The Advisors' Blog

–Subodh Mishra, ISS Governance Exchange

A Sept. 16 report by the National Association of Pension Funds identifies U.K. companies that bucked a 2013 trend for “quiet diplomacy” by failing to respond effectively to shareholder concerns about remuneration. The NAPF analysis shows that while most companies who faced significant rebellions by their shareholders in the “shareholder spring” of 2012 “have listened and learned,” there are a few who have not. Afren, Immarsat, and Babcock are among 10 FTSE companies highlighted which, having received a warning from shareholders last year, received more than 15 percent dissent (votes against and abstentions) on their remuneration report in 2013, the NAPF said in a statement. The report details where the three companies fell short of investor expectations, as well as those which saw significant increases in support this year, such as Aviva, Tullow Oil, and Quintain Estates.

Most companies acted to avoid the reputational damage inflicted by 2012’s high profile shareholder rebellions by engaging more and earlier with shareholders, says the NAPF, and also appear to be cautious about introducing change ahead of the remuneration disclosure regulations and the binding vote on remuneration policy which take effect this month. “We hope that highlighting the few companies where shareholders have felt compelled to give the company another reprimand will cause them to reflect, listen to shareholder concerns and introduce changes next year,” said NAPF head Joanne Segars in a statement. “We will continue to keep an eye on them and encourage all companies to assess whether their current remuneration practices align rewards to long-term success and returns to shareholders.”

This year’s inaugural report also explores shareholder voting on auditors, which has been in focus following corporate governance code changes last year recommending regular tendering and rotation of auditors, and sweeping reforms to the U.K.’s statutory auditor market expected soon from the Competition Commission.

The NAPF lists four “significant rebellions” against audit-related resolutions this year where shareholders signaled their dissatisfaction over high levels of non-audit fees, including at Pennon Group, Inmarsat, Unite Group, and Laird. Meanwhile, other companies headed off audit-related disputes by either tendering their longstanding auditor contracts or “indicating an intention to do so in the near future,” the report states. These included: HSBC, which moved the U.K.’s largest audit contract after a more than 20 year relationship with KPMG, according to the NAPF; Unilever, which ended a 26 year relationship with PwC; Land Securities, where PwC was replaced by Ernst & Young after 69 year tenure; and BG Group, where PwC replaced Ernst & Young, which had been in place since the company’s incorporation in 2000.