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Blog : BOARD TALK

When 'Irritation' Is Not Such A Bad Thing For The Boardroom

Posted on April 27, 2014 at 2:15 PM

There was a lot of 'irritation' about in the UK last week, both articulated and just hanging about in the air, like pollen.


My OED says that 'to irritate' means 'to make annoyed or angry.' But it also means 'to produce an active response.' So, like most things, your perspective is key to your judgement on this matter. Irritation isn't always such a bad thing for the boardroom.


At the much-watched Barclays AGM, 'shareholders large and small protested about pay and bonuses.'  Standard Life Investments, a major City investor owning  almost 2% of Barclays, spoke out to say it had voted against the pay deals, which included £2.4bn in bonuses last year. (Bonuses rose 10% despite a 32% fall in profits.)


Standard Life governance and stewardship director Alison Kennedy said its remuneration report recommendations had harmed the bank's brand. But Barclays won the day as two-thirds of shareholders voted to approve the higher bonuses,  demonstrating the difficulties of joined-up campaigns against management. F&C Investments also voted against the remuneration report.


Jill Treanor of The Guardian tweeted @jilltreanor: 'Walker spoke to journalists afterwards to admit to "just a bit of irritation" at Standard Life'. Oh. 


We had what amounted to presumably more irritation at both Astra Zeneca, which was bashed by 40% of shareholders voting against the remuneration report  and at the recruitment company SThree, where a staggering 56% of voting investors dissented. Then there was Pearson  - the publisher of the Financial Times- where a third of shareholders voted against the remuneration report. And that's likely to be just the beginning, given the public mood.


Meanwhile, the UK government as the majority shareholder with 81% of the Royal Bank of Scotland (RBS) put its foot down on the bank's plan to push bonuses to 200% of salary. Hugh Pym, chief economics correspondent of the BBC tweeted @BBCHughPym: "Clear that RBS highly irritated at Treasury last minute intervention to block board's preferred bonus policy."


It's a great shame that the government intervention has come at RBS of all banks, with all its context. Because it is already becoming a political story rather than a boardroom and corproate governance story, which is where it holds the most important lessons.


Capping pay at RBS breaks the 'everyone else is doing it' barrier, and that is critical.


As Sir Richard Lambert said recently at an event held by Next Generation Vision and the City of London, in the search for better banking standards, "Banking is about to become boring."


It is up to the banks to make critical decisions on how they handle that strategic direction, but learning to act in alignment with one another - rather than using each other to maintain the status quo - may be one way forward. It would certainly have helped them save a lot of money and improve their businesses if they had done that on investments in technology. 


Last year investment banking only contributed 10% of RBS profits. According to the FT, "some analysts were...sanguine about the government's move. Chirantan Barua at Bernstein Research expects investors to welcome the government's move as it will force RBS to wind down its invetsment banking activities even faster. He expects the bonus cap only affects about 100 people at RBS." 


But that comes at the very end of that FT story, showing that again - perspective is all-important. 


It seems to me that if irritation means you are uncomfortable hearing a different perspective, then it is a very good thing for our boardrooms, particularly if that 'other perspective' on pay is growing by leaps and bounds outside the boardroom. 


Categories: Investors, Engagement, Pay