Power of public opinion

ONE of the great frustrations about events in the Square Mile is the timid way in which big battalion investors exercise power.

Great swathes of the FTSE 100, including vital tech firms such as Arm Holdings, have been picked off by overseas buyers with scarcely a shot being fired.

And even after substantial voting dissent over boardroom pay the trend is still relentlessly upwards.

indeed, a new study by the Cambridge Judge Business School found that one-fifth of independent directors appointed to look after the broader interests of stakeholders are so ‘distracted’ by their day jobs that valuations are harmed because of a lack of attention to operations and mergers.

With so many nodding dog directors on company boards it is even more incumbent on shareholders to intervene. in 2018 there have been several examples of investor activism making a real difference.

Shareholders and independent directors are mainly driven to action when under public scrutiny. A major example this year was the battle by self-styled asset ‘improvers’ Melrose industries to swallow the historic engineering giant GKN.

in the past Melrose has won easy support for its deals because of the bumper returns it has delivered for investors as well as executives led by Chris ‘Jock’ Miller.

When it came to GKN, the financial media drove shareholders, government, the workforce and customers to engage in inspection avoided previously.

The pressure was increased during the GKN bid and subsequently at Unilever and Persimmon when corporate actions, normally confined to the finance and business sections of newspapers, were catapulted onto the front pages and opinion columns.

Exposing citizens to what some might see as narrow City events can make a real impact and be of importance to the broader economic condition.

Melrose’s victory over GKN was not declared until the final hour, after Legal & General brought the shares voted in favour of the deal up to 52.4pc.

it was an extraordinarily close outcome for a hostile bid. The weight of public opinion meant the company agreeing to stipulations including a promise that aerospace technology would not be sold for a decade.

The plan by a Dutch-dominated Unilever board to switch its domicile and share quotation from the London to Rotterdam was another case of public concern galvanising investors to protest.

Senior Unilever executives had convinced themselves that the UK shareholders would go along with the decision.

But when the public was exposed to the potential departure of one of Britain’s most emblematic companies The investment Association, representing big battalion investors, swung into action and helped to co-ordinate an almost daily roll-call of shareholders objecting to the switch.

Unilever’s board capitulated and last month the group’s socially responsible chief executive Paul Polman called it a day.

The third case of public opinion putting paid to a lost cause came at housebuilder Persimmon. Overpaid chief executive Jeff Fairburn thought he had steered clear of trouble by agreeing to cut his prospective pay and bonus from £100m to £75m.

But his refusal to engage with a BBC reporter on the subject of pay exposed Persimmon to a new round of hostile media exposure which homed in not just on Fairburn’s rewards, but his unwillingness to discuss a matter of national interest. New chairman Roger Devlin recognised the damage done and delivered the coup de grace.

All three cases – Melrose, Unilever and Persimmon – show how executives and boards who ride roughshod over the media and public opinion do so at their peril.

Good value

By THE standards of FTSE bosses Professor Alice Gast, president of imperial College London, is a relative pauper, earning £433,000 last year.

She also has use of an official residence with an estimated market rent of £120,000.

At a time when pay in both the private and public sectors is under the spotlight the disclosure of her award was greeted with opprobrium.

The grace-and-favour home may be a step too far. But as head of one of the world’s great research universities, part of the golden triangle embracing Oxford and Cambridge, i would venture to say she will be worth every penny.

Britain needs the best and brightest if is to play in the big league of science, technology and innovation.