This year’s season of shareholder gatherings has seen the largest amount of shareholder activism in the last four years; again, company owners’ ire is centred on executive pay.

Examples of the current shareholder spring include:

• the defeat of the remuneration report at Smith & Nephew by 53% of shareholders thus vetoing a proposed vesting of the chief executive’s LTIP despite the company not reaching its targets;
• the unprecedented decision by BP shareholders to rebel against a 20% pay rise for its chief executive, with 59% voting against the increase, following a year in which the company booked a $5.2 billion loss;
• over 40% of Anglo American shareholders voting against the company’s 2015 pay report; and
• the shareholder revolt at Foxtons over the proposal to award its chief executive a 19% increase in his basic salary, to £550,000 per year, and an uplift of his maximum bonus to 150% of pay during a period in which the company has seen sharp declines in its share price.

Investors state that the current structure of executive pay results in poor alignment of interests between executives, shareholders and the company and there should be more focus on simplifying pay packages, greater use of salaries and ensuring that equity incentives include minimum holding periods.

There is speculation that prolonged grievance amongst shareholders could result in the government and regulators intervening to cap executive remuneration in the private sector. In 2013, the government introduced legislation requiring companies to hold legally binding votes every three years, with executive pay packages needing the approval of more than 50% of shareholders. The first round of these binding votes will occur in 2017.

In addition to voting against resolutions, as was the case in the activism examples given above, the Companies Act 2006 (Act) allows shareholders to express their grievances at how a company is being run though a number of other means. Some of these rights are:

• section 319A of the Act allows shareholders holding voting shares in a company whose shares are admitted to trading on a regulated market to require the board to answer a question relating to the business of the meeting;
• section 303 of the Act enables shareholders representing 5% of the paid-up voting shares in a company to require that the company calls a general meeting;
• shareholders can also use section 303 to put forward resolutions at a general meeting the shareholders have convened (members of public companies can also request that a resolution is considered at an AGM (sections 338-340));
• section 314 of the Act enables certain shareholders to require the company to circulate a statement of up to 1,000 words to shareholders relating to a matter referred to in a proposed resolution or other business to be dealt with at a meeting;
• in certain circumstances, removing, or blocking the appointment, of a director; and
• bringing an unfair prejudice claim under section 994 of the Act for relief where the company’s affairs have been or are being conducted in a manner that is unfairly prejudicial to the shareholders’ interests generally or the shareholder, or certain shareholders, specifically.

With the prevalence of shareholder rebellion at AGMs this year, will we soon see some of these more pointed tactics being used by aggrieved shareholders in some of the UK’s largest companies?

For further information, please contact John Alder.

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