Shareholder activists and individual private investors might not need to cover their faces in war paint or protest loudly outside annual general meetings (AGMs) anymore to make a point, although it might bring desired results.
Today investors with less abrasive dispositions can defer to shareholder associations to do the job for them. But can shareholder activism, which consists of dialogue and formal shareholder proposals, work and make companies stay on track?
According to a recent report by JP Morgan on shareholder activism in companies valued at over £1bn increased by 90 per cent in the first three quarters of 2011. And, treating investors with contempt can turn out to be a hazardous strategy for any listed company exercising misjudgement over a range of corporate issues.
John and Lewis Gilbert, US investors, probably represented the essence of what shareholder activism stood for in America during a 50-year period. John Gilbert’s passion for shareholder meetings saw him attend around 75 meetings every year with his brother at the peak. Described as clowns by one corporate lawyer in the 1950s they started handing out red noses at meetings.
Across Europe, shareholder associations have seen rather mixed fortunes. Roger Lawson, chairman of the UK Individual Shareholders Society (ShareSoc), notes a “number of reasons” why associations here have not blossomed in the same way as elsewhere in Europe. “Often it tends to be stimulated by specific issues such as excessive pay, which has been a hot topic lately,” he says.
One need only look at the Swedish Shareholder Association (Sveriges Aktiesparares Riksförbund) and Danish Shareholder Association (Dansk Aktionærforening) with some 70,000 and 20,000, respectively, to see the yawning chasm in participation rates. Deutsche Schutzvereinigung für Wertpapierbesitz, the equivalent German society formed in 1947, currently represents around 25,000 members.
By contrast ShareSoc, spun out of the UK Shareholder Association (UKSA) two years ago this February, counts some 2,500 members in 2013. ShareSoc’s Mr Lawson says: “As an organisation we want to represent shareholders as effectively as we can and so the more members we have the greater influence we can exert.”
More than anything else this disparity between the UK and the rest of Europe is cited as a “cultural problem”. Mr Lawson says: “There’s an inherent reluctance among the English to complain tied to a faith that directors are seen as doing the right thing by their companies.
“It’s generally seen as ‘bad form’ to challenge the directors or attack them for incompetence and nobody likes to vote against any resolutions.”
2012 proved to be a busy year for ShareSoc’s campaigning with just over 30 press releases issued across a range of issues.
A raft of releases have confronted issues on excessive directors’ pay such as blasting the £4m CEO pay at mid-cap Premier Oil at the company’s AGM (May 18, 2012) and issuing voting recommendations over Rensburg AIM VCT, an investment company investing predominantly in Alternative Investment Market (AIM) companies and urging shareholders to vote against the re-election of all the directors (June 27, 2012).
“Our Rensburg AIM VCT campaign I count as a success since the position of shareholders has improved,” says Lawson. “Effectively, we kept the directors on their toes.” Indeed, as a result shareholders were able to exit their investment in Rensburg at an improved share price.
n For further information on ShareSoc visit www.sharesoc.org (associate membership is free). UKSA membership costs £25 per annum (www.uksa.org.uk).
Roger Aitken is a freelance journalist and former RNS editor at the London Stock Exchange.