Dealing with over-activist shareholders
If you don’t like the way a company is run you can sell the shares. Or you can use every trick in the book to undermine the chairman. For some investors, the latter route seems more popular.
Directors of certain companies are used to seeing shareholders met by protestors holding placards and handing out critical flyers when they arrive for the annual meeting. And when that no longer guaranteed a picture in the press the opponents learnt the value of donning fancy dress to make their point. Or to bring along a pig named after the chairman.
But activist shareholders have moved their game to a new plane that is more sophisticated but potentially more damaging. They are forcing critical resolutions onto companies agendas. It is good publicity for them if they lose and could lead to boardroom shake-ups if they win.
It takes a minimum number of shareholders with a minimum holding to get a resolution put to the annual meeting. Pirc, a long-term critic of corporate practices advises investment managers which of the company’s own resolutions to oppose but it has now started adding its own motions to AGMs.
It achieves the quantum of shares by getting a local authority pension fund to do its bidding but to reach the quorum of sufficient investors it has formed 100 separate companies, each to hold one share in the targeted company. So for minimal expenditure it can cause maximum trouble.
Marks & Spencer has just been Pirced. The lobby group objects to Sir Stuart Rose being chairman as well as chief executive and wants him to shed the senior role a year ahead of schedule. Other shareholders have made their case to Rose in person; Pirc stuffed each of its 100 new subsidiaries with one M&S share each and got Bradford council to use its 3m shares to reach the size threshold.
The resolution failed to get a simple majority, nevermind the 75 per cent necessary, showing that Pirc did not have wide support. But it got its issue aired and M&S had to foot the bill for the attack.
Now Pirc plans to use its army of identical companies to launch assaults on other quoted groups with which it has an issue. It admits the 100 subsidiaries will each buy a share in other target companies, giving it a ready-made attack vehicle.
Marks & Spencer accepts that investor have an issue over the chairmanship but objects to the tactic. Each late resolution it receives costs it £150,000 to circulate. It sees these resolutions as publicity stunts by minority groups.
Perhaps it is no greater misuse of the annual meeting that bringing a pig or a protestor in fancy dress holding a banner, but it brings good governance into bad repute. AGMs are pretty useless events in terms of distributing information or changing policy, but turning them into fringe theatre is a further move in the wrong direction.
