Royal Bank of Scotland investors call for corporate governance changes

Royal Bank of Scotland is facing demands from a group of investors for changes in its corporate gove

Royal Bank of Scotland is facing demands from a group of investors for changes in its corporate governance. - Credit: PA

About 160 investors are demanding the Royal Bank of Scotland (RBS) shores up corporate governance by creating a shareholder committee to sniff out “poor stewardship” and avoid a rerun of the bank’s near collapse in 2008.

The move would prevent RBS from repeating the chain of events that triggered the lender’s crash during the financial crisis, according to investor groups ShareSoc and the UK Shareholders’ Association (UKSA).

Mark Northway, chairman of ShareSoc, said shareholders deserved a new approach that gave more effective input.

“One objective is to stop the events that took place at RBS from ever happening again,” Mr Northway said.

“A dominant CEO, concealing the true financial position of the company from investors, proceeding with a reckless acquisition, and then publishing a rights prospectus which concealed the problems faced by the company. These are not examples of good governance.”

In April 2008, RBS asked existing shareholders to inject £12bn into the firm to strengthen its reserves after the bank led a consortium that spent £49bn on Dutch bank ABN Amro.

The deal proved toxic and, just months later, the value of RBS shares plunged 90% and the Government had to step in with a £45bn bailout. RBS remains 73% owned by the UK taxpayer.

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UKSA chairman John Hunter said there was a need for companies to step up and make capitalism work for everyone.

“Most large shareholders are intermediaries who tend to act in their own interests and not those of the ultimate beneficial owners,” he added.

“This needs to change and this proposal is a step towards that. Transparency and formal engagement will help to prevent poor stewardship.”

ShareSoc and UKSA said poor management at RBS had caused shareholders to lose 95% of the value of their investment since the bank’s share price peaked in 2007.

The groups’ proposal was developed with Gavin Palmer, an outspoken RBS shareholder who interrupted the bank’s 2013 AGM to hand out a petition calling for a committee on the board.

It comes after reports said the RBS remuneration committee was discussing plans to cut the maximum amount chief executive Ross McEwan can earn under his long-term incentive plan from £3 million to £1.75 million as part of a review of executive pay.

Business Secretary Greg Clark announced a new package of corporate governance reforms in November which could require firms to make public the ratio between the pay of chief executives and ordinary workers, and provide seats for workers on company boards.

RBS must now decide whether the proposal meets the correct requirements to face a vote at its annual general meeting (AGM) on May 4 next year.

An RBS spokesman said: “We have not yet received the final draft resolution.

“Once it has been delivered we will look closely to ensure that it complies with all corporate governance and listing guidelines.”