Shareholders in revolt

It appears that a number of local investors have organised themselves with a view to applying collective pressure on the boards of locally listed companies. Recent AGMs have been characterised by lively debate from the floor. In some cases this has been constructive, in others less so.

Investors seem to reserve their worst venom for the banks- Martin Webster

The newly installed HSBC chief executive opened proceedings at the AGM by stating that nowhere had he been so warmly welcomed. The statement appeared innocent and genuine enough at the time, but it surely could not have remained valid if the cut-off point was moved from the beginning to the end of the AGM. This was a baptism of fire like no other. I have had the pleasure of meeting the chief executive, and one recoiled at the barbaric treatment meted out to someone who is too civilised to repay in kind. “Beam me up Scotty” must have sprung to mind.

Investors seem to reserve their worst venom for the banks. Now we all know that being a banker has become the social equivalent of being a leper in the Middle Ages. Armed with Buffett’s so-called financial weapons of mass destruction, an inflated sense of their own prowess and a lack of duty of care for the depositors whose money they were entrusted with, bankers sailed steadfastly towards destruction. However, our local captains have performed a remarkable job in steering us away from the rocks.

This distinction, however, appeared lost in the AGM bear pit. The excellent return on equity, especially impressive given the less risky means of achieving it, somehow got swept under the carpet of closed branches, lack of shareholder benefits and neo colonial aspersions laced with accusations that the bank was sold for peanuts – as if the transaction were done with HMS Ark Royal stationed in Grand Harbour and her guns trained menacingly on Castille.

An interesting intervention was the observation that HSBC is being outfoxed by BoV in respect of issuing bonds. At first I wondered whether this was a suggestion to boost returns by changing the debt/equity split. It then transpired that the context was one in which this particular shareholder needed somewhere to invest. The assumption was that HSBC was a handy candidate to strike the bargain with – this despite turning their noses up at one per cent LTRO three year money from the ECB, such is their liquidity.

However, far more interesting than the content was the manner in which it was delivered. Never before have we been regaled with such a colourful and boisterous display, with shareholders pacing up and down the main corridor addressing the board and the gallery in turn, at high volume and with Italian style histrionics. I wondered if children are allowed into an AGM – why bother with the panto if this is both cheaper and better with free parking and alcohol (the food is too competitive)? That’s an idea – why not hold the AGM at the Manoel Theatre next year, an easy stroll from HQ as it happens? It’s become fashionable to change the year end for local companies lately, so perhaps we could have a September year end so that we would have both the benefit of comparing like with like with BoV, and an AGM at around Christmas.

The high watermark was reached when the chairman claimed he could not decide what the show of hands actually showed (for a particular resolution). He therefore called for a secret ballot. This was met with protest – but to not nearly the same decibel level as the howls of protest which followed the call for another secret ballot when the next motion was clearly not passed on a show of hands. Of course this is all a pointless charade – the majority holder will always have the whip hand, even if all other shareholders put up both hands and feet.

Following this performance, other AGMs had much to live up to. All eyes were trained on Go, with shareholders baying for blood with a number of special resolutions. Policemen stationed at the door lent an air of expectancy. In truth Go shareholders failed to scale the same heights. This was due to a business like approach by shareholders and management alike – a clear example of well intentioned pressure yielding an appropriate response. Both parties are to be commended, but I hope this is not the start of a trend towards less entertaining fare.

There is little fear of that of course.

I shall sign off with a little gem at the Lombard AGM – when a shareholder asked for a secret ballot (neatly reversing the relative position at the HSBC AGM) and another subtly threatened to break the quorum with a walk-out. The withering look on the chief executive’s face was worth 1,000 words – and I only have 800.

This article is the objective and independent opinion of the author. The information contained in the article is based on public information. Curmi and Partners Ltd. is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.

www.curmiandpartners.com

Mr Webster is head of equity research at Curmi and Partners Ltd.