RBS Confirms Shareholder Committee Resolution will be put to AGM Vote

Press Release 102 – Joint Press Release from UKSA and ShareSoc

RBS Confirms Shareholder Committee Resolution will be put to AGM Vote

* RBS has accepted our requisition of a Shareholder Resolution. There will be a debate and vote on the establishment of a shareholder committee at the May 2018 RBS AGM.

* Opportunity for RBS to lead UK plc in the first establishment of a formal shareholder committee. Sweden has 20+ years of positive experience with shareholder committees; lessons can be learned from them and there is little to fear.

* RBS Shareholder Committee likely to be advisory in nature. No formal powers have been stipulated, but could look at and comment on strategy, governance, executive pay and other high-profile issues.

* RBS is a leading light in stakeholder engagement. (It was quoted as an exemplar in the Government’s September 2017 response to the Corporate Governance Green Paper.) A formal shareholder committee will build on this to ensure that all shareholders are fairly represented, and their primacy recognised as is required by the Companies Act 2006 (S172)

* The proposal needs 75% shareholder support. The Government, via UKFI, owns 70.48% of RBS and its stance will therefore hugely influence the AGM outcome.

A copy of the resolution can be seen here.

ShareSoc Director and Campaign Coordinator Cliff Weight said “ShareSoc and UKSA have fought for better shareholder engagement and shareholder committees for over 20 years. At last our efforts are being recognised. A positive vote at the AGM will be a great step forward for shareholder democracy.”

Mark Northway, ShareSoc Chairman, said “I see this as a great opportunity for RBS to lead the rest of the UK towards better governance. Getting the shareholder resolution on the RBS AGM agenda is a huge step forward in making all UK plcs aware of the importance of individual investors and the need for company Boards to engage more effectively with all shareholders.”

“We are very pleased that RBS has allowed this debate and is willing to consider the benefits of a shareholder committee. The initial role of any new committee is likely to be relatively low key but is likely to extent over time as the benefits of formal shareholder engagement are realised.”

John Hunter, UKSA Chairman, said “This just could be the first step in restoring the rights of beneficial owners. Shareholder rights have been dangerously eroded by the over-dominant behaviour of asset managers and the nominee system which removes ownership rights. I call on all beneficial owners to lobby their fund managers to vote in favour of this resolution.”

Cliff Weight, Director of ShareSoc and campaign coordinator of the resolution added “The Shareholder Committee concept will allow a representative group of shareholders to interact with companies in a structured, consistent manner that builds trust and understanding between both sides. It will help to reduce unnecessary conflict while providing challenge when necessary. It will improve corporate governance by improving shareholder engagement and influence without diminishing the board’s ability to manage the business.”

Catherine Howarth, Chief Executive of ShareAction, commented, “ShareAction is pleased to be a co-filer of this important resolution. Resilient firms listen to all their shareholders and stakeholders, and it helps when effective mechanisms are in place to make this happen. We hope to see shareholder committees take off as a valuable innovation in British corporate governance. RBS faces many challenges, not least managing the financial risks and opportunities of the transition to a low carbon economy. We look forward to the RBS shareholder committee pressing the bank’s board and management to focus their efforts on such long-term drivers of success.”

Daniel Godfrey, formerly CEO of the Investment Association, Founder of The People’s Trust and member of the Independent Governance Committee at Legal and General said “Good for RBS in agreeing to put the proposal for a shareholder committee to the AGM. A shareholder committee will provide meaningful dialogue between the bank and its individual shareholders who will at last be able to raise concerns and know that they’ll get a response.”

Chris Philp MP said “UK shareholders can do a better job of acting like owners and doing so more collectively. This resolution would create a forum for active engagement in the form of a shareholder committee. I applaud RBS for allowing the vote and I hope shareholders will take the opportunity to favour this advance in corporate governance.”

Other information
RBS has not indicated whether the board will recommend shareholders to vote for or against the resolution.

Given the current level of the Government’s shareholding (70.48%), it is not within the gift of UKFI to decide whether or not the resolution passes as it requires a 75% majority (assuming those who abstain or do not vote own less than 6.0267% of the total RBS shares). Also, it should be noted that as per the UKFI annual report, UKFI manages the government shareholding on a commercial, arms-length basis. UKFI have said that they will give the resolution proper consideration in due course. (Note: UKFI will soon complete its integration with UK Government Investments (UKGI) so references to the entity managing the Government’s stake in RBS after the end of March should be to UKGI, please rather than UKFI.)

If approved, the committee could include representatives of both institutional and individual shareholders and potentially certain additional stakeholders. The resolution has intentionally been drafted to allow RBS directors maximum flexibility with regard to implementation.

Background on the problems of shareholder engagement in the UK

The informal nature of current shareholder engagement (cosy chats with selected shareholders behind closed doors) does not work well for the broad shareholder base. It is not clear whether investors are each being told the same story, how information is being spun, or whether complete or only partial information is being given out. Investors will ask different questions during engagement meetings and so may develop different interpretations of what the company is trying to achieve. Ad hoc engagements tend to only occur when a problem arises.

Currently, when a large number of investors are “consulted”, it is difficult to have the same conversation with each investor and the proposal often changes over the process of engagement. Currently, the different views of different investors create a very “messy” backcloth in which to engage.

For example, in relation to remuneration proposals, there is often no clear trail from the initial proposal though to the final version voted on by shareholders.

Voting happens too late in the process. Discussion and voting at the AGM is ineffective, as institutions do not like to vote against the directors’ recommendations. A more professional and systematic process is required.

This impasse can be broken through the introduction of Shareholder Committee.

Benefits of establishing a Shareholder Committee:

i. Systematic briefings between the company and knowledgeable Shareholder Committee Members.
ii. Shareholder Committee Members will develop good background knowledge, relationships and trust with the company over time.
iii. Shareholder Committee Members will be presented with consistent information and explanations, and members will have a forum for the exchange of questions and views.
iv. Increased transparency.
v. A Shareholder Committee will report to all shareholders via the annual report, AGM or other route as appropriate.
vi. A Shareholder Committee will focus on governance and strategy issues, and will not interfere with the day-to-day management of the company.
vii. A Shareholder Committee can be established on a purely advisory basis and does not require any specific powers.
viii. A Shareholder Committee might also include workers, customer representatives and other key stakeholders if desired. There is considerable flexibility on how it might operate in practice.
ix. It is unlikely that the cases of Carillion, BP, BHS and Sports Direct would have occurred if such a committee had existed at those companies. And the problems would surely have been resolved quicker if each had had a Shareholder Committee.

Cliff Weight, Director of ShareSoc and campaign coordinator of the resolution added “The Shareholder Committee concept will allow a representative group of shareholders to interact with companies in a structured, consistent manner that builds trust and understanding between both sides. It will help to reduce unnecessary conflict while providing challenge when necessary. It will improve corporate governance by improving shareholder engagement and influence without diminishing the board’s ability to manage the business.”

This Resolution is consistent with the Prime Minister’s initiative to improve the way companies are run. HM Government’s Nov 2016 Green Paper and Chris Philp MP’s paper (see Further Information below): both reference Shareholder Committees as a part of possible solutions to address failings in corporate governance. ShareSoc and UKSA believe this initiative will set an example for other companies to follow.

Further Background:

ShareSoc, the UK Individual Shareholders Society
ShareSoc is the UK’s largest retail shareholder organisation acting in all areas of the UK stock market with over 4,000 members. See www.sharesoc.org . It produced a report on Shareholder Committees in 2011. See Shareholder-Committees

UKSA, the United Kingdom Shareholders’ Association
UKSA has campaigned for the rights of individual shareholders since its foundation in 1992. It has consistently supported the principle of Shareholder Committees, and is entirely funded by its 600 members, all private individuals. See Responsible Investing

Chris Philp, MP Paper
Chris Philp MP wrote an excellent paper covering Shareholder Committees in September 2016 which has received wide publicity. See Restoring-Responsible-Ownership.

Government Green Paper
The Nov 2016 Government Green Paper on Corporate Governance mentions Shareholder Committees as a way forward that could be mandated or could be adopted via the UK Corporate Governance Code or voluntarily. See Green-Paper

Tomorrow’s Company
Fuller details and benefits are available in the 2011 report “Bridging the UK engagement gap through Swedish-style nomination committees”. The report can be found at Tomorrow’s-Company-Paper.

For more information on the Campaign and its history go to https://www.sharesoc.org/campaigns/rbs/

Appendix

Resolution at the 2018 AGM of The Royal Bank of Scotland Group plc (“the Company”)

SPECIAL Resolution

Shareholder Committee

That the Directors establish a Shareholder Committee.

Supporting Statement

The aim of the Shareholder Committee is to facilitate more effective oversight by shareholders of the governance of the Company.

Coordinators
The submission of this Resolution has been coordinated by ShareSoc, The UK Individual Shareholders Society and UKSA, The UK Shareholders’ Association.

Context
ShareSoc and UKSA have advocated Shareholder Committees for many years.

Good leadership and wise management is at the heart of great and sustainable businesses. The shareholders who have requisitioned this Resolution believe that the Company’s governance will benefit from increased shareholder engagement in the form of a Shareholder Committee.

The problems of Shareholder Engagement and the Benefits of Establishing a Shareholder Committee are laid out in the AGM Agenda, Item Matter for Discussion.

Shareholder Committee Functions

It is intended that the Shareholder Committee operate as part of an effective and inclusive governance framework that builds trust between the Company and its Members. It is not for the proponents of this initiative to micro-manage the Company, and therefore this Resolution is intentionally not prescriptive. It is for the Directors to decide the terms of reference and operational details of the Shareholder Committee.

The functions of the Shareholder Committee are likely to be advisory in nature and may, at the discretion of the Directors, include some or all of the following:

• providing feedback to the Board on candidates being considered for appointments by the Company, and recommending alternative candidates for Board appointments,
• providing feedback to the Board on remuneration proposals, and reporting on specific pay proposals (including the remuneration policy) before they are put to a binding vote of all Shareholders at the AGM,
• commenting on strategy from a shareholder perspective,
• reviewing and commenting to the Board on the appointment of external auditors and the activities of the external and internal auditors,
• reporting to shareholders on its activities via the annual report,
• providing voting recommendations to shareholders at the AGM.

The Company may deem it appropriate for the Shareholder Committee to also consider the views of other stakeholders, for example offering feedback on the social and environmental risks and opportunities associated with the Company’s business activities.

Membership of the Shareholder Committee
The Shareholder Committee is likely to comprise a number of Members of the Company, or their representatives, (who may initially be selected by the Company and in subsequent years be elected by the Members of the Company), any representative(s) of other key stakeholders the Company may wish to appoint, and one or more Directors. Committee Members directly elected by Members of the Company are likely, under terms of engagement, to be required to commit to act fairly as between Members of the Company when acting as Committee Members. Notwithstanding the ultimate composition of the Shareholder Committee, it is likely that the majority of any voting rights at Shareholder Committee meetings will reside in due course with those Committee Members directly elected by the Members of the Company.

Insider Information
Committee Members may be privy to price sensitive information from time to time. This may preclude them, and potentially the organisations from which they are drawn, from trading at certain times. This restriction may be partially mitigated through the adoption of effective firewalls within shareholder organisations, to ensure that Committee Members do not discuss such information with colleagues.

Retail investor involvement
Retail investors are beneficial owners of at least 12% of the UK stock market and have an independent long-term perspective. Vocal and transparent, they are generally unencumbered by conflicts of interests and by the time pressures that institutional shareholders might have. One or more Committee Members might be proposed by the recognised shareholder associations, ShareSoc and UKSA.

Further Information

ShareSoc, The UK Individual Shareholders Society
ShareSoc is the UK’s largest retail shareholder organisation acting in all areas of the UK stock market with over 4,000 members. See www.sharesoc.org. ShareSoc is a not for profit company. ShareSoc has produced a report on Shareholder Committees. See https://goo.gl/LnkEZQ.
For more information about the ShareSoc-UKSA RBS Shareholder Committee Campaign, see www.sharesoc.org/campaigns/rbs/

UKSA, The UK Shareholders’ Association
UKSA is the oldest shareholder campaigning organisation in the UK. UKSA is a not for profit company that represents and supports shareholders who invest in the UK stock market. See www.uksa.org.uk. UKSA has supported the principle of shareholder committees since its foundation. See http://www.uksa.org.uk/POSB2009

Chris Philp, MP Paper
Chris Philp MP wrote an excellent paper covering Shareholder Committees in September 2016 which has received wide publicity. See https://goo.gl/g7d9G2 .

Government Green Paper
The Nov 2016 Government Green Paper on Corporate Governance mentions Shareholder Committees as a way forward that could be mandated or could be adopted via the UK Corporate Governance Code or voluntarily. See https://goo.gl/TyRavf

Tomorrow’s Company
Fuller details and benefits are available in the 2011 report “Bridging the UK engagement gap through Swedish-style nomination committees”. The report can be found at https://goo.gl/7rHMwF