Activism in the UK market is never easy. For all the sabre-rattling by UK institutions over the past few years, they are rarely inclined to attack incumbent boards and management in the open, through a proxy battle or a general meeting. Occasionally they vote against a CEO’s remuneration, but given that these votes tend to be advisory rather than statutory, they act more as a protest rather than any demand for real change.
More often UK shareholders like to work behind the scenes, putting pressure on CEOs through their brokers or in private meetings. In most cases this process works well and avoids the media glare and expense of a full proxy battle. But in some cases, when a chairman or CEO turns a tin ear towards the concerns of his company’s owners, a proxy battle is the last resort.
Over the summer Maitland/AMO acted as communications adviser to Toscafund, the $4 billion asset management group, following its decision to call a Shareholders’ Meeting at Speedy Hire plc, the plant hire group, to remove its chairman and appoint an additional independent non-executive director onto the Board.
This was the first time in its 16 history that Toscafund had ever voted against any of its investee company Boards. It did not take this decision lightly but out of exasperation at the poor governance at Speedy Hire and the fact that its concerns were simply not being listened to by the Board or its chairman, Jan Astrand.
The process was extremely instructive on a number of fronts:
- Firstly it became clear there was a large degree of inertia amongst the other shareholders. While they sympathised with Toscafund’s concerns, many felt that voting out a chairman was too drastic, despite the company’s many failings.
- Second we realised early on that governance was always more of an issue for shareholders than performance. Speedy Hire’s share price has halved since the start of last year but this alone was not enough for investors to want change. The Board’s governance failings by contrast, were a real cause for concern.
- Third, the governance groups, such as ISS and Glass Lewis, were extremely influential to the overall vote. Ultimately each recommended a vote against the removal of the chairman but for the election of Mr Shearer, and this was the eventual result by a significant margin.
- Fourth, the (significant) media coverage of the episode was important in setting the tone for the debate, and putting pressure on Speedy Hire to make concessions (such as the Chairman’s reluctant agreement to step down from being an executive into a non-executive role) but the main event were the private meetings with shareholders.
- Fifth, it was nevertheless difficult to keep track of voting patterns until the vote was finally announced after the meeting. Most institutions did not want to disclose how they voted given the intensity of the debate.
So Toscafund succeeded in its main goal and David Shearer was appointed as an independent non-executive director to the Board, despite strenuous opposition from Mr Astrand and his colleagues. But the vote to remove Astrand was defeated, partly because he committed to step down from being executive chairman to a non-executive role.
Ultimately Toscafund had to expend a great deal of time, trouble and effort to effect sensible change in a company with significant issues. Toscafund is Speedy Hire’s largest shareholder by far and, in any logical world, the company should have listened to, and responded to, its concerns at a much earlier stage.
At least the episode shows that courageous investors can use a general meeting as an instrument of last resort, when more diplomatic tactics have failed. This threat should in turn help to ensure that companies listen to their owners, rather than face the potential consequences.
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