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Disenfranchisement

Created:
21 May 2008
Written by:
Alistair Blair

Sixty six per cent in favour. Is that a revolt? In most walks of human life, a proposal which gathered the support of 66 per cent of those voting would be considered a signal success. Boris Johnson was applauded on all sides when he won just 53 per cent of the London Mayoralty vote on 3rd May. When Clement Attlee's Labour party swept all before it in the 1945 general election, it achieved only 62 per cent of the popular vote. Remember Tony Blair's 'stunning' victory in 1997? Labour got 43 per cent of the vote.

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"Of those voting"… is there a catch here? In this case, no. The 66 per cent result in question was recorded at Royal Dutch Shell's annual general meeting on Tuesday. Impressively, I thought, three quarters of Shell's shares seem to have been voted on this issue. In the London vote, the turnout was just 45 per cent.

So what's with the headlines? "Shell investors angry.." reported the Daily Telegraph. "Shell rocked by largest rebellion…" shouted the Financial Times in its lead business story.

Next year, Shell's chief executive will retire. Each of his three fellow executive directors (leaving out one who is retiring in a few months) is to receive a bonus in shares - worth £800,000 at current prices - if they're still on the payroll in 2011. Staying on board is apparently the only qualification for receiving the bonus. In fact, although that is what's reported, I bet there's a rider… if anyone is asked to leave in circumstances short of gross misbehaviour… methinks they'll take the £800,000 with them.

That rider could be significant, because apparently none of these three is in the frame for the job. One assumes that the board considers that at least a few heavyweights should be on hand to greet the outsider when he arrives. So what if he decides on a shakeup at the top?

Nevertheless, Shell's rivals must even now be sketching out a few 'retention bonuses' as they are known, to keep their best people on board when Shell comes knocking. Indeed, BP has already attracted a spot of criticism over retention bonus proposals.

And so the executive pay spiral goes on. If you and I were members of the Shell board's remuneration committee - and helpless hostages to this pay spiral - we might see the sense of these retention bonuses, although the idea that the marzipan layer of this huge company is unable to field a team of successors to its four top people is, well, it's worth thinking about.

But it's not what I'm writing about. I'm writing about the Alice in Wonderland world in which a 66 per cent vote in favour is so clearly considered a revolt that it provokes headlines like these. We read these headlines every day, and we shrug. What can we do about the executive pay spiral? They're stealing our pensions, but we are powerless. The injustice of Shell handing out a casual £2.5m in retention bonuses is accepted by 99 per cent of shareholders. And their position on the wider executive pay spiral is the same. If you disagree with me, I hope you will write to the editor.

Let me hazard a statistic. I put it to you that the 1 per cent of shareholders who support the executive pay spiral might own about 20 per cent of Shell. Hey, let's be generous, it might be 30 per cent. So that leaves 70 per cent of beneficial owners who would stop this nonsense without a further thought. Who are these people? Why don't their views count?

They're the hoi polloi - the pension savers, unit trust holders, the with-profits policyholders and the like. They are hundreds of millions of modest middle-and-working-class savers all across the world, with savings in one form or another worth £20,000 pounds or $600,000 or even a couple of million euros. They command about 70 per cent of the planet's investable wealth. And they invest through collective investment schemes. And their views don't count, because they are disenfranchised.

Their views are well known - they're evident in those headlines every week. And they are ignored by their fund managers, who live in an Alice in Wonderland world which is impoverishing every saver on the planet.

Who votes Legal & General's shareholdings in UK PLC? Who votes the water worker pension schemes global holdings? Who votes Fidelity's shares in the S&P 500? Not the beneficial owners, that's for sure. Next week, I'll suggest a way they could.

MORE NO FREE LUNCH...

Read more of Alistair's columns at his IC home page.

You can add your own tuppence-worth using the YourOpinion form

or you can e-mail Alistair directly at: a7461blair@pobox.com

Alistair Blair is a past winner of the Business Writer of the Year Award, and has worked in investment banking and fund management.

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