Sham democracy at two of Britain’s biggest banks has been exposed by Sir Victor Blank’s exit from the chair at Lloyds Banking Group.
His fate lay in the hands of just one shareholder — the UK government. Other investors’ votes no longer count.
The government already owned 43 per cent of the group following the recapitalisations of Lloyds TSB and HBoS before they merged, but its stake could rise to give it 75 per cent of the votes under the current share issue to finance the state guarantee of the bank’s liabilities.
The state stake in the Royal Bank of Scotland is even higher and the same voting conundrum applies — the government has a bloc vote that deprives all other shareholders of their democratic powers.
It’s an unhealthy position for two FTSE companies that finance UK businesses and it makes nonsense of corporate governance standards that the government professes to uphold.
Indeed, the Treasury select committee published a report this month blaming shareholder inaction for the excesses that caused the banks’ collapse.
Now these investors have lost their ultimate sanction of voting down boardroom plans.
The UK government cannot withhold its stake and allow other directors to decide issues at Lloyds or RBS. That would be a rejection of its shareholder responsibilities, as well as its duty to protect a major public investment. But whichever way it votes, it decides the issue and leaves all other shareholders as a repressed minority.
UKFI, the Treasury agency that holds the banks’ shares, declared it will support Sir Victor’s short-term re-election at the 2009 meeting.
Had it voted with the rebel shareholders (who blame Sir Victor for merging the perfectly sound Lloyds with a distressed HBoS), then he’d be out. But democracy still suffers.
Indeed, commentators are quite capable of looking at poll figures, stripping out the state’s bloc holding and calculating how the independent shareholders cast their votes.
If it turned out that the chairman’s re-election would’ve been opposed without UKFI’s backing, that would be both a moral defeat for him and would open the government agency to criticism for blocking other investors’ wishes.
With UKFI now saying it will work with Lloyds to identify a new chairman, it again risks abusing its power by crushing other views.
It is a perversion of corporate governance that will persist so long as the state in the major investor in these banks.
Had they been totally nationalised there would be no problem, but while minority shareholders exist, democracy does not.
