The attack on shareholders by Bill Winters, Chief Executive of Standard Chartered for opposing remuneration at the recent AGM was as unwarranted as it was surprising. Whilst it could easily be dismissed as an individual’s ego being bruised by the concerted opposition of nearly 40% of proxies cast against his pay, the wider issues it raises should not be overlooked.
As Sir Martin Sorrell, late of WPP found to his cost, when chief executives step into the ring to defend their own pay arrangements it quite often ends badly. This is simply because since the Cadbury Reforms of 1992, the architecture of corporate governance practice in the UK mandates a separation in accountability and roles between executives and independent non-executives.
When Bill Winters called shareholders ‘immature’ for their opposition to executive remuneration, he transgressed a fundamental principle of accountability. The Chairman and members of the Remuneration Committee are accountable to shareholders through the Board Chair for setting and deciding appropriate levels of pay based on market indicators and performance. The Chairman of Standard Chartered, José Viňals, and his Remuneration Committee Chair, Christine Hodgson have remained ominously silent as the row escalated, to the point where we, as responsible investors, called for the Chairman to either publicly rebuke his CEO or at least to provide some explanation of support.
Mr Winters is sadly diminished by his intervention; it is never wise to attack the providers of capital for exercising shareholder democracy.
To any outsider, the principles of corporate governance may often appear technical or arcane, but they remain the most assured way of observing direction, authority and accountability within our publicly quoted companies. Independent non-executives provide – in theory – the robust ‘inside’ challenge to over-mighty executives in terms of business strategy, financial stewardship and reward. To rehearse the exact reason for shareholder dissent is to consider the Remuneration Committee’s flouting of two of the core principles surrounding pension contributions: That only basic salary should be pensionable, and that contributions should be closely aligned with the wider workforce. Mr Winters receives the most generous pension payment of any FTSE100 chief executive at 40% salary. In 2018, according to the company’s Annual Report, this amounted to a cool £460,000 based on a basic salary of £1,150,000. However, the Remuneration Committee in deciding to ‘consolidate’ base salary and fixed allowances into a single figure of £2,300,000 miraculously managed to pretend pension had reduced to 20%. This somewhat disingenuous approach was found out almost immediately and led to the predicable ire among proxy wielding investors. Mr Winters unwisely then compounded this error of judgement by calling investors ‘immature’ for finding them out.
The storm will abate, but Ms Hodgson must now be prepared to face a concerted backlash at the 2020 AGM if she fails to step up, admit error and act decisively. The wider point is that if investors and society are to trust the corporate governance regime in the UK, non-executives must be prepared to stand up against aggressive executives to assert correct procedure and behaviours. Mr Winters is sadly diminished by his intervention; it is never wise to attack the providers of capital for exercising shareholder democracy.