17 January 2018
Gary Wright

Gary Wright

Gary Wright - BISS Research

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UK Lags Continental Europe in Shareholder Activism Tables

15 February 2013  |  2931 views  |  0

Shareholder activists and individual private investors might not need to
cover their faces in war paint or protest loudly outside annual general meetings
(AGMs) any more to make a point, although it might yield the desired results.
Today investors with less abrasive dispositions can defer to shareholder
associations to do the job for them. But can shareholder activism, consisting of
dialogue and formal shareholder proposals, really work and make companies stay
on track?

According to a recent JP Morgan report on shareholder activism in companies
valued at over £1bn increased by 90% in the first three quarters of 2011. And,
treating investors with contempt can turn out to be a pretty hazardous strategy
for any listed company exercising corporate misjudgement on a range of

John and Lewis Gilbert, US investors, probably represented the essence of
what shareholder activism stood for in America during a fifty year period. John
Gilbert's passion for shareholder meetings saw him attend around 75 meetings
every year with his brother at the peak. After being described as clowns by one
corporate lawyer in the 1950s they started handing out red noses at

Across Europe shareholder associations have witnessed rather mixed fortunes.
Roger Lawson, Chairman of the UK Independent Shareholders Society
(ShareSoc), notes a "number of reasons" why associations in
Britain have not blossomed in the same way as in continental Europe. "Often it
tends to be stimulated by specific issues such as excessive pay, which has been
a hot topic lately," he says.

One need only look at the Swedish Shareholder Association (Sveriges
Aktiesparares Riksförbund) and Danish Shareholder Association (Dansk
Aktionærforening) with some 70,000 and 20,000, respectively, to see the yawning
chasm in participation rates with the UK. Deutsche Schutzvereinigung für
Wertpapierbesitz, a German society founded in 1947, currently represents around
25,000 members. ShareSoc, spun out of the UK Shareholder Association (UKSA) two
years ago this February, counts c.2,500 members.

Lawson says: "As an organisation ShareSoc wants ideally to represent
shareholders as effectively as we can and so the more members we have the
greater influence we can exert on particular issues."

More than anything else this disparity between the UK and the rest of Europe
is put down a "cultural problem" according to Lawson. He says: "There is an
inherent reluctance among the English to complain tied to a faith that directors
are seen as doing the right thing by their companies. It is also generally seen
as bad form to challenge the directors or attack them for incompetence. And,
nobody likes to vote against any resolutions."

However, the question facing private investors today must surely be whether
joining any shareholder association makes sense and can it bring with it
tangible benefits. The basic ShareSoc membership brings a monthly emailed
newsletter and access to a blog plus a forum on investor topics.

Highlighting campaigning efforts, the society has recently been trying to
galvanise more interest in its activities. For example, in 2012 over than thirty
press releases were issued on a diverse range of issues including excessive
directors' pay such as attacking £4m CEO pay at mid-cap Premier Oil's AGM (May
2012). Despite varied outcomes notable campaigning successes have been won.

Voting recommendations were issued to by the society on Rensburg AIM VCT, an
investment company predominantly investing in Alternative Investment Market
(AIM) companies. Here shareholders were urged to vote against the re-election of
all the directors (June 2012). "The Rensburg AIM VCT campaign can be regarded as
a success since the position of shareholders improved. Effectively the directors
were kept on their toes," Lawson argues. Shareholders were subsequently able to
exit their investment at an improved price.

Elsewhere, Intercede Group, a UK software company listed on AIM, which last
year embarked on a Long-Term Incentive Plan (LTIP) was successfully challenged.
The proposed LTIP, which would have benefitted the executive chairman and his
spouse, was U-turned last August after ShareSoc issued voting recommendations on
the company in mid July 2012.

Aside from shareholder activism, bodies like ShareSoc provide investment
education, information and policy advocacy on behalf of investors. Last November
they launched an AIM company rating system (free to download) to help investors
to distinguish between good small caps and those of a more questionable

While many advocate greater shareholder engagement to solve the ills on the
corporate governance scene, shareholders in the UK who feel short changed by
companies they invest in might ponder the merits of joining shareholder activist

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CEO of B.I.S.S. Research, founder of the BISS Independent Accreditation for all systems and services provided to financial services companies internationally. Guest Lecturer at Reading University and...

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