THE organisations calling for Royal Bank of Scotland to appoint a shareholder committee to help monitor management have renewed their criticism of the lender and called for radical reform of the corporate governance regime in the UK.
ShareSoc and the UK Shareholders Association want shareholder committees to be put at the heart of the drive to improve the standard of management of UK companies and to tackle perceived boardroom excess.
Earlier this month they accused Edinburgh-based Royal Bank of obstructing democracy after the lender snubbed their call for a general meeting vote on the proposal to create a shareholder committee at the group.
Responding to the official Green Paper on corporate governance the organisations said yesterday: “Without Shareholder Committees, and concomitant reform to restore the rights of individual shareholders, other changes to corporate governance are unlikely to produce meaningful change.”
The organisations accused Royal Bank of turning down an opportunity to pioneer the concept.
They added: “Our experience with RBS, who have resisted our shareholder committee proposal, underlines the fact that companies will not embrace any change that will increase engagement and influence by shareholders. Shareholder Committees will have to be mandated by law.”
ShareSoc and UKSA have claimed private investors have been the biggest losers from the collapse in the value of Royal Bank’s share price since the financial crisis.
But they say shareholder committees should represent large shareholders and institutions as well as private investors.
Committee members could provide oversight of boards with a focus on strategy and corporate governance issues rather than day to day management, and report back to other investors.
The activists said the UK corporate governance regime needed radical reform claiming it focused on structures and processes rather than the qualities of directors and how well they work together for the good of companies.
Weaknesses in corporate governance arrangements also reflected the disenfranchisement of individual investors, who often held shares through pooled nominee accounts managed by intermediaries.
The proliferation of shareholders who are not directly interested in the companies in which they own shares, such as index-tracking funds, may have weakened the checks on management.
The organisations claimed: “Individual investors do not, in most cases, have effective power to challenge boards or curb directors’ pay. Fund managers, who are merely intermediaries in the ownership chain, have usurped this power and have failed to challenge boards.”
They want shareholders of listed companies to be given a binding vote on boardroom pay packages in place of advisory ballots.
ShareSoc, chaired by Mark Northway, said yesterday it is consulting lawyers with a view to a possible legal challenge to Royal Bank’s decision not to accept the requisition of a general meeting vote on the shareholder committee suggestion.
Earlier this month Royal Bank said it supported calls for shareholder engagement. Legal advisers reckoned the proposed resolution calling for a narrower shareholder committee to be established appeared to be inconsistent with the law and the bank’s constitution.
The bank did not comment yesterday.
The Government published a Green Paper on corporate governance in November, when Theresa May said the actions of some big firms she did not name had damaged public confidence in big business.
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