Autonomy, FRC Meeting, Retailers and Brexit Legal Advice

The big news last Friday (30/11/2018) was that former CEO Mike Lynch has been charged with fraud in the USA over the accounts of Autonomy. That company was purchased by Hewlett Packard who promptly proceeded to write off most of the cost – see this blog post for more information: https://roliscon.blog/2018/06/02/belated-action-by-frc-re-autonomy/. As this was a UK company, are we anywhere nearer a hearing in the UK over the alleged “creative accounting” that took place at the company and the failure of the auditors to identify anything amiss? That’s after 8 years since the events.

As I was attending a meeting held by the Financial Reporting Council (FRC) for ShareSoc and UKSA members yesterday, I thought to review the past actions by the FRC on this matter. In February 2013 they announced an investigation but it took until May 2018 to formally announce a complaint against auditors Deloitte and the former CFO of Autonomy Sushovan Hussain who has already been convicted of fraud in the USA. On the 27th November, the action against Hussain was suspended pending his appeal against that conviction, but other complaints were not. But why the delay on pursuing the auditors?

The FRC event was useful in many ways in that it gave a good overview of the role of the FRC – what they cover and what they do not cover which is not easy for the layman to understand. They also covered the progress on past and current enforcement actions which do seem to have been improving after previous complaints of ineffectiveness and excessive delays. For example PWC/BHS was resolved in two years and fines imposed are rising rapidly. But they still only have 10 case officers so are hoping the Kingman review of the FRC will argue for more resources.

It was clear though that audit quality is still a major problem with only 73% of FTSE-350 companies being rated as 1 or 2A in the annual reviews when the target is 90%. The FRC agreed they “might be falling short” on pursuing enforcement over poor quality audits. So at least they recognise the problems.

One useful titbit of information after the usual complaints about the problems of nominee accounts and shareholder rights were made (not really an FRC responsibility) was that a white paper on the “plumbing” of share ownership and transactions will be published on the 30th January.

There were lots of interesting stories on retailing companies yesterday. McColl’s Retail Group (MCLS) published a very negative trading update which caused the shares to fall 30% on the day. Supply chain issues after the collapse of Palmer & Harvey are the cause. Ted Baker (TED) fell 15% after a complaint of excessive hugging of staff by CEO Ray Kelvin. This may not have a sexual connotation as it seems he treats male and female staff similarly. Just one of the odd personal habits one sees in some CEOs it seems. Retail tycoon Mike Ashley appeared before a Commons Select Committee and said the High Street would be dead in a few years unless internet retailers were taxed more fairly. He alleged the internet was killing the High Street. But there was one bright spark among retailers in that Dunelm (DNLM) rose 14% after a Peel Hunt upgraded the company to a “buy” and suggested that they might be able to pay a special dividend next year. There was also some director buying of their shares.

Before the FRC meeting yesterday I dropped in on the demonstrations outside Parliament on College Green. It seemed to consist of three fairly equally balanced groups of “Leave Means Leave” campaigners, supporters of Brexit and those wishing to stay in the EU – that probably reflects the composition of the Members in the House across the road. You can guess which group I supported but I did not stay long as it was absolutely pelting down with rain. There is a limit to the sacrifices one can make for one’s country.

But in the evening I did read the legal advice given to Parliament by the attorney-general (see https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/761153/EU_Exit_-_Legal_position_on_the_Withdrawal_Agreement.pdf

Everyone is looking very carefully at the terms of the Withdrawal Agreement that cover the Northern Ireland backstop arrangements. The attorney-general makes it clear that the deal does bind the UK to the risk of those arrangements continuing, although there is a clear commitment to them only lasting 2 years when they should be replaced by others. There is also an arbitration process if there is no agreement on what happens subsequently. However, he also makes it clear that the Withdrawal Agreement is a “treaty” between two sovereign powers – the UK and the EU.

Treaties between nations only stick so long as both parties are happy to abide by them, just like agreements between companies. But they often renege on them. For example, the German-Soviet non-aggression pact in 1939 was a notorious example – Hitler ignored it 2 years later and invaded Russia. Donald Trump has reneged on treaties, for example the intermediate nuclear weapons treaty last month. Similarly nations and companies can ignore arbitration decisions if they choose to do so.

What happens after 2 years if no agreement is reached and the UK insists on new proposals re Northern Ireland? Is the EU going to declare war on the UK? We have an army but they do not yet have one. Are they going to impose sanctions, close their borders or refuse a trade deal? I suspect they would not for sound commercial reasons.

Therefore my conclusion is that the deal that Theresa May has negotiated is not as bad as many make out. Yes it could be improved in some regards so as to ensure an amicable future agreement but I am warming to it just like the Editor of the Financial Times recently. He did publish a couple of letters criticising his volte-face when previously he has clearly opposed Brexit altogether, but changing one’s mind when one learns more is just being sensible.

Note: I have held or do hold some of the companies mentioned above, but never Autonomy. Never did like the look of their accounts.

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

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Majestic Wine, Brexit, Proxy Voting and Inheritance Tax Simplification

Majestic Wine (WINE) issued their interim results yesterday (22/11/2018). I no longer hold the shares but I am a customer of theirs. The financial results were disappointing with adjusted earnings down 63% and reported profit turned into a loss from a £1.5 million profit in the previous half year. Their explanation is increased marketing expenditure particularly on Naked Wines. Revenue overall was up 5.4% but what is the point in generating more revenue at a loss? As a customer I seem to be receiving fewer marketing communications from the company. No pre-Christmas promotion so far for example. Does this explain part of their difficulty?

Their “adjustments” that enabled them to report adjusted profits are, shall we say, interesting. It includes an adjustment for “en primeur” orders where title has not passed to the customer as it has not even shipped from the supplier so cannot be recognised as a sale. They also throw in a whole mass of acquisition and restructuring costs in their adjustments.

Needless to say, they are burning cash at a great rate, including putting more into inventory (see below), so I am not convinced they have a sound strategy. The share price dropped on these results despite the announcement being full of positive comments about the future.

One might call this “reporting dissonance” where the fine phrases and positive comments about future prospects do not match the hard financial facts.

Brexit

One interesting comment in the Majestic results was that they are stockpiling wine above their normal levels “to mitigate any supply chain Brexit disruption in March 2019”. That should really annoy the chattering classes in London if their booze supplies are disrupted and they cannot obtain their favourite tipples.

But we do now have an expanded (7 pages to 26) publication explaining the proposed UK’s relationship with the EU after the Withdrawal Transition period. You can find it here: https://www.gov.uk/government/publications/progress-on-the-uks-exit-from-and-future-relationship-with-the-european-union .

You’ve probably heard the phrase “gesture politics” which refers to how politicians make grandiose gestures with little real impact. This “Political Declaration” as it is called is surely one of the grandest of all gestures. It commits neither side to anything very specific although there are lots of fine words in there.

But it does cover some areas that I complained about in the Withdrawal Agreement. It’s the kind of political statement that is aimed to appeal to all sides of the political debate in the UK over Brexit plus EU bureaucrats and politicians. But it does not resolve clearly and unambiguously the issue of no border controls in Northern Ireland and our future trading relationship with the EU, or the Gibraltar issue that Spain is complaining about. Mrs May might just get where she wants to be at this rate, but whether she can do enough to win the support of the electorate, and even more importantly, the votes in Parliament, remains to be seen.

Proxy Voting

As a past shareholder in US companies, I always used to think their proxy voting system worked well. But apparently not according to an article in the FT this week. Under the headline “SEC urged to shake up proxy voting system” it reported that it was expensive, complex and prone to error. It actually took two months to calculate if a proxy vote on a board appointment at Procter & Gamble was won or lost. I was aware that the US system was prone to “over-voting” where more shares are voted that the company has in issue, but just as in the UK the turnout of retail investors in the vote is now very low at 29%. Companies, or people fighting a proxy battle, cannot get through to the end investors or beneficial owners and lending of shares by institutional investors also causes many shares not to be voted.

In summary the system is too complex and prone to error. The SEC is to undertake a review on how it could be improved. We surely need a similar initiative in the UK and the solution is a well-designed electronic system where every shareholder is on the register of a company, including those holding shares in nominee accounts.

Inheritance Tax

I mentioned in a previous article that the Office of Tax Simplification (OTS) is looking at Inheritance Tax. They got a lot of submissions to their public consultation apparently and have now published a “first” report on the subject. See: https://www.gov.uk/government/publications/office-of-tax-simplification-inheritance-tax-review . Here are some initial comments:

It is surprising to read that the average amount of tax paid, as a percentage of an estates value, increases up to the £2 million level and then levels off at about 20%. But if your estate is worth more than £8 million then the percentage decreases. In other words, the very wealthy pay less tax. These figures are explained by high levels of exempt transfers to spouses but particularly for the rich, the extensive use of reliefs. This is surely a case of the very wealthy employing clever tax advisors while the middle classes whose wealth can reside mainly in expensive houses find it more difficult to avoid. This just demonstrates that the tax is not exactly rational nor equitable.

The OTS received many negative comments about the complexity of IHT returns and these on the issue of Lifetime Gifts:

  • The various gift rules and exemptions can be complex and confusing and are not always well understood, especially those relating to the tapering of the tax rate for gifts given in the seven years before death.
  • The financial limits for the various exemptions have not kept pace with inflation (it being recognised that increases would have an Exchequer cost).
  • For many, it is difficult to either maintain or reconstruct records of lifetime Gifts.

The complexity of the Inheritance Tax forms that executors are expected to complete is acknowledged as an issue and the recommendation is that these should be replaced by a digital system. Pending such a system being implemented the current paper forms should be changed and the guidance that is provided simplified.

At present inheritance tax must be paid within 6 months but forms only need to be returned within 12 months. There is also the problem of having to pay the tax before the assets may have been realised. All the OTS says on these issues is that HMRC should explore potential solutions.

They also suggest some possible simplifications of the IHT regulations for Trusts. But in general this report only suggest relatively modest changes to the administration of estates rather than a proper simplification of this area of taxation. Perhaps there will be more in future reports.

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

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Missing Dividends

I talked about having too much cash in my ISA and SIPP accounts in my last blog post. But in fact it’s not as much as it should be because dividends on my ISA holdings in JPMorgan Japan Smaller Companies Trust (JPS) did not arrive as expected. They should have been paid on the 7th November, and were on my direct holding on the register, but not on my ISA ones. The ISA ones are held in two different ISA accounts with different companies and neither platform seems to be able to explain why they have not arrived. They suggest it’s not their fault but we will see in due course no doubt. Is this another complication of the use of “pooled” nominee accounts I wonder?

Anyway it reinforces the point that investors should always check that they have actually received the dividends they are due. ShareScope has a very useful facility in that regard where the dividends are clearly recorded against your portfolio and it’s also easy to check ex-dividend and payment dates.

If anyone else has had problems with dividends on the above company, perhaps they could contact me.

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

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Meeting with Link Asset Services

I recently attended a meeting with Link Asset Services who claim to be the largest UK share registrar. In addition to me there were two senior managers from Link and two ShareSoc directors (Mark Northway and Mark Bentley). ShareSoc and I do of course have a long-standing interest in ensuring shareholders can and do vote their shares at General Meetings. Other matters discussed were the problems created by nominee accounts, in the Shareholder Rights Directive (SRD), in the Central Securities Deposit Regulation (CSDR), in dematerialisation, and many other issues related to shareholder’s rights. I hope that rather technical, long-winded sentence does not put you off reading this note because there were many important issues discussed.

We first discussed one of the personal issues I had raised with Link – namely the issue of paper proxy voting forms not being issued by many companies. See previous blog post on that subject at one company here: https://roliscon.blog/2018/09/20/worldwide-healthcare-trust-agm-but-no-proxy-voting-form/ . One of the reasons we are getting poor corporate governance and wildly excessive director pay in some companies is because private shareholders generally do not vote at General Meetings.

It was explained that one reason for this change is that it does actually increase the percentage of shareholders who vote. It seems if investors receive a paper proxy card, they often put it aside to deal with later but never do, or perhaps can’t be bothered to go to a post box. Link’s experience is that investors are more likely to vote when prompted to do so by email (even more so, if SMS can be used).

Link gave us some figures on proxy voting which as we already knew are astonishingly low. For shareholders on the register only 5.5% actually voted in the last year, out of 5.6 million holders. The percentage of shares that were voted was much higher at 63% but that is probably because institutional investors do vote more reliably.

The low turnout of individual shareholders I would guess is for a number of reasons. Some think they have no influence on the outcome which will be determined mainly by institutional shareholders so don’t vote except on critical events, those on the register may be long-standing holders of one or two paper share certificates, but the big problem by far now is the number holding their shares in nominee accounts where the broker does not provide an easy to use proxy appointment system. More on this issue later.

I did express an aversion to using the Link app (SignalShares) to vote but was assured it was easy to use and I would still get paper annual reports if requested. However, I have since tried to register for the app and as a Personal Crest member it’s damn difficult. It asks several questions which were difficult to answer. It not just requires your Investor Code (which will be on dividend payments, IF the company pays a dividend). But it also asks for your Crest Id, which no Personal Crest member normally ever needs to know and I could not easily find, and your Crest Member Account Number and I have no idea what that is at all. So I gave up. I still feel that paper proxy voting forms should therefore be sent to shareholders, particularly Personal Crest Members. If a Notice of a General Meeting is being posted, as is legally required, it’s not much more cost to include a proxy voting form.

I have had problems with registering for voting services with other registrars so I still feel it is unsatisfactory to remove paper proxy voting forms. Suggesting you can phone up to get one if necessary is not a satisfactory solution. Just time wasting. Even if I could manage to register for their app, that would still leave the problem of having multiple accounts and multiple log-ins for different holdings. It’s just too complicated. I might have to use my own form as I have previously suggested if Link and the companies that employ them persist with this approach – see https://www.roliscon.com/proxy-voting.html . Link stated that they were perfectly happy with this (as they are legally required to do), as long as the form was filled in clearly.

If all the registrars could get together and provide a common electronic voting system for all share holdings that was easy to use, and register for, then I would welcome it. But at present it’s a dog’s breakfast of a system.

Other matters discussed with Link were:

Impact of Brexit. One issue here is that companies listed on the Irish stock exchange are currently registered within the Crest system but that would no longer be approved if the UK exits, particularly on a “hard” Brexit. There may need to be an alternative clearance system put in place for Irish listed companies.

Dematerialisation: Nothing is happening, as usual no progress it seems. It would be required if we had stayed within the EU or agree regulatory compliance of financial services with them, but the Government has other things on its mind at present.

Ensuring all shareholders in nominee accounts are enabled to vote via their nominee operator. This requires a simple change to the Companies Act which again is not likely to happen in the near future. Note that some brokers do provide an easy to use service in this regard – e.g. the Share Centre with their own system and others via Broadridge. But investors still have difficulties with AIM companies and knowing when a vote is due. It was suggested it would be helpful if registrars or nominee operators could advise shareholders when a vote was due via email. Even those nominee operators who don’t offer a voting service legally have to do so for ISA accounts under the ISA regulations. It was agreed that it was key to getting people to vote that they be notified by email or text message when a vote was due, although personally I would not be keen on text messages.

An alternative is for all nominee accounts to be uploaded to the share register before a vote takes place and then registrars could solicit votes from everyone. But there are potential timing issues here.

Improving voting turn-out. Another reason why many shareholders do not vote, in addition to the reasons given above, is because they do not understand the resolutions on AGM agendas, or cannot easily decide how to vote. For example, Remuneration Reports can now run to many pages. Will private shareholders spend the time to read that part of the Annual Report and understand it? Unlikely particularly as many will not even see the Annual Report. ShareSoc is working on an initiative to tackle this problem which is for them to provide a proxy advisory and voting service that will actually vote an investor’s shares based on ShareSoc recommendations if they register for the service.

The impact of the CSDR. This is being implemented in UK law. The problems at Beaufort were discussed and the fact that nominee holdings are generally “pooled”, i.e. undesignated and hence there are no individual holdings recognised in the Crest system. This means there can be problems when a broker collapses because the shares held by clients may not have been recognised in the pooled share registrations. In fact this did not seem to be a significant problem at Beaufort whose records were generally accurate but has been at other failed brokers. There needs to be some regular reconciliation of client holdings to pooled Crest holdings it was suggested. Needless to say this would not be a problem if designated (i.e. personal named) accounts were used, which are supported by Crest already. One aspect that might help is that one of the new CSDR regulations (38.5 was mentioned) requires an account to be designated if the client requests it. But will the brokers even tell their clients about this?

The trend in share registration was discussed. The numbers of individual shareholders on share registers is not falling apparently, which contradicts what I was told by one broker a few years ago when he said that dematerialisation will not become a problem as soon all paper share certificates will disappear. That appears not to be the case. We do need dematerialisation, i.e. a new electronic share registration system. But Personal Crest members are declining rapidly as brokers are now actively discouraging the use of that system and withdrawing it.

Attendance at General Meetings. Not only are the number of proxy votes submitted by shareholders low but attendance at AGMs is also low. In small cap companies there are often no ordinary shareholders present – and that’s not just companies who hold their AGMs at inconvenient times or inconvenient locations. It was generally agreed that “hybrid” AGMs were the way to go, i.e. having both a physical meeting and on-line interactive web-cast where you can ask questions. In the short-term just web-casting an AGM can be helpful to some investors.

Regulation of share registrars was discussed. This is something I have advocated recently. Registrars are a key component in the UK financial system so it is odd that they are not regulated. I suggested that possibly some informal code of practice could be developed – perhaps sponsored by ICSA – as a step in the right direction.

In summary it was a useful meeting and no doubt some of these issues will be discussed in future meetings.

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

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A Bad Day in the Market, but Good News from Unilever and BEIS

It was a bad day in the market yesterday, with the FTSE All-Share falling over 1%. This seems to have been driven by a sell off in bonds. Equity prices are usually linked to bond prices simply because as bond yields rise from a fall in bond prices, it becomes more attractive to hold bonds relative to equities. That particularly applies to shares that are “bond proxies”, i.e. ones bought because of their high yields for income seeking investors.

These changes have been driven by the realisation that the US economy is booming. The Federal Reserve has already raised US interest rates and is therefore likely to do so again if the US economy continues to race ahead. But a booming US economy is of course good news for many companies. Higher interest rates may mean that some companies pay more on their debt but that it a longer-term impact and many “new economy” companies do not have any debt.

When markets are falling in general, there is no place to hide. My over-diversified portfolio, mainly in UK small cap stocks, fell about 1%. Not every share declined but the majority did. It affected particularly highly rated, go-go stocks such as Fevertree (FEVR) which was down 8% yesterday. I am glad I now only have a nominal holding in the company. But also affected were many investment trusts which I hold as their typical low liquidity compounded by a few private investors panicking drove down the prices. Some fell more than the underlying shares they hold.

Property companies have also been affected as interest rates have an impact on their business model, despite the fact many have locked in low rates on long-term debt. Safestore (SAFE) for example was down 3.9% yesterday (I hold it).

The share price declines spread like a contagion to many other stocks who should be positively affected by a booming US economy and not impacted by higher interest rates. The rise in interest rates is hardly a surprise though it has been well signaled in advance in both the US and UK. It was unrealistic to expect the historically exceptional low interest rates to continue forever.

My reaction when there is carnage in the stock market is to stand back and wait to see whether it develops into a trend or is simply a short-term blip. There can be buying opportunities if the reaction to economic news is too severe. But interest rates are nowhere near low enough yet to cause me to abandon the stock market and move into bonds. I feel there is more destruction to come in the latter. 

Unilever and Enfranchising Nominee Shareholders

Today we have some good news from Unilever. They have backed down on their proposal to merge their dual legal structure. The announcement said “We have had an extensive period of engagement with shareholders and have received widespread support for the principle behind simplification. However, we recognise that the proposal has not received support from a significant group of shareholders and therefore consider it appropriate to withdraw”.

There was opposition from both individual shareholders and institutions in the UK and there was a risk that they might fail on the Court hearing vote to gain enough support. It’s always good when shareholders make their voice heard, although it still leaves the issue that shareholders in nominee accounts were likely to be disenfranchised.

The good news in that regard is that I have received a letter today from the BEIS Department which says “BEIS is sponsoring a project by the Law Commission to examine the UK system of intermediated securities”. I will try and find out more, but don’t get too excited – it might not report before 2020!

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

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Tesla, Unilever, EasyJet IT Write-Offs and Cash Holdings

The big news today is that the US Securities and Exchange Commission (SEC) have charged Tesla CEO Elon Musk with securities fraud. This charge relates to his comments on Twitter that he would likely be taking Tesla private. To quote from the SEC complaint: “Musk’s statements, disseminated via Twitter, falsely indicated that, should he so choose, it was virtually certain that he could take Tesla private at a purchase price that reflected a substantial premium over Tesla stock’s then current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote. In truth and in fact, Musk had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source”. Mr Musk vigorously rejected the charges, as did the company.

The full SEC complaint is here: https://www.sec.gov/litigation/complaints/2018/comp-pr2018-219.pdf

Comment: it is of course the oldest trick in the book if you are unhappy with the share price of your company to announce a potential bid from yourself or a third party. Making such an announcement via Twitter, if that was the motivation which has yet to be proven, would certainly be something new though. Making any announcements via Twitter is exceedingly risky and Tesla’s advisors must be tearing their hair out over this sequence of events. Who else if anyone reviewed the tweets before they were sent? Probably nobody I suspect. And anyone who uses Twitter will know it’s very easy to let typos, grammar errors and Spoonerisms creep in. Such important announcements should only be issued by the proper regulatory news channels. Elon Musk should have known better.

But if Elon Musk was forced to step down from Tesla, which might be the outcome, would it matter? I suspect not. The merit of Tesla as a company is in the technology in the cars which is still ahead of most potential electric car competitors. I have driven a Tesla Model S and it is a very good car indeed. But unfortunately my wife thinks I don’t need to buy expensive, flash cars to impress people any more so I’ll have to wait for the cheaper Model 3 to become available in the UK.

Unilever and Shareholder Voting

Unilever is planning to consolidate the two arms of the business in Holland, and drop the dual listing. UK shareholders would end up holding shares listed only in Holland, and as a result the dividends would be subject to Dutch withholding tax which is currently at the rate of 15%. Such taxes always cause problems although sometimes they can be refunded by submitting claims to do so. There is also the possibility that the withholding tax will be dropped. Another difficulty is that as Unilever is in the FTSE100, any funds running a FTSE-100 tracker would have to sell the shares. The Investors Chronicle ran a longish article on this subject and suggested it was a “no-brainer” for UK shareholders to vote against it.

But it seems that might be easier said than done. According to a report on Citywire, any shareholders in nominee accounts (i.e. in ISAs, SIPPs or other broker accounts – which means most UK shareholders now) will have to “rematerialize” their shares if they want to vote them, i.e. convert them to a paper share certificate. The company is not accepting votes submitted by nominee operators. Dematerialising shares is typically a costly and time-consuming process and is actually impossible to do if the shares are in an ISA or SIPP which have to be held in nominee form. This is truly outrageous news and any shareholders holding Unilever shares who wishes to oppose the move by the company should complain to the FCA, your Member of Parliament, the Company Chairman Marijn Dekkers, and anyone else you can think of.

[Postscript: the issue here seems to be the votes for the Court Hearing where the number of individual voters is taken into account. But for the shares held by a nominee operator, which may represent many thousands of underlying beneficial owners, only one vote would be counted even if it was submitted as there is only one holding on the register. ]

It has been reported that a number of institutions might oppose the unification of the company but it would certainly help to get retail shareholders voting.

Incidentally I attended a meeting today with Link Asset Services (one of the largest registrars) where the problem of retail shareholders not voting was discussed. I’ll write a separate blog post on that later.

EasyJet

If you recall, I mentioned previously the large expenditure on a “big-bang” IT project at Abcam which is clearly over-budget and over-time. That might have contributed to the 35% share price drop immediately after their recent preliminary results announcement. Now EasyJet have made a similar announcement today in their trading update. To quote: “…easyJet has now made the decision to change its approach to technology development through better utilisation and development of existing systems on a modular basis, rather than working towards a full replacement of our core commercial platform.  As a result of this change in approach, we are recognising a non-headline charge of around £65 million relating to IT investments and associated commitments we will no longer require. EasyJet will continue to invest in its digital and eCommerce layers that will enable it to continue to offer a leading innovative, revenue enhancing and customer friendly platform.”

That £65 million is no small sum and just shows you how IT is so critical to how businesses are managed in the modern world. Similar problems arose at TSB where they attempted to replace their old Lloyds systems with completely new software which was allegedly not adequately tested. But any IT professional will tell you that you cannot test and anticipate all the problems in a diverse customer environment ahead of going live with new technology. The NHS was another prime example of a “big-bang” approach to IT system development that ended up costing the Government, and us as taxpayers, at least £10 billion (that’s not a typo – it was ten billion and more). Evolution rather than revolution is the way to develop IT systems as EasyJet and Abcam seem to be learning, the hard way.

Cash Holdings

I suggested in a previous blog post that a newly available easy-access deposit account might be a suitable place to move cash from your stockbroking account to get a decent rate of interest rather than none. The problem of course is that most retail investors have most of their money in ISAs and SIPPs and taking cash out is problematic.

For ISAs, you may not realise that you can actually take cash out of a “flexible” ISA (which most ISAs are such as Stock & Share ISAs or Cash ISAs) and put it back in later. This was a recent change to the ISA regulations. However you can only do that within the same tax year without affecting your ISA allowance.

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

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Voting at General Meetings, Link Asset Services and CentralNic

CentralNic (CNIC) have announced that the proxy voting forms they sent out to shareholders on the register for their forthcoming General Meeting were invalid as it omitted a signature block. So they have sent them out again. As a shareholder in the company, I spotted the error and simply wrote by name and date on the bottom of the form and signed it. That should suffice.

It is a little known fact that you don’t actually need to use the proxy form issued by the company or their registrar so long as your instructions are clear. Which prompts me to talk about the conversation I have been having with Link Asset Services (formerly Capita) about proxy voting.

I complained to them when I received a notice of an AGM by post but no paper proxy voting form. They said I needed to specifically request a paper proxy form or use their on-line portal. The latter is tedious to use and not nearly as simple when you just want to cast votes as the system used by Equiniti. It transpired that on Link’s interpretation of the Companies Act they no longer need to send out proxy voting forms as only the notice of the meeting is legally required. This appears to be correct. This is what I said in a letter to their Operations Director after the exchange of several letters:

“I will continue to submit my proxy votes by post whether you supply a form to do so or not. Where you have not supplied one, I will use my own – I attach a copy of what I will be using. If you have any objections to receiving my proxy votes in that way, please let me know. I do not see how you can legally object as it meets the requirements of the Companies Act.

I note your comments about the low percentage of shareholders who submit proxy votes, and the even lower percentage who do so in physical form [6% and 3.8% reportedly]. The latter may simply be because you and companies are now obstructing those who do not wish to vote on-line by not issuing paper proxy forms!

Overall the low percentage of shareholders voting suggests to me that registrars and companies are not doing enough to both encourage voting and making it easy for shareholders to do so. This is a major concern because shareholder voting is a key part of ensuring good corporate governance in listed companies. The Government recognized this only recently by ensuring there are binding votes on remuneration for example, but obviously if shareholders do not vote then governance is undermined.

It is of course unfortunate that there is a financial incentive for both you and companies to deter shareholder votes as they undoubtedly cost money to process, particularly if they are submitted on paper. But that is not a good justification for adopting the recent changes that Link Asset Services has adopted.

In your letter you rightly point out that registrars are not regulated by the Financial Conduct Authority. I will be writing to them to encourage them to take on such regulation as it seems totally inappropriate to me that this area of financial markets and corporate governance is not regulated. The FCA should lay down regulations about what Registrars can and cannot do so that voting is maximized regardless of financial considerations.”

I also noted that the Link Asset Services on-line portal does not meet the requirements of the Companies Act for an “electronic address”.

I am writing to both the FCA and the BEIS department asking them to start regulating registrars so as to clarify their responsibilities under the Companies Act and so that voting is encouraged. If necessary the Companies Act should be amended to ensure voting is maximised.

So that anyone can use the generic proxy voting form I have devised I have made it available on my web site here: http://www.roliscon.com/proxy-voting.html

There is also a version you can use where you wish to instruct your stockbroker to vote your shares that are held in a nominee account. Most will do so although there may be a charge and remember that for ISA accounts they have a legal obligation to do so under the ISA regulations.

Please let me know if you have any comments on the use of these forms. If there is sufficient usage they can be made more digitally enabled in future.

Private shareholders do need to vote to make sure that your voice is heard. So please use the forms I have supplied to ensure your votes are recorded for all General Meetings.

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

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