More than 100 individual shareholders of Royal Bank of Scotland (RBS) — coordinated by shareholder groups ShareSoc and UKSA — have requisitioned a resolution to install a new shareholder committee at RBS to improve corporate governance at the Edinburgh-based financial group.
ShareSoc, the UK Individual Shareholders Society, and UKSA, the UK Shareholders’ Association, believe such a move can help avoid a repeat of mistakes that led to the £45 billion state bailout of RBS in 2008.
The shareholder groups said in a joint statement that RBS would have to put their proposal to a vote at the RBS annual general meeting (AGM) in May 2017.
RBS told the Financial Times it will consider whether the final draft resolution from the groups meets requirements to be included at the AGM.
“Once it has been delivered we will look closely to ensure that it complies with all corporate governance and listing guidelines,” said an RBS spokesperson.
Mark Northway, ShareSoc chairman, said: “One objective is to stop the events that took place at RBS from ever happening again.
“A dominant CEO; concealing the true financial position of the company from investors; proceeding with a reckless acquisition; and then publishing a rights prospectus which concealed the problems faced by the company.
“These are not examples of good governance.
“Shareholders, including individuals, deserve a new approach; one with greater involvement and more effective input from them as ultimate owners.”
The UK government acquired a 73% stake in RBS at roughly 503p per share during the 2008 bail out. RBS shares now trade around 224p.
The shareholder groups said RBS is an important asset and its ownership and the way it is governed is of interest to the wider public.
John Hunter, chairman of UKSA, said: “Most large shareholders are intermediaries who tend to act in their own interests and not those of the ultimate beneficial owners (i.e. the people they represent).
“This needs to change and this proposal is a step towards that. Transparency and formal engagement will help to prevent poor stewardship.”
The shareholder groups stressed that retail investors own at least 12% of the UK stock market, and indirectly a much larger percentage through pension and investment funds.
“They (retail investors) have an independent long-term perspective, are generally unencumbered by conflicts of interests and by the time pressures that institutional shareholders might have,” added the shareholder groups in their joint statement.
“A member of the proposed committee representing retail shareholders might be jointly proposed by the two nationally recognised shareholder associations of ShareSoc and UKSA …
“We want to focus on treating shareholders fairly. Companies may be in breach of the Companies Act S172 requirement to act fairly between members if they secretly cook up cosy deals behind closed doors.
“They call this engagement, but too often it looks like selective briefing and exclusion of overseas shareholders and retail shareholders.
“Also, many fund managers act in their own interests, not in the interests of long-term shareholders, and not of their ultimate beneficial owners.
“RBS has been poorly managed. Long-term shareholders have suffered a loss of greater than 95% of value of their investment, since the RBS share price peaked in 2007.
“This was due to a failure of corporate governance on a number of fronts, e.g.:
“Strategy: an excessive focus on the short-term, rather than prioritisation of long-term sustainability, the large acquisition of ABN Amro for £49 billion with excessive leverage, and a failure to focus on customers.
“Operations: not treating customers fairly, mis-selling mortgage backed securities in the United States, LIBOR fixing, PPI mis-selling, 2008 rights issue, £3.9 billion has been set aside for claims, but some sources say claims could be $27 billion.
“Executive Pay: PR surrounding executive pay has impacted the brand, huge criticism of pay complexity, excessive bonuses, complex LTIPs, payments for failure, as well as the overall quantum.
“Culture: excessive risk, short termism, greed and irresponsibility was allowed and to some degree encouraged, a pale, male and stale board, with one woman out of 18 directors in 2008. This still persists: there are only three women out of 12 board members today.”