ShareSoc Open Letter to the board of RBS Group

Press Release 98 – ShareSoc Open Letter to the board of RBS Group

For immediate release: ShareSoc has written an open letter to the Board of the RBS Group addressing unresolved issues that continue to concern individual shareholders.
Please see below and contact Cliff Weight on cliff.weight@sharesoc.org for more information.

SHARESOC OPEN LETTER

October 2017

TO THE BOARD OF RBS GROUP

Shareholder Resolutions for 2018 AGM

Since ShareSoc first engaged with you on 12 December 2016 there have been several positive developments which we recognise and applaud:

1. The share price has increased from 214p on 12 Dec 2016 to 274p at 18 October 2017. Total Shareholder Return has been 28% and market cap has increased by £7bn to £32bn, bringing a welcome improvement in the debt/market cap ratio.
2. You have held shareholder events in London on 30 July and Edinburgh on 30 October. We are pleased that you have recognised the importance of communicating with your retail shareholders in this way.
3. You have provided a constructive response to the Government’s Green Paper and indeed an RBS example was used in the Government’s response to the consultation.
4. You have settled the RBoS Shareholder Action Group claim and now have one less major legal claim outstanding. This will help executives focus on the core business.
5. You continue to support MoneySense, which facilitates financial education; this is a cause which we think is extremely important. We are deeply concerned about the very low levels of financial education in this country.

However, there remain unresolved issues which continue to concern us in our role as representative of individual shareholders:

1. Your reaction to our shareholder resolution for the 2017 AGM. You fought tooth and nail, using flimsy, expensive, intransparent legal arguments to avoid putting a perfectly reasonable shareholder resolution to your members. This led to unnecessary negative publicity and ill-feeling from many people towards RBS.
2. The historic treatment of customers by the GRG unit continues to generate enormous bad publicity for the brand and negatively impacts the Group’s market capitalisation. Your focus on legal arguments and delaying tactics are souring the hearts and minds of your customers and of the public at large and are fostering increasing concern with regulators and within parliament. I attended the APPG Fair Business Banking meeting on 11 Sept 2017, Have Banks Regained Public Trust. The large majority of those in the meeting in the House of Commons were still highly critical of banks, including RBS, and GRG came in for particular criticism.
3. The 30 July 2017 Shareholder Event was a sell-out, but no further London events have been organised. The event itself, which I attended, could have been much, much better presented (See our constructive blogs on this:

https://www.sharesoc.org/blog/rbs-shareholder-event-31-july/
https://www.sharesoc.org/blog/rbs-shareholder-event-hijacked-stakeholder-groups/)

4. Although RBS has responded positively to the Government’s Green Paper on Corporate Governance, it has however fallen into the trap of setting up a toothless chat shop and to deflect attention away from the real issue which is that of achieving better governance through means which include but are not limited to the creation of a shareholder committee. RBS has over-emphasised the importance of non-equity stakeholders to the extent that shareholders might reasonably wonder whether the RBS Board is really working for them at all. You continue to treat shareholders, and particularly individual shareholders, as a nuisance constituency; we are owners of the company on whose behalf you are tasked with managing the Group and to whom you owe a clear fiduciary duty.
5. The 2006 Companies Act requires companies to recognise the primacy of shareholders. It also requires companies to act fairly between members. We do not believe that RBS treats all its shareholders fairly. In November and December 2016 RBS engaged in cosy chats with major shareholders behind closed doors and sent them details of new proposed remuneration arrangements. When ShareSoc, on behalf all RBS shareholders, asked to see copies of this correspondence our request was refused.
6. Your approach to shareholder engagement produces bad outcomes. In the run-up to the 2017 AGM a public row erupted as to the degree of support for the new proposed remuneration arrangements, which were eventually approved by 96.33% of shareholders who voted. However, if one excludes the UKFI vote from the calculation, I estimate 14% were voted against. If you had engaged via a Shareholder Committee the negative publicity could have been avoided.
7. The £800m settlement of the RBoS Shareholder Action Group claims relating to the rights issue means that former RBS directors will avoid having to explain how they contrived to lose £12bn of shareholders’ capital over such a short period and how the rights issue prospectus was not fraudulent. No-one has been prosecuted over this catastrophic failure and no-one has admitted wrongdoing. RBS’s defensive tactics of delay and its expensive use of lawyers (£125 million of legal fees were quoted in the press) have won a Pyrrhic victory.
8. You have refused to include late claimants in the settlement. Many loyal small shareholders (including many employees and pensioner ex-employees) chose not to join the RBoS Action Group and have been financially disadvantaged as a result (and many of the speakers at the 30 July Shareholder event made this point very forcefully). You claim that the RBS culture has changed, but your behaviour belies this, as this example so clearly demonstrates
9. Sir Howard Davies and Ross McEwan spoke of a change in culture at the AGM. The 8 examples above illustrate that the Board remains aloof. The RBS Board comprises different people to those responsible for the problems on 2006 to 2009, but the recent actions suggest that its insular attitude has not moved sufficiently forward.
10. Last year we put forward a very sound argument that the corporate governance of RBS had failed its shareholders (and customers) and needed to be improved by the adoption of a Shareholder Committee. This would facilitate constructive interaction and feedback between the RBS Board and its shareholders. The above points make our case even stronger!

ShareSoc intends to submit two shareholder resolutions to the 2017 RBS AGM relating to shareholder engagement. You will shortly be furnished with drafts of these resolutions, on which we would value your constructive feedback. You should be aware that is our intention to continue to submit annual resolutions to the AGM until and unless the board implements a process which is both fair and fit for purpose.

It continues to be our opinion that shareholder engagement is best addressed via the establishment of a shareholder committee. We recognise that several asset managers and large institutions have in response to the Green Paper opposed this concept and made known their views that shareholder committees would require them to work harder, and commit more staff and resources to engaging with the companies in which they invest. It is nevertheless important that these resolutions are put to, and properly debated at the AGM.

The benefits of a shareholder committee include:

1. Systematic briefings between the company and its member representatives.
2. Improved member knowledge, relationships and trust over time.
3. Framework for the provision of consistent information to, and discussion with, member representatives.
4. Increased transparency.
   a – For example, in relation to remuneration proposal, a clear audit trail of the initial proposal through to the final version voted on by shareholders
   b – The shareholder committee would report to all shareholders via the annual report, AGM and other means as necessary.
5. Results briefings from the CEO and Finance Director would continue.
6. The Shareholder Committee will focus on governance issues, and will not interfere with the day-to-day management of the company.
7. Where there are serious concerns about the practical implementation of a Committee, these can be countered by limiting it to an advisory role, providing a report and recommendation to shareholders.
8. The Committee could include worker and customer representatives if desired. There is considerable flexibility in how it might operate in practice, potentially acting as a vehicle for broader stakeholder engagement.
9. It is unlikely that the shareholder revolts at BP, BHS and Sports Direct would have occurred if such a committee had existed at those companies.
10. Another more recent example of engagement producing negative headlines that could have been avoided is Imperial Brands, http://www.thetimes.co.uk/article/imperial-on-the-rack-over-bosss-bonus-bonanza-3brgvtzr3 Sunday Times 14 Jan 2017. And Daily Mail http://www.thisismoney.co.uk/money/markets/article-4161632/Boss-tobacco-giant-Imperial-Brands-loses-3m-pay-rise.html

We hope that the RBS Board will engage more constructively and positively than last year. We remain available to meet you at your convenience so that we can both get a better understanding of each other’s positions, objectives and objections.

Our goal in this is to make RBS a more sustainable business, with improved corporate governance and more effective engagement and interaction between the RBS Board and its owners.

Please note that this is an open letter and in the spirit of transparency is available to all our members and others who follow us, including members of the press.

Yours sincerely,

Cliff Weight

RBS shareholder, ShareSoc Director and RBS Shareholder Committee Campaign Co-ordinator.