ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by

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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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Roger Lawson 20th Aug '13 412 of 431

In reply to post #76330

A couple of points:

1. Re Bloomberg and the Apple interview, I was invited to discuss that topic on the basis that I knew something about shareholder activism. I also have some knowledge of Apple and some financial interest in it indirectly because I hold shares in a Technology investment trust, which like most of them is stacked up with Apple shares. Many of our members may have a direct or indirect interest in Apple.

2. We do spend a lot of effort on the issue of shareholder voting rights and the problem of nominee accounts. Indeed have just written a draft response to Cable's Discussion Paper on "Trust and Transparency" where recording the beneficial owners of all shareholders on the register is proposed (you can read and comment on the draft on the ShareSoc Members Network). That would of course solve that problem at a stroke!

Website: Roliscon
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emptyend 20th Aug '13 413 of 431

In reply to post #76330


We are looking at a more constructive concept of "shareholder liaison groups" (SLGs), where effectively, a single point of contact is established between individual shareholders and a company's Board. This should make for more efficient communications for both parties and good companies should be able to head off the need for action groups, by maintaining a constructive dialogue and explaining the intent of their actions and the constraints they live under. I see this operating in much the same way that companies communicate with major institutional shareholders, thus helping to level the playing field.

I'm certainly sympathetic to the idea of a more level playing field but I'm not sure that this idea is either necessary or realistic.

Most companies have an executive appointed to deal with shareholder enquiries. Often this is a senior board member.  In the event that shareholders are unhappy with the way that the Executive are dealing with a particular issue, they can contact the Senior Non-Executive Director - whose role is precisely to deal with any concerns over Governance or the Executive.

I'm afraid it is unrealistic for a Board to be able to say much more to shareholders than is already in an RNS - so I doubt you would find much useful in relation to  "explaining the intent of their actions and the constraints they live under", because in most/many cases that is likely to make you an insider. Companies generally try to avoid disclosing information that would make shareholders (including institutions) insiders - and thus unable to trade the shares!

In the area of communications between shareholders and boards, my strong suggestion would be to focus on getting a bigger turnout from shareholders at an AGM. As you know, most companies usually get only a dozen or two shareholders at an AGM - and it is those who don't attend who, IMO, are suffering most from the lack of communication and thus the potential for misunderstandings.  The full board is usually in attendance at AGMs, so it seems to me that shareholders should make much more effort to attend if there are matters which concern them and which they wish to raise.

The shareholder committees we advocate have very limited and specific functions: nomination of directors, remuneration, and (possibly) audit. I don't see that leading to a "shadow directorate".
I'm afraid to say that that is completely wrong - and rhomboid's concerns are right. With the exception of suggesting nominations, I can see no possibility of any useful discussions concerning either remuneration or audit without being made an insider. I can say with complete certainty that this would have been the case in the last two years in the company where I have direct experience.



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Roger Lawson 21st Aug '13 414 of 431

Well institutional shareholders are now expected to "engage" with company boards on the subject of director appointments, remuneration and lots of other things too. So yes the problem of them becoming insiders is already plain and has to be tackled somehow. This is not an objection to Shareholder Committees, where certainly the same problem would arise, but is a logical difficulty that nobody seems to want to face up to. Suggestions on how to get around it would be helpful. But of course we are talking theory here rather than practice. In reality boards already often consult their major shareholders on remuneration and major appointments - indeed they often justify their outrageous levels of pay by saying they have done so! Or are they fibbing?

Website: Roliscon
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emptyend 22nd Aug '13 415 of 431

In reply to post #76407

Regarding institutional engagement, my comments here are based on observations rather than direct knowledge, as the company I'm involved with doesn't consult on any of the matters you raise.

However, it is clear to me that most institutional investors now have Corporate Governance specialists and the ability to use internal chinese walls to separate the people dealing with Governance and engagement (on remuneration, appointments, governance etc) from the people who deal with fund management and dealing. Of course the people who actually manage funds will sometimes ask for updates or individual briefings on current events, in the same ways as private individuals will - but none of them will receive inside or privileged information. The only exception would be if a company needed to explain some transaction for which specific institutional support was being sought (takeovers, fund-raising etc) - and in those cases it would be made clear to the investors that they were being taken "inside" and would be unable to deal in the shares.

No doubt such procedures are sometimes imperfect but, in principle, the fact that investing institutions are composed of multiple people (operating within clear structures and roles) allows them to engage on various matters without risk of conflict of interest or misuse of priviledged information. No doubt there are some here who could explain these things with first-hand knowledge and more authority than I can.

Incidentally, jumping to make generalised tilts against "outrageous pay" and gratuitous suggestions of "fibbing" suggests some level of bias and pre-judgement, IMO. I don't think that helps anyone at all!

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Roger Lawson 23rd Aug '13 416 of 431

The "fibbing" word was embedded in a question. It is a question, not an allegation. Perhaps you are suggesting that when a company says "we have consulted our major shareholders" they have only discussed it with the corporate governance specialists who are sitting behind a "chinese wall" in their institutional shareholders, i.e. they have not consulted with the investment managers who actually make decisions about holdings in the company? Or perhaps they have discussed it with the latter, but they have agreed to be made insiders and hence won't be trading the shares in the near future? I suggest this all somewhat unrealistic and not how it operates in practice. I reiterate the original point: there is a logical problem in wanting more "engagement" between investors and company directors when the "insider" difficulty has not been properly resolved.
As regards "outrageous pay", there is a widely held perception that the pay of directors in FTSE-100 companies has become grossly excessive. If you think otherwise, please let us know.

Website: Roliscon
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emptyend 23rd Aug '13 417 of 431

In reply to post #76465

I suggest this all somewhat unrealistic and not how it operates in practice.

Well I spent most of my working life in (banking) institutions that had Chinese walls running through them - and all I can say is that they were taken extremely seriously indeed and dealing rules were enforced extremely strictly....and were very actively policed by the internal compliance department. Of course such an efficient, legalistic and honest approach doesn't sit well with the spin that uninformed outsiders often like to put on things.

As regards "outrageous pay", there is a widely held perception that the pay of directors in FTSE-100 companies has become grossly excessive. If you think otherwise, please let us know.

I certainly agree that it is in some cases - but, even in the FTSE100, I wouldn't say that is the case in every instance - nor, indeed, necessarily a majority. I haven't looked into the details, but would expect there to be a very wide spread of remuneration and a similar spread of how well-justified say compensation may be.....and for those distributions not to map over each other - so there will certainly be some examples of very high pay that hasn't been justified but also, I suggest, some examples of more moderate pay that is being amply well-justified.

It is an area about which I think it is extremely unhelpful to generalise.

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ShareSoc 26th Aug '13 418 of 431

Posted by ShareSoc at 11:29, August 20 2013.

Improving Corporate Governance and Shareholder Engagement

The above was the title of a document recently published by the Association of British Insurers (ABI), a body that represents some of the largest institutional investors in UK companies. It’s primarily a review of where they stand on corporate governance but is well worth a read if you have an interest in such matters. It also contains some recommendations for improvements.

One recommendation is that the time commitment of non-executive directors should be reviewed. Perhaps this is because it reports that the average size of board information pack in a FTSE-100 company is 288 pages long! They seem to be full of operational detail and must in essence be indigestible. But another recommendation is that boards should be “more demanding of the formal flow of information they receive”. Perhaps more demanding for less bumf and more summarisation?

The ABI is proposing to establish an “Investor Exchange” where members can raise concerns about companies and organise meetings. But it will be a private and confidential forum.

On shareholder rights, they are keen to retain “one share, one vote” rather than introduce differential voting rights.

On Annual General Meetings they say “members still believe that the AGM is an important last line of accountability for companies and directors and reinforces the relationship with shareholders”. They suggest companies could do more to “reinvigorate the format” but they point out that attendance of institutional investors might be improved if AGMs were more spread over the year (they tend to be bunching up now due to many companies moving to a December year end). But it is good to hear that they feel institutions should attend such meetings which many do not.

There is much of merit in this document, although it does tend to be focussed on large FTSE-100 companies. 

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ShareSoc 26th Aug '13 419 of 431

Posted by ShareSoc at 09:32, August 23 2013.

RSM Tenon Pre-Pack: an odd connection

ShareSoc has made many representations in the past about the abusive use of pre-pack administrations. In the case of publicly listed companies, they usually mean the ordinary shares become instantly worthless. The latest case of a pre-pack in a listed company is that of RSM Tenon (LON:TNO) . This company (an accountancy practice oddly enough) got into difficulty by taking on excessive debt for a growth strategy. Baker Tilly were negotiating to buy the business for a rock bottom price. But yesterday it was announced that instead the company had been put through a pre-pack and sold to Baker Tilly by the administrator. You can tell it’s a pre-pack (i.e. one arranged before the administrator had been formally appointed) by the wording of the announcement issued by RSM Tenon which says “Immediately following their appointment, the Joint Administrators [Deloittes] agreed a sale of the Company’s trading entities to Baker Tilly”.

Whether any better deal could have been done, or the interests of ordinary shareholders protected in this case, may be debatable. But there is one odd connection.

Vince Cable’s BIS Department have launched yet another inquiry into pre-pack administrations (in this case an “independent one”) because there have been continuing concerns about their operation.  For example, he recently said “You do have these so-called phoenix companies where owners typically shut down their companies in order to wipe out their debts and start again the following day under a slightly different name”. This inquiry will be led by Teresa Graham and will report next year – the terms of reference have yet to be announced. Teresa Graham is an accountant who has been involved in other Government quangos – she chairs the Administrative Burdens Advisory Board of HMRC at present, but also has some non-executive directorships in smaller companies. More interesting perhaps is that she previously worked for Baker Tilly! Will she be examining this particular example of a pre-pack one wonders?

Note that there is a lot more information about pre-packs and ShareSoc’s representations on the ShareSoc Members Network where there is a “Forum” dedicated to the subject here:

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ShareSoc 26th Aug '13 420 of 431

Posted by ShareSoc at 09:41, August 24 2013.

Media Corporation – Cessation of Business

One of the first “problem” companies that ShareSoc reported on (and got involved with to a limited extent, although it always appeared to be somewhat of a basket case) was Media Corp (LON:MDC) . We first covered it in our June 2011 newsletter when the share price was about 1.5 pence. After various changes of strategy and management upheavals, the shares were suspended from AIM (not for the first time) in April at 0.095 pence, after much dilution from new share issuance in the meantime.

Yesterday (on Friday 23rd August, at 5.45 pm) the company announced with the headline “Cessation of Business” that it was disposing of its remaining operating businesses and transmogrifying into an investment company – to be called Leopard Oil Plc. Yes it will be focussing on “oil and gas opportunities”, which sounds like even more speculation.

It’s always a good time to make a major announcement after the market has closed and just before a bank holiday is it not? Although with the shares suspended it may not matter a great deal. But this is what one might expect from past goings-on at this company.

The company’s previous activities have been primarily in the gaming sector, and they had been working on a new platform called “Intabet” but they report that this has proved beyond their financial resources to launch. They also have “legacy issues” apparently, without spelling out what they are.

A General Meeting to approve the proposed change of direction has been called for the 16th September. It should be an interesting meeting for anyone still holding shares in this company.

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ShareSoc 2nd Sep '13 421 of 431

Posted by ShareSoc at 10:22, August 28 2013.

EuroFinuse attacks lack of retail investor representation

Guillaume Prache of EuroFinuse (of which ShareSoc is a member) has been attacking the lack of adequate retail investor representation on European bodies that devise financial market regulations. Specifically he has attacked the European Securities and Markets Authority (ESMA) and its Securities and Markets Stakeholder Group where only a few of the 30 members on the committees are consumer advocates (i.e. retail investors). He complains the big banks are dominating policy development on European financial market regulations which of course now dictate local national regulations. EuroFinuse have also raised a complaint to the European Ombudsman on this matter.

The issues were covered in a lengthy article in the FTfm supplement on 26/8/2013, which can be read here:

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ShareSoc 2nd Sep '13 422 of 431

Posted by ShareSoc at 07:32, August 29 2013.

Dunedin Enterprise – Chairman stepping down

Dunedin Enterprise Investment Trust Closed Fund (LON:DNE) announced its half-year results this morning. They were unremarkable. But the good news in the announcement was the mention that David Gamble is retiring from the board, and hence as Chairman, at the next AGM.

ShareSoc attacked this company for the introduction of a performance fee in October 2012, under Mr Gamble’s chairmanship. It seemed totally unnecessary to compensate the fund manager in the way chosen because of a change in investment policy, with the risk of substantially higher management fees. Read our press release here:

At the subsequent General Meeting, it was disclosed, in response to questions, that Mr Gamble had 8 directorships and 2 other consultancy roles. This is surely excessive and contrary to ShareSoc’s guidelines for non-executive directors which suggests a limit of 4 or 5 roles (see ).

So ShareSoc cannot but welcome this change of Chairman.

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ShareSoc 2nd Sep '13 423 of 431

Posted by ShareSoc at 09:23, August 31 2013.

Vodafone and Verizon – how will they use the cash?

ShareSoc has issued a press release on the likely deal for Vodafone (LON:VOD) to sell its stake in Verizon Wireless (see This might realise over US$100bn in cash so the key question is what the company will do with it. Will it waste it on other acquisitions or return it to shareholders? And in the latter case in what form?

Vodafone is a company that appears to love share buy-backs, like many other FTSE-100 companies. But ShareSoc suggests that it would be better returned via special dividends or tender offers. Ideally shareholders should have the option to receive it as either income or capital so they can choose which is more tax efficient.

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emptyend 2nd Sep '13 424 of 431

In reply to post #76764

This might realise over US$100bn in cash so the key question is what the company will do with it. Will it waste it on other acquisitions or return it to shareholders? And in the latter case in what form?
That is a very good question! 
.....though it is difficult to "waste" such large amounts other than by sitting on it and letting inflation erode its value.
I'm interested to see that the FTSE100 is up over 100 points, largely due to rises in obvious liquid large-cap income plays, that seem to be rising in expectation of further flows into alternative stocks.
It might be quite a shot in the arm for the economy if they returned the money to shareholders - especially as (thanks to Mr G Brown). Peston's comments on the matter are quite interesting.....especially this one:

Although this disposal has been encouraged by investors, one or two big investment institutions have egg on their face over it.

Back in 2006, Standard Life called on Vodafone to sell its Verizon Wireless stake and voted against the re-election to the board of the then chief executive Arun Sarin, who did not want to sell.

Had Vodafone done what Standard Life wanted, it would have raised around £25bn, rather than the £84bn it is getting now.

When you consider that 2006 was not much before the financial collapse, it would seem that the Vodafone board has played a blinder over the last few years. I very much hope that all shareholders give them the credit that they seem to be due!
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nigelpm 2nd Sep '13 425 of 431

In reply to post #76764

I think you are well off on a couple of points here although obviously only my opinion.

Firstly, the Vodafone share buyback has been incredibly value-add if you look back at prices paid.

Also, worth noting that £28bn is not really a debt mountain when considering the asset value/market cap and the useful tax reduction from interest payments

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ShareSoc 4th Sep '13 426 of 431

Posted by ShareSoc at 20:16, September 2 2013.

Vodafone deal details now available, and most are pleased

Vodafone (LON:VOD) have now published the details of the deal to sell their stake in Verizon. I won’t repeat the details here but most investors seem pleased with it. That includes ShareSoc director Stan Grierson who got a few seconds on BBC News explaining how we will now be able to afford more space on airlines for his long legs – you can see a more useful and longer video interview here:

Although the deal is being applauded as a major cash injection to the UK economy, in reality it might simply mean shareholders like Stan, and even institutions, moving to reinvest the cash in other stock market stocks rather than spend the money, i.e. it might simply lead to asset inflation. Perhaps today’s general rise in the UK market was simply anticipating this phenomenon.

One aspect glossed over in the announcement was the prospective share consolidation. These tend to be complex and one thing we will need to keep an eye out for is the question of whether managements LTIPs and share options are adjusted accordingly.

For private shareholders they might be concerned about being issued with Verizon shares but there will be a dealing facility put in place to assist with that problem. At least there was no mention of share buybacks in the announcement.

Oddly enough I have never personally been a big holder of Vodafone. One of my big early mistakes in investing was trusting a well known private bank to handle part of my financial affairs. They purchased Vodafone at 275p in 1999 and sold at 141p in 2001. They were soon after fired, and that was not their biggest mistake. As ShareSoc keeps telling people, you are usually better off looking after your own share portfolio, because your mistakes won’t be any worse than the professionals and with a modicum of wisdom and experience you can do a lot better. I bought Vodafone back subsequently in 2008, but with the latest announcement I have at least recovered the past losses.

Roger Lawson

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Roger Lawson 4th Sep '13 427 of 431

In reply to post #76769

Nigelpm: wll any expenditure will reduce a company's tax bill, but that's the first time I have seen this argued that this is good thing to do, because of course it also reduces profits and earnings available to equity shareholders. And if you are paying cash interest on debt, then that is a diversion of cash which otherwise might increase the equity value in the business, and the ability to pay cash dividends to equity sharehoilders.

Website: Roliscon
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nigelpm 4th Sep '13 428 of 431

In reply to post #76865

You've obviously never heard of Modigliani and Miller?

Whilst their ideas were probably too far a moderate level of gearing in a business is probably the "optimum level" assuming you can get reasonable rates.

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Roger Lawson 4th Sep '13 429 of 431

In reply to post #76866

Nigelpm: yes of course I am familiar with M&M theories. I don't think I suggested Vodafone repay all their debt - it's a question of what is a sensible level of gearing for a company operating in fast moving market with risks of technological obsolesence. In any case my last comment was simply to point out that taking on debt as a "tax planning" strategy is not sensible.

Website: Roliscon
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nigelpm 4th Sep '13 430 of 431

In reply to post #76867

Apologies I thought by :

but that's the first time I have seen this argued that this is good thing to do

You meant you'd never seen an argument for a company having a level of gearing

Because that is exactly what M&M suggested.

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ShareSoc 9th Sep '13 431 of 431

Posted by ShareSoc at 12:15, September 9 2013.

FT article on dematerialisation

The Financial Times published a long article by Jonathan Eley entitled “What price shareholder democracy?” on Saturday. It was in the FTMoney supplement and covered the issue of nominee accounts, dematerialisation and prospective EU legislation. Mr Eley covered most of the issues well but here’s a note I have sent him to explain a few points.

Dear Jonathan,

Regarding your article at the weekend on shareholder democracy and nominee accounts, which was generally very sound, a few points:

1. Not all listed companies like the nominee system because it effectively means they do not know who their real shareholders are, and also have no way of communicating with them. It is often particularly important to mobilise private shareholders and smaller institutional holders when a company is under attack by speculators or short term holders but it is very difficult for the directors to do that when the retail shareholders are in nominee accounts. Indeed I would argue that those companies who like the nominee system are often those where the management are major shareholders and are quite happy to have private investors disenfranchised - this happens quite a lot with AIM companies, where the directors often want to do what they want regardless of shareholder views. 

2. You close the article by asking "who will pay for it [dematerialisation]?  The answer from previous studies of the cost and benefits of dematerialisation is that it will more than pay for itself! Obviously there are some initial costs to be borne by brokers and Crest to convert their systems, but they will also make substantial cost savings from the reduced paper handling and otherwise simplified systems (assume all paper share certificates are dematerialised as recommended). So the industry saves money, but also private shareholders save a lot also because they incur substantial costs from such problems as lost share certificates. The current costs are high because there are still millions of holders of paper share certificates. In addition, at present you sometimes have to "rematerialise" a "dematerialised" holding to take advantage of corporate actions. For example I recently had to rematerialise into paper a holding in a VCT which was in my personal crest account so I could take up an "enhanced buy-back" offer. Basically the current system is a mess and paper share certificates are not just archaic but they are also a major security risk.

3. So far as ShareSoc is concerned, nominee accounts are an anathema for the reasons you partly explain in your article. The reason why stockbrokers like pooled nominee accounts is not simply the cost but because it locks their clients into their services. There is no cost difference between a nominee account or a personal crest account - indeed some brokers who offer both charge the same. In other words, the claims for cost benefits of pooled nominees are a myth. In essence nominee accounts undermine your legal rights, create major risks for investors, and destroy shareholder democracy. We think they should be severely restricted or at least clients made aware of the issues before they sign up for them. In addition we would like to have the regulations changed so that ISAs and SIPPs don't need to be in nominee accounts.

Regrettably the Government seems to be listening more to those who would like to keep the status quo rather than introduce a modern electronic system based on dematerialisation (as recommended incidentally in the Kay Review). They are trying to delay implementation of the CSDR EU legislation when they should not be.

Shareholders should write to their M.P. if they wish to get a more sensible approach in place before it is too late.

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