A force for good
Corporate governance and stewardship have transformed the reputation of UK companies over the past three decades, thanks in large part to Guy Jubb, but, as the pioneer of good corporate citizenship, he says there is still much to do
by Eila Madden
Guy Jubb left Standard Life in March 2016 after 30 successful years with the company. In the role that he became most well-known for – global head of governance and stewardship at Standard Life Investments – he became a corporate governance pioneer in the UK and globally.
On his watch at Standard Life, corporate governance has gone from marginal to mainstream – a shift that he has massively influenced – but he says there is always more to do. A greater focus on appointing boards that are ‘fit for purpose’, more transparency around the pay consultation process and increased competition and choice in the audit market are just some of the things that he believes will help to consolidate the UK’s position as a leader in the field of corporate governance.
Pushing on payOne corporate governance issue that Guy has helped to propel high onto the board agenda is excessive executive pay. One of his earliest clashes over this was with Carlton Communications but there have been others, including Rio Tinto, Barclays, BP and, most notably, WPP. At the company’s 2015 AGM, he famously not only registered Standard Life’s concerns about the £43m pay package for CEO Sir Martin Sorrell but also pulled the directors up for their approach to Sorrell’s succession planning.
It took a degree of corporate courage to go into battle with some of the biggest names on the FTSE but it also took a degree of personal courage to stand up and voice opposition at AGMs, says Guy. But, he adds, in all of those interactions there was always mutual respect. “I would never intentionally ambush companies at AGMs. They usually knew that I was going to pitch up and it would be quite obvious to them what I was going to talk about,” he says.
Standard Life policyholders and clients benefited from Guy’s work with boards to nudge them towards higher standards of governance, but so did others – notably index fund managers, some of whom had neither the time nor the mandate to be active on the corporate governance front. “So long as we were doing what was in our clients’ best interests and we felt we were doing the right thing, then if others got a free ride that was just the way of life,” says Guy. “We probably had a few free rides ourselves from others doing similar things so it was swings and roundabouts.”
"I would never intentionally ambush companies at AGMs. They usually knew that I was going to pitch up"That said, he does believe more needs to be done to distinguish investors who take their stewardship responsibilities seriously from those who simply do a tick box exercise on the Stewardship Code. The code, which was released in 2010 by the Financial Reporting Council, was to encourage institutional investors who hold voting rights in UK companies to actively engage in corporate governance in the interests of their shareholders. He advocates a kitemark scheme that would help savers identify fund managers who are actively engaged in investor stewardship from those who are not. He points out that this service differential could and should be reflected in fund managers’ fee structures.
He also believes a trend towards consolidation among active fund managers – the merger between Standard Life and Aberdeen Asset Management being a case in point – will create a stronger combined voice. This will help to counter any public interest concerns about the impact a rise in index funds, and their passive approach to investing, might have on the practice of stewardship.
For all his work on executive pay, does he think companies’ response to his concerns has been adequate? There is always more that can be done, he says. One thing he has called for is greater transparency around the consultation process that remuneration committees go through with institutional investors when setting executive pay levels. On that point, he says it is not so much about excess but about inequality within organisations. “I would very much welcome serious consideration being given to the reintroduction, perhaps with fiscal incentives, of profit-sharing schemes. That way, when the tide of profit goes up or down, everybody’s pay goes up and down with it.”
Fielding criticism When you publicly pull people up on excessive pay, you of course run the risk of coming under the spotlight yourself. Guy points to Standard Life’s framework of governance and stewardship principles as its compass when rewarding its own senior executives. “Clearly I was aware of the headlines that would arise from time to time. I was confident that it was pay for performance, that I could correlate it with the principles and as long as I stayed true to the principles that I applied, while the waters did get a little choppy in terms of the rhetoric, I was able to sail through them.”
More frequent than criticisms over pay were criticisms – of the entire investor community – over lack of shareholder activism. Does Guy think these were fair? It is right, he says, that shareholders should hold boards to account but it is also important for shareholders to respect the boundaries that exist between them and directors, and to respect the legitimate authority of boards to determine the appropriate course of action.
That said, it is equally important to go up to the boundaries. “Part of my unwritten key performance indicators at Standard Life was to ensure that at least one or two people made a complaint about where [Standard Life] was actually pushing the envelope because if they didn’t, that would imply I was being too soft about the views that I was expressing,” he says. “I think corporate governance needs to be proportionate to the public interest risk,” he adds.
"Part of my unwritten key performance indicators at Standard Life was to ensure that at least one or two people made a complaint"There are some, however, who still remain to be convinced about the financial worth of investing in corporate governance. They point to a lack of correlation between corporate governance and share price performance as evidence of this. To counter this scepticism, Guy advocates the long view. Companies with low levels of corporate governance tend to be more entrepreneurial and, in bull markets, will outperform less nimble organisations with more stringent corporate governance practices in place. Conversely, he says, it is the former that fall by the wayside when the economic going gets tough.
“When you’re an investor, you can deal with the peaks and troughs of share price performance but when a company’s share price craters, that’s a permanent diminution in value and that’s the thing you don’t want to have.” However, Guy doesn’t warn investors off companies not perceived as having good governance; he simply advises careful due diligence and caveat investor.
The next chapter“When I left Standard Life, I didn’t want to shut up shop entirely,” he says. “I banned the ‘r’ word [retirement].” His next chapter involves, amongst a portfolio of roles, a place on the board of the European Corporate Governance Institute, which provides resources for academics to promote leading research with global impact.
“I’m looking forward to the opportunity of being professionally stimulated by those at the cutting edge but I also want to be able to share some of the experience that I have, assuming that it will be useful to tomorrow’s leaders,” he says rather self-deprecatingly. As he passes the baton on to a new generation of corporate governance advocates, that experience is likely to be very useful indeed.
This article was originally published in the Q3 2017 print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.