FINANCIAL TIMES: Investors discover they have real power: “…2004 will be chiefly remembered for two extraordinary tussles that pitched City investors at the heart of events. In January, Royal Dutch/Shell alarmed shareholders by revealing that it did not own as much oil and gas as it had indicated. Shareholders soon blamed the disclosure problem on the Anglo-Dutch company's bureaucratic dual-board structure. The result was another investor scalp. In October, Shell announced it was unifying its board structure and simplifying reporting lines.” (ShellNews.net) Posted 30 Dec 04
By Sundeep Tucker
Published: December 29 2004
Shareholders started to make friends again with company directors this year.
William Claxton-Smith, of Insight Investments, the fund management arm of HBOS, believes 2004 marked a rapprochement following the bitter rows of the previous year notably the backlash over huge pay awards at GlaxoSmithKline.
The tone was set in late March when shareholders and business leaders held “peace talks” over dinner at the Royal Automobile Club at Pall Mall, London.
“There is a great deal of private dialogue going on now, mainly focused on pay,” said Mr Claxton-Smith. “I hope that the corporates' openness towards remuneration issues will be extended next year to embrace issues such as strategy and succession.”
However, corporate governance issues such as strategy and succession were evident in some of the biggest wrangles of the year notably over J Sainsbury and Royal Dutch/Shell and the takeover tussle at Marks and Spencer.
The biggest demonstration over succession was played out at J Sainsbury, which would go on to have a torrid year on the investor front.
In February, the troubled grocer shocked investors by announcing that Sir Ian Prosser, formerly of Bass, the brewers, was to succeed Sir Peter Davis as chairman.
Angry shareholders who had not been consulted over the move believed he had destroyed value at Bass by overpaying for acquisitions and plotted his removal.
“He is not the right man to help this company compete in the fiercely cut-throat world of supermarkets,” said one shareholder. Within seven days, Sir Ian withdrew. It was a brutal display of investor power.
The looming introduction of the investor-backed revised Combined Code of Corporate Governance also concentrated the minds of some board executives, who moved to pre-empt potential shareholder anger over succession issues.
In September, non-executives at InterContinental Hotels Group unexpectedly ousted Richard North as chief executive despite profit and share price going northwards during his tenure.
The non-executives who are charged with looking after the interests of investors decided he did not possess the “skills base” to take the company forward.
But it would be a mistake to assume all fund managers think alike and forever plot to strike in tandem. If they did, Jonathan Bloomer would no longer be chief executive of Prudential.
The life assurer's surprise £1bn rights issue in the autumn irritated some investors, who insisted it marked the latest in a series of gaffes by Mr Bloomer. A small group of influential investors actively sought his removal. But few other investors had the stomach for the fight and Mr Bloomer lived to fight another day.
Institutional shareholders come increasingly in many guises and not all care about a company's long-term prospects. The growth of the power of hedge funds and holders of contracts for difference was a notable feature of the year especially during actual or rumoured takeover battles.
But 2004 will be chiefly remembered for two extraordinary tussles that pitched City investors at the heart of events. In January, Royal Dutch/Shell alarmed shareholders by revealing that it did not own as much oil and gas as it had indicated. Shareholders soon blamed the disclosure problem on the Anglo-Dutch company's bureaucratic dual-board structure.
The result was another investor scalp. In October, Shell announced it was unifying its board structure and simplifying reporting lines.
Shareholders also took centre stage in the battle for Marks and Spencer.
Entrepreneur Philip Green launched a phantom bid for the struggling retailer and appealed to the hearts and wallets of the diffuse investor base. Aside from Brandes and Schroders, few other investors backed his rallying call, leaving Stuart Rose, chief executive, and Paul Myners, chairman, to clear up the M&S mess.
Anita Skipper, head of corporate governance at Morley Fund Management, agreed that more subtle issues had replaced pay wrangles.
“We are now focused on how good corporate governance can lead to value creation,” she said.
But Ms Skipper said new international accounting standards, hyperactive European Union legislators and battles over the operating financial review and auditor liability had led to “regulatory overload”.