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A Victory for the Little Man (and Woman)

Today’s announcement that takeovers by schemes of arrangement are to be subject to tax is a victory (albeit a small one) for private investors. See page 61, paragraph 1.249, of the full Autumn Statement for which a link appears below. The UK Shareholders’ Association (UKSA) welcomes the news, because we believe it will result in fewer takeovers by this method.

Such takeovers deprive investors holding shares in nominee accounts of any say in the decision. This is because these takeovers are decided by vote and private investors in nominee accounts do not have the right to vote, even though the future of their investments is at stake. UKSA has long seen this as scandalous, not least because investors face so much pressure to use nominee accounts.

A takeover by scheme of arrangement gives an acquirer 100 per cent of the shares regardless of how many shares have been voted. The High Court gives no protection to those excluded from the vote because it is bound by precedent to ignore the degree of participation. The Takeover Panel gives no protection either, despite its “central objective (being) to ensure fair treatment for all”, because it ignores those who are not on the share register.

Would-be acquirers love the arrangement, because they buy companies cheaply – now slightly less cheaply than before but still not equitable. Such takeovers will not be equitable until all nominee account users are fully enfranchised.

H M Treasury Autumn Statement 2014

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Two members of the UK Shareholders’ Association were pleased to have the opportunity of speaking at the London Investor Show, 24th October 2014. Malcolm Howard tackled “How to read published accounts to spot undervalued companies” and Eric Chalker answered the question, “Do you really own your shares?” A good number of new members joined at the UKSA stand, where many interesting conversations too place. The organisers’ video of the event can be found here:

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The Runnymede Declaration for Shareholder Rights

For the past 3 years, The UK Shareholders’ Association has played a leading role in advising the Government, the Financial Reporting Council, the Financial Conduct Authority and other bodies on issues arising from the growth of pooled nominee accounts, in which close to a majority of private investors now find themselves.

We have relentlessly been drawing attention to the absence of shareholder rights and protections for nominee account users and their inability to play a full part in the stewardship of UK companies. The savings of countless ordinary individuals are at stake, invested in equities yet they are denied the rights of ownership. This is wrong.

We think this situation is scandalous, not least because it appears to be, in the developed world, a uniquely British problem. The time has come to demand changes to remedy these matters. Today we launch THE RUNNYMEDE DECLARATION FOR SHAREHOLDER RIGHTS. and invite those who share our concerns to give it their full support.

In not many months’ time, there will be a new government. It will have many matters to address, but, in the spirit of Magna Carta, we will press those who seek election to Parliament and those who enter that government, to place the remedies we are seeking high on their list of priorities. The millions who save and invest deserve no less.

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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.

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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.

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UKSA meets with Barclays’ Chairman on bonuses

Following target="_blank">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.

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Persimmon 2012 LTIP: Analysis, Questions and Answers

This commentary published March 2014.


The 2012 Persimmon Long Term Incentive Plan (LTIP) was announced 24/9/12 and approved at a general meeting four weeks later (17/10/12). Alerted by UKSA members (but not, unfortunately, in time to influence the AGM), the UKSA policy group carried out a technical analysis of the scheme presented in a report to the Directors on 13/11/12.

UKSA wrote to Chairman Nicolas Wrigley with specific questions and received a courteous answer that evaded all the questions asked.

UKSA wrote to the five leading institutional shareholders with its analysis.
• Only one had voted against the proposal, stating that ‘Our voting position was informed by our house view that the LTIP does not incentivise management to create additional value for shareholders, but is designed to reward management for distributing for distributing existing shareholder value’
• One gave a detailed response supporting their decision to approve the LTIP
• Two gave boilerplate replies
• One did not reply

All replies indicated that there had been substantial ‘engagement’ with the Chairman and other directors. This raises, once again, the nature and effectiveness (for the shareholder) of such engagement. Major institutions had ‘engaged’ and come to a demonstrably wrong conclusion. (One found the ‘simplicity’ of the scheme attractive, which raises a number of questions about the way in which it was explained to them).

This situation will not change until real independent investors are allowed a say in the governance of their companies. UKSA has in the past prepared detailed proposals for Shareholder Committees and continues to support them.


Writing to Vince Cable, Secretary of State for Business (BIS), UKSA drew attention to a major flaw in the LTIP disclosure requirements in Remuneration Reports laid down in the regulations he issued in 2013. Instead of requiring disclosure now of the value in money terms of what has been awarded, the regulation requires the monetary value of LTIP awards to be disclosed only when awards have vested. The Persimmon expense will be reported in 2021.

This is a flaw which escaped the notice of those involved in a Financial Reporting Council study on which the new BIS regulations are based. UKSA has been calling for the study to be revisited and the regulations amended. The Persimmon report, which, in accordance with the regulations, includes precisely zero for the 2012 LTIP in all its monetary figures, is a stark wake-up call in this respect.


There must also be questions, once again, about accounting standards. UKSA has campaigned against the damaging concepts of IFRS in the context of the abandonment of the prudence principle and its contribution to the overstatement of bank profits prior to the banking crisis. Here we seem to have a situation where £400million of distributed value is simply ignored (£250million+ being granted to current executives below board level, and therefore not mentioned in the remuneration report or anywhere else as far as we can see).

To be fair to Persimmon and the reporting standards, the word 'ignored' is an exaggeration. The annual report noted £10.3million of 'equity settled share-based payment transactions'. So they only missed £390million.


Unlike the requirements of the regulations, we are not afraid to expose our analysis to scrutiny. It’s heavy going but it’s here


After reading this you might ask:
• What was the nature of the 'consultation' that went on with institutional shareholders when this scheme was approved?
• How are the next generation of executives(say in five years’ time) to be 'incentivised'? With another 9% of the company?
• Why have the economic consequences of the LTIP been concealed from shareholders?
• What reason is there not to vote against both the Directors' Remuneration Policy and the Annual Report on Remuneration at the Persimmon AGM?

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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.

Full analysis at March 2014

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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 target="_blank">here and we hope in due course to be able to publish his reply.

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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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