derek abdinor

In discussion the other day we were puzzled as to why the majority of companies on the JSE do not take advantage of Schedule 23 for their regulatory communications to the market and shareholders.

For issuing companies to embark on an electronic consent program, the following benefits accrue to company and shareholder:

1. Email addresses of shareholders for direct communication
2. Mobile numbers and landline numbers if proffered
3. Reduced printing and mailing costs
4. More cash in the kitty for dividends or retained earnings
5. Saving the planet
6. Training your shareholders to come to your official website as the #1 source of fact, news and comment

There are even more reasons to clean up one’s share register, embark on an asset reunification project  (tidying up unclaimed dividends) and ALL of them do credit to your brand. How you choose to spin it, be it by planting a tree for every shareholder converted or a reporting unit in your sustainability report, is up to you.

In South Africa, where public monies are involved, its always only a matter of time before the issue becomes politicised.

<pause for effect>

It follows that employing good shareholder communication governance NOW is better than having industrial action in a few months or years, at your AGM or outside your glass doors.

I thought I’d capture all the links as they appear in Google news – to represent the news as and where it comes out.

Microsoft shareholders to get ‘say on pay‘

Microsoft’s board says it will hold a non-binding, advisory shareholder vote on the salaries of the company’s executives every three years, starting with …

Microsoft OKs Shareholder Advisory ‘Say On Pay‘ Wall Street Journal

Microsoft’s Board Enacts Say-On-Pay Advisory Vote Bloomberg

Microsoft approves ‘say on pay‘ shareholder vote Seattle Post Intelligencer

Reuters

all 88 news articles »

MSFT - HKG:4338

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Microsoft Board Authorizes “Say-on-Pay” Advisory Vote on Executive …

From an article in the Economist:

One reason why Germany’s biggest firms have not cut many jobs is its cherished model of stakeholder capitalism, which took root after the second world war and contributed to its rapid economic growth until the 1980s. Under this model, workers’ representatives fill half the seats on firms’ supervisory boards. A separate management board is responsible for running the business day to day. Companies are also required to act in the interest of all “stakeholders”, not just of shareholders.

That creates a tension between profits and jobs. A seminal, if dated, study is illustrative. It found that 83% of German managers surveyed in 1995 considered that the companies they worked for belonged to stakeholders rather than shareholders. Some 60% said that saving jobs was more important than paying dividends. In America and Britain, by contrast, almost 90% of managers said that paying dividends was more important than preserving jobs and 75% of managers felt that firms belonged to their shareholders.

Via Compliance Week:

Aircraft manufacturers, Lockheed Martin Corporation (NYSE: LMT) , is conducting an online survey of stockholders on its executive compensation (remuneration) practices. Results will be reviewed by the Management Development and Compensation Committee of Lockhee’s Board of Directors.

Prudential (NYSE: PRU) has a section on their website where one can email the independent directors (an email address going to all of them, interesting!) to make comment on pay practices. Its not indicated how these results will be audited or reported on.

What I like about is the effort that is being made, as well identifying the role of the independent directors and the implication of their resposibilities.

From the Institute of Charted Accountants (Scotland):

ICAS objects to the additional burdens, costs and risks of this during the current recession – when many businesses are struggling to survive and should be concentrating their management expertise on the much more pressing and important task of maintaining productivity and employment.

Donald Drysdale, Assistant Director at ICAS and a Chartered IT Professional, said:

“In his Review of HMRC Online Services, Lord Carter of Coles recommended the use of XBRL, but emphasised that the new standard should not be imposed until it had been implemented and had bedded down. He also noted that other improvements would be needed before the service would meet the needs of tax agents.

“Many companies won’t be ready for this. It is absurd to require businesses struggling during a recession to introduce this. XBRL has been used relatively sparingly to date, and HMRC plans to adopt Inline XBRL (or iXBRL) would be the first large-scale iXBRL implementation worldwide, so the technology certainly hasn’t been adequately tried, tested and proven to be reliable. It falls far short of Lord Carter’s criteria.”

ICAS has been exploring this topic with HMRC for more than two years. The Institute was instrumental in establishing tripartite discussions among Government, the tax profession and software vendors, but now reports widespread concerns that software solutions for preparing iXBRL-based statutory accounts will not be available in time.

Drysdale added:

“It’s misguided and disproportionate to mandate iXBRL-based online filing by all companies as early as April 2011.
We’ve urged HMRC to reconsider its plans in the light of the relatively immature market position of XBRL, and we’ve asked that Ministers shift to a gradual voluntary adoption of iXBRL filing until the new software for tax and accounts preparation has been properly tried and tested.”

From the ever-current BNet, comes this article from Richard Northedge (July 20th, 2009 @ 2:31 am).

The RSPCA ordered the removal of the dozen lemmings brought to British Airways’ shareholders’ meeting but they had done their job of illustrating the fate the trade unions think their members face.

Boards have become used to meetings being hijacked for publicity stunts, but the practice will increase, thanks to the UK’s interpretation of the EU directive on shareholder rights.

The directive takes effect on 3 August 2009 andBritain’s Department for Business plans to make it much easier for dissident shareholders to place hostile resolutions at companies’ meetings. The current requirement to submit resolutions six weeks before the meeting will be cut to just 14 days.

That means resolutions can be added after the annual report has been sent to shareholders, requiring the company to post a new notice of meeting to all investors. Companies that dispatch the new documents promptly and then receive another resolution would have to circulate new voting papers again.

And who pays for these extra mailings? Not the disgruntled investors. The proposal is that the company foots the bill. Marks & Spencer calculates it would cost £150,000. Doing another mailing would double that figure.

There is thus no downside for the dissidents. Their resolution can be as frivolous or publicity-seeking as desired so long as the thresholds for adding it are met.

And Pirc, the long-established activist investor advisory group, has solved the quantum difficulty by forming 100 separate companies, each to hold a single share in its target. That ensures sufficient “different” shareholders support its moves and its friends at a local authority pension fund will provide the stock to meet the total holding test.

Having used this tactic to add a resolution to M&S’s annual meeting calling for the chairman’s early resignation Pirc now has a ready-made portfolio of shell companies to attack its next targets.

Activists gain whether or not their resolution receives support because it generates headlines and sows dissent ahead of the meeting. If the resolution is actually passed, that is a bonus.

But the loser is democracy. Dispatching voting papers so late disenfranchises many institutional investors because they have insufficient time to meet advisers or trustees before voting.

And the fault is not with Brussels. The EU does not say resolutions can be submitted until 14 days before a shareholders’ meeting, simply that a deadline must be specified. Whitehall has gold-plated the European Commission’s directive.

There is much wrong with shareholders’ meetings, not least because investors and directors have different views of their purpose. But banners, placards, lemmings and pigs do not dignify the occasions. There are plenty of companies that deserve to be criticised but facilitating frivolous resolutions lowers the level of debate when it should needs to be raised.

I think the best practice would be to allow shareholders to submit alternate resolutions after the annual financials come out, and before the annual report. These can be collated by the auditors or a public body, and introduced to shareholders and the company. Surely all our online experience makes this an issue that can circumvent the stupid mailing of paper, and will allow for a more efficient audit trail?

A propos nothing, I’m doing a course in which it describes the introduction of a pig (Cedric) at a British Gas meeting.

While insider trading and short-selling are largely strictly regulated and, on the face of it, discouraged, in most markets, there is an academic argument in favour of the two practices.

From The Telegraph:

At first blush the argument in favour of insider dealing was seductive. An insider who bought or sold shares had intimate knowledge of the company’s financial performance. Armed with this knowledge, he was best placed to assess the true value of the share, so where the share was undervalued or overvalued an insider’s intervention ensured a correction occurred…

… As with insider dealing, the arguments in favour of short selling are impeccably logical. Economic theory suggests that short selling contributes to accurate share valuation since it enables share value to reflect the negative perception of company performance that market participants have formed. In this way short selling promotes an orderly adjustment of the stock price.

The topic revolves around information, and the communication thereof. Insider traders enjoy privileged information, which is bound to come from intimate knowledge of management personnel, strategy, operations and risk positioning.

In that case, sell-side research, already hamstrung, is not going to be worth a tranche.

Via Twitter. Link to full article

Essentially, IRIS did a survey on the financials of 1500 Indian public companies. Discrepancies appeared in over 200 of them; figure differences as opposed to accounting interpretations.

One of the outcomes of the survey was to highlight the effect that XBRL will have in bringing such problems to light, and ultimately, to bring them in line.

In more XBRL-as-Superman news,  UBMatrix has a paper on how XBRL will help track TARP spending.

A bill of rights for more transparency and governance has been presented to the US Senate. With many echoes of the South African King Code on Corporate Governance it attempts to formalise risk, proxy and remuneration issues.

From Compliance Week:

May 19, 2009

Shareholder Bill of Rights Act Introduced

The highly anticipated Shareholder Bill of Rights Act of 2009 has reportedly been introduced in the Senate today and press releases opposing and supporting the legislation are already flying.

As Compliance Week has reported, the bill, sponsored by New York Democrat Charles Schumer, would, if passed, require companies to:

• Provide an annual non-binding shareholder vote on executive compensation;
• Provide shareholders a vote to approve golden parachutes;
• Give shareholder access to the proxy for board nominations;
• Split the chairman and chief executive roles;
• Hold annual director elections;
• Implement majority voting for directors and
• Establish risk committees comprised of independent directors

The Council of Institutional Investors issued a statement applauding the Act, which it says would “go a long way toward making boards of directors and managers of public companies more accountable to shareowners.”

Meanwhile, the Business Roundtable issued its own statement, in which its President, John Castellani, calls the bill “an unnecessary intrusion” into matters governed by state corporation law and matters currently being addressed by the Securities and Exchange Commission, stock exchanges, and public company boards.

The text of the bill is available here, courtesy of Davis Wright Tremaine’s Corporate Finance Law Blog.

Posted by: maguilar (Melissa Klein Aguilar)  @ 4:03 pm