The Observer: Don't vote before you read this
Sunday May 30, 2004
Heather Connon hears fighting talk from bosses of two very pugnacious shareholder activists
'Vote often, vote early and vote on an informed basis' is a motto that Sarah Wilson hopes will become universally accepted. Wilson is founder and managing director of Manifest, the corporate governance and proxy voting agency, which aims to help institutional investors do just that.
Its team of 26 employees produces reports analysing the resolutions put forward at the annual meetings of every British company, highlighting where they do not comply with best practice, comparing salary and bonus levels with averages for the industry and the market as a whole, calculating what that complicated incentive scheme could mean in pounds and pence. When its clients have digested this and decided how to vote, Manifest then ticks the appropriate box - or, more frequently, presses the appropriate button - on their behalf.
Manifest can, therefore, take some of the credit for the increase in voting by institutions. When she started Manifest eight years ago, the average voting level was just 30 per cent; now it has risen to around 52 per cent. Although this is a big rise, it is still inadequate. The investment industry tries to blame this on the complexity of the systems: institutions' shares are usually held by custodians while registrars organise the counting of votes; in between, there are too many chances for votes to go missing. Wilson dismisses these excuses, saying Manifest's electronic systems demonstrate it is possible for votes to be processed quickly and accurately.
While electronic voting is Manifest's main selling point it is more famous (some would say, infamous) for Wilson's trenchant views on corporate governance issues. She is not afraid to speak out against fat cats like GlaxoSmithKline's Jean-Pierre Garnier, the lack of attention to corporate governance at many institutions or the apathy of many trustees.
The investment management business 'is other people's money', she says, pointing out that we - pension fund members or policy holders - are the ultimate owners of institutional funds. 'Pension-fund trustees need to ask more detailed questions on their funds managers' corporate governance practices.'
The managers, too, need to get more 'joined up'. Arguably every fund manager should be a corporate governance expert. But they need the appropriate tools and resources.
While some companies say Manifest and its rivals are ill-informed and too eager to voice their opinions when they have no authority to vote shares, Wilson says Manifest has good relationships with them. It has begun sending companies copies of its reports. They are generally well-received, even where the company does not agree with Manifest's conclusions.
But there is little doubt that the market for advisory services is becoming more competitive. At the start of the year, the National Association of Pension Funds launched a joint venture with US proxy voting adviser Institutional Shareholder Services that offers a detailed analysis of resolutions, a recommendation on how to vote and the facility to vote electronically - all on one screen.
Wilson dismisses this as a 'Manifest look-alike', saying, 'The war will get nastier before it ends.' Perhaps to counteract the threat, Manifest is starting to offer advice on European companies, too - 'many investors do not realise that you can only vote at the meeting in Sweden or that French investors have to use the actual proxy card produced by the company'.
The next big issues will be changes in international accounting standards and compatibility of data, she said.
There is a photocopy of a letter from Hanson on the wall of Pirc's offices in which the company - then a rather arrogant Anglo-American conglomerate - apologised to shareholders and withdrew proposals to restrict their rights at annual meetings.
That bit of humble pie was Pirc's first taste of what shareholder activism could achieve, and its first major foray into the area of corporate governance. Founded to help pension funds lobby for better corporate social responsibility, its initial work was in areas such as apartheid and the environment, but by the early 1990s its interests had shifted to corporate governance.
It can claim a number of other firsts in the field: it helped orchestrate the first campaign against fat-cat pay, targeting Cedric Brown at what was then British Gas in 1995; it tabled the first shareholder resolution on environmental issues at Shell's AGM in 1997; it was the first to publish proxy voting guidelines in 1993; and it produced the first report on directors' pay, calling for shareholders to be given a vote on the issue.
'That was regarded as impossible by people at the time,' says Alan MacDougall, Pirc's founder and managing director. But shareholders have been voting on share option schemes for some years and, last year, for the first time, they also got the right to vote on a company's remuneration report, if not the actual level of pay.
Pirc is seen as one of the most radical of the corporate governance organisations - and rightly so, says MacDougall. 'Our job is to change the way companies do business.'
'Historically, there has been too cosy a relationship between some of the other organisations providing proxy voting services and the companies, so that the independence of their judgment can be questioned. We have a very clear and structured process of analysis, which is open for companies to see.'
Its more puritanical line means that it recommends its clients vote against more resolutions than rivals such as the National Association of Pension Funds or the Associa tion of British Insurers. It has also led to criticism that it is too left-wing, that it is funded by unions and the Labour Party, and that it is the Greenpeace of the corporate governance industry.
MacDougall denies there are any Labour links - although it does have some trade unions as clients. But, he adds, it also has corporate pension funds and six of the top seven investment managers, as well as its traditional base of local authority pension funds, among its 65 clients. These clients have more than £600 billion in their funds, accounting for some 10 per cent of the stock market.
Companies are sent a copy of Pirc's report and given 48 hours to comment, if possible. 'The majority do give us feedback and treat us with a grudging respect,' says MacDougall.
'Companies are getting used to the fact that shareholders are becoming more vocal and active and using their rights to vote. But they [shareholders] need to be more so. We need more votes against management so that companies will accept they are responsible to the company's owners.'
Paradoxically, despite the fact that US investors were more active than British ones in the late 1980s, MacDougall thinks our corporate governance is now far more advanced. 'Although companies moan about the plethora of codes, their existence is a distinguishing feature of the British market and one reason we have not suffered the same post-Enron meltdown as the US.'
Making dramatic progress
Sarah Wilson should be used to the limelight: she is keen on amateur dramatics and much of her spare time is spent rehearsing or performing productions such as A Funny Thing Happened on the Way to the Forum, staged last year.
This theatrical bent is evident in her conversation. She talks rapidly and at length on her favourite subject of corporate governance, coming up with persuasive arguments and brooking no contradiction.
Now 42, she was a City analyst and worked for an online voting information service before she founded Manifest in 1996.
'I perceived that the offerings from the NAPF and ABI were missing two things - integrated voting and online delivery. I like to think we are technical innovators.'
She admits that launching the business took some courage. Finding funding took time but she eventually won the backing of London Ventures and F&C Enterprise Trust, which is now run by Graphite.
The risk to her family - she has a son, who spent last week recovering from a tonsillectomy, and a daughter - is increased by the fact that her husband, Tim, also works for the firm.
On the ball
Alan MacDougall may have spent 18 years building up Pirc, and may have had a number of offers for the business - he is still the major shareholder - but he has no intention of selling.
'I am in it for the long term,' he says. 'I will be here forever.' He has certainly lost none of the evangelical zeal that led him to set up the firm in 1986 as he waxes eloquent about the need for investors to wake up to their responsibilities and companies' need to recognise that they are answerable to their responsibilities.
MacDougall, 50, was born in Essex and educated in a number of places as he followed his RAF father to postings around the globe. He studied sociology at the University of Essex - and would still recommend it to anyone as a good grounding for life today.
Yet he says he would 'love' his son to become a professional footballer - one of MacDougall's great pleasures is watching his son play for Millwall under-12s. He has also played for junior Arsenal teams - something which must rankle with MacDougall, a lifelong Spurs fan.
Another great pleasure is that his 17-year-old daughter 'has finally realised that liking the same music as your dad is not such a bad thing'.