9th May 2012
An unprecedented wave of shareholder rebellions
Aviva's chief executive Andrew Moss was the latest to feel the heat in what is fast becoming a popular uprising of shareholder activists, no longer willing to maintain the kind of pre-crisis pay packages while not seeing the returns to justify them.
Moss bowed to increasing pressure from Aviva's shareholders, who watched their stock value drop by nearly a quarter in 2011, and waived a 5% pay rise as an appeasement. Bob Diamond, the American boss of Barclays, was another to feel the wrath of his shareholders at the bank's AGM when he was heckled during his speech.
Meanwhile, Credit Suisse and Citigroup shareholders gave a swift kick to the shins of the banks' executives.
But it's gone further than simple pay disputes with latest news that a shareholder is seeking dismissal of Yahoo's chief executive Scott Thompson after demanding access to documents relating to his recruitment. On seeing these investment firm Third Point discovered that he didn't in fact hold a degree in computer science as claimed.
These days it's not just the awkward squad who have for years been making AGM day the only occasion when certain company bosses could be dragged from their air-conditioned offices to answer for their decisions. The latest Yahoo! debacle shows that in addition to small shareholders, pressure groups and unions, and big City institutions have been making their voices heard.
On the rise of the shareholder, Mindful Money's psychologist blogger Ken Eisold says on his blog: "Since WW II, owners of corporate stocks have been the largely invisible partners in our economic system. Before that, the exchange of shares was the province of those dealmakers and bankers who used their power to gain control of markets. Most Americans distrusted Wall Street, with the exception of the frenzy of investment that drove up prices before Black Friday, the 1929 crash the preceded the Great Depression. That experience, if anything, reinforced the skepticism and mistrust of the average investor.
"With the advent of Investor Capitalism about 40 years ago, when vast numbers of ordinary citizens became invested in stocks, shareholders began to approach the market to park their savings and discretionary funds, to build their nest eggs, to acquire the down payment on a house, to prepare for retirement and their children's education. Their aim was and still is, by and large, to get a better return, not to influence corporate policy. Shareholders were still technically the owners or our corporations, but, without significant holdings, they have been largely passive and invisible. They became mere investors, looking for the best deal…
"But now that investors have been reminded that their shares give them a stake in management, we may be on the cusp of change."
Shareholders large and small are licking their wounds having suffered brutal losses during the financial crisis and recession – and yet CEO pay keeps on rising. This has led to heckling of boards becoming commonplace rather than a rarity, and this shows no sign of abating.
Several factors have come together to make 2012 the most stormy annual meeting season in living memory. One is the government's vocal determination to tackle "rewards for failure". Business secretary Vince Cable has proposed radical reforms, including giving shareholders a binding vote on pay, rather than the advisory vote introduced by Labour, and forcing companies to disclose pay deals for departing directors.
A third factor driving the "shareholder spring" has been a concerted campaign by groups such as Fair Pensions, trades unions and green groups. They have worked to persuade small shareholders, including retail investors and workers with pensions or insurance funds – who between them hold billions of pounds' worth of shares – to ask how their money is being invested and demand a more active approach.
If bosses were hoping the furore of the past few weeks is going to be another flash in the pan, they might have to think again – as the small investor has less chance to profit they will use their rights to make themselves heard, and drive change in the market.
Shareholder activism is blossoming, and who knows what change this'll prompt. "The sleeping giant of small investors may be aroused, and that may give our financial markets a jolt," says Eisold.
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