Schroders has warned UK companies that executives must “share the pain” of the economic hit from the coronavirus pandemic as the UK’s second-largest listed asset manager called for boards to review chief executive remuneration.
In a public letter to British companies the £500bn asset manager, which is a large investor in UK plc, called on groups to put employees, customers and suppliers first as they battle to survive with measures aimed at containing the outbreak decimating revenues across many industries.
The letter, which is signed by Jessica Ground, global head of stewardship and Sue Noffke, head of UK equities at Schroders, said the group would support ailing companies that sought to raise additional capital quickly, including signing off businesses bypassing pre-emption rules that give shareholders first right of refusal on new share issuances.
But in return, the asset manager said: “Where companies seek additional capital we would expect their boards to suspend dividends and to reconsider management’s remuneration.”
Speaking to the Financial Times, Ms Noffke said for some companies such pay cuts might be retrospective while at others it could be for the current year.
“We would expect management to share in some of the pain,” she said. “If companies need capital, they should have an expectation that their compensation should also bear some cuts.”
Peter Harrison, Schroders chief executive, took his £5.68m bonus for 2019, according to the company's annual report, which was published last Friday. The asset manager said employee bonuses had been paid out earlier this year, before the situation with Covid-19 deteriorated significantly.
“Our board and management team is focused on doing the right thing for our clients, our people and wider society and we will continue to monitor the situation carefully. We will consider 2020 performance and pay outcomes in due course later in the year,” the asset manager said.
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Ms Noffke said investment groups had a key role to play in supporting businesses through this difficult period, alongside governments, banks and other institutions.
“This is unprecedented in terms of everything coming to a halt at the same time. It has huge implications for the management of cash and capital. We think companies should be focused on maintaining the business rather than maintaining shareholder relations,” she added.
In the letter, Schroders said that in normal times it endorsed the UK’s Pre-emption Group guidelines, which set out that companies should not raise more than 10 per cent of their issued share capital without giving existing shareholders first right of refusal.
The Pre-emption Group updated its guidance on Wednesday to recommend that investors consider supporting issuances by companies of as much as 20 per cent on a temporary basis, in order for businesses to maintain their solvency.
In its letter, Schroders said it would “where it is necessary” support the use of measures such as so-called cash box placements, a structure that companies use to bypass pre-emption requirements, in order for businesses to raise additional capital urgently so long as they had sustainable long-term business models.
But Ms Noffke said the asset manager would expect current shareholders to have “their informal pre-emption rights honoured”, with companies offering them the chance to take part in any rights issue as far as possible.
The asset manager said many “difficult decisions will have to be made over the coming weeks and months”.
But it added: “Our message is clear: in the short term companies need to prioritise their key stakeholders, in particular employees, but also customers and suppliers.
“We believe that by focusing on these drivers of long-term returns the benefits to UK investors and the economy will eventually be forthcoming.”
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