Institutions more vigilant in 'shareholder spring'

VotingInstitutional investors are voting more frequently on the shares they hold and spending more money on stewardship – a sign that the 'shareholder spring' has led to more active engagement with corporate boards.

A survey found that 86% of institutions vote on all the UK shares they hold, compared with 81% in the same survey of 2010. Respondents also reported a 4% rise in resources for stewardship activities, such as monitoring company reports and meeting management.

The Investment Management Association (IMA), which surveyed 58 asset managers, 20 asset owners and five service providers, gave examples of when shareholder engagement had improved corporate behaviour.

These included negotiating with Tesco to overhaul US executive pay, pushing Prudential's entire board to stand for re-election, and pressing for greater health and safety measures at BP in the wake of the oil spill in the Gulf of Mexico in 2010.

“Not only is there increased engagement but it is working – companies have listened to investors and made positive changes,” said Liz Murrall, director of corporate governance.

But not every finding pointed to increased engagement. A third of respondents said they never attend annual general meetings, whereas only 24% said this in 2010.

More evidence of the kind of rebellions that have been grouped under the name 'shareholder spring' – an ironic reference to the upheavals in the Arab world last year – came this week.

Sixty percent of shareholders in advertising group WPP voted against a £13 million pay package for Sir Martin Sorrell that represents a 60% rise compared with his pay last year.

Other executives have been ousted in disputes over pay. Andrew Moss, chief executive of Aviva, stepped down after investors issued a protest vote at the company's annual pay report. David Brennan of AstraZeneca and Sly Bailey of Trinity Mirror also stood down from their roles following voter protests.

However, some have questioned whether the shareholder rebellions represent a genuine movement to restrain high pay, or whether shareholders are simply punishing executives for weak profits in the recession.

“Almost certainly the difficult economic and trading conditions, along with an insipid stock market, have played their part,” said Richard Saunders, chief executive of the IMA.

Saunders believes the result of these rebellions will be more dialogue between boards and investors on pay and other matters before votes, which ought to mean fewer humiliated boards and ousted chief executives.

“And that is a good thing, because continuous upheaval is not in the interests of big companies, of the people who work for them, or of the ordinary investors whose savings have been invested in their shares,” he said.

©2012 funds europe