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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

Follow us on Twitter: https://twitter.com/ShareSocUK 

 


Filed Under: Regulation, Investing,

About the Author's Newsletter

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ShareSoc Informer

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 »


Disclaimer:  

 

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

MadDutch 4th Oct '12 152 of 431

Hello Sharesoc.
Thank you for inviting me on a skiing holiday. Please count me as very interested.
But you have not told me where it is to, and the cost.

Mike

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marben100 4th Oct '12 153 of 431

In reply to MadDutch, post #152

Hi Mike,

I will e-mail you details - my e-mail address was given as the contact point for enquiries, in case anyone else is confused!

Mark

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ShareSoc 9th Oct '12 154 of 431
2

Posted by ShareSoc at 15:41, October 5 2012.

Excessive discount, excessive pay, and yet another abusive pre-pack

Graphite Enterprise Share Price Discount

Graphite Enterprise Trust (LON:GPE) issued some good news today, but the shares still trade at a significant discount to Net Asset Value. We also issued a note commenting on their interim results this morning (the results came out a few days ago) which you can read here: www.sharesoc.org/Graphite_Update_1.pdf . Although the discount has narrowed slightly over the last six months, at the time of writing, the discount is still 32%.This compares with a 34% discount when we wrote to shareholders in August to launch a campaign on this issue and get something done about it. We suggest that discount is still way too high! If you are a Graphite Enterprise Trust shareholder, please register your interest in our campaign.

 

Persimmon LTIP

Persimmon (LON:PSN) have called a General Meeting to approve a new LTIP scheme. The company plans to return a large amount of cash to shareholders over the next nine years, and want the management to be rewarded accordingly. In fact they are proposing to grant options of up to 10% of the company’s shares, including a maximum of 4.8m to the Chief Executive (at the current share price of 753p that’s £36m for him alone).

 

The initial tranche of options will be granted at 620p which is a discount of 18% to the existing share price. In addition the share option price will be reduced in future to take account of the dividends paid out to shareholders (the more paid, the cheaper they get). Now adjusting share options to take account of major returns of cash might be arguable (if the company is being substantially reduced in size by the return of cash, then the share price may fall of course). But the implications of such adjustments are never straightforward. Some of the profits, and hence dividends, might simply have arisen from the normal operations of the business. The only performance conditions attached are related to the amount of dividends paid out. With an asset rich business, downsizing it to return cash may not be particularly difficult.

 

In summary these proposals, are both exceedingly complex and over-generous. Why should directors or senior management be especially rewarded for running the business in the best interests of the company and of shareholders? That is their normal duty. So I suggest shareholders should vote against the LTIP proposal.

 

United Carpets Pre-Pack

Lastly, retailer United Carpets (LON:UCG) has put its main trading subsidiary (United Carpets Northern Ltd - UCN) through a pre-pack administration. The parent company’s shares are listed but are currently suspended. After the Administrator was appointed, the business and the majority of assets were immediately sold to United Carpets (Franchisor) Ltd, another wholly owned subsidiary of the public company.

 

The justification given for this sleight of hand was that without doing this deal (and effectively enabling the company to either exit from its lease liabilities or force the store landlords to reduce them), the company could not continue trading. Needless to say, the landlords are going to be furious about this move. It has enabled the company to break their contracts, but otherwise continue trading as before, with the same management and the same shareholders. In other words a typical “phoenix” company situation.


ShareSoc has consistently opposed pre-pack administrations which permit companies to default on their obligations and undermine normal business practices. There is more information about this in past ShareSoc Newsletters and on our Members Network.

 

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ShareSoc 9th Oct '12 155 of 431
1

Posted by ShareSoc at 08:39, October 9 2012.

Business Against Greed and “Heads I win, tails you lose”

Last night Channel 4’s Despatches programme profiled the campaign by Sir Michael Darrington against excessive pay in public companies. Sir Michael is the former Chief Executive of Greggs the bakers. He has launched a campaign called “Business Against Greed” which you can read more about on this web page: http://businessagainstgreed.co.uk .

Much of what he says about limiting the size of bonuses and introducing shareholders into Remuneration Committees are very much in alignment with ShareSoc’s policies as submitted in our responses to recent consultations on executive pay (see www.sharesoc.org/consultations.html ). This campaign is surely yet another symptom of the revulsion spreading among both shareholders and the general public against excessive remuneration, and is certainly worthy of shareholder support.

Excessive reliance on bonus schemes can have perverse consequences. Look at the example of Hibu (LON:HIBU) (formerly called Yell). Directors had a bonus scheme based on share options. But the company recently said the shares might well be worthless. So if you aren’t going to make your bonus what do you do? Simply change the rules which is what the directors have now done. Instead bonuses will now be paid in cash. I think that’s a good example of “heads I win, tails you lose”.

 

Newsletter: ShareSoc Informer
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emptyend 9th Oct '12 156 of 431

In reply to ShareSoc, post #155

So if you aren’t going to make your bonus what do you do? Simply change the rules which is what the directors have now done. Instead bonuses will now be paid in cash. I think that’s a good example of “heads I win, tails you lose”

Is that retrospectively in relation to options already awarded? Surely not, because that would need shareholder approval.

If it relates to the position going forward, then frankly I can see nothing wrong with that at all. It is just like moving someone to a defined contribution pension scheme from a defined benefit pension scheme when you don't affect rights already accrued. And of course shareholders can vote it down with the next Annual Report if they really don't like it.

In fact one might argue that if they have been awarded share options that have subsequently moved out of the money, then shareholders have hitherto had their directors' services "on the cheap" in relation to what would have been paid if they'd paid the cash equivalent of the options awarded!

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emptyend 9th Oct '12 157 of 431

In reply to ShareSoc, post #154

Persimmon (LON:PSN) have called a General Meeting to approve a new LTIP scheme. The company plans to return a large amount of cash to shareholders over the next nine years, and want the management to be rewarded accordingly. In fact they are proposing to grant options of up to 10% of the company’s shares, including a maximum of 4.8m to the Chief Executive (at the current share price of 753p that’s £36m for him alone)

That line is just complete rabble-rousing cobblers isn't it? What a load of ill-considered rubbish.

If the Chief Exec has to PAY when exercising those options, then they are worth NOWHERE NEAR the amount you have stated.

They may well still be excessive of course, but you do your case no good whatsoever by egregiously exaggerating the numbers and paying zero attention to the actual facts.

Furthermore, you go on to admit there are performance tests (albeit perhaps relatively easy to hit) which means that the options may STILL turn out to be worthless.

Stick to the facts please.

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Roger Lawson 10th Oct '12 158 of 431
6

Emptyend: The blog post says a "maximum of 4.8m" shares, and at the current share price that is equivalent to £36m (in the value of shares under option). So in that sense, he alone has an award valued at £36m. Obviously these are not nil cost options (there was no suggestion in that post that they were), but the initial tranche is at a discount to the current share price and later tranches reduce in price if the downsizing plan is executed as expected. So potentially there is an enormous potential value implicit in this award. In addition the performance criteria is simply based on downsizing the business and returning cash to shareholders. It it is not about generating more profits or growing the business, which is the more usual target of an incentive scheme and much more difficult to achieve. I don't think the post was misleading at all, and it was definitely not "ill-considered rubbish". I looked at the details before writing it, which you do not appear to have done. It was fair comment in my view.

Lately you seem to take a very jaundiced view of any suggestion that shareholders should have any say in what directors pay themselves, or even comment on it. And I also note that you have also come out against the latest improvements suggested by the FSA in corporate governance - namely that there should be a majority of non-executives on the boards of premium listed FTSE companies. You are becoming the Victor Meldrew of the bulletin board world - moaning about more "box ticking" as you put it, while being blind to the abuses that have taken place which has generated the demand for more rules. You might act as a director in the best interests of shareholders, but from my experience of companies dominated by one or two shareholders, or one or two executive directors, the outcome is usually unhappy for minority shareholders.
More constructive comments, rather than negative attacks on those who wish to improve matters would surely be wiser.

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 11th Oct '12 159 of 431
5

In reply to Roger Lawson, post #158

You are becoming the Victor Meldrew of the bulletin board world

That's rich, coming from someone who (on a near-daily basis) claims "I don't belieeeeve it" and rails against some (partly imagined) attack on shareholders in an irrational manner!

The blog post says a "maximum of 4.8m" shares, and at the current share price that is equivalent to £36m (in the value of shares under option). So in that sense, he alone has an award valued at £36m. Obviously these are not nil cost options (there was no suggestion in that post that they were)

You wrote "at the current share price of 753p that’s £36m for him alone" in bold. You were PLAINLY seeking to suggest that his was a massive £36 million all for him. It wasn't, as I pointed out. You have no idea what the options will turn out to be worth - though of course you were right (as I clearly acknowledged in my original reply) to complain about the discount....and about the weak performance criteria - as I also acknowledged in my reply!

Lately you seem to take a very jaundiced view of any suggestion that shareholders should have any say in what directors pay themselves, or even comment on it.

Complete rubbish. I am merely trying to encourage you to stick to the facts in your complaints and not to exaggerate or to try to draw general conclusions from extremely particular circumstances (the latter point doesn't apply in this case, fortunately). You appear to take umbrage at being challenged on these matters and prefer to have free rein to spread misleading propaganda. I am used to challenging (as you would expect) - and won't be deterred from pointing out your errors when you overstep the line of truth.

I also note that you have also come out against the latest improvements suggested by the FSA in corporate governance - namely that there should be a majority of non-executives on the boards of premium listed FTSE companies.

Oh really? Where was that then? Please produce the evidence to back up that claim. I certainly can't remember having done that - and see no reason why I would, as I agree that there should be a majority of non-execs.

If you were to stick to the facts and cease your habit of  exaggerating then you would find that our underlying opinions are very similar at least 80-90% of the time.

ee

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Roger Lawson 11th Oct '12 160 of 431
2

1) Glad you were amused by my reference to Victor Meldrew.
2) You seem to have jumped to conclusions on the interpretation of the share option value - an interpretation which I did not make and I don't think most people would have.
3) You should bear in mind that my blog posts are simple distillation of the facts, with some opinion added. They are by their nature short summaries. Not everyone will agree with my opinions or interpretation. But to call them rubbish is inappropriate.
4) As regards the comment about your opinions on the new FSA rule regarding a majority of non-execs, I am of course refering to your comments on this web page: http://www.guardian.co.uk/business/nils-pratley-on-finance/2012/oct/04/goodwin-plc-polar-opposite where someone using the name Emptyend added as a comment "Very good article......and an excellent illustration of the folly of allowing mindless box-tickers free rein.". Of course it could be that someone else has purloined your monicker (always a problem with people posting anonymously under invented names), or perhaps you have simply forgotten making those comments. Either way, we should be enlightened.

"!

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 11th Oct '12 161 of 431
2

In reply to Roger Lawson, post #160

As regards the comment about your opinions on the new FSA rule regarding a majority of non-execs, I am of course refering to your comments on this web page

Are you really? Well its a big shame that I didn't mention once the matter of non-execs then - and that you chose to quote selectively.

My comments were:

an excellent illustration of the folly of allowing mindless box-tickers free rein.

What would be best is if the ABI and PIRC could publish whatever they want - but institutions merely note their input as ONE of a number of inputs and form their own view.

Sadly what we seem to have at present is money management sheep led by box-tickers.....and that is most definitely NOT going to have a happy ending.

The point of my comment (and the article) being that those of a box-ticking mentality adopt extreme levels of inflexibility even when the law and the rules under which companies operate are framed the way they are precisely to allow companies some level of flexibility!

The "comply or explain" approach has allowed the company at the centre of that article to explain why it does things its way - and it would seem that shareholders have done OK over many years with that approach.

Having self-appointed "advisers"  chucking their weight around indiscrimately and having institutional shareholders slavishly following these 3rd parties opinions without bothering to form their own is a recipe for disaster. You don't have to take my word for it though - look at all the institutional mugs who took the opinions of 3rd party credit rating agencies on securitisations and lost loads of their clients cash because they couldn't be bothered to think for themselves. Opinions such as those of PIRC and the ABI should be treated as opinions and advice - not as some sort of gospel that must be religiously followed in all cases. They may well be worth following in 95-99% of cases - but intelligent people should recognise that the occasional exception may be merited as a result of other factors.

And, for the avoidance of doubt, I am completely in agreement with the idea that boards should have a majority of non-execs. I do believe, though, that a company should be able to depart from general rules like this IF it can provide a cogent explanation that its owners agree with.

ps...I should also say that I can't see why Goodwin wants all the bother of remaining listed, given that they haven't raised any money for 50 years. If the box-tickers get their way, perhaps that will just mean one less publically-listed firm available for shareholders to put their money into. Is that a good thing?

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Roger Lawson 11th Oct '12 162 of 431
3

I did not "selectively quote". I simply quoted the first sentence to remind that you had commented on the subject of non-execs at Goodwin and the FSA's new rule. But at least you have now remembered. And have made it plain that you are opposed to the compulsory new rule on the subject.

As regards your final question, yes it would be a good thing if Goodwin delisted. They appear to want to run it as if it was a private company with the family firmly in control. Not the kind of public company I and many other investors would ever invest in and they may as well delist.

Website: ShareSoc - UK Individual Shareholders' Society
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emptyend 11th Oct '12 163 of 431
3

In reply to Roger Lawson, post #162

I did not "selectively quote". I simply quoted the first sentence to remind that you had commented on the subject of non-execs at Goodwin and the FSA's new rule. But at least you have now remembered.....

And have made it plain that you are opposed to the compulsory new rule on the subject.

Look - I'd be obliged if you would stop deliberately misrepresenting the facts and continuing to claim I wrote things that I plainly DIDN'T:

  1. I did NOT originally comment on the issue about non-execs. I commented on the topic (also covered by the Guardian article) about PIRC and the ABI appearing to throw their weight around in a way which is NOT justified given the current "comply or explain" approach. Goodwin appear to have been explaining, as required - and anyone who doesn't like their explanation has presumably sold the shares long ago. Your original post was completely false in alleging that I had said something that I hadn't said.
  2. There is therefore no "remembering" required - the reason I didn't recognise comments you attributed to me was because I didn't make them!!!!!!!!!!
  3. I am indeed opposed to the compulsory nature of proposed rules - and I am a big supporter of the "comply or explain" approach. However, I am also (and it's funny how you omitted this from your summary ;-/) a strong supporter of the principle that a majority of directors should be non-execs.

With regard to this comment.....

As regards your final question, yes it would be a good thing if Goodwin delisted. They appear to want to run it as if it was a private company with the family firmly in control. Not the kind of public company I and many other investors would ever invest in and they may as well delist.

....I would simply point out that, over the years, shareholders seem to have had very good returns from Goodwin. I almost certainly wouldn't invest in them either.....but I don't see why adult, grown-up investors should be deprived of the chance to invest in them if they wish, simply because box-tickers who are making rules think that it is crucial that "one size fits all". My view is that it is wholly legitimate for PIRC/ABI to state their opinion clearly and publically - but that investors should have the right to invest if they wish to ....despite warnings that would put many investors (incl you and me) off.

The nanny state and its various self-appointed agents cannot derisk the real world, except by making it poorer and with less choice for consumers/investors.

And, whilst we are on the topic of my recent contributions to newspapers, you might care to ponder some of the matters that provoked my comments here....which makes precisely the points I have been outlining above.

I'm done on this issue but would remind you not to misrepresent my views again.

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Roger Lawson 11th Oct '12 164 of 431
2

Your views were not misrepresented, as you have made clear. Anyone who reviews this exchange will see that. And you should stop alleging I did.

Website: ShareSoc - UK Individual Shareholders' Society
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ShareSoc 20th Oct '12 165 of 431
1

Posted by ShareSoc at 17:51, October 17 2012.

Dunedin Enterprise Investment Trust – Peculiar Management Incentives

Yesterday Dunedin Enterprise Investment Trust (LON:DNE)  disclosed proposals for a new Performance Fee for the managers of this private equity investment trust. Like other such trusts (and we are currently running a campaign on Graphite), it trades at a substantial discount to net asset value. To tackle this issue they decided on a change of investment policy and are selling some of their investments in third party funds and returning cash to shareholders. This will of course reduce the size of the fund significantly.

It is now proposed to compensate the manager for the reduction, and the fact that the realisations of those investments might have to be done at a discount, by paying the manager a Performance Fee if they realise more than 85% of the net asset value (i.e. presumably a lower loss than might otherwise be expected). They might get up to 1.5%, on a sliding scale, of the gross proceeds.

In addition, they will get the same applied rate on the associated “undrawn commitments”, i.e. the commitments to subscribe cash for new investments in those funds which have not yet been “called off” by the fund manager. This is despite the fact that they get a management fee for cash held in the fund equivalent to what they got on undrawn commitments (so any cancelled commitments will get the same level of management fee).

These proposals simply look like the manager is being paid an additional incentive fee just to execute the policy decisions that the board has decided upon. But as the manager, that is what they are being paid for anyway surely?

Shareholders in Dunedin Enterprise should surely vote down this proposal.

 

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ShareSoc 20th Oct '12 166 of 431
1

Posted by ShareSoc at 00:00, October 18 2012.

Diageo AGM Report – Should they not be producing water?

The Annual General Meeting of Diageo (LON:DGE) on Wednesday was an amusing meeting in some ways. The meeting room was quite full and I would estimate at least 200 shareholders were present. The attendees were obviously mostly retired folks, not surprising because Diageo has traditionally been a good dividend paying stock. But the yield is now only 2.7% and it has a p/e of 16.7 because the share price has been racing ahead in the last few months. It has become a “growth stock” in the eyes of investors because of recent strong sales performance. Last year’s growth in revenue and profits was particularly good so it would seem that while the world economy was moving into recession, the party continued so far as Diageo was concerned.

But the 1st quarter trading based on the announcement issued in the morning showed some concerns which resulted in the share price falling subsequently. Asia Pacific growth was only 2% and growth was generally less than the same period in the prior year.

Shareholder Max Lewis congratulated the company on the margin improvement – “absolutely stunning” he said. This was one of several positive comments on the company’s performance of late and it was obvious that shareholders were generally happy, so most of the questions were on technical matters.

Roland Tompsett asked several questions, including about the new Scottish distilleries. Could they not produce water as well? The answer he got was that there are no problems of water supply in Scotland, but it’s more challenging in Africa where it is needed for beer production.

I spoke against the proxy voting system that Diageo uses (devised by them, as unusually they run their own “register” service). For those like me who are in personal crest accounts and have not opted for paper communications all you are sent is a single card pointing one to a web based voting system. But that demands both an Investor Code and a Personal Crest ID – two bits of information that certainly I do not have readily to hand. I suggested this was simply making it more difficult for shareholders to vote and would deter them from doing so. Speaking on behalf of ShareSoc members, I said we consistently oppose any systems that obstruct shareholder voting. Why could they not simply have included a poll card as they had to post a card anyway, which I could simply have completed and posted back? The Chairman said they will consider the voting issue.

I also raised the issue of the lack of proxy counts being displayed and the fact that they were going straight to a poll, so we would not see the results of the poll until much later (in fact until about noon the next day). I said this is not the best procedure. Bearing in mind that I voted against the Remuneration Report as I considered the total pay in this company too high and remuneration too complex, could the Chairman please advise what percentage vote they got against the Remuneration Report on the proxy votes. The Chairman said 7.4%.

Other shareholders asked which way Johnny Walker would be voting in the forthcoming Scottish Independence referendum (ha ha) and commented on the lack of profile information on the new directors, a point I had also noted. Probably an oversight it seems.

Another shareholder asked about the 200 pages of grey in the Annual Report (compared it with 50 Shades of Grey, that popular novel). It seems he had complained about the printing in a light grey font last year, and they had darkened it, but it was still not a solid black which made reading difficult. The company was going to look into it again.

The same questioner commented on no free samples of the company’s products and asked about remuneration and the growing public repugnance at levels of remuneration. He said there was no proof that high levels are linked to performance. What is Lord Davies doing about it?

Lord Davies said that this was his first year as Chairman of the Remuneration Committee. He had reviewed the pay scheme with colleagues and major institutional investors. This is the first time the LTIPs have paid out in full since 2008. The targets have been increased and claw-backs introduced. But if the company produces exceptional growth in eps then the scheme pays out.

Note: Paul Walsh, CEO, earned just over £3m in cash from base salary and the “Annual Incentive Plan” last year, plus £3.2m from an LTIP, plus exercised 576,000 share options at various prices last year making substantial gains, plus received 392,000 PSP share awards and increased his pension transfer value by £3.3m during the year. The total value of remuneration to Mr Walsh (which of course the company did not even attempt to work out and disclose last year as they may have to do in future) was therefore quite enormous.

This report is a condensed version of a report on the Diageo AGM which is present on the ShareSoc Members Network – available to anyone who joins ShareSoc for free.

 

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ShareSoc 20th Oct '12 167 of 431
2

Posted by ShareSoc at 08:50, October 20 2012.

MPs criticise FSA Report on RBS but miss the elephant in the room

Parliament’s Treasury Select Committee have produced a report on a report – namely a review of the FSA’s report on the near collapse of Royal Bank of Scotland (LON:RBS) . They had to push the FSA to even publish one, and have criticised the failure of the FSA to block the takeover of ABN-AMRO. That deal was simply a step too far for RBS when they were already under cash flow pressure, and the quality of the business acquired was exceedingly questionable.

But nowhere in the Treasury Select Committee report is there any apparent comment on the failure of the FSA to ensure that the rights issue that RBS subsequently used to raise billions of pounds was a sound one. The FSA certainly had powers to do that. In reality the rights issue was needed to bail out the bank from a known and looming problem (as the poor quality of the assets of ABN-AMRO were discovered), but the wording of the prospectus said nothing of the sort. Indeed many shareholders allege it was grossly misleading, inducing them to invest in a bank that was already effectively bust.

But at least the Select Committee calls for a more vigorous approach from the successors to the FSA. See www.publications.parliament.uk/pa/cm201213/cmselect/cmtreasy/640/640.pdf

 

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emptyend 21st Oct '12 168 of 431
5

In reply to ShareSoc, post #167

at least the Select Committee calls for a more vigorous approach from the successors to the FSA

Personally speaking, I think it is less than clear that the RBS rights issue was intentionally misleading. Why? Because it is patently obvious that the RBS board didn'tunderstand the risk profile of either their own historical business - or that of ABN AMRO when they bought that bank.

I read these hair-raising numbers last week in relation to the UBS fraud...which shows that banks are...err..... "rather exposed" to misunderstandings (whether via fraud or incompetance) of their actual risk positions.....

.......the reported risk exposure of UBS on June 24 was $53m whereas the actual risk was in fact $147m.

By June 30 reported risk was $41m but actual risk exposure to UBS had risen to $1.49bn.

Between July 1 and August 10, the court heard Mr Adoboli changed his view of the markets and became more optimistic about them. He masked the true position with fictitious long futures so it would appear to the bank that the position was hedged.

By July 18 the real risk exposure had leapt up to $4.5bn and by August 8 the bank believed its risk was $2m when the risk exposure was in fact $12bn.

But you are right to highlight the call for a more vigorous regulator than the shambolic and wholly ineffective efforts of the FSA!! The performance of the FSA during the decade leading up to the collapses of 2008 was nothing short of a disgrace - and everyone who was at board level in the FSA during that decade should be permanently banned from holding any regulatory function. It wasn't difficult to find people (amongst middle-ranking bankers and former bankers) who knew enough to know that the regulator was asleep at the wheel - even if virtually nobody forsaw just how catastrophic the whole debacle would prove to be.

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ShareSoc 23rd Oct '12 169 of 431
1

Posted by ShareSoc at 09:12, October 23 2012.

ShareSoc Calls for Change at the Top of BAE Systems Plc

Following the collapse of the merger talks between £BA. and EADS, ShareSoc is launching a campaign which calls for the Chairman and Chief Executive of the company to step down. In our view the idea that this merger would gain the widespread support of shareholders (including the votes controlled by other European Governments in EADS) was misconceived from the beginning. In addition we have seen no good business justification put forward for the merger, and it potentially creates major threats to the high cash flow and dividend streams from which shareholders in BAE benefit.

ShareSoc therefore invites Chairman Dick Olver and Chief Executive Ian King to step down as soon as possible, and if they do not do so we will oppose their re-election at the next Annual General Meeting. We also suggest that all the non-executive directors who supported this merger should resign and be replaced before the next AGM (it is they who should have provided the wisdom to call a halt to this idea at an early stage).

In summary, this merger was misconceived, mishandled and simply a mistake. The directors of BAE who promoted it should accept responsibility and resign. BAE clearly needs a new leadership team that can develop an alternative solution to the strategic challenges the company faces.

ShareSoc has issued a Press Release which gives more details and justification for our comments. See www.sharesoc.org/press_releases.html.

Note: our press release was written before the article was published in this morning's Financial Times, indicating that a group of institutional investors had written to BAE calling for the resignation of Dick Olver and Sir Peter Mason (the senior independent director). The reported content of the letter seems to be similar to our reasons for demanding change. We welcome the support of institutional investors for some action.

 

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emptyend 23rd Oct '12 170 of 431
2

In reply to ShareSoc, post #169

Note: our press release was written before the article was published in this morning's Financial Times, indicating that a group of institutional investors had written to BAE calling for the resignation of Dick Olver and Sir Peter Mason (the senior independent director). The reported content of the letter seems to be similar to our reasons for demanding change. We welcome the support of institutional investors for some action.

Isn't that a rather self-aggrandising remark?

I've been away over recent days but even I had noticed that institutional investors were reportedly unhappy with management in the wake of the failed merger and had picked up some institutional calls for at least one resignation many days ago.

I'm also intrigued at your idea of replacing the Chairman, CEO and all supportive non-execs at the earliest opportunity. Wouldn't that be a tad destabilising for a large and complex business and would such wholesale change somehow guarantee increased shareholder value? You can't make a silk purse out of a sow's ear, as the old saying has it - and BAe is faced with a difficult challenge in trying to grow despite the overwhelming political constraints imposed by the nature of its business. Wholesale sackings are unlikely to provide the magic bullet to extricate BAe from a strategic bind.

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ShareSoc 26th Oct '12 171 of 431
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Posted by ShareSoc at 16:28, October 25 2012.

Rising Director Remuneration – Not just a UK Problem

The ERR Bill which introduces a binding vote on directors pay is going through Parliament at present. In the Commons one speaker had this to say:

As I mentioned in Committee, in 1980, the median pay of the highest-paid directors in FTSE 100 companies was £63,000, and median wages were £5,400. By 2010, the median pay of FTSE 100 directors was £2.99 million, while median wages had risen to £25,900. The ratio of directors’ and employees’ median pay had risen from 11:1 to 116:1”, and:

In that environment of growing pay, there is no meaningful correlation between high pay and high corporate performance. Empirical evidence from research carried out in 2009 concluded that companies that pay their chief executive officer in the top 10% of remuneration earn negative results of -13% in terms of both profits and share price in the next five years.”

An interesting reflection of this problem is also present in the recent book by John Bogle called the “Clash of Cultures: Investment v. Speculation" which we hope to publish a review of in a future ShareSoc Newsletter. Mr Bogle reports that in 2011 the median compensation for the 100 highest paid CEOs in the USA was $14.4 million, 320 times the average American salary of $45,230. In comparison the same ratio was only 42 to 1 in 1980. In other words the ratio had risen from 42:1 to 320:1, so if you think it cannot get any worse in the UK, then think again.

Mr Bogle also tackles the issue of why institutional investors have not supported votes on this problem. As ShareSoc said in our response to the Government’s consultations on pay, having a vote on pay is a key element in the solution, but is not by itself sufficient to establish change.

 

Newsletter: ShareSoc Informer
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ShareSoc is dedicated to the support of individual investors. Our aim is to make and keep you better informed so as to improve your investment skills, and protect the value of your investment. We won’t shirk from tackling companies, the Government or other institutions if we think you are not being treated fairly. more »


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