The
pressure is on for WPP shareholders who care about governance. The
advertising group recently
parted ways
under mysterious
circumstances with Martin Sorrell, the man credited with
building the company
from a wire basket maker into
a global marketing conglomerate.
First the
company
confirmed
that it was investigating a
whistleblower’s allegations of “personal misconduct”. He denied
wrongdoing but then quit abruptly 10 days later. WPP, which
is treating his departure as a retirement and paying him £14m for
2017, has declined to say anything more about the probe other than
to insist the amounts of money involved were “not material”.
Now
shareholders are being urged to punish the company for the way it
handled Sir Martin’s departure. Glass Lewis, which advises
shareholders how to vote at annual meetings, has recommended that
investors
vote against
the re-election of the
chairman over the succession issue and against the company’s pay
plan. “We believe shareholders are unable to determine the extent to
which he should be treated as a good leaver.” Institutional
Shareholder Services, the other big advisory firm, has not yet made a
recommendation.
Good governance advocates are hoping that WPP’s shareholders will use its
June 13 AGM to follow the example of investors in FTSE 250
construction group SIG. They voted last week to
oust Deloitte
after the company admitted
repeatedly overstating its profits in previous years. Such moves
generate headlines precisely because they are so rare.
Over the
past four years, director candidates for FTSE 350 and S&P 500 boards
have won election with the approval of more than 97 per cent of the
shares voted, according to statistics collected by Proxy Insight, a
data provider. Auditors are generally reappointed with similarly
high levels of approval.
Shareholders tend to be somewhat less accepting when voting on “say
on pay” resolutions and remuneration reports — on average, pay
resolutions this year have been approved by about 92 per cent of
shares voted in both the UK and US.
In some
ways, these levels of approval are perfectly appropriate. Most
companies are run by directors who show up and do their job; most
financial accounts are accurate and properly audited; and most
executive pay plans represent honest efforts to tie long-term results
to reward levels.
But some
shareholders have proved to be passive in cases where a bit more scepticism appears to be called for. Last month, shareholders in the
UK’s Metro Bank were faced by complaints that the bank had paid
£21m
to InterArch, a design and
architecture company
owned by the wife of its chairman Vernon Hill, including £4.6m last
year alone. The payments were all the more noteworthy because Mr Hill
parted ways with the previous bank he had founded, Commerce Bancorp in
the US, in 2007, after American regulators investigated very similar
payments to InterArch. Although Glass Lewis recommended voting against
Mr Hill’s reappointment, he received the thumbs up from holders of
96.5 per cent of the shares
voted.
Meanwhile KPMG has
recently staved
of investor
eforts to
oust it
from the
auditor position at not
one but
two of
its longtime US clients.
Fully 91
per cent
of Wells
Fargo shareholders
approved the Big
Four firm’s
reappointment last
month, despite
another Glass Lewis call
for change
at the
bank, which
has been
hit by
scandals involving fake accounts and mis-sold insurance policies.
A larger
group of investors took a stand at General Electric’s AGM after the US
industrial group announced that the Securities and Exchange Commission
was investigating the way it recognised revenue. But KPMG still won
approval of its reappointment from the holders of 65 per cent of
shares voted.
Shareholder
democracy is often held up as a key principle of modern capitalism.
Investor groups cheered when prominent equity indices decided to
exclude
app owner Snap and other new
companies that issue multiple classes of shares with different voting
rights.
Too many
shareholders fail to exercise their voting rights, including me. I’ve
just remembered that there is a proxy ballot for an old employer that
is sitting, neglected, on my desk at home.
Too often,
it takes a noisy activist to pique shareholder interest, as Nelson
Peltz did last year at
Procter & Gamble,
and Carl Icahn has been doing recently at Xerox. That leaves us at the
mercy of self-interested managers and equally conflicted activists.
It’s time to stop being supine. I promise to fill out my ballot when I
go home. You should too.
brooke.masters@ft.com
Copyright The Financial Times Limited 2018.
