Equiniti ezine | November 2011

EZINE > NOVEMBER 2011 INSIDE THIS ISSUE: WEBCAST Six steps to successful corporate actions TIME FOR A MAKEOVER? Changing the public image of UK plc WHY DATA CONTROLLED MEANS MONEY SAVED Why data skill expertise is more in demand than ever before THE UK STEWARDSHIP CODE: ONE YEAR ON Measuring the impact of the Stewardship Code AHEAD OF THE FIELD A glowing report for Equiniti Contact Centre FOCUS ON THE EQUITIES MARKET Equiniti's response to the Kay Review

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WEBCAST

David Farbon, Head of Corporate Advice, Equiniti, gives six steps to successful corporate actions

WEBCAST: CORPORATE ACTIONS

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PUBLIC RELATIONS

The Great British public has never held corporate Britain in such low esteem. Is it time for a PR makeover?

MAKEOVER TIME FOR UK PLC? Along with many of its counterparts around the world, the public profile of UK plc has taken a battering in recent years. Truth be known, the reputation of corporate Britain among shareholders and the general public is at an all-time low.

Consider the evidence. Several of our leading banks are in financial disgrace, protestors have taken to the streets to rail against the evils of capitalism, and newspaper cartoonists now routinely caricature senior CEOs as cash-hungry fat cats. There is controversy over bonuses, pensions and payoffs for top directors, and a growing debate as to the lack of diversity in UK boardrooms. Add to that the occasional headline about rogue traders, insider dealing and bribery allegations and you’d be forgiven for thinking that UK plc is the Evil Empire.

The truth, of course, is very different. UK plc is a force for good that employs millions of people, creates wealth across all sectors of society and underpins the UK economy.

But prompt the average person in the street, and you’d be likely to get a very different impression.

UK plc needs a PR makeover and so we asked a public relations expert how he would tackle the job. Richard Ellis is Communications Director at the Public Relations Consultants Association.

How do you think the general public currently perceives UK plc?

Richard: UK plc is commonly perceived as profit oriented – not an issue in itself unless investors and senior executives are making vast sums of money while companies lay off staff at the same time.

There appears to be, particularly in banking circles, a complete lack of accountability for mistakes when things go wrong, while the rewards when things go right appear to everyone, except those benefiting, obscene.

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PUBLIC RELATIONS Stories of Sir Fred Goodwin and other captains of industry and finance walking away from companies with a secure future while “normal” employees are left high and dry has left a bitter taste in the public’s mouths.

If there was such a job, how would you tackle a PR makeover of UK plc?

Richard: It’s an ongoing battle for organisations like the CBI (Confederation of British Industry). The first thing to do is to identify whose perceptions you want to change and why. Recently we have seen groundswells of public opinion, facilitated by social media, force changes in Government policy. Going forward, public opinion could have a significant impact on how easy it is for government to create a favourable business environment. UK plc needs to emphasise its contribution to each stakeholder group in a way that they understand. There are many positive contributions that UK plc could and must showcase around innovation, research, regeneration etc. However, the negative story is always more sensational than good news.

UK plc will find it hard to shift public opinion while profits and personal greed appear to rule. UK plc must also demonstrate how it is

addressing the governance and leadership issues that are at the root of negative stories.

Are there are any good role models?

Richard: If you look at Sir Stuart Rose (pictured), he did a fantastic job at Marks and Spencer in terms of communication. He didn’t always agree with what the press said and they didn’t always agree with him, but he didn’t hide from the media when things got tough. And they reciprocated not just by publishing his point of view on those stories, but also by providing disproportionate coverage of positive stories about M&S. Why should business care?

Richard: A good reputation is a wise investment – the greater the trust that the public has in a UK plc, the easier the organisation will find it to do business.

Whether it’s getting planning permission, protecting share price in crisis situations, or lobbying for or against policy initiatives, it is important to have good communications channels with all stakeholders.

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The negative story is always more sensational than good news. UK plc will find it hard to shift public opinion while profits and personal greed appear to rule

FOR MORE INFORMATION: Please contact your relationship manager CONTINUED EDS > ON PAGE 54

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EDS

The combination of public sector cuts and pensions regulation is driving demand for Equiniti’s data analysis expertise

DATA SKILLS THAT SAVE MONEY The economic gloom may have stifled activity on the corporate actions front, but Equiniti has found a growing demand for the data analysis skills honed through its ProSearch asset reunification service.

Private sector pension schemes, charities, government-funded organisations and local authorities chasing bad debts are among those now joining company registrars in taking advantage of Equiniti’s data management expertise.

“The intelligent data analysis and cleansing that we undertake for clients who want to track down ‘gone away’ or lost shareholders has lots of other uses, particularly in the current climate,” says Duncan Stevens of Equiniti Data Services (EDS). “One of the areas we have been focusing on is pensions. Over the past 18 months, The Pensions Regulator has been pushing third-party administrators and

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EDS pension scheme trustees to tackle poor record-keeping where data is missing or incomplete. We’ve been working with clients of Xafinity Paymaster, the pension specialists within the Equiniti Group, to get these records in order."

Duncan adds: “We’re also doing a lot of work with local authorities. The austerity measures are pressuring councils to increase their collection rates of council tax debt and identify where people are avoiding paying the full amount – for instance, people who are falsely claiming single person discount. We use the same kind of databases that we use for asset reunification to look at a property and determine whether there is more than one person at that address, or whether someone else is using that property as a mailing address. Our whole process is geared to finding as many people as possible, as quickly possible.”

To demonstrate the value of the service, and establish itself in new markets, EDS has been carrying out pilot projects for clients.

One of the first was the Land & Property Services (LPS), the agency responsible for mapping, land registration, rating and valuation in Northern Ireland.

LPS selected EDS to identify and segment 90,264 property records to validate and verify occupancy status. By carrying out multi-tier segmented cleanses, EDS was able to verify and trace 84.5% of end-dated accounts with outstanding debt.

“EDS’s work has been significant in helping us meet our debt reduction target for 2010/11,” says Anne Johnston, Revenue & Benefits IT Programme Manager at LPS. “We were also able to identify for write-off an amount of uncollectable debt and were provided with information to enable us to review our internal processes and improve our decision making.”

It’s a model that can help solve a number of database challenges, whether its direct marketing companies managing loyalty cards, charities managing donor lists, or registrars managing shareholders. “If you’re an organisation with a large database, there are likely to be significant benefits to finding out what we can offer,” says Duncan.

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Our whole process is geared to finding as many people as possible, as quickly possible

FOR MORE INFORMATION: Please contact Duncan Stevens, Equiniti Data Services, on duncan.stevens@ prosearchassets.com UK STEWARDSHIP CONTINUED CODE > ON PAGE 76

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UK STEWARDSHIP CODE

What impact has the UK Stewardship Code had on shareholder activism and stewardship?

David Venus, Director of David Venus & Co, provides an expert view

STEWARDSHIP: ONE YEAR ON The UK Stewardship Code marked the first time, anywhere in the world, that a regulator has taken steps to influence investor behaviour. Established by the Financial Reporting Council in July 2010, the Code calls on institutions to monitor their investments, to be transparent about policies on voting and engagement, and to report regularly to clients or beneficiaries.

Although shareholders have no legal responsibilities, institutions which manage funds on behalf of millions have a duty to be active owners – asking difficult questions about strategy and performance, scrutinising compensation arrangements, and questioning whether the right people are running the company.

This is the fundamental premise upon which the Stewardship Code is based: that institutions should act as long-term stewards of companies’ futures, not simply traders

seeking short-term gains.

The Code has now been in place for over a year, and it has rapidly become an international benchmark for governance of institutional investment. Its themes have been taken up in the US, and the recent EU Green Paper on Corporate Governance examines the option of adopting something similar throughout the Community.

In the UK, the Investment Management Association reports that 8 in 10 UK institutional investors exercised their voting rights in the first year of the Code. Fifty institutional investors – holding some 31% of the UK stock market – have signed up.

That does of course leave 69% who haven’t, which brings us to the greatest difficulty facing the code: foreign investors own over 60% of the UK stock market and are less likely to wish to adopt the principles of the UK Code. Nevertheless, some large overseas

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UK STEWARDSHIP CODE funds – including Calpers, the Australian Council of Super Investors and the largest US proxy voting service providers, Glass Lewis and ISS Governance Services – have signed up.

Let’s look at some of the main issues with which shareholders in the UK, Europe and the US have been engaged over the last six months or so. Not surprisingly, remuneration is top of the list.

A recent study found that the average remuneration of UK chief executives in the FTSE 100 rose 32% last year whilst the Index itself only rose by 9%. Shareholders have a right to be angry, as the return on capital to shareholders of FTSE 100 companies has not increased by anything like this for some years – and many employees of UK plcs received no pay rises at all in 2010!

Vince Cable takes up this issue in his discussion paper on executive remuneration, responses to which are requested by 25 November 2011.

Have there been any successes in voting down FTSE 100 remuneration reports?

Well, yes. Tesco is to move all executives into one long-term incentive plan based on performance related share awards rather than the share option schemes it previously

Directors often calculate that critical investors will walk away when they don’t like what a company is doing, leaving the board free to pursue the same strategy operated. The move comes in the wake of its 2010 AGM, where almost half of its shareholders either voted against its pay plans or abstained.

In Australia, a recent amendment to company law introduced a ‘two strikes’ test whereby a 25% vote against the remuneration report at two consecutive AGMs enables shareholders to propose a resolution to remove directors from the board. The Act will also prohibit directors, executives and any connected holdings from voting on remuneration resolutions.

The second bone of contention at AGMs has been board composition, where agitation by advisers and hedge funds have met with partial success. At National Express, Elliott

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Advisers sought to remove one director and appoint three new non-executive directors to the board. Negotiations followed, and Elliott agreed to pull its resolutions in return for one of its nominees being appointed to the board.

A success of sorts.

Then there is the case of F&C, where the chairman was replaced by supporters of American turnaround specialist Sherborne, an 18% shareholder. Sherborne received the backing of two-thirds of the shareholders in a heavy turnout of 82%.

Events at National Express and F&C are examples of shareholder activism that might not sit comfortably with the longterm stewardship contemplated by the Code.

Proponents would say however that short, sharp, targeted action is often needed. For example, PIRC found that of the 2,500 FTSE 100 directors proposed for election or reelection between 2006 and 2010, not a single one failed to be voted in. As Harlam Zimmerman of Cervian Capital observed: “Either boards are doing a superb job or for many investors voting has been primarily a rubber-stamping exercise.”

Is the UK Stewardship Code making a difference? It’s a mixed picture so far.

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UK STEWARDSHIP CODE Certainly we have seen greater engagement by shareholders, with votes cast against remuneration reports and AGM attendance up 3% in FTSE 350 companies.

However, a Times poll of 200 fund managers revealed that less than half of those organisations surveyed had worked with other shareholders to press for change.

Directors often calculate that critical investors will walk away when they don’t like what a company is doing, leaving the board free to pursue the same strategy. The Code encourages collective action, but perhaps more legislation is required to break this cycle of ‘divide and conquer’.

Having been involved in hundreds of AGMs, the chief thing that strikes me is the boards’ sense of defensiveness. Far from welcoming a healthy turn-out, many boards pray for only a few people turning up and then saying as little as possible! Was it coincidence that News Corp has moved this year’s AGM from New York to the US west coast?

Writing in the FT, Jon Kay characterised the boards of public companies as “a new plutocracy whose interests and incentives are wholly detached from the rest of society”.

The Government has sought to address that

disconnect by seeking greater transparency in executive remuneration. However, it is shareholders alone who can change demand and it is the disciplines of The UK Stewardship Code that can make boards more accountable to investors.

FOR MORE INFORMATION: Please contact David Venus at david.venus@davidvenus.com

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CCA

Equiniti’s contact centre in Kings Norton, Birmingham, has won accreditation from CCA, the global professional body for contact centres

EQUINITI CONTACT CENTRE HAILED ‘OUTSTANDING’ In last year’s assessment, CCA assessors said Equiniti's contact centre had the potential to be “one of the best in its class in the UK”. Now, following the 2011 review, the organisation has commented: “The contact centre at Equiniti has lived up to its promise. The improvements that have been implemented since the last assessment are outstanding.”

Key improvements highlighted in the CCA report include a “stunning” reduction in customer complaints and significant progress in quality, training and employee engagement.

One of the most effective changes has been a re-structuring of the quality monitoring process, which sees both the Kings Norton and Worthing offices appoint ‘quality champions’ to meet regularly and discuss key issues. By working together, the teams have

successfully driven complaints down to a record low of 0.3% in 2.5 million transactions.

They also won first place in the complaint handling and agent knowledge categories of the recent Capital Analytics Survey.

Training continues to be a vital element in driving excellence, and Equiniti has developed a ‘Lead Agent’ programme to enable high performing agents to develop their skills, take up secondments in other areas of the business and ultimately progress to Team Leader roles.

The leadership team has developed an open approach to communications, holding regular coffee mornings to gather ideas and feedback from staff and making themselves available to take customer calls as and when required. This has had a very positive effect on morale, with staff reporting they feel valued and motivated.

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“The CCA accreditation is a great validation of our work,” says Sam Halford, Director of Operations. “Our staff have gone from strength to strength and will continue to go through external recognition programmes such as this. However, what’s more important than awards is how our customers see us, and positive feedback from them is particularly rewarding. Continuous investment in our people is key to maintaining that.”

FOR MORE INFORMATION: Please contact your relationship manager EQUITIES MARKET CONTINUED REVIEW > ON PAGE 11 10

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EQUITIES MARKET REVIEW

Equinti responds to the Call For Evidence from the Kay Review of UK Equities Markets

SPOTLIGHT ON THE EQUITIES MARKET Equiniti has recently contributed to an independent review examining investment in UK equity markets and its impact on the long-term performance and governance of UK-quoted companies.

Led by Professor John Kay, the review is being carried out at the request of Business Secretary Dr Vince Cable and asked for evidence relating to ‘the quality of engagement between institutional investors and fund managers and UK-quoted companies', as well as to ‘the importance attached to such engagement, building on the success of the Stewardship Code’. In particular, the review welcomed evidence on ‘whether the measures taken to stimulate engagement by investors with companies have been sufficiently effective’ and ‘whether the corporate governance activities of asset management businesses are sufficiently integrated with the decisions of fund managers’.

Drawing on its unrivalled knowledge of voting patterns among FTSE350 companies

Click here to see the full text of Equiniti’s response to The Kay Review of UK Equity Markets and LongTerm Decision Making over the last 4 years, Equiniti has provided a detailed analysis to Professor Kay, noting a trend of greater involvement of institutional investors.

CREST Proxy Voting is, by some margin, the most popular and most efficient method of appointing proxies among institutional investors, accounting for 80% of appointments and representing 55% of share capital. However, there are, unfortunately, some influential organisations which, for their own commercial

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reasons, do not use the CREST service.

Based on this evidence, Equiniti believes that the proxy appointment and shareholder voting process is, on the whole, working reasonably well. However, this is not to say that the existing process could not be improved, as embedded preconceptions and misunderstandings occasionally inhibit the smooth working of the existing process.

Equiniti has contributed to the forthcoming ICSA Registrars’ Group guidance, which will be rolled out to investors, fund managers, and issuers (for information) to improve understanding and transparency. This is intended to be the first step in a longer engagement process to address these problems and improve effective levels of engagement.

FOR MORE INFORMATION: Please contact Peter.Swabey@equiniti.com or Sian.Stokes@equiniti.com CONTINUED ON PAGE 11