UKSA's views sought on issues raised by Thomson Reuters
April 10/11 2012
Eric Chalker, UKSA director and policy co-ordinator, was interviewed by Sudip Kargupta of Thomson Reuters following press reports of a potential sale of RBS shares to a sovereign wealth fund (ie an overseas government). Under the heading, “UK should reform RBS, Lloyds before any share sale”, these were his authorised quotations.
“They (the government) should take steps to see that those banks’ directors are obliged to pay regard to the interests of private shareholders, by establishing private shareholders committees.”
“The major shareholders often have short-term interests whereas the private shareholders have more long-term interests.”
“We (ie UKSA) would be opposed to the government selling off its shares without bringing about any corporate governance reform.”
On selling RBS/Lloyds at current price, ie at loss to taxpayer/private shareholders:
“If it helps to create more investor interest in these banks and a more liquid market in those stocks, then that could be regarded as good news, but it shouldn’t be done on any scale which prejudices the ability of the government, or UKFI, to insist on long term improvements in corporate governance such as the UK Shareholders’ Association wishes to see.”
On selling stakes to overseas sovereign wealth funds:
“It must be questionable whether a sovereign wealth fund would be looking at the long-term interests of the banks, or whether they’d just be after a short-term profit.”
“It would be bizarre if the government were to be pushed or cajoled into relinquishing its investments, for whatever reason, before using its existing shareholder muscle to force the boards of these banks to accept formal and permanent arrangements leading to better governance. In the case of RBS, the government has sufficient votes (ie more than 75%) to secure a change in the articles of association to bring this about all by itself and enough in LBG to swing the vote with minimal persuasion of others. It has a great opportunity here, which could set an example for others to follow with the potential to produce a sea change in director behaviour. It is an opportunity that should not be wasted.”
Asked to comment on pay issues, Eric wrote this.
“It has become a truism that senior bank pay is grossly excessive and some would say immoral. However, those who invest in company shares learn to be objective about these matters and the objective issue for most private investors still holding shares in RBS and Lloyds is when will their position as owners be recognised and the payment of dividends be ranked ahead of bonuses? Claims that one bank must do what all other banks do ring hollow when there is no return on bank shares, but there is little if any evidence that the need to produce real, distributable profits features very much if at all in RBS' and Lloyds' boardrooms, so objectively as well as subjectively senior bank pay stinks.
“The most visible demonstration of shareholder opinion on the matter would be to undo the mistaken advice of Lord Myners when he was a minister, unfortunately endorsed by the Financial Reporting Council, which has led to the end of hand voting at AGMs. Let the directors of RBS, Lloyds – and Barclays – have the courage to ask those actually sitting in front of them to put up their hands for or against their pay packages and the consequences of that might be salutary.
“Beyond that, it is a manifesto objective of UKSA's that shareholder approval should be required before any new contractual benefit is provided to directors and remuneration consultants should report to and be made accountable to shareholders. Pay should no longer be a fait accompli.”