Bank votes no longer count
Before Lord Myners was a minister he wrote a report expounding the important of investors using their corporate votes.
How does he feel about shareholder democracy now that he can outvote everyone else at the big Scottish banks?
The shareholders who have been diluted into a minority at Lloyds and Royal Bank of Scotland may well want
to use their votes to make a point at the forthcoming annual meetings, but what is the point? As soon as the Treasury shares are voted, no-one else’s vote counts.
The state acquired nearly 70 per cent of Royal Bank when it rescued the institution last year so will win its
way on all resolutions at the meeting in early April. That stake has since been increased. The Treasury still holds only 43 per cent of Lloyds and will not turn that into a majority until it receives approval at a special meeting held on the same day as the AGM but if the existing stake is not already enough to quash any opposition, ministers will be in command from then on.
There are very good reasons why the old shareholders are being squeezed into a minority: their banks were run badly and existing shareholders declined the opportunity to buy the new shares necessary to recapitalise them. Nevertheless, there is a danger they become a repressed minority.
In theory the government, as a shareholder, has the same objectives as other investors so their interests are
aligned and all investors will vote together. But if that was true, no company would ever need a vote. In practice, the state has very different objectives for its two banking subsidiaries: it wants them to pursue social objectives when other investors simply want financial return.
The government will vote its shares because it would look irresponsible not to – and set an example that
contradicts Lord Myners’ lesson on governance. And if it did not vote there would be no point the state also having acquired non-voting shares in RBS. Yet as soon as it votes it delivers a knock-out result reminiscent of the trade union bloc votes at conferences.
It is possible other shareholders do not bother voting because of the futility. It is certain the press will
examine each ballot to see how the non-government vote splits. And if a resolution would have failed except for the state vote it will be embarrassing to both the bank and its major shareholder.
Whatever happens, democracy is dead at two major FTSE companies.
