Financial Times: Investors flex their muscles at Shell
By Clay Harris
Financial Times; Mar 23, 2004
It was no coincidence that yesterday's meeting between institutional investors and senior non-executive directors of Shell Transport and Trading was organised by the Association of British Insurers.
In recent years, the ABI has found a stronger voice and more courage to put its head over the parapet as institutional investors step up pressure on corporate governance issues.
Before Shell, the ABI's new prominence was manifested in its role in marshalling opposition to Jean-Pierre Garnier's remuneration package at GlaxoSmithKline and to James Murdoch's appointment as chief executive at British Sky Broadcasting.
Its "red top" alerts - signalling examples of "egregious shortcomings", in the words of Peter Montagnon, the ABI's head of investment affairs - have been around for years, but now everyone knows about them.
"The ABI has developed into a consistent activist," says Alan MacDougall, managing director of Pensions Investments Research Consultants. Pirc, founded in 1986, advises public sector and local authority pension funds, and was a pioneer at putting corporate governance on the public agenda.
Since then, a succession of reports - Cadbury, Greenbury, Hempel and Higgs - has strengthened best practice in corporate governance, and the debate has moved on a long way from stunts such as the parading of a pig at the 1995 protest about Cedric Brown's pay as chief executive of British Gas.
David Gould, director of investment services at the National Association of Pension Funds, says: "What were originally considered daring issues have rapidly become standard."
Institutions have shown themselves able and willing to act for themselves, as in the Fidelity-led veto on a role for Michael Green at the new ITV and the broader revolt that persuaded J Sainsbury to drop its plan to designate Sir Ian Prosser as its eventual chairman.
But umbrella bodies such as the NAPF and the ABI have retained their importance as developers and articulators of best practice. Mr Montagnon maintains: "I wouldn't say that this is a new ABI. We have been vocal and active in certain areas for quite a while."
While the challenge to Mr Garnier's package was successful, the effort to block Mr Murdoch's ascent at BSkyB was not. Mr Montagnon, however, does not see these as battles. "I do not think that BSkyB is over yet [but] it is not a good idea to think of things as 'win' or 'lose' or 'scalp' or 'not'."
The ABI, moreover, did not "seek confrontation", he said, and it was always thinking about long-term value. Many of its discussions continued to be "carried on in conditions of absolute secrecy". In this context, softly-spoken words carry weight, as Shell discovered. Mr Montagnon notes: "When we said we were 'deeply upset' [after the restatement of reserves in January], that reflected a real sense of frustration."
With "comply or explain" emerging as a refrain, the ABI is also playing a central role in establishing best practice. For example, says Mr Montagnon, it worked closely with Barclays to "deepen understanding of what constituted a good explanation" when the bank decided to promote Matt Barrett to chairman in spite of his years as chief executive.
Much has changed since the pioneering days of Mike Sandland, former chief investment manager of Norwich Union and chairman of the Institutional Shareholders Committee. In 1991, he wrote to fellow shareholders in Tace urging dismissal of the board, attacking its alleged mismanagement, extravagance and lack of strategy. Mr Sandland said at the time he had never before written such a letter. Less than three weeks later, the board quit, after Tace received a takeover bid.
Although Tace was small, institutions had flexed their muscle in public and liked the result - and the fact that the sky had not fallen.
Mr Gould concedes "friendly rivalry" between Victoria-based NAPF and its "East End ally". The NAPF has revived "case committees", through which companies are discreetly approached. The ABI has an advantage in that it can establish a consensus quickly. ABI members in investment management are a "relatively small number of very big players", Mr Montagnon says.
Unlike the ABI, the NAPF does recommend to its members how to vote, a change it made in 2000 shortly before the challenge to Sir Christopher Gent's takeover bonus at Vodafone. Sir Christopher got his money, but the message got across, and Vodafone's revised remuneration policy is now seen as a model of transparency. It occasionally takes time for the penny to drop.
Fresh from his role as "facilitator" at yesterday's meeting between Shell and investors, Mr Montagnon stressed his view that British corporate governance was "streets ahead of anywhere else I can think of in the world. I don't want to sound complacent. It can be improved."