ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by
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ShareSoc, the UK Individual Shareholders Society, publishes a blog on its website, here: http://www.sharesoc.org/blog.html 

For the convenience of readers, we are now copying blog entries here. Any comments most welcome!

If you like what you read and want to support us, please join, which you can do free here: http://www.sharesoc.org/membership.html

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The ShareSoc Informer is the monthly newsletter of the UK Individual Shareholder Society.  There is a real need to encourage direct investment in the UK stock market, but individual investors will be discouraged if their rights and needs are ignored.  One reason why ShareSoc was formed was to ensure that… ...read more or visit website »


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No warranty is given by ShareSoc as to the reliability, accuracy or completeness of the information contained within this publication. Any information provided is accurate and up to date so far as ShareSoc is aware, but any errors herein should be referred to ShareSoc for correction. The information contained herein is intended for general information only and should not be construed as advice under the UK’s Financial Services Acts or other applicable laws. ShareSoc is not authorised to give investment advice, and is not regulated by any Regulatory Authority, and nor does it seek to give such advice. Any actions you may take as a result of any
information or advice contained within this publication or otherwise supplied to you by ShareSoc should be verified with third parties such as legal or other professional advisors and is used solely at your own risk. You are reminded that investment in the stock market carries substantial risks and share prices can go down as well as up. Past performance is not necessarily an indication of future performance. The Editor of this publication and other contributors may hold one or more stocks mentioned herein.

 


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431 Comments on this Article show/hide all

ShareSoc 9th Aug '12 52 of 431
1

Posted by ShareSoc at 16:09, August 8 2012.

Bellway – Combined Code being ignored yet again

Following the recent example of Hiscox (LON:HSX) appointing one of their executive directors as Chairman, we now have an even more blatant one. Bellway (LON:BWY) yesterday announced that the current Chief Executive, John Watson, is to take over as Chairman on the retirement of Howard Dawe. Mr Watson has been with the company for 34 years.

The Combined Code clearly states that executive directors should not take the role of Chairman, who should be an independent non-executive. He cannot be independent if he has been so closely involved with the affairs of the company for that length of time and when he will obviously have built close relationships with the other senior managers. The only exception allowed by the Combined Code is where an explanation is provided (on the “comply or explain” basis). What explanation was provided in the announcement to justify this exception (which was simply included in a “Trading Update” announcement)? None whatsoever.

Housebuilders such as Bellway are often dominated by family members or other “insiders” and they tend to compare their remuneration only with other housebuilders. As a result they typically pay large remuneration sums to the directors even when profits are poor.

For example, profits at Bellway last year were £50m, so they are still a long way from recovering from the boom times of 2007/8 when profits were over £170m. Total pay of the board last year was £3.3m but that does not include the value of shares that might be awarded under the long-term Performance Share Plan (“PSP”). For example, Mr Watson held 257,575 share awards under that scheme at the end of the 2011 financial year which at the current share price are potentially worth £2.1m on top of his cash pay of £1.2m.

Will a new Chairman recruited from the executives make any change to this picture? Obviously not which is why the appointment of an independent non-executive Chairman is so important.

Shareholders who wish to do something about this matter should contact ShareSoc for advice.

 

Newsletter: ShareSoc Informer
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ShareSoc 9th Aug '12 53 of 431
2

Posted by ShareSoc at 08:15, August 9 2012.

Victoria – the disputes continue.

In January of this year there was an attack on Victoria (LON:VCP) by former Chairman Alexander Anton and a consortium of shareholders. They appeared to oppose the existing board’s strategy and in particular the proposed sale of the company. An EGM was requisitioned and seemed to gain the support of some institutional shareholders, although the board complained that the strategy of the proposed directors was not clear.

At an EGM in March, new directors were appointed and some former non-executives resigned before the result was announced. Katherine Innes Ker was appointed as Chairman, with Mr Anton, Geoff Wilding and Sir Bryan Nicholson also joining the board.

But yesterday the company announced that Alexander Anton and Geoff Wilding had resigned with immediate effect and two new non-executives were appointed. A new strategy was put in place for organic development of the business, but the announcement spelled out that “board differences” remained. Specifically it said “Significant differences have, unfortunately, arisen between the Non-Executive Directors and the rest of the Board, including the Chairman, in relation to the execution of the Company's strategy in circumstances where the Non-Executive Directors expected a significant financial interest in its outcome.

In connection with the implementation of the Group's strategy, the Non-Executive Directors proposed that an incentive scheme should be set up under which they would potentially receive a substantial share of returns made to shareholders.

The other members of the Board, having taken independent advice, could not reach agreement on, or recommend to shareholders, the terms of the incentive scheme. A revised proposal from the Board was rejected by the Non-Executive Directors.”

It would of course be very unusual for non-executives to be rewarded with bonus schemes as opposed to a fixed annual fee, and it is surely right that the board rejected any such idea. Shareholder activism where shareholders do not support the strategy of the board is always welcomed by ShareSoc, but it is a step too far to expect that those involved should be rewarded by incentive schemes as a result, which seems to be what was expected here. Shareholders get their return from activism from the improved value of their shares and should not expect to get other bonuses for also acting as non-executive directors of the company.

 

Newsletter: ShareSoc Informer
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emptyend 9th Aug '12 54 of 431

In reply to ShareSoc, post #52

The Combined Code clearly states that executive directors should not take the role of Chairman, who should be an independent non-executive. He cannot be independent if he has been so closely involved with the affairs of the company for that length of time and when he will obviously have built close relationships with the other senior managers. The only exception allowed by the Combined Code is where an explanation is provided (on the “comply or explain” basis). What explanation was provided in the announcement to justify this exception (which was simply included in a “Trading Update” announcement)? None whatsoever.

Such explanations are provided in the Annual Report to shareholders.

Perhaps you might consider doing a survey of just how many companies are in Bellway's position of having Chairmen who are not independent? Don't pretend that Bellway is particularly exceptional.

Furthermore, whilst having a completely independent chairman is something that is a desirable objective (hence it is recommended in the Combined Code), it is also desirable to have a Chairman who is competant and understands the business. Sometimes circumstances are such that one can't achieve the ideal of having an independent Chairman who understands the business at all times - and that is why the "explain" option is made available to company boards.....

...so shareholders can therefore make their own minds up on whether the circumstances of a particular appointment are acceptable to them or not.

I have no knowledge of the position at Bellway, but dogmatic comments like this merely reinforce the view that you should be careful not to tilt at windmills. Much better to save your ire for clear wrongdoings.

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Roger Lawson 9th Aug '12 55 of 431
3

In reply to emptyend, post #54

Regarding Bellway, shareholders would need to be convinced that there was no non-executive Chairman available with the requisite skills and experience - surely not too difficult to find in this case because there are a number of listed building companies from which to draw a pool of non-execs who might qualify. There are not many fully listed companies who have drawn their Chairmen from their current or past executive directors. Perhaps you recall the fuss that many institutions kicked up when this happened at Marks & Spencer when Stuart Rose followed that route. The fact that some shareholders thought they wanted to retain his services for obvious reasons at the time, somewhat placated them and hence good reasons were given in that case. There are none given here and waiting for an anodyne statement in the Annual Report hardly helps to stop it.

Note: this is not a theoretical issue. Those who have served on the boards of companies will know there are good practical reasons for having a non-executive and independent Chairman. One of the campaigns we are running is of course on Intercede - a classic example of the problems created by having an Executive (and non-independent) Chairman when remuneration is under review.

If everything else in a company concerning corporate governance and paying attention to the interests of shareholders is obviously favourable then sometimes exceptions in the Chairman's role can be justified, but I don't see that is not so in this case. Or the case has not been made.

Roger Lawson

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 9th Aug '12 56 of 431

In reply to Roger Lawson, post #55

If everything else in a company concerning corporate governance and paying attention to the interests of shareholders is obviously favourable then sometimes exceptions in the Chairman's role can be justified

I would take a slightly different view. It is a question of persistence. The default position SHOULD be that there is an independent Chairman - but there can be many situations where this is not the best solution for relatively short periods (i.e. a year or two), especially in situations where there might be expected to be further changes to the composition of the board.

I have no idea whether this is likely to be the case at Bellway, but I'd be content to wait for an explanation in the Annual Report, rather than self-promotionally seeking to rush to judgement.

 

There are not many fully listed companies who have drawn their Chairmen from their current or past executive directors.

I'm not sure about that. A couple of years back I looked at 30 companies within a sector and found that nearly half of them had either got an Executive Chairman or Combined Chairman/CEO. I grant that many of those were AIM listed, rather than fully listed, and it is certainly relatively rare amongst FTSE250 companies to have non-independent chairmen  - but I'd suggest waiting for an explanation or asking for one, rather than leaping to a conclusion without the full facts.

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Roger Lawson 9th Aug '12 57 of 431
4

Well as you say, the practice in AIM companies is different which probably accounts for a lot of the outrageous corporate goverance practices in such companies, which are so prevalent.

Website: ShareSoc - UK Individual Shareholders' Society
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rhomboid1 9th Aug '12 58 of 431

In reply to Roger Lawson, post #57

Roger

Surely the point is that overly prescriptive codes become dangerous to the interests of shareholders. As I understand it the Cadbury code does provide for in extremis flexibility if a Board wish to appoint a non independent Chair? If Bellway have done so it is not necessarily a bad thing for shareholders, I'd have thought concentrating on actual corporate wrongdoing more fruitful rather than sounding off on every failure to adhere blindly to the code

As wikipedia puts it rather well ..

The question thrown up by the Code's approach is the tension between wanting to maintain "flexibility" and achieve consistency. The tension is between an aversion to "one size fits all" solutions, which may not be right for everyone, and practices which are in general agreement to be tried, tested and successful.[7] If companies find that non-compliance works for them, and shareholders agree, they will not be punished by an exodus of investors. So the chief method for accountability is meant to be through the market, rather than through law.

Surely the danger for sharesoc is being perceived as too ready to cry wolf so when it really counts your voice is ignored

Cheers

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Roger Lawson 9th Aug '12 59 of 431
4

You are missing the point on Bellway. It's not the apparent breach of the Combined Code which is the main problem (although the Code is there for a good reason of course), it's the fact that the new Chairman will not be independent and never can be because of his past history. Non independent Chairmen are the source of lots of problems in public companies and experience tells you so. They tend not to protect the interests of minority shareholders and individual investors generally, which is whom ShareSoc represents, but look after the interests of insiders and other large stakeholders who they have past associations with. This is not a beef about a technical breach of the rules, it is about ignoring what is best practice in the interests of all shareholders.

Website: ShareSoc - UK Individual Shareholders' Society
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rhomboid1 9th Aug '12 60 of 431
4

In reply to Roger Lawson, post #59

Hi Roger

With respect it is you that is missing the point, of course independent chairman are better in principle but it doesn't follow that a non independent chair is bad for shareholders, it simply increases the odds of malfeasance whilst not guaranteeing it will occurr. It also requires explanation by the company making the non independent appointment of course.

Why not save your firepower for 'actual' wrongdoing rather than situations that may or may not prove injurious to private shareholders?

Lord knows there are enough of those to be going on with!

Cheers

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Roger Lawson 9th Aug '12 61 of 431
4

Last word: prevention is better than cure!

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 9th Aug '12 62 of 431

In reply to Roger Lawson, post #61

Last word: prevention is better than cure!

Last word: find out the facts first before shooting from the hip

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Roger Lawson 9th Aug '12 63 of 431
7

The facts were as stated in the original blog post, and I also used to be a shareholder in Bellway so I do know something about the company. Your comment is simply wrong and it annoys people intensely if you post spurious posts that suggest the facts were not known.

Website: ShareSoc - UK Individual Shareholders' Society
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rhomboid1 9th Aug '12 64 of 431
1

Roger

I thought you'd had your last word?

So why not ask the company their rationale rather than going in all guns blazing?

Cheers

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emptyend 9th Aug '12 65 of 431
1

In reply to Roger Lawson, post #63

Your comment is simply wrong and it annoys people intensely if you post spurious posts that suggest the facts were not known.

You say that you haven't had an explanation of why they did it. The company haven't  (yet!) published one. You haven't bothered to ask for one. End of story.

It annoys people intensely if you criticise companies without bothering to find out the facts, especially when you seek to claim the moral high ground in acting as judge and jury.

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Roger Lawson 9th Aug '12 66 of 431
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The facts were clear. I don't have to justify what the company announced, they have to do so. The fact they have not done so yet speaks volumes. Regrettably those who are apologists for company directors who not only break the rules but who blatantly do things that any sensible shareholders will abhore are not helping to improve the investment environment. You are just making it worse. Perhaps you don't believe in good "corporate governance" at all. Well if so, you should say so.
But if you think I am not going to point out such cases as Hiscox and Bellway and argue with those who oppose talking about such cases, then you are very much mistaken. And if you think that public company directors always act in the best interests of shareholders and that all is basically right in this world, then you are more of a fool than I thought. Only by shining the light of public opprobium on the acts of company directors, immediately they come to attention can we hope to stop these things happening. There is no possible justification for a company such as Bellway appointing its current Chief Executive as Chairman, and you won't get one even if you ask.

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 10th Aug '12 67 of 431
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In reply to Roger Lawson, post #66

Sorry to see you have lost it.

You are completely wrong on this point:

There is no possible justification for a company such as Bellway appointing its current Chief Executive as Chairman

I would agree that perhaps it is unlikely....but it certainly isn't "impossible". The point is that you have rushed to condemn the decision without making any effort at all to find out whether the company will offer a justification (they are not obliged to RNS a justification under the Common Code, only to do so in the Annual Report).

If you are going to continue to purport to represent shareholders, I'd suggest (as Rhomboid does) that you pick your fights and focus on clearer examples of wrongdoing - of which there have been a number.

Meanwhile by all means keep Bellway on a watchlist - but don't destroy your own credibility by rushing to condemn companies that are acting perfectly legally and within the bounds of the Common Code.

I hope you will take that point on board without continuing to besmirch as "apologists" or "fools" those who point out your error.

Ultimately the shareholders both own the company and appoint the directors. It is incumbent upon shareholder bodies to retain a sense of proportion when placing pressures on Directors.

These are matters of general principle, and it is unwise to allow previous "experience" with a company (as you have admitted in relation to Bellway) to intrude on a dispassionate judgement of the facts.

ee

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rhomboid1 10th Aug '12 68 of 431
2

In reply to Roger Lawson, post #66

Good Morning Roger

If I may so your tone appears to have become a tad strident, yours is obviously the only true path to enlightenment and brooks no dissent.

Over and out

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Roger Lawson 10th Aug '12 69 of 431
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If my tone was strident it was because I get frustrated when arguing with people who do not seem to understand what is in essence wrong with appointing a former chief executive as chairman, irrespective of whatever excuse the company may come up with. If you want to get good corporate governance, you need to support those who bring the attention of the public to examples of bad practice. Not attack them for crying wolf. One reason why we have so many examples of bad governance in the UK is because shareholders (and particularly institutional ones) are unwilling to speak out. The English are generally bad complainers because they are too reserved, too polite and do not wish to offend. Knocking those who are "too strident" is part of the same problem. But I suggest we defer further debate until we see the "excuse" the company may issue in due course.

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 10th Aug '12 70 of 431
1

In reply to Roger Lawson, post #69

I suggest we defer further debate until we see the "excuse" the company may issue in due course.

Phew. At last.

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Murakami 10th Aug '12 71 of 431
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Hi all, thanks for a really good/lively debate but this is just a gentle reminder to avoid "ad hominem" points, as they can discourage serious discussion: http://www.stockopedia.com/page/posting-guidelines/

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