ALISON KENNEDY INTERVIEW: Standard Life Investment's quiet Scot making a big noise over pay

By James Salmon for the Daily Mail

Published: 16:22 EST, 8 October 2014 | Updated: 05:04 EST, 9 October 2014

Alison Kennedy caused a stir when she stood up at Barclays’ annual general meeting in April and announced Standard Life would vote to reject its pay policy.

Speaking in front of hundreds of Barclays shareholders at London’s Royal Festival Hall, Kennedy lambasted the bank for hiking bonuses despite a sharp drop in profits and a dismal year for its investment arm.

The criticism from the softly spoken Scot rankled with Barclays chairman Sir David Walker, who chastised her for making the announcement publicly. For big companies are not used to being turned on in public by other blue chip firms.

Intervention: Alison Kennedy locked horns with Barclays earlier this year after refusing to back its remuneration report

Kennedy’s intervention was an all-too-rare example of a blue chip investor raising their head above the parapet and using their clout to stick up for shareholders – in this case Barclays investors fed up of the bank’s spluttering performance and its decision to dish out more in bonuses than in dividends.
It also raised the profile of the unglamorous – but crucial – world of corporate governance.

Kennedy is governance and stewardship director at Standard Life Investments, which runs £195billion for savers around the world. Her job is to interview directors of companies which Standard Life invests in and gauge whether they are performing well, behaving appropriately – and whether they are paying their staff more than they deserve.

Kennedy, who joined Standard Life a decade ago after a spell as a fund manager, appears a little bemused by the attention her very public spat with Barclays received and believes more institutional investors should be prepared to follow suit.

‘I think it does surprise us a little that there aren’t more people that do that. Although it does take a little bit of work and time. Taking a day out when absolutely snowed under with voting is difficult.’
Alison and her team have about 1,500 company annual general meetings across the world to prepare for and vote on. As well as deciding whether to back firms’ bonuses, she plays an instrumental role in deciding whether to re-elect board directors and support other key decisions which affect shareholders.

She says: ‘Our policy is to engage with a company when we are considering voting against. If we feel there are issues and we believe it’s in our clients’ best interests we will attend and speak at the AGMs.

‘It’s not something we want to be doing regularly.

‘With Barclays we were looking at how profits were divided among employees and shareholders against the background of a bank that was not doing well – particularly in the investment bank. We were concerned that the bank’s reputation would be damaged by the decision that they took [on pay].’

On Walker’s criticism of her for raising Standard Life’s concerns about Barclays publicly, Kennedy acknowledges that it is often best to try to influence change ‘behind the scenes’. She attended only two AGMs this year, one being Barclays and the other the mining company Vedanta, which has come under fire for alleged human rights and environmental breaches as well as tax avoidance.

Kennedy says she did everything by the book with Barclays and that the intervention came only after a series of private conversations with the bank went unheeded.

She says diplomatically: ‘The AGM was pretty heated. I think he [Walker] was obviously under some pressure on that day, and maybe that contributed to his comments, but we were quite happy we had gone through our normal process.’

Kennedy says she has been encouraged by major reforms at Barclays introduced since the AGM, including efforts to reform its culture.

One company which could do with a stern word or two from Kennedy is Tesco, which Standard Life Investments has a small stake in.

The supermarket behemoth is reeling from the biggest scandal in its 95-year history, after admitting it overstated its profit forecasts by £250million. Several investigations have been launched into whether this was a deliberate attempt by the struggling retailer to cook the books.

Tesco demonstrated the shoddy corporate governance you might associate with a smaller, tin pot organisation – not one of the UK’s biggest blue chip companies. The money wrongly included in the accounts relates to fees due from big brands to ensure their products go on prominent shelves.

Kennedy says Standard Life Investments had some misgivings over the lack of retail experience of some senior executives at Tesco, including its chairman Sir Richard Broadbent – a former senior civil servant and former deputy chairman of Barclays.

She adds: ‘I think it was a real shock to everyone. A real surprise.

‘We obviously had noticed there was a lack of retail experience on the board. Clearly there is some debate in the press about the position of the chairman. I think when we get to the stage when there is a new chairman – having just appointed a CEO that is not a retailer [Unilever veteran David Lewis] – it would make sense that any new chairman probably should be a retailer.’ Tesco has since moved to address criticism about the experience of its board, hiring former Ikea boss Mikael Ohlsson and Richard Cousins of catering giant Compass as non executive directors.

Kennedy believes there are also questions about the auditors PwC, which has vetted Tesco’s books for more than 30 years. ‘There is another issue around the role of the auditors. PwC have been auditors since 1983, which is quite a long time.’

Referring to the fee arrangements with suppliers , she says: ‘Investors and brokers will want to know a lot more about these kind of arrangements going forward – not just with Tesco, but with all of the big retailers.’

On the lack of women in UK boardrooms, Kennedy believes that there should be more diversity but not by making ‘token’ appointments or introducing quotas.

She says she meets many female company secretaries but only around a third of board directors she meets are women.

‘We would like more diversity – more diversity of opinion and diversity of perspective. Women make decisions in a different way to men, and that’s important in a group.

‘But it’s not just about having more women.

‘If a company is very international do they have people that understand the culture they operate in?

It’s also about diversity of age. If it’s a company that is in the internet or media, the chances are you would want someone who is younger than 50 on that board.’

She adds: ‘We’re not really in favour of quotas, that’s not our stance, but we want to see that companies are setting themselves aspirational targets and we want to monitor their progress towards those targets.’

But the drive for more equality is not without risk, says Kennedy.

‘To be honest, we’ve seen one or two appointments that you think hmm, I’m not sure about that – that does look a bit token where there has been a woman appointed to a board. That is a concern because it’s really important that we get the right quality of people.’

When not grilling board directors, Kennedy is a keen golfer and hill walker. She has climbed an impressive 190 of the 284 Munros – mountains in Scotland over 3,000ft high.

‘It’s taken me about 30 years.’ she says. ‘I’m hoping I get through them by the time I’m 80.’

Few would bet against her achieving her goal.

÷  Dear reader, you may have noticed that the No vote at the recent Scottish referendum is conspicuous by its absence from this interview.

This may seem strange, as I am in Scotland carrying out an interview at an Edinburgh-based firm – which attracted headlines by loudly declaring its intention to move its headquarters south of the border in the event of a Yes vote.

But when asked whether the No vote was a relief for Standard Life and good for British companies, Kennedy says: ‘We are not allowed to discuss that.’