Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking, He writes a weekly column for City A.M.
Like death and taxes, rows over boardroom pay are among life’s perennial certainties. Could 2024 turn out to be a watershed year, though, in the debate over executive remuneration at the top of British corporate life?
This week, the Investment Association, whose members speak for £8.8trn in assets, wrote to the remco chairs of FTSE-350 companies to reflect the axiom that a Draconian approach to executive pay is having a deleterious effect on London as a listing destination.
In the letter, a draft of which I’ve seen, the IA acknowledges the now-commonly expressed view that to operate on level international playing field, FTSE companies need to be able to exercise greater discretion over the sums they award in long-term incentive share schemes, as well as their use of so-called hybrid plans which also incorporate restricted stock.
The IA would, it adds in the draft, be “updating the principles of remuneration in 2024 to simplify them, ensure that they are supporting a competitive market and delivering the right outcomes for both shareholders and their underlying clients”.
Julia Hoggett, the London Stock Exchange chief executive who has been in the vanguard of calls for UK companies to pay executives more competitively, will no doubt be rejoicing: here is the trade association for fund managers, noted in prior years for its demands for restraint and desire to publicly embarrass those who attracted significant investor rebellions, effectively giving carte blanche to boards to pay their CEOs more like their US counterparts.
Remco chairs would be wise not to interpret that too literally; payment-for-performance and within the parameters of existing remuneration policies, will need to be policed.
Investors, though, appear to have heeded warnings that their more draconian approach during the last decade has had a detrimental effect on the London market and UK corporate competitiveness. Don’t expect campaigners against high pay to congratulate them on their newly discovered liberalism.
Abrdn chair faces a year of uncomfortable choices
Has there been a worse, more value-destructive corporate merger in Britain’s financial services industry than that of Aberdeen Asset Management and Standard Life?
At the point at which the two companies came together, the combined group was worth £11bn and managed assets worth £670bn. Today, its market value languishes at £3.23bn and assets under management have shrunk to below £480bn, and the trajectory is dire.
Stephen Bird, the chief executive parachuted in in 2020 to arrest what could be best-described as the faltering performance inherited from predecessors Martin Gilbert and Sir Keith Skeoch, has made one big bet: the £1.5bn takeover of Interactive Investor, a deal intended to pivot abrdn towards the growth of retail funds supermarkets like Hargreaves Lansdown and AJ Bell.
That’s now arguably the best-performing part of the group, although many shareholders argue that Bird overpaid for the business.
The rest of abrdn’s businesses tell a sad story of decline, the only surprise being that the group is yet to attract a bidder prepared to break it up into the sum of its parts.
Indeed, Bird himself was reported by Financial News last year to have taken the idea of disposing of the institutional asset management arm to the abrdn board.
At the current rate of decline, the rejection of such a plan may have been a mistake. As other UK-listed players, such as Jupiter Asset Management and Premier Miton, are amply demonstrating, being a mid-sized fund management group in a sector confronted by the headwinds of higher regulatory costs and poor performance is deeply unattractive to investors.
Bird’s latest cost-cutting plan, which I revealed on Sky News last week, “barely touches the sides”, according to one industry executive. Removing 10 per cent of its workforce will leave it with about 4300 staff, less than half the number who worked for it in 2017.
Chairman Douglas Flint now has a key decision to make: back Bird’s strategy, cut the dividend, and hope that a revamp of abrdn’s senior investment team yields results; or gamble on a change of chief and a more radical break-up that would indeed prove that the merger with Standard Life was an unmitigated disaster.
Serco takeover talks highlight flaws in City disclosure rules
It hasn’t taken much of 2024 to elapse for the UK takeover disclosure regime to come back under the spotlight. I’ve long been a critic of the apparent inconsistencies which lie within the rules which dictate whether or not bid approaches for public companies should be formally announced.
In this latest example, American Industrial Partners had approached Serco, the £1.9bn outsourcing group which handles sensitive contracts for the government such as the operation of two immigration centres, about a possible bid.
The approach came late last year, and I understand that discussions had been ongoing until as recently as December.
That feels sufficiently current for shareholders to deserve a fuller official account of the situation from Serco, but under the Takeover Code, silence was permissible, because the talks were no longer active when news of them broke. Shares in Serco initially spiked, before falling again, reflecting investors’ belief that the prospect of a deal had evaporated.
In that situation, a formal no-bid statement would have been more conducive to an orderly market. Sources tell me, though, that others are also circling Serco, so I may soon get the chance to complain about London’s disclosure anomalies all over again.