Are the norms governing company investor relations in the UK beginning to weaken?
Activist investor group Follow This yesterday took the next step in its battle with oil and gas major BP, announcing legal action in the form of the dispatch of a ‘letter before action’ to the company from law firm Mishcon de Reya.
Earlier this month, BP declined to include a Follow This resolution in its AGM notice, despite previously confirming the filing threshold had been met. The resolution, which is co-filed by 16 institutional investors, asks the oil major to explain how it will create shareholder value as oil and gas demand falls.
In the letter to BP, which was seen by IPE, Mishcon de Reya said that the resolution “cannot be said to be ineffective, defamatory or frivolous or vexatious” and that “there is no ambiguity or lack of clarity as to what the resolution is calling for the company to do.” The law firm warned that BP board directors would commit an offence if they failed to comply.
The letter gives BP one week – until 1 April – to include its resolution on the agenda at its annual general meeting (AGM), which is scheduled for 23 April.
Section 339 of the Companies Act 2006 covers companies’ duties to circulate shareholder resolutions for AGMs. According to Follow This, every board director who is in default commits an offence, carrying potential penalties including a fine. If the matter is not resolved before the AGM on 23 April, BP may additionally be required to convene an extraordinary general meeting at its own expense, it said.
“BP would rather go to court than answer a question,” said Mark van Baal, founder of Follow This. “Every shareholder should be asking why.”
A governance issue
BP has said the Follow This resolution does not comply with the Companies Act or its articles of association, but has not publicly explained its reasoning.
A similar climate resolution filed by the Australasian Centre for Corporate Responsibility (ACCR) does appear on BP’s AGM agenda. BP has recommended that shareholders vote against it.
Sarah Wilson, chief executive officer of British proxy adviser Minerva Analytics, has said that the absence of any explanation is at the heart of the issue and argues that BP has created a problem of its own making.
“They should have just been transparent. What is the problem with explaining?” she said.
“They have just shot themselves in the foot. The automatic putting up of the shutters is going to make more of an issue, not less,” Wilson added.
For her, the lack of explanation is not in keeping with the spirit of the UK Corporate Governance Code and particularly its ‘comply or explain’ principle.
In a blog post earlier this month, corporate governance expert Tom Powdrill said BP’s move could boost support for the ACCR resolution and increase votes against directors at the AGM.
Follow This believes the stakes are high for all shareholders. “If BP gets away with this, then every company can just refuse a shareholder resolution,” van Baal says. “This means the end of active shareholder democracy.”
Mimicking US tactics?
BP is not the first UK listed company to exclude a shareholder resolution from the ballot – National Express did so for a labour rights proposal in 2016, according to Powdrill – but it is thought to be the first FTSE100 company to do so.
It comes at a time of worries that moves in the US to protect corporations from their shareholders will have ramifications elsewhere.
Lindsey Stewart, director of stewardship at Morningstar Sustainalytics, said the UK system’s reliance on consensus makes BP’s approach stand out. “Governance in the UK is governed by principles more than hard and fast rules,” he said. “Accepted practice and consensus have tended to have a greater influence.”
“It’s certainly an unprecedented situation,” he added. “The nature of company shareholder relations has become a lot more and, largely in the United States. It’s a surprise to be seeing that happen at a UK company.”
It is a “very negative signal” and one “everyone needs to sit up and pay attention to,” he said.
BP had not responded to IPE requests for comment by the time of publication.
