Thursday, 9 February 2017

A Potential and Welcome Relief this AGM Season

According to statements being made by the leading British institutional investors recently, this year’s AGM season will be characterised by an increased amount of investor-activism when it comes to Executive pay. The Church of England, in leading the Church Investors Group, has vowed that exorbitant pay deals in companies that it is invested, will not be tolerated. Furthermore, leading institutional investors like BlackRock – the world’s biggest fund manager – and Standard Life have also warned companies that they are on alert for excessive pay packages. This level of increased scrutiny is in reaction to an era where excessive risk taking and irresponsible practice was being rewarded with some headline-grabbing pay packages, like that given to banking chiefs during and since the Financial Crisis. Additionally, it has been reported that the level of bonus payments in the U.K., more generally, are rising to their highest levels since the Crisis.

However, institutional investors are starting to make their presence felt. Only last month the tobacco giant, Imperial Brands, was forced to backtrack on its plans to increase the pay package of its chief executive, Alison Cooper, from £5.5m to £8.5m. In the U.S., a leading Hedge-Fund is embroiled in a battle with Herbalife regarding its business practices, which signals another element of what one commentator has called an expected ‘global evolution’ in 2017.

This ‘global evolution’ is arguably overdue, but is certainly required. The political environment, particularly across the Western World, is primed for financial abuse of the highest order. Whilst newly-elected President Trump aims to scale-back financial legislation that was created to protect society from the iniquities of Wall Street, and in the U.K. there are (opposition) fears of the Country being turned into a tax-heaven after Brexit, the role of financial regulators is arguably being diminished when it comes to protecting the public from large-scale financial collapse. With that in mind, institutional shareholder activism may hold the key to preventing big finance from putting society at risk again so soon after 2007/08. Whilst large investors are primarily concerned with their return, a longer-term approach can maintain this ethos and protect society, which in this era is certainly required. The Church-led group have made strides in this area, challenging energy giants BP and Shell to act in a more environmentally-concerned manner, and this type of action needs to be praised and encouraged. A real sign of improvement will be when private non-ideologically concerned institutional investors begin to exert their influence for the benefit of societal protection as well as their own interests, but an increased level of activism regarding executive pay packages is an encouraging start to AGM season; demonstrating to executives that poor performance, excessive risk taking, and solely being concerned with profit will not be tolerated by the owners of a company is a boon when compared to the dire regulatory situation that is developing on both sides of the Atlantic.

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