Letters to MoneyWeek: Most Tesco investors are getting a raw deal

published 22 September 2017

Thank you for your editor's letter in the 1 September issue (MoneyWeek 860) relating to PPI mis-selling. It reminded me of the similar pressures put on young financial advisers in the 1980s to sell endowment rather than repayment mortgages. As you say, the Financial Conduct Authority regulators have been having a field day with the banks and PPI mis-selling. It's a pity they and their friends at the Serious Fraud Office seem to have run out of puff when negotiating a fair distribution of the Tesco Shareholders Compensation Scheme unveiled last month.

It appears that the Tesco directors acknowledge that Tesco deliberately and repeatedly withheld money owed to suppliers to boost sales artificially and misreported profitability in the months up to mid-August 2014. The last incorrect report was, apparently, the trading statement issued on 29 August 2014. A correction was issued on 22 September, with Tesco revealing a £250m overstatement of half-year 2014 profits arising from these sales figures.

In their wisdom, our market guardians have allowed the directors to limit the agreed 24.5p-per-share compensation to only those purchasers of Tesco ordinary shares during the period 29 August 2014 and 19 September 2014 (the last trading day before the correction was issued). But to compensate only those net purchasers of shares over a narrow period of 22 days is to ignore the fact that all Tesco's ordinary shareholders at 19 September were misled by the series of erroneous statements concluding with that on 29 August. The statement issued on 22 September simply allowed the market to make the correction that reflected the true results.

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While there is probably no absolutely fair compensation formula for shareholders damaged by such illegalities and failures, it seems to me that the fairest compensation deal in this case would be to recognise that all Tesco ordinary shareholders as at 19 September 2014 were misled and were damaged, suffering the price decline that took place on release of the corrected statement on 22 September.

Attempts to compensate shareholders for management wrong-doing through payments from the company are generally difficult. In most cases, all shareholders are at best receiving cash that they as owners of the company are already entitled to. Often, one group of shareholders is effectively compensated at the expense of others as you note here. A better solution is tougher regulatory and criminal action against executives reponsible for frauds and failures. This would be both a greater deterrent and prevent us going down the US route of a compensation culture that rewards lawyers more than investors.

We must oppose excessive pay

I hold some Berkeley Group shares, which have been a very good investment. The executive bonus scheme entered into in 2011 has been a great success, but the rewards for the six executives have turned out to be excessive.

You suggest I vote against this at the annual general meeting (MoneyWeek 861). However, the system prevents private shareholders from holding and voting their own shares. Those who have the right to vote my shares are the managers of my investment-trust shares, those in control of my individual savings account (Isa) investments and the directors of my life-insurance companies. All of them have their own vested interests when they use my voting rights. Is there any way I can have my say?

For investors who hold individual shares in their own name either as paper certificates or in electronic form exercising your voting rights is simple. However, most people hold their shares whether in an Isa, a self-invested personal pension or a dealing account in nominee form. This means that they are held in your stockbroker's name, but you have benefical rights over them. Some stockbrokers make it easy to vote your shares held in this way or to attend company meetings; others don't (or may make a charge for doing so). The system is highly unsatisfactory, but brokers are slowly getting better at passing on voting rights so if you hold shares in this form, check your provider's policy.

Where you hold shares in a company indirectly through funds, pensions, an insurer or any other arrangement where your investments are pooled with other investors and managed for you, you won't be able to vote these shares or attend meetings. This is why it's important to put pressure on fund managers to take a stronger line on corporate governance and executive remuneration, as we note in the article. Write to the managers of your funds giving your views on what is not acceptable and urge them to take action.If only the occasional investor does this, fund managers who are largely indifferent to governance will ignore them, but if more and more of us do so, the momentum will continue to build.

Corbyn could impose capital controls

Your cover story (MoneyWeek 860) is a good analysis. A bit of extra taxation would not be a big problem, but the hard left's economic ideas would trash the economy even more than in the 1970s, when the extreme plans of Tony Benn were just kept in check by the sanity of Denis Healey and James Callaghan.

However, there's another aspect of that era that you did not discuss: currency control. In the 1970s, individuals could only take a small amount of cash abroad and not invest overseas. A Corbyn win is likely to lead to a massive exodus of capital before he's even put on his bicycle clips to go Buckingham Palace, so I think they will bring this back even if the Bank of England hasn't already had to do so to protect sterling. This is one reason why Corbyn and Benn were opposed to the European Union it enshrines the free movement of capital. If Brexit has happened before then, he will be free to do as he wishes. Will UK funds be ableto invest abroad, for example? Will we be able to move money to overseas investment accounts? This concern is not about avoiding tax it's about ring-fencing some assets abroad.

It's impossible to predict whether capital controls could return, but it is a risk. If this begins to look more plausible, investors could consider opening a brokerage account in a well-regulated overseas juridiction (not a dodgy tax haven) to keep their options open.

Writing to MoneyWeek

MoneyWeek welcomes letters and emails from readers, but unfortunately we are not able to publish or reply to all of them. We may edit letters prior to publication. All responses are for information only and should not be relied upon in making investment decisions.Our staff are unable to respond to personal investment queries, as MoneyWeek is not authorised to provide individual investment advice. Please email us at editor@moneyweek.com, or write to us at Editor, MoneyWeek, 31-32 Alfred Place, London, WC1E 7DP.