Sports Direct boss Mike Ashley, so often UK plc’s pantomime villain, has tentatively won over the chief exec of one of the City’s most outspoken institutions on corporate governance.
Phil Loney, who has been in charge of Royal London since 2011, believes “persistent positive criticism” by Sports Direct’s institutional backers, including Britain’s biggest mutual, “has led to some positive change”.
“I am not saying Mike Ashley is born anew but he has responded to change,” Loney tells City A.M.
Insurance veteran Loney admits he “stumbled into finance”. He joined Lloyds Bank’s graduate scheme after reading economics at Durham. “I hated banking, I really didn’t get on with it at all,” he says. Instead, he moved into marketing and then, at the age of 27, spearheaded Lloyds’ merger with Abbey Life and the lender’s expansion into insurance.
Married with two daughters, Loney held top exec positions at Aviva, Axa and Scottish Widows before landing his current role.
With corporate governance – and executive pay in particular – high on the public agenda, Royal London is rarely afraid to mince its words if it doesn’t agree with the boards of investee companies.
During this year’s AGM season the mutual’s battles have included calling for Metro Bank chair Vernon Hill to step down and claiming victory in a majority vote against executive pay packets awarded to Inmarsat’s top brass.
“We believe particularly [that] remuneration issues are a litmus test to how good wider governance is in an organisation,” he says.
Would it help if more institutional shareholders went on the record and shared their concerns? “In short, yes,” he says, adding it is “legitimate criticism” that shareholders don’t do enough to publicly shame poor corporate governance.
It is boards which are accountable and investors hold boards to account. They should be willing to do it.
I think we are going through a constant shareholder spring and I think we will do for some time.
Mutual corporate structures have been on the wane for some time. Founded as a friendly society in 1861, Royal London is sticking by its current structure – which it moved to in 1908 – and now boasts £114bn of funds under management. It wrote £12bn of new business over the last year, has 8.8m policyholders and over 1.2m members.
“There are some downsides to being a mutual. It is not a nirvana,” Loney says. “As a matter of course, every time we review our strategy each year we look at the alternatives. There are disadvantages to being a mutual.
The main disadvantage is you don’t have the same access to capital as proprietary companies.”
In February Standard Life Aberdeen sold its insurance arm to specialist zombie insurer Phoenix – a FTSE 250 firm – in a deal worth £3.2bn. Phoenix paid £2bn in cash while handing over a 20 per cent stake to the asset manager. “It would be very hard for us to do the kind of deal that Phoenix and Standard Life have done,” says Loney. Royal London’s inability to offer shares to expand through M&A is constraining.
“We do look at it [changing to a plc] from time-to-time,” he says. “But the nub of it is: ‘What’s the point?’ Does the market need another Standard Life, another L&G?”
The Phoenix deal came days after Lloyds Bank subsidiary Scottish Widows withdrew a £109bn mandate from Standard Life Aberdeen.
Loney has watched from afar in recent years as his former employer fell foul of “service problems”. As a result, he says: “Lloyds has missed out on some of the big opportunities in auto-enrolment.
“They are starting to invest more in the business, which I think frankly went backwards over the last few years.”
Returning to the thorny corporate governance and in particular executive pay, Loney insists that despite appearances, Royal London is “not against high pay”.
It is easy to pay the chief executive a lot of money when the performance is strong and we have no objection to that… But when the high performance drops off or peters out, then the pay needs to come back down again.
“All too often that doesn’t happen.”