Directors must take full responsibility for their company’s future

The UK Shareholders’ Association continues to fight for better corporate governance and the better accounting that goes with it. One matter of concern has been, what should be meant by the term “going concern”?
For many years company directors have been required to ensure and believe that their accounts are drawn up on a “going concern “basis. In practice this has always been the case, as to use any other basis could only mean that the liquidator was at the door.
However, in 2011, a panel under the chairmanship of Lord Sharman suggested that consideration of going concern should be expanded to embrace what it called a “stewardship” basis. The idea was to require directors to consider a longer period, consider matters more broadly and make an overtly positive statement. The Financial Reporting Council (FRC) is now struggling, against director opposition, to have this incorporated in a revision of its Corporate Governance Code.
To overcome the resistance, the FRC has come up with a compromise, but the coalition of pension funds and other major investors with which UKSA has now been working for some time feel this is not good enough, so we have sent our joint thoughts to the FRC and a copy of that paper is attached.


Stockbroker Selftrade recently threatened to deny its customers access to their investments. It has since told them they are to be transferred to Equiniti, but not yet.

Selftrade originally demanded highly personal, intrusive information, supported by certified documents sent through the ordinary post – or accounts would be frozen. In the face of customer outrage the demands have been watered down, but they are still demands.

This is not the first instance known to The UK Shareholders’ Association of a broker taking such abusive action. We are greatly concerned by nominee account providers’ apparent freedom to hold their customers to ransom in this way. The excuse is invariably the Financial Conduct Authority’s requirement that brokers must know their customers, but this sensible obligation is seemingly open to all manner of interpretation. When opening a new account an investor has free choice of provider, but when that provider imposes onerous demands after taking the investor’s money that, to say the least, is grossly unfair treatment.

If a pooled nominee account provider can show that it knows its customers, how it treats them is apparently of no concern to the FCA. That is seriously wrong. Investors who find themselves obliged to use such nominee accounts, which includes those using ISAs and SIPPs, deserve better protection for what may be very substantial investments.

UKSA meets with Barclays’ Chairman on bonuses

Following a questioning letter to Sir David Walker about bonus awards for 2013, UKSA was invited to meet him. This meeting took place on Monday 7th April.

Sir David assured us that the question of their obligations under section 172 of the Companies Act was regularly in its directors’ minds. He accepted that some incentives previously offered to UK Retail staff were wrong and not in the interests of customers nor, by implication, in the interests of shareholders. He mentioned a new Conduct and Reputation Committee of the Board set up to address some of these areas, but said that all sales based incentives for retail staff had already been removed.
Looking back to 2012, Sir David thought the bank had been unduly harsh in its view of bonuses then, which had led to an unusually large loss of staff, particularly on the investment banking side (including compliance officers), because of better terms elsewhere. Barclays’ investment banking operations are now under review, but it is clear that it needs to retain the right staff to ensure a viable business.
Barclays, Sir David said, is “on a journey” towards a lower “compensation ratio”: a major aim that will take time to achieve.
We were pleased to learn that Sir David shares UKSA’s concern that the distance between ordinary shareholders and the companies they invest in has widened in recent years.

Persimmon Remuneration : a Case Study in Regulatory Failure

The economic value of the Persimmon 2012 LTIP grant is now close to £400million.
• £120million of this will go to just 3 directors.
• £10million will go to the Chief Executive who retired in April 2013.

This is a huge transfer of value from a scheme that was never justified in the first place (see UKSA's 2013 advice) and has since been inflated by the effect on all housebuilders' share prices of Help to Buy.

You won’t find any of this in the Persimmon 2013 Annual Report or the Remuneration Report contained within it.

UKSA calls for action to address the failures of governance, stewardship and regulatory oversight this shocking situation exemplifies.


Has Barclays’ board complied with company law?

Long term Barclays’ shareholders who took up the Open Offer of 2008 will remember bitterly the board’s broken promises, explicitly stated in the Q & A leaflet issued at the time, that not only would it “maintain its current dividend policy” but the new shares would qualify for the next dividend to be paid. Ever since then it has been evident that the bank’s shareholders, its nominal owners, count for very little indeed by comparison with the hunger of its executives for their bonuses.

Judging by bonuses awarded, year after year, Barclays has been a successful business, but you wouldn’t know that as a shareholder. Prior to that Open Offer, the bank paid a full year dividend of 34p. Five years later, it will be just 6.5p, representing lost earnings of 27.5p a share, or four fifths.

The UK Shareholders’ Association has written to Sir David Walker, the retiring Barclays’ chairman, to ask for a public explanation, in advance of the next AGM, how his board has met its legal obligation to “promote the success of the company for the benefit of its members (ie the shareholders) as a whole.” Our letter can be found here and we hope in due course to be able to publish his reply.

Future viability of the businesses we invest in

As the UK’s principal organisation representing the interests of individual shareholders, we play an active role in seeking to influence government and the various regulatory bodies on matters which affect those interests. It is a feature of the strength of our membership that we are able to draw upon considerable experience, professional as well as investment, to ‘punch above our weight’.

Over the past two years, this activity has included close co-operation with a ‘coalition’ of pension funds and other institutional long term investors whose interests are, broadly speaking, aligned with ours. This co-operation has given us a stronger voice on accounting and auditing matters, in an endeavour to ensure that the serious errors which led to the banking crisis and failure or near failure of other companies do not occur again.

Most recently, we have joined others to send a strong message to the Financial Reporting Council, responsible for the Corporate Governance Code, that its proposed weakening of the ‘going concern’ assurances currently required of company directors is not acceptable. A copy of the letter may be found Here

The UK Shareholders’ Association welcomes as members investors who would like to associate themselves with our policy work, as well as those who would like to take advantage of our analyst-style meetings with top company executives.


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