of management and appealing to intermediaries via a series of road shows.
Neville White at Ecclesiastical Investment Management says a problem investors face is in acting together to ensure boards listen and act.
"We need to show some unity which is hard when we compete with each other. Sometimes the Association of British Insurers or the National Association of Pension Funds acts for us but that tends to be in private and before the annual meeting so investors have less idea of what is happening." So far, Ecclesiastical, and other concerned institutional investors, have been content to leave the new Aviva policy to settle down.
He adds: "The PIRC figures show that the number of active investors prepared to take on boards at public meetings has hit a plateau. But that overall figure hides a number of successes on pay and director tenure such as Aviva, Astra-Zeneca, Cairn Energy and Trinity Mirror although many of these could have gone further.
Fund manager disconnect
There is also a disconnect between institutional shareholders who wield the votes and those whose money backs them. Many fund managers are well, sometimes excessively, remunerated while often under-performing. They can "empathise" with managers under attack so many either vote for the board or abstain.
"In any case, companies are bad at explaining just why they need to pay so much – there is no evidence that remuneration beyond a certain level makes any difference to performance," White says. "We voted against the Aviva pay – companies are more than just the board."
Active investors are disappointed that the government's planned review of corporate governance law has ruled out annual mandatory votes on pay.
"As shareholders we have a mandatory vote on issues such as auditor appointment and director elections but not on pay. Cable has retreated from annual votes for a three-yearly scheme which allows big ratcheting up of earnings in years two and three so by the time you get to vote, they've potentially pocketed loads. This is useless, it won't work and won't catalyse change," White concludes.
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