Obituary – Steve Marshall

The Daily Telegraph ran a lengthy obituary on Steve Marshall today, who died recently at the young age of 60. It covered his financial career in a not particularly complimentary way although some might say he took on a lot of difficult positions.

He first came to public prominence when he became CEO of Railtrack after Gerald Corbett was forced to resign, despite having minimal experience of the railway industry. Railtrack was part of the former British Rail that had been privatised and then ran into a number of problems. Indeed the financial difficulties seemed to escalate under Marshall and the company had to be nationalised (Marshall promptly resigned) as it was on the verge of bankruptcy according to the Government. Shareholders got some compensation but only after a fight. The business was renamed Network Rail and is a rather peculiar private “not for profit” company. If Jeremy Corbyn ever gets elected, he may change the status and ownership yet again.

Steve Marshall was an accountant by training and served as finance director of Thorn EMI before his stint at Railtrack. The Telegraph mentions the disappointment of some bondholders in Thorn EMI when the company was sold to Nomura.

After Railtrack, Marshall took on the role of troubleshooter being involved with Queens Moat Hotels, Delta, Torex Retail, Balfour Beatty, Biffa and Wincanton. The Telegraph has nothing positive to say about any of these roles.

I had some contact with Marshall when I represented shareholders in Torex Retail. We were so concerned about the actions of Marshall, and the company’s banker’s (RBS) after the company ran into financial difficulties due to an accounting fraud that a requisition for an EGM to remove him and the other directors and replace them was submitted. There was a good chance of winning the vote. This was pre-empted when Marshall promptly invoked a “pre-pack” administration – a good example of the dubious nature of such transactions.

There were other offers on the table to that from the buyer preferred by the board and RBS but they were ignored. I never did understand why, but it was certainly plain that the interests of RBS seemed to take priority over that of the ordinary shareholders. It has of course subsequently become apparent that RBS treated many of their customers who got into financial difficulties and got involved with their “Global Restructuring Group” in the most appalling manner – see the internet for lots of examples of how money was extracted and business ownership coerced.

So in conclusion, are there any investors who gained from Marshall’s activities in the companies with which he was involved? Now is the time to speak out if so!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Abcam, Voting and Non-Executives

I am a long-standing holder of Abcam (ABC) and have been very happy with my investment – a compound annual return of 33% p.a. since I first purchased the shares in 2006 according to Sharescope. But the notice of this year’s AGM (to be held in Cambridge as normal) has made me unhappy for other reasons.

Firstly, I tried to vote. Rather than use the paper proxy voting form (I am on the register so I get one) I thought it would be easy to do so electronically using the Equiniti ShareVote service. Even though there were no obvious instructions on the paperwork, I found the web site, entered the required three pieces of id information, and pressed submit. But it would not accept it because I have a pop-up blocker turned on. Grrr…..

Why do companies and their registrars make it so difficult to vote? They will be wasting money now because I will use the pre-paid voting card instead.

I then studied the resolutions:

  • Remuneration too high and the usual horribly complex mix of bonuses and LTIPs – but I told them that at the 2015 AGM. The only saving grace is that as an AIM company they don’t need to disclose all the information or have a vote on it, so it was good of them to do so. But I will be voting against the Remuneration Report.
  • What also attracted my attention is the presence of three non-executive directors (other than the former CEO) who are all women. One is the Chair of the Remuneration Committee so she gets a vote against for that reason alone. But all three have numerous other jobs/roles which exceed the ShareSoc guidelines and some seem to have little relevant experience of the markets in which Abcam operates. So I am voting against all three. Now I know that experienced female non-executives to fill public company boards are in short supply now that everyone wants to be “gender” balanced, so such ladies can line up numerous jobs with ease. But this is simply not good enough.

This is of course the result of the “box ticking” syndrome to keep the institutional shareholders and proxy voting advisors happy. But no non-executive director can do a good job if they have more than 4 or 5 positions.

I think I will have to attend the AGM again this year to make some of the above points.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

You can “follow” this blog by clicking on the bottom right.

© Copyright. Disclaimer: Read the About page before relying on any information in this post.

Corporate Governance Reform and Pay – No Revolution

Yesterday the Government published its response to the consultation on the green paper entitled “Corporate Governance Reform”. The paper aimed to tackle some of the perceived problems in UK public companies and Theresa May hoped that it would tackle “the unacceptable face of capitalism” demonstrated by outrageous pay levels in some companies as she described it.

Has it done that? Well most of the responses from the media suggested not with comments such as “watered down” being printed as tougher binding votes on pay have been dropped (possibly because of legislative log-jams in Parliament), and workers on boards not supported. However, we do have a commitment to publish pay ratios of employees to directors – not that this writer thinks that will help much.

If you read the full Government response (present here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/640631/corporate-governance-reform-government-response.pdf ), you can see that the Government has responded in many detail ways to the consultation responses. As in UK politics in general, particularly when your party has a narrow majority and many other problems on their minds, no revolutions are advocated. Just minor improvements, and more red tape, are the order of the day.

Not that I expected any great result from the matters being considered in the consultation. This is what I said in my personal response to the consultation back in February:

“As regards director pay, the document makes clear that despite more obligations on companies on reporting and voting on pay introduced in 2013, not a lot has changed in reality. Although there is widespread public concern about pay levels, the paper notes that the average vote in favour of remuneration reports was 93% (see page 19) and only one binding vote has been lost. I certainly support further significant reform in this area. The key problem is that remuneration of directors is still decided by the same directors and there is very little external input from shareholders, employees or other stakeholders before it is put to a vote at an AGM – but this is too late and institutions hate voting against directors’ wishes. 

In addition, retail shareholders have little say and are effectively disenfranchised because of the widespread use of the nominee system. A substantial reform of this area of company law and the activities of stockbrokers and company registrars needs to be undertaken to fix that problem. All shareholders (including beneficial owners in nominee accounts) should be on the share registers of companies with full rights as members of the company including voting, information and other rights.

Shareholder Committees are a core part of the solution to the problems of corporate governance. There are many other aspects of corporate governance that can be improved. However, without Shareholder Committees, and concomitant reform to restore the rights of individual shareholders, other amendments to corporate governance are unlikely to produce meaningful change.”

NONE OF THESE THREE POINTS HAS BEEN TACKLED IN THE GOVERNMENTS RESPONSE.

There are some detailed proposals to encourage more “engagement” between boards and their shareholders plus employees which might be welcome, but whether they will have any real impact is very doubtful. So long as directors can ignore you, some will do so – a typical recent example is Sports Direct.

ShareSoc/UKSA have issued a joint press release which is very critical of the Government’s response particularly about the proposal that the Investment Association keeps a register of “infringements”. John Hunter is quoted as saying: “Asking the Investment Association to keep a register of ‘baddies’ has all the authority and credibility of appointing foxes to keep a register of poor builders of chicken coops!” 

One has to agree with ShareSoc and UKSA that this is a very disappointing outcome. It looks a classic case of Government civil servants and politicians having little understanding of how companies work and the dynamics of boards, as usual, and have listened to the fat cats in preference to others.

In summary, TOO TIMID is my final comment.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

Disclaimer: Read the About page before relying on any information in this post.

FT Article on Small Investor Voting

Yesterday in the FTMoney supplement, FT writer Aime Williams explained how small investors could influence companies. But unfortunately it misled readers on some points. I have sent Aime the following communication:

“I read your article entitled “Small investors stand up and be counted” in this weekend’s FT with interest. It is good that the article shows how private investors can have an impact on companies, and it will no doubt encourage people to attend AGMs.

But the comments from Richard Stone of the Share Centre are to say the least, somewhat inaccurate. The 2006 Companies Act did help to enfranchise those in nominee accounts in relation to giving them the ability to vote, but to say that ‘investors in nominee accounts have had the same rights as direct shareholders since the 2006 Companies Act’ is simply wrong. For example, Members of the company (i.e. those on the share register) have the ability to challenge a poll, or apply to a court to object to a change from a public to a private company. Those rights are lost if you are only a beneficial owner in a nominee account. That has been confirmed in past legal cases.

There is also the problem that there is no legal obligation for brokers to enfranchise investors except in the case of ISA accounts, and most stockbrokers do not even inform their clients of that fact or make it practically easy for them to vote. The Share Centre does but many do not. In addition there are difficulties with AIM companies.

In reality the widespread adoption of nominee accounts rather than investors being on the share register of a company has fatally undermined shareholder democracy and the vast majority of retail investors now do not vote.

The documents on this web page, which I wrote, spell out the facts about the nominee system and shareholder rights: https://www.sharesoc.org/campaigns/shareholder-rights-campaign/

It is still true that we need a complete reform of the existing system so that shareholders in companies, however they hold their shares, are given the ability to vote and to attend General Meetings, without artificial barriers. We also need regulations to ensure that they can vote easily and that Companies and Brokers inform everyone entitled to vote or attend meetings when the time arises to do so. Only then will shareholder democracy be restored.”

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

Disclaimer: Read the About page before relying on any information in this post.

Departures – AA and Blur

Yesterday was the start of many people’s holidays. But two company chief executives are going to be taking longer holidays than they expected.

The Executive Chairman of the AA Plc (AA.) Bob Mackenzie has gone. The announcement from the company said he “has been removed by the board….for gross misconduct, with immediate effect”. According to press reports, this arose from a fracas in a bar, although there is also a suggestion that he may be suffering from a mental illness. Some newspapers just suggested it was a “Jeremy Clarkson moment”.

The share price of the AA dropped 14% on the day, which probably reflects the problems that can arise when you have an Executive Chairman dominating a business. It’s not recommended corporate governance practice and personally I tend to avoid companies who have them.

The AA is an interesting organisation which provides breakdown cover and other services for many motorists. Back in 1905, it was formed to warn drivers about speed traps. It later transmogrified into a commercial organisation when the members sold out. Now it is one of the largest operators of driver education programmes such as speed awareness courses. That has become a booming industry and more than a million drivers are now attending speed awareness courses each year. This has resulted in the funding not just of commercial organisations such as the AA but more than £40 million per year goes to the police and local authorities. For the first time in English law, it is now allegedly legal to pay the police to drop prosecutions – all you have to do is promise to attend such a course. There is no evidence that it has any benefit in road safety. More information on this dubious practice is present here: http://www.speed-awareness.org (a campaign run by the ABD against it).

The other departure yesterday was of founder and CEO of Blur Group (BLUR) Philip Letts. This was a company that listed on AIM more than 5 years ago and in 2014 traded at a price as high as 665p. It’s now 3p.

This was a company that was a typical “concept” stock. It was going to revolutionise the commissioning by SMEs of services which is still very much an informal market by introducing an internet market. Mr Letts must be a very persuasive person to keep the business alive this long by repeated fund raisings. But it’s a typical example of how unproven business models are very risky investments. Most companies would have changed the business focus and the CEO long ago, or simply wound up, but Mr Letts persisted.

Yesterday the temporary suspension on AIM was lifted as they finally published some accounts. The results were slightly improved in that losses were reduced, but it still looks an unviable business unless the new management can make substantial changes. Mr Letts was removed from the board effective on the same day.

Incidentally I do hold a few Blur shares – market value now £6 so I hope that has not prejudiced my comments. If you get enthused by the hype surrounding some early stage companies, and the persuasiveness of the management, there is one simple thing to do. That is to only invest a very small amount until the company proves its business model and actually shows that the business is likely to be profitable. Revenue alone is not enough, because anyone can generate revenue by spending lots of your money.

The other protection is when the company fails to achieve its stated business plan, to simply sell and move on. Ignore the tendency to “loss aversion” where you hold the dogs in case of recovery. Or if you fear missing out on a big recovery, simply reduce your holding to a nominal level as I did on Blur and saved myself even more money.

So I invested a very small amount initially and then reduced it later to a miniscule level.

Just one point to note is that the company actually spells its name “blur” rather than “Blur” as I have used above, thus ignoring the rules of English grammar. Such affectations in companies to be “different” are always a bad sign in my experience.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

Disclaimer: Read the About page before relying on any information in this post.

Why Institutions Cannot Control Pay

An interesting article in the Financial Times FTfm supplement on Monday helped to explain why pay is so out of control in public companies. In an interview with Rakhi Kumar of State Street Global Advisors, she made it plain what the problem is.

State Street may not be a household name in the UK, but they are one of the world’s largest fund managers. Fourth in size behind only Blackrock, Vanguard and UBS according to Wikipedia. Last year State Street had more than 4,000 pay proposals to review globally. They used a filter to identify 1,000 proposals that were the most controversial (implying that they did not even look at the other 3,000 and automatically voted “for” the others rather than abstained). They only voted against 300 of them.

It’s actually even worse than the above comments indicate because only this year have they started to include “quantum” of pay in the screen. In other words, the amount of money paid to chief executives was not even considered in the screen. So outrageous levels of pay would not even have been looked at. One can see exactly why companies like State Street, Vanguard and Blackrock who dominate all major stock markets have been criticised for their role in letting pay get out of hand.

Now this writer has a large portfolio consisting of over 70 stocks. I receive all their Annual Reports and vote all my shares at the AGMs where practical to do so (regrettably not always easy in nominee holdings). I have the same problem as State Street in that I do not have time to read the detail of all the Remuneration Reports which now can stretch to more than 30 pages. So here are a few tips on how to handle the task to help folks like State Street:

State Street may not be a household name in the UK, but they are one of the world’s largest fund managers. Fourth in size behind only Blackrock, Vanguard and UBS according to Wikipedia. Last year State Street had more than 4,000 pay proposals to review globally. They used a filter to identify 1,000 proposals that were the most controversial (implying that they did not even look at the other 3,000 and automatically voted “for” the others rather than abstained). They only voted against 300 of them.

  • I speed read the comments of the Remuneration Committee Chairman to see if there is anything of note.
  • I review the quantum of pay for the two highest paid directors (which for UK companies is easy now there is a “single figure audited remuneration” table). Is it reasonable in relation to the size and profitability of the company? If not, I vote against the Remuneration Report (and Policy if that is on the agenda). Any figure over £1 million, regardless of the size of the company I am likely to consider unreasonable. Similarly, any company where pay has gone up while profits and/or dividends have gone down is viewed negatively. The pay of non-executives I would also glance at.
  • I look at the LTIPs (which I generally don’t like at all) and bonus schemes. Any of those that enable more than 100% of basic pay to be achieved I vote against.

So that’s it. A quick and effective approach to making decisions on pay which can take about 5 minutes. It may not be perfect, but it is better than abdicating one’s duty altogether.

ShareSoc has published some Guidelines on how to set pay which gives more details and may be more helpful for smaller companies if you want to consider things in more detail.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

Disclaimer: Read the About page before relying on any information in this post.