Share portfolio - heavy on Utilities. What to do?

John_Smith_2019

hit_and_run wrote: »

They probably would argue that.
But they would be wrong. The legal duties of company directors include considering the interests of other stakeholders as well as shareholders; and there is nothing that says (as is so often assumed) that everybody else's interests should be subordinated to those of shareholders.
They also have a duty to consider the interests of the company as a whole. Which implies they should not blithely trash its reputation for short-term gain.

I always thought that was the law.
I thought everyone came second to shareholders (though obviously reputation and customers are important to shareholders).

In theory, I guess ''the shareholders'' can vote to sack the directors if they're not happy anyway.

Notepad_Phil

hit_and_run wrote: »

They probably would argue that.
But they would be wrong. The legal duties of company directors include considering the interests of other stakeholders as well as shareholders; and there is nothing that says (as is so often assumed) that everybody else's interests should be subordinated to those of shareholders.
They also have a duty to consider the interests of the company as a whole. Which implies they should not blithely trash its reputation for short-term gain.

From https://companieshouse.blog.gov.uk/2019/02/21/7-duties-of-a-company-director/

The duty states a director must act in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members (shareholders) as a whole. When making decisions, directors must also consider the likely consequences for various stakeholders, including employees, suppliers, customers and communities. They should also consider the impact on the environment, the reputation of the company, company success in the longer term and all of the shareholders (including minority shareholders).

So I think the companies would actually argue that they have considered the interests of other stakeholders, the reputation of the company and all of the considerations that they are meant to and they have decided that the potential losses faced by their shareholders outweighed these other considerations.

As per National Grids statement:

“Labour’s proposals for state ownership of National Grid would be highly detrimental to millions of ordinary people who either hold shares in the company or through their pension funds – which include several local authority pension funds"

“To protect their holdings, and in line with our legal fiduciary duty to our shareholders, we have established holding companies in Luxembourg and Hong Kong. This has no financial benefit to the company and does not affect its day-to-day operations. It is solely to protect our shareholders’ interests.”

I know that if I was a director of one of these firms who could find themselves being held liable for shareholder loss then I'm pretty sure that I'd come to the same conclusion in the current circumstances. If Labour had been more forthcoming on how they would compensate the shareholders then there might be an argument for leaving things as they were.

Thrugelmir

Notepad_Phil wrote: »

If Labour had been more forthcoming on how they would compensate the shareholders then there might be an argument for leaving things as they were.

Manifestos are full of concept ill conceived ideas. Not fleshed out detailed plans. The vast majority simply fade into oblivion. As day to day events take precedence and reality hits home.

hit_and_run

Notepad_Phil wrote: »

From companieshouse.blog.gov.uk/2019/02/21/7-duties-of-a-company-director/

The duty states a director must act in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members (shareholders) as a whole. When making decisions, directors must also consider the likely consequences for various stakeholders, including employees, suppliers, customers and communities. They should also consider the impact on the environment, the reputation of the company, company success in the longer term and all of the shareholders (including minority shareholders).

So I think the companies would actually argue that they have considered the interests of other stakeholders, the reputation of the company and all of the considerations that they are meant to and they have decided that the potential losses faced by their shareholders outweighed these other considerations.

That is very much how the duties of directors are often interpreted, but it's a very dubious reading of the quote from Companies House.

(The Companies House quote is a rephrasing of section 172 of the Companies Act 2006.)

First, note that there is nothing in the quote about maximizing shareholders' returns.

Secondly, the primary aim is the success of the company itself, with benefiting shareholders viewed as an essential consequence of that success, not as itself the direct aim.

Thirdly, there is the question of in what way the other factors which must be considered should modify the primary aim. You seem to be taking this as purely a box-ticking exercise, i.e. consider the effect of a course of action on the community, the company's reputation, and so on, and then plough right on regardless. This is a pretty extreme interpretation (and also the usual interpretation!). I'd suggest that, at least sometimes, these factors should be capable of dissuading directors from a plan which they might otherwise think is the best way to promote the success of the company. However, it is left open just how far this should go.

Finally, note that the directors' duty is to do what they consider in good faith is most likely to promote the primary aim. Which implies that there is not necessarily a single course of action which is the only one they are allowed to adopt; their opinions about what it's best to do may genuinely differ.

This is differs in multiple ways from the doctrine that the directors must maximize shareholders' returns. The latter is not what the Companies Act says.

As per National Grids statement:

“Labour’s proposals for state ownership of National Grid would be highly detrimental to millions of ordinary people who either hold shares in the company or through their pension funds – which include several local authority pension funds"

“To protect their holdings, and in line with our legal fiduciary duty to our shareholders, we have established holding companies in Luxembourg and Hong Kong. This has no financial benefit to the company and does not affect its day-to-day operations. It is solely to protect our shareholders’ interests.”

IMHO, that's a load of crap. As above, they have no duty to maximize shareholders' returns. But their duties do include considering the interests of the community. It's hard to see how attempting to obstruct a manifesto policy of a democratically elected government (if they are elected ) is compatible with that.

I know that if I was a director of one of these firms who could find themselves being held liable for shareholder loss then I'm pretty sure that I'd come to the same conclusion in the current circumstances. If Labour had been more forthcoming on how they would compensate the shareholders then there might be an argument for leaving things as they were.

There's absolutely no chance of the directors being sued for not pulling a stunt like this. It's very difficult to sue directors for anything. And since in this case they explicitly only have do what they consider in good faith to be the best way to promote the company's interests, it would be especially difficult to prove they didn't.

Malthusian

Setting up offshore shell companies is in itself cheap as chips (although I don't doubt that National Grid has paid for expensive legal advice in the process, as it should).

It costs the company virtually nothing (compared to its overall assets) and could save it billions. It doesn't matter whose interests you want it to be in, it's a no brainer.

As for the notion that some people might object to National Grid trying to protect itself against Labour proposals and therefore be more likely to support nationalisation, anyone who thinks that way already votes Labour, so it doesn't matter. You can't win 'em all.

The argument is directly akin to saying that Jewish leaders shouldn't have written open letters and leader articles asking people not to vote Labour, because they'll make Labour voters hate them even more. "There go those Zionists again, telling lies to rig the election." It's true, but misses the point. The alternative of not writing those letters won't make anti-Semites hate Jews less and accomplishes nothing. It's futile to sabotage the interests of your allies in the hope of appeasing your enemies.

Notepad_Phil

hit_and_run wrote: »

IMHO, that's a load of crap. As above, they have no duty to maximize shareholders' returns. But their duties do include considering the interests of the community. It's hard to see how attempting to obstruct a manifesto policy of a democratically elected government (if they are elected ) is compatible with that.

I think the diectors may have a different opinion than you on what course of actions might be best for the interests of the community.

You seem to really believe that the directors should have left the company's shareholders open to their assets being taken at potentially below their market value - I really hope you're not investing your money in any company whose directors would have such a cavalier attitude to those who have invested in them.

As you say, Labour is not yet the democratically elected government, but whoever gets in, I hope we never live in a country where the people are not allowed to mitigate the possible effects of not yet (or ever) passed laws.

hit_and_run

Notepad_Phil wrote: »

I think the diectors may have a different opinion than you on what course of actions might be best for the interests of the community.

I'm sure they do.

The duties of directors, as set out in the Companies Act, are open to a variety of interpretations. That includes the question of what the interests of the community are. As well as the question of how much consideration should be given to the interests of the community.

My main point has been that it is not at all true that the directors had to act in the way they did because of their legal obligations. This is partly because those obligations can be interpreted in various ways.

You seem to really believe that the directors should have left the company's shareholders open to their assets being taken at potentially below their market value - I really hope you're not investing your money in any company whose directors would have such a cavalier attitude to those who have invested in them.

I do own shares (not currently in NG or SSE), and I am in no way calling on their directors to act in a cavalier way. I would like them to act in a way that gives more weight to "considering" stakeholders (in addition to shareholders) than most companies seem to do nowadays. And more weight to the long-term interests of the company, rather than making a quick buck.

There is still a risk that the company's assets (they are the company's assets, not the shareholders' assets) may be nationalised at what some people will think is less than their market value, because this scheme won't be effective (at most, it may have nuisance value), because the assets are in the UK (as others said earlier in the thread). Labour have been clear that they will pay prices that they believe represent fair values. Shareholders may of course disagree when they find out the prices. In fact, if they don't disagree, that will be a strong indication that the prices have been set too high

As you say, Labour is not yet the democratically elected government, but whoever gets in, I hope we never live in a country where the people are not allowed to mitigate the possible effects of not yet (or ever) passed laws.

Interesting. I've merely expressed a different opinion on what the legal duties of directors (under the existing law) involve. You seem to think I'm proposing some new, apparently oppressive law. I'm not proposing any new law.

hit_and_run

Malthusian wrote: »

As for the notion that some people might object to National Grid trying to protect itself against Labour proposals and therefore be more likely to support nationalisation, anyone who thinks that way already votes Labour, so it doesn't matter. You can't win 'em all.

To clarify: I didn't intend that as an argument for why NG shouldn't have done it. Just an observation about how it might have unintended effects.

The argument is directly akin to saying that Jewish leaders shouldn't have written open letters and leader articles asking people not to vote Labour, because they'll make Labour voters hate them even more.

Certainly it is pointless for Jewish leaders to try to appease anti-Semites. Most potential Labour voters aren't anti-Semites. Whether letters of that kind are a good idea would take us into a whole range of different issues.