The buds of success
Will the current spring yield results? The problem with engagement is it is difficult to measure and arguably, the more successfully it is done, the less visible it should be. Engagement levels are usually measured by the number of no-votes registered by shareholders.
However, this is more indicative of disagreement between corporates and shareholders. Summerfield says: “The Spring is symptomatic of an apparent lack of trust and communication between companies and shareholders. A high level of no-votes is a sign the engagement process is not working well so we don’t really want to see a repeat of this year.” In fact, one of the best measures of success of this shareholder spring would be a significant decline in no-votes next year, which would suggest corporates were more actively seeking the views of investors before putting resolutions forward for vote.
According to Penny Shepherd, chief executive of the sustainable investment and finance association UKSIF: “Some members expect as we go into the next AGM season that shareholder involvement may be less visible as companies will consult more in advance.
“As a result, what comes forward for vote will be more in line with shareholders’ interests. That may look like activism has decreased, but it will actually be the result of activism this year.”
Many investors, including Aviva Investors’ Lis, say they are indeed seeing a higher level of engagement from companies following this year’s spring and the number of no-votes should therefore decrease next year. WPP also outlines the reputational damage a corporate can suffer by not listening to its shareholders, something Lis says British companies are becoming increasingly concerned about as press attention on issues like executive pay becomes more fierce.
WPP’s board should have predicted the remuneration report would be defeated this year as 42% of shareholders voted against last year’s report. “They should have got the message then that they were going to have problems this year,” Powdrill says. This year 60% of shareholders voted against.
Others should take heed. After scraping its remuneration report through this year despite a 49.8% vote against, William Hill should be among those corporates looking to engage with shareholders more over the coming year if it is going to avoid a similarly humiliating defeat as WPP next year.
Short-lived revolution or long-term change?
Given the growing frustration in Britain at excessive pay, especially where few others are enjoying much in the way of performance, corporates should expect that activism by shareholders continues to increase.
The Government and authorities are also placing greater emphasis on the role of shareholders in keeping corporates in check. Even the focus on pay cannot be taken as a sign the spring will be short-lived.
The early results of the spring look promising, although their visible results may be confusing. Companies are engaging more and will need to continue to do so. Those that do not should beware, especially where investors are already showing high levels of dissent.
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