Shareholders Are Revolting

Published in Investing on 1 May 2012

... and that possibly means you, as well.

Last week saw a major global business humbled, with a shareholder revolt giving the board of directors a bloody nose.

And no, I'm not talking about the annual general meeting (AGM) at FTSE 100 stalwart Barclays (LSE: BARC), where shareholders expressed angry disapproval of a snouts-in-the-trough policy that saw the business awarding £2.15 billion in bonuses last year, while paying out just £730 million in dividends.

Instead, I'm referring to General Electric (NASDAQ: GE.US), an industry icon that under former boss Jack Welch came to epitomise everything that was admirable about American business.

Alas, under present chief executive Jeffrey Immelt, the shine has rather come off the company, with its shares falling by 45% over the past five years, versus a 7% drop in the S&P 500 index.

And last week, shareholders kicked back, angrily voting against a whole swathe of resolutions. No fewer than 47.5% of the votes cast were in favour of a motion -- opposed by the board -- that would have given shareholders more direct control over the business.

It's your company

All of which handily serves to underline a message that many investors overlook. And it's this: it's they, and not the board, who own the business that they hold shares in.

Indeed, the board is supposed to represent the interests of those shareholders, and its members are elected by shareholders.

And interestingly, at both General Electric and Barclays, significant numbers of votes were cast opposing the re-election of particular directors. At GE, for instance, long-time board member Roger Penske attracted shareholders' ire. At Barclays, it was the re-election of Alison Carnwath, head of the remuneration committee, that drew their wrath, with more than one in five votes opposing her re-joining the board.

Nor was it just GE and Barclays that prompted shareholders' anger last week. While Barclays shareholders were heckling and booing chairman Marcus Agius, over at the Credit Suisse AGM, shareholder Rudolf Weber was also expressing angry dissatisfaction.

"You should be ashamed of yourselves for taking so much money away from us. We are the owners of this bank, and you are our employees. We should be the ones who decide what you earn," he told the board, to applause from other shareholders.

Diff'rent strokes

While angry AGMs are the exception, shareholder activism is nothing new -- although, at present, it does seem to be on the rise.

Often, though, it takes place behind closed doors, with major institutional investors expressing their unhappiness to senior non-executive directors, who then pass on those views to the rest of the board.

Just such a conversation, for instance, will doubtless have precipitated the departure of chief executive David Brennan from FTSE 100 AstraZeneca (LSE: AZN). It's possible, too, to see behind-the-scenes activism at work in the post-Gulf of Mexico departure of former chief executive Tony Hayward from BP (LSE: BP), just as in the case of former BP boss Bob Horton, 20 years before.

And it doesn't have to be high-profile businesses like BP and AstraZeneca where shareholder activism seeks changes in the way that businesses are run.

Here at the Motley Fool, for instance, shareholder action groups repeatedly put pressure on businesses. Indeed, two of our more well-known discussion board posters -- carmensfella and paulypilot -- have quite a track record.

The redoubtable carmensfella, for instance, has regularly reported on developments at Tandem (LSE: TND), a Midlands‑based bicycle business. More recently, he's brought activity at Lees Foods (LSE: LEE) to Fools' attention. Events at the Conygar Investment Company (LSE: CIC) have also stirred Fools into action. And so on.

Profit from change

Now, some shareholder activism is unabashed self-interest. Take a stake, shake up the board and the business, create a rise in the share price -- and sell out, taking a healthy profit.

Over at Alliance Trust (LSE: ATST), for instance, I imagine that this is the sort of plan that Colin Kingsnorth, head of Laxey Partners, has in mind. He certainly didn't give an impression to the contrary when I spoke to him, and -- as Alliance's own AGM recently made clear -- a significant number of shareholders agree with him.

Other shareholders seek change for other motives. Long-term stakeholders, perhaps -- and wanting to stay long-term shareholders -- they nevertheless want to see a bigger share of the rewards going to shareholders, not directors. That's the kind of activism that is on show at Barclays, I reckon, with the anger of long-term ordinary shareholders being very apparent.

Speak out

The bottom line? No matter how big the company -- from AIM-listed minnows to FTSE 100 giants -- shareholders can precipitate change.

In short, if you don't like something, say so. And ideally, find a few fellow shareholders to rattle directors cages, too.

He avoided techs in the dotcom bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor".

Further investment opportunities:

> Malcolm owns shares in AstraZeneca and BP. He does not own shares in any other company mentioned in this article.

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The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

ANuvver 01 May 2012 , 5:25pm

The Occupy zeitgeist reaches into AGMs. Gotta love the irony...

marben100 01 May 2012 , 8:02pm

Good article, one comment, however:

"Indeed, the board is supposed to represent the interests of those shareholders, and its members are elected by shareholders."

Technically, this is correct. Sadly, however, the election/re-election of directors is usually little more than a rubber-stamping exercise. The problem is that the appointment of directors is decided by a "nomination committee", composed of... other directors. Shareholders are left with Hobson's choice at the AGM itself.

For that reason, ShareSoc advocates that directors are instead nominated, and their remuneration decided on, by a committee of shareholder representatives, subject to AGM voting. See for details.


Mark [ShareSoc Director]

GrahamMiller0 02 May 2012 , 1:46pm

Has a share-holder revolt actually succeeded in overturning board recommendations yet?

snoekie 02 May 2012 , 7:14pm

Unfortunately being one of the unmentionable plebs, my vote counts for not a lot, and I think the pay rewards of obscenely obscene, and the directors are creaming off massive amounts of shareholders money, but their pals in the funds have to support them because their pay packets are also on the line..........

RobinnBanks 04 May 2012 , 12:08am

You may have seen today that 50% of shareholders voted against Aviva's directors' pay awards: but it's not binding, only advisory.
It's time the rules were changed so that shareholders' votes really count, and boards have to abide by our decisions. We are the owners, the boards are our employees, but you cannot tell that from the way they act, and we can do little about it.
They pay themselves in £millions, shareholders in pennies.
When have shareholders ever set their own dividends?
No doubt Aviva will reduce their directors' massive payments by a small percentage, to what they intended in the first place, as they knew of the forthcoming revolt. They got a shock at how large a revolt it was though: the largest ever I believe. Let's hope it's the first of many for all fat cats everywhere, especially those who give poor performance and yet still cream off the profits.

RobinnBanks 04 May 2012 , 3:36pm

It was 59% who voted against the boards's remuneration, sorry.

Time for a change in the law; to apply to all money grabbers in Government and local councils as well as companies, especially banks.

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