Rising voice of shareholders

to obtain and maintain the confidence of clients, counterparts and the market including investors.
Good practices in financial institutions are supposed to encourage good practices among borrowers and enhance business. The shareholder approach discusses corporate governance in light of the relationship at the top of an organisation that includes the board of directors, the senior executives and the shareholders.
This is unlike the stakeholder approach that includes a wider group of actors such as customers, workers and suppliers etc. Based on the shareholder approach, good governance practices in financial institutions necessitate balanced relations in the triumvirate of the board, senior managers and shareholders. These are the decision-making trio, and accordingly, lack of active participation by any one of the three, weakens the quality of governance practices.
This is why recent awakening of shareholders and their rising voices at annual shareholders’ meetings of financial institutions — Credit Suisse, Barclays and UBS — have been making headlines. The uncharacteristic drama and storms, at recent annual shareholders’ meetings, included complaints by many attendees, that senior executives are getting too big a slice of bank income at the expense of shareholders. Shareholders expressed concerns that bankers and the banking sector had lost touch with reality and that the culture of greed was rife
It is reported that at their April annual shareholders meeting, almost 32 percent of investors at Credit Suisse, opposed the bank’s remuneration plan. In addressing about 1 700 shareholders, the Credit Suisse chief executive, Brady Dougan, acknowledged the importance of having the right remuneration policies and structures in place, particularly for a global bank, which is dependent on experienced and highly qualified people.
However, shareholders maintained that it was unfair for the executive to take so much, at the expense of shareholders’ dividends. One shareholder added, “We are the owners of this bank, and you are our employees. We should be the ones who decide what you earn”.
A week later, chairman Marcus Agius, tried to quiet the storm at Barclays’ annual shareholders meeting by apologising for badly communicating the bank’s pay strategy. He also promised to “materially” increase the dividend shareholders receive. It is reported that the chairman was jeered by some members of about 2000 shareholders. 27 percent of the shareholders voted against the CEO Bob Diamond’s £17,7m compensation package. The Swiss bank, UBS, also faced similar storms from angry shareholders over executive pay, notwithstanding the CEO’s earlier waiver to an increase in pay package. Undoubtedly, anger is widespread among the population at large, over multi-billion dollar pay deals, in an industry whose excesses were blamed for the current global economic challenges. Shareholders in that industry are now becoming more vocal. Shareholders or investors are an important factor in free market economies.
It is therefore quite surprising that it is only now that shareholders in the West are waking up to their role and fine tuning governance, by being vociferous  at meetings and challenging  the board and senior executives. Nevertheless, it is a welcome development in balancing the harmony in governance relations among the corporate triumvirate. 
In line with free market dictates, banks and the financial services sector in general, managed to create operational independence. However, this independence has created justifications that banks are dependent on experienced and highly qualified people, and therefore demand larger than life pay packets.
The remuneration problem, between shareholders as owners and senior executives as managers needs to be addressed. The Barclays chair Marcus Agius thinks it is possible to increase dividends materially. If it is possible to increase dividends, then, one wonders why executives have to wait for shareholders to be irate and perform at meetings, before being awarded fair share of their wealth. The rise in shareholders’ voices as cited above, and in many other companies outside the financial services sector, shows that a financial system can be fine tuned through enhanced accountability.
Executives are now being forced to be cautious when deciding on remuneration policies, strategies and structures. We see both the Credit Suisse and Barclays officials acknowledging the need to reexamine pay structures. The very fact that the board and senior executives, recognise and are moved to act in a certain and different direction, is in itself a governance development.
Dividends pay out amounting to US$1 million, made by the financial services company FBC Holdings to the National Social Security Authority, was described as a rare event on investments by the national pension authority. Perhaps, a similar question as one on raised above could be asked in Zimbabwe, is it possible to increase dividends materially, without shareholders venting out anger and distrust on boards and senior executives? Can corporations just act fair and truthfully without being coerced? The lessons here are not just about shareholders making noise, but rather for the need to balance power, enhance trust, and establish authority.  It has been said that too much power corrupts. This is a normal human tendency. 
Good governance practices are there to balance out this power. Some may view it as weakening those who have power, but actually, the reverse is true and that is good governance protects those in power. It is about deliberately substituting the temptation to be greedy, with responsible practices.
Responsible actions create trust in relationships among the three decision making authorities, the board, senior executives and shareholders, including minority shareholders. It was also interesting to note that during Barclays’ shareholders meeting, Alison Carnwath, head of the bank’s remuneration committee, was left staggering after almost 25 percent of investors refused to support her re-election as a director. Thus shareholders, as owners of the Barclays Bank asserted their authority even in appointing directors.
As well, this is not about who wins, but rather about establishing and following good governance principles and practices, which in turn create confidence, trust, strong and sustainable institutions. Recent reports by the Bankers Association of Zimbabwe, that deposits in the sector increased to US$3,7 billion in the first quarter from US$3,1 billion in January 2012, is in itself, testimony to the importance of market confidence and viability of the financial sector. Combined with good borrowing practices, analysts are expecting to see increased lending at reduced interest rates, which the Zimbabwean industry and economy in general, is desperate for.
It is true as Credit Suisse chief executive, Brady Dougan said, that banking depends on experienced and highly qualified people. It is also true that the mining sector depends on highly qualified people, so are experienced surgeons important in healthcare, highly qualified pilots to the airline industries. Ironically it is people with income from other sectors that invest in financial services. Is the exorbitant remuneration structure for executives in financial services justifiable? Financial sector boards and executives have work to do in educating people, particularly their shareholders, on the huge gaps between dividends and executives’ compensation. 
Greed is an acquired behaviour based on fear of poverty. For greed all nature is too little. A habit of greed is like a bottomless pit which exhausts the person in an endless effort to satisfy need, without ever reaching satisfaction. Faith in the power to create wealth is the only force that can reverse habits of greed.
Central to this faith is responsible governing practices, which consider other players within a system and seek to create fairness. No one is immune to greed, but through deliberate efforts and control mechanisms, greed can be contained. The voices of shareholders had been a missing link in good corporate governance, for a long time, and the rise in that voice is now fine tuning harmony in governance practices, not just in financial services, but in all organisations.
Gertrude Takawira is a researcher and consultant in governance.