Lloyds Case Impressions, Ideagen AGM and Return on Capital

Yesterday I attended the Annual General Meeting of Ideagen (IDEA) at 12.00 noon in the City of London – see below – and afterwards spent an hour in the High Court listening to one of the witnesses being cross-examined in the Lloyds Banking Group case. What follows is just an impression of the scene because the whole case is running for months so in no way can this be considered a comprehensive report. I have covered some more details of the case in previous articles, but to remind you the litigants are suing Lloyds and the former directors of the company over the takeover of HBOS which they declare was contrary to their interests as shareholders in Lloyds TSB. Lloyds deny liability.

The case is being heard in the Rolls Building in New Fetter Lane – a modern building very different to the ultra Victorian main Courts of Justice building in the Strand. See this link for a video tour of the building: https://www.judiciary.gov.uk/you-and-the-judiciary/going-to-court/high-court/the-rolls-building/virtual-tour/

The witness being cross-examined on the day was Tim Tookey, the former Finance Director of Lloyds TSB. Richard Hill QC was undertaking the task for the litigants under the eyes of a single judge, Mr Justice Norris (sans wig). It was a pretty impressive scene with at least 6 barristers in wigs and gowns plus about another 10 supporting legal staff. Why do barristers still wear wigs? To quote from the web: “The courts didn’t officially add wigs to the legal dress code until the 18th century when they became culturally chic. … They continue to wear them because nobody has ever told them to stop”.

It was a pretty impressive scene, somewhat lost on the few members of the public present – half a dozen litigants and members of the press. But the court was digitally up to date with every desk holding a screen on which the written evidence was displayed as it was invoked. However the witness being cross examined still referred to a paper copy, extracted from 150 large A4 binders stored in shelves on the left hand side of the court – filling almost the whole wall.

Mr Tookey gave his responses to questions firmly and without emotion. A confident witness giving clear answers. He was questioned about the events leading up to the announcement of the acquisition of HBOS and over how much capital Lloyds anticipated would be required to ensure the deal was “bullet-proof” (i.e. not creating unacceptable risks if the economic circumstances worsened). He was questioned about the extent the risks had been considered and whether enough due diligence on HBOS had been done before the decision was taken to proceed. Apparently it came down to a decision at 4.00 am on a Monday morning to proceed. They we being forced to decide to proceed or not by the Government before the markets opened on Monday. But he said that he thought all the risks had been considered and the board was supportive of the deal because of the strategic advantages of the HBOS takeover in the longer term. Recapitalisation involving the Government was necessary because there was no way it was possible to raise even £3 billion (underwritten) by the Monday, which was the minimum requirement. Government involvement “de-risked” the deal. The case continues….. for another dozen weeks.

One can see from the above exactly why the costs of such cases are so enormous.

Ideagen AGM

Ideagen (IDEA) is a software company in the Governance, Risk and Compliance sector. I have held the shares for some years when it has grown revenue and profits considerably, both from acquisitions and organic growth. They have a strong emphasis on the importance of recurring revenue. They are presenting at the ShareSoc Seminar on the 8th November, although that event is fully booked I understand.

There were fewer sharesholders at the Ideagen AGM than members of the public at the Lloyds hearing, but that’s not exceptional for small companies. But it was still a useful event – a brief report follows.

One question I raised was about return on capital. Now you might think this was prompted by an interesting article on that subject by Leon Boros in the latest ShareSoc Newsletter, but I did not get around to reading that until later in the day so it’s somewhat of a coincidence. Leon compared the return on capital at Bioventix (one of his favourite stocks which he likes to talk about regularly), and YouGov. He pointed out that not only are measures such as Return on Equity (ROE), Return on Capital Employed (ROCE) and Return on Assets (ROA) better at Bioventix calculated on the headline numbers, but that those for YouGov are somewhat doubtful because they capitalise and amortise the cost of recruitment of their survey panels. Plus they capitalise and amortise software development costs. But they then produce adjusted earnings figures that excluded the amortisation of both those costs, effectively pretending they are not real costs. He has a point.

Now I always look at returns on capital when I am investing in new companies because I consider it one of the most important measures of a company’s performance – as I told the directors of Ideagen. Hence at the Ideagen AGM I asked a question on that subject. On page 18 of their Annual Report they give the “Key Performance Indicators”, 9 of them, that the directors use to monitor the performance of the company. They all look good, but none of them measure return on capital. Should they not include a return on capital measure?

In reality the headline figures for ROE, ROCE and ROA reported by Stockopedia for Ideagen are all less than 2%, and that ignores even the large number of shares under option that the company has that would dilute the earnings. The reason for this is partly the fact that the profit measures used are “unadjusted” and as the company has very substantial amortisation of goodwill from past acquisations, and £1.2 million of share-based payment charges, these distort the numbers. The CEO David Hornsby, responded with “what measure would I like to use?” to which I responded that I did not mind so long as it was consistent from year-to-year. Companies often publish such figures, which are frequently based on “adjusted” profits. I also suggested cash return on assets might be a good measure, something I also look at.

The company actually generated Net Cash From Operating Activities of £8.3m last year which on Net Assets of £30m at the start of the year is very respectable, although technically one should probably write back the cost of past acquisitions that have been written off. In addition some of the cash generated was spent on contingent consideration on past acquistions and on “development costs” which they class as “investing activities”. This demonstrates that for some businesses, looking at headline return on capital figures or those reported by financial web sites can be misleading. One needs to look at the detail to get a real understanding on what is going on in such a business.

A short debate on the issue followed. Otherwise after a couple of other questions, the CEO mentioned the half year for the company ends today, and shareholders should be very pleased with the results.

In summary, a short AGM meeting, but a useful one. And the ShareSoc newsletter is well worth reading – it even includes some articles from me.

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.

 

Lloyds Litigation, Collective Redress, and CLIG AGM

I went to the High Court in London this morning to hear the grilling of witnesses in the case brought by shareholders over the acquisition of HBOS by Lloyds. But I was disappointed to find when I got there that the first session was to be held in private – presumably the judge wants to discuss some legal issues with counsel for both sides. So I went to the AGM of City of London Investment Group (CLIG) instead where I hold shares.

The aforementioned legal case will be running for some weeks yet to hear various witnesses – it’s being held in Court 15 at the Rolls building in Fetter Lane if anyone cares to drop in. I shall try to visit another day when I am in London.

This was the first opportunity I had to attend the Lloyds hearing but the national media have reported the opening submissions by the respective QCs. To remind you this is a case where disgruntled former Lloyds TSB shareholders are suing the former directors (Sir Victor Blank, Eric Daniels, Truett Tate, et al), and Lloyds Banking Group as a company, over the takeover of HBOS in 2008. This resulted, directly or indirectly, in a massive share price decline and the cessation of dividends. The commercial loan book of HBOS turned out to be very poor quality, and Lloyds had to take on more capital to meet its capital ratio requirements.

What’s the legal basis of the claim? Simply that the prospectus issued to Lloyds TSB shareholders at the time was defective. Among other things that it failed to disclose the true position of HBOS and the fact that the company had received emergency funding in the form of secret loans from the Bank of England, the US Federal Reserve and Lloyds. A prospectus needs to be honest, not misleading and not omit significant information. The litigant’s QC, Richard Hill, said that “shareholders were indeed mugged”. He also argued that Lloyds was under pressure from the Government to conclude the deal, otherwise HBOS would have had to be nationalised because it was on the verge of collapse, when the directors of Lloyds loyalties should have been to their shareholders.

The defendents QC argued the claims have no merit because it was in the best interest of shareholders. In addition, that they would have voted for it regardless if they had been aware of the aforementioned loans. Bearing in mind that a lot of institutional investors held both Lloyds and HBOS, you can understand that point perhaps. The usual defence of the directors having taken expert advice on the matter from a host of advisors has been invoked, but how they can overcome the defective prospectus argument remains to be seen.

Now one topical item of news today is the disclosure that the EU is looking at establishing a pan-European framework for collective redress. See this press release from shareholder representative organisation Better Finance for more details: http://betterfinance.eu/fileadmin/user_upload/documents/Press_Releases/en/Financial_services_users/PR_-_COLLECTIVE_REDRESS_-_231017.pdf

There are many difficulties in the way of shareholders pursuing litigation or enforcement action over investment abuses. One just has to look at the HBOS/Lloyds case and the Royal Bank of Scotland (RBS) cases to see how difficult and expensive they are. The RBS case, which was a similar claim over the prospectus issued in 2008, has recently been settled. But only a minority of shareholders affected are likely to get compensation, and it will only be a small proportion of their losses. Legal and other costs will consume a large proportion. One only has to look at the time these cases have taken to get into, or near, a Court (nine years) that tells you there is something seriously defective in the process. Many of the claimants are likely to have died in the meantime as the shares of these banks were typically purchased by pensioners for retirement income.

The problem is the UK has no direct equivalent of a US “class action”, or the arrangements for collective cases as operates in Holland. There are “Group Litigation Orders” in the UK, but these are not directly equivalent and the Lloyds and RBS cases have relied on a representative group of litigants. Many other European countries have similar problems. So this initiative looks potentially useful, although if Brexit proceeds, the UK might miss out on participating in this concept, albeit that it might be many years before it progresses into reality because changing legal systems in a country can be complex and is often resisted by vested interests. Simplifying legal processes is not always in the interests of lawyers for example.

The complexity and length of the legal processes, and the difficulty in raising funds to finance such cases, as evidenced by the Lloyds and RBS cases, surely demonstrates that reform is necessary. But it will be interesting to see the outcome of the Lloyds case.

Just brief coverage of the CLIG AGM follows. There were about half a dozen shareholders present, but the company was also holding a seminar for investors (current and potential) in the afternoon so I presume most people would have gone to that instead.

CLIG is an investment company that specialises in holding closed end investment companies (e.g. investment trusts), with a large exposure to the far-east. The CEO is long standing director Barry Oliff who is finally planning to retire in a couple of years time, so one question raised was about succession planning – it is in motion apparently. As one shareholder intimated, it will be important to maintain the culture that Barry Oliff has established where there is great openness about the performance of the company (comprehensive disclosure of the business model and the likely outcome of profit trends). Barry even tells shareholders at what price he will be selling some of his large shareholding and when.

This company regularly gets substantial votes against its Remuneration Report, and it was no different this year. Two million proxy votes against, no doubt by institutions prompted by proxy advistors because they have a bonus scheme which does not follow the normal rules. It is more group performance related, than individual person related. They choose to be “different”. Barry explained that he thought individual targets provided the wrong incentives and that group bonuses encourage staff and customer retention. Another director said it was more like a traditional “partnership”.

Anyway the shareholders are probably happy because the share price has increased over the last year and the dividend (already high) has been increased for the first time in five years.

As I intimated in another recent blog post, it is always useful to attend AGMs, and this one was no different. According to a report in the FT, a number of US companies are moving to “virtual” AGMs, but are getting some objections from shareholders. Surely the best solution is to combine the physical meeting with an on-line equivalent so you get the best of both worlds. A virtual on-line meeting can be usefui for those shareholders who have difficulty in attending in person, but certainly actually meeting the directors is more useful in many ways.

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.

Interesting AGMs, or not – Rosslyn and Dunelm

This morning I attended the AGM of Rosslyn Data Technologies (RDT) for the first time. I picked up some shares in a deeply discounted placing that qualified for EIS relief a few months back. One has limited time to research a company on offer when a placing comes up. It looked sound enough at the time although the historic financials did not impress. Prospects looked better after an acquisition although this company has been around a long time without becoming a shooting star. Bearing in mind the software sector it operates in – a somewhat niche area – I doubt it will show rapid growth either although the analyst forecasts I looked at before the meeting (from a single broker I gather) suggests a substantial rise in revenue and breakeven in the current financial year – partly from the merger no doubt.

Incidentally in case anyone from HMRC is reading this bearing in mind the current review of VCT/EIS tax reliefs, I would just like to say that I would certainly not have invested in the placing without the attraction of EIS tax relief. I considered the valuation at the placing price only “fair” and with the risks apparent, it would not have been attractive without the tax relief.

But at AGMs of small companies like this one, it is possible to learn a great deal. I will just mention a few things – there may be a more extensive report on ShareSoc’s web site later.

The Chairman was absent in the USA (not usually a good sign), so another of the directors, Barney Quinn chaired the meeting, and well. He read out a prepared statement (not issued in an RNS oddly), saying there had been good progress and they had been focussed on integration of the businesses since the start of the year. He mentioned the securing of a major partnership with D&B (see Annual Report).

I queried the very high debtors (accounts receiveable) which were about 6 months of revenue. Apparently this is due to work in progress on projects being recognised as revenue but not yet billed to clients (which tends to be on completion). To my mind, it’s still excessive though.

It seems to be taking some time to develop the market for the products/services and it seems their broker is currently reconsidering their forecasts and I suspect the existing ones are optimistic from what was said in the meeting – but we may soon see no doubt.

Anyway I learned quite a bit about the business and the management seemed to be competent on a brief acquaintence but a couple of long-standing shareholders turned up late for the meeting and said some negative things about the progress and valuation of the business. The company could really do with some more media coverage if they were to attract more investors and another shareholder suggested ways they could do so.

So it’s always good to attend AGMs, but one I will not be going to is that of Dunelm. This year it is Stoke at 9.30 am on the 21st November. Last year it was at a similar inconvenient and early time in Leicestershire.

A couple of year’s ago I attended their AGM in London (again at an early time), and complained about the remuneration arrangements. Have the more recent AGMs been deliberately arranged to avoid private shareholders like me from attending? I would not be surprised if that was the case. So I have voted against the Chairman, against the Remuneration resolutions, and against other directors also for that reason. It really is not acceptable for the directors of companies to pick inconvenient dates, times or locations for General Meetings.

I don’t object to going to Stoke but I do object to having to get up at 5 o’clock in the morning to be sure of getting there on time. But if anyone lives closer, and would like a proxy appointment from me to attend the AGM, let me know.

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.

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.

Sophos, Interquest and the Government

Yesterday I missed the Sophos (SOPH) AGM due to having a clashing engagement, but I noticed that in the announcement of the voting results that there were substantial votes against the Remuneration Report (29.8% against) and also high votes against most of the directors. One only needs to glance at the Remuneration Policy to see why.

The maximum bonus opportunity is 200% of salary, and the maximum LTIP award is 500% of salary in normal circumstances and up to 750% in exceptional circumstances. So total incentive payments can reach nearly 10 times normal salary. That’s the kind of scheme I always vote against.

For what is actually a relatively small company that has never reported an annual profit, the actual pay figures are way too high – CEO got a base salary of $695,000 last year and total single figure remuneration of $2.32 million. Other directors, even the non-execs, have similar generous pay figures. It might be a rapidly growing company in a hot sector (IT security) but I am beginning to regret my purchase of a few shares.

Although I missed the AGM, I did “attend” the previous days Capital Markets Day. I was refused physical access but anyone could log into the web cast of the event. Not quite the same thing but it was exceedingly boring with a lot of the time spent on the wonders of their technology rather than important business questions. Is it not despicable though that companies and their PR advisors try to keep such events solely to institutional investors?

Interquest (ITQ) is an AIM listed company that received an offer for the company from some of the directors but they only got 58% committed support. That’s not enough to delist the company under the AIM Rules which requires 75% so the offer was abandoned. What did the directors do then? They notified their Nomad of termination of their contract and subsequently said they would be unlikely to appoint another Nomad within the one month period allowed. This means the shares will automatically be suspended from AIM and subsequently delisted if no Nomad is appointed.

The moral is that if directors or anyone else control 58% of the company then minority shareholders are in a very difficult position because they will have the ability to do lots of things that prejudice the minority shareholders – for example pay themselves enormous salaries. A legal action for prejudice of a minority is available but as my lawyer said yesterday, these are complex cases, as I well know from having run one myself in the past, and successfully (we were discussing my past legal cases). It’s difficult enough in a private company, and even more so in a public one. In summary, having an AIM Rule about delistings may not help if one cannot win a vote of shareholders on other matters that require just 50%.

Having control of a public company in the effective hands of a concert party of a few people is something to be very wary about, and something all AIM company investors should look at.

Government policy on tackling excessive pay levels for the directors of public companies has taken a step backwards this week. Tougher measures which Theresa May threatened have been watered down, and the core of the problem – the fact that Remuneration Committees consist only of directors, whose appointment and pay is controlled by other directors, has not been tackled. In addition, the potential to control pay by votes at General Meetings has been undermined by the disenfranchisement of private shareholders as a result of the prevalence of the nominee system and the dominance of institutional voters who have little interest in controlling pay.

Another bit of news from Government sources this week is that the hope of some change in shareholder rights that might have improved private shareholder voting is fading away after a decision to postpone yet again the issue of “dematerialisation”. The staff involved in that project have been moved and expertise will be lost. This is likely to be the result of both lack of interest in tackling a difficult and complex problem, and the need to put in effort on Brexit matters at the BEIS Department.

Will we ever get a proper shareholder system where everybody is on the share register and automatically gets full rights, including voting rights? It remains to be seen but I will certainly continue to fight for that. Without it we will never get some control over public companies and their directors. I suggest readers write to their Members of Parliament about this issue.

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

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

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

 

Northern Rock 10 Years After

Both the Times and Financial Times covered the tenth anniversary of the nationalization of Northern Rock today. Dennis Grainger is still fighting to get some compensation for shareholders from the nationalization and says the Government stands to make billions of pounds profit from the bank after paying zero compensation to shareholders. He is undoubtedly right that the Government will turn a good profit on these events, as they always planned to do.

He and others such as Pradeep Chand described in an article in the FT Weekend supplement lost hundreds of thousands of pounds. Was the bank a basket case, or do they have a genuine grievance? The fact that they and other investors are still fighting for compensation ten years later tells you how aggrieved they feel. Mr Grainger hopes to put his case to Theresa May.

Incidentally the shareholders in Bradford and Bingley (B&B), led by David Blundell, are also still fighting a similar case over the nationalization without compensation of that company. The same legislation was used to do so.

As I was involved in the campaign and subsequent legal case, let me give you a few simple facts about the case:

Northern Rock was not balance sheet insolvent, but ran out of cash after a run on the bank by depositors (driven by media scare stories) and their inability to raise more money market funds (nobody was lending to anyone else at the time).

This would normally have caused the Bank of England to step in as “lender of last resort” to provide liquidity but then Governor Mervyn King declined to do so because of the “moral hazard” risk. That was a fatal mistake not likely to have been made by his predecessors.

The then Labour Government subsequently passed legislation to nationalise the bank and ensured there was no independent and fair valuation of the shares by writing the Nationalization Act with wording that ensured an abnormal and artificial valuation process which guaranteed a zero valuation. So the ensuing claims that it was a “fair and independent” valuation are nonsense. The Treasury is reported as repeating that claim in the FT article today.

In reality Labour politicians decided to ensure that two large hedge funds who had invested in the company and were willing to support it should get nothing because they were the kind of people they hated. Smaller shareholders in Northern Rock were not recognized as being of importance.

The nationalization legislation used against Northern Rock and B&B ensures that if the Government has lent any sum of money to a bank, then they can nationalize it without compensation. This made UK banks untouchable by many foreign lenders or investors with dire consequences later for other banks such as RBS. In the case of B&B they even concealed that they had lent it money until much later so as not to scare investors. Incidentally while that legislation is still available to the Government, that is one reason why I won’t be buying shares in UK banks – it increases their risk profile very substantially.

A legal case was pursued to the Supreme Court on the nationalization (a Judicial Review), but they would not overturn the will of Parliament. A claim to the European Court of Human Rights was submitted but they refused to even hear the case which was very unexpected as they had ruled in other nationalization cases that fair compensation should be given.

Those are the key facts and all the other mud that was slung at Northern Rock claiming it was a dubious business by a concerted campaign of disinformation was most unfortunate, and basically inaccurate.

A company that cannot meet its debts when they become due, and is hence cash flow insolvent, can be argued to be worth little. But there was funding available to Northern Rock (it was trading for months after the “run” and before it was nationalized). But salvage law sets a good precedent for what is fair compensation when someone rescues a sinking ship. The same should have applied to a sinking bank.

So in summary, I support the efforts of Dennis Grainger and others to get compensation to the ordinary shareholders out of the profits that have accrued to the Government as a result.

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

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.