Heritage Railway Governance

I'd appreciate some people's views on a very short dated (just over 2 weeks) notice of a Plc EGM to approve, inter alia, new Articles of Association.
Last year that the board was not happy with a candidate that was put forward for election. In the notice for the AGM they made it very clear to shareholders that the board did not favour him, and subsequently he was not elected, albeit by a narrow margin.

Now, in the summary of the proposed new Articles is a new paragraph, not mentioned in the chairman's covering letter, under Appointment of Directors:

'No person, other than a director retiring, shall be appointed or reappointed a director at any general meeting unless:
a. that person is recommended by the board, or
b. no less than seven nor more than 42 clear days before the date appointed for the meeting, notice duly executed by a member or members (other than the person to be proposed) holding at least 5% of the issued shares and entitled to vote at the meeting has been given to the Company of the intention to propose that person for appointment or reappointment. This reflects the members' powers under the Companies Act 2006.'

Am I right in thinking that this means that the sitting board can now veto any candidate the shareholders propose?
The GWSR shareholders are widely distributed and have no way to communicate with each other as far as I know, so that would make representing 5% very difficult as well.

Is this even allowed, to disenfranchise the shareholders by vetoing any of their candidates? I find this very disturbing.

 

Hi Jo,
Having read and re-read those proposals, I come to the same conclusion.
That is a very unpleasant criteria they trying to set, and yes, it does appear to introduce an effective veto on candidates.
I wonder, just out of interest, just how many working members one would have to canvass, in order to reach that 5% threshold, because canvassing non working members, as you say, would be completely impractical.
Perhaps certain other railways should be wary of such proposals being slipped in under the radar, too.

 

Could the members (particularly working members who could call a discussion meeting amongst themselves) organise an effort to reject the proposal, or does the board control enough proxies to force it through?

 

As I read the change it doesn't create the power to veto nominations for election. It provides that EITHER a candidate has to be approved by the Board OR must proposed by persons holding not less than 5% of the issued shares. The second qualification reflects the normal company law requirement that any shareholder motion seeking to give directions to the Board can only be tabled at a general meeting if it that percentage of shareholders back the motion beforehand. So would still still possible for shareholders representing 5% or more of the issued shares to propose a candidate who is not endorsed by the Board.
It's interesting in the context of discussions at the HRA Spring Conference on expectations of corporate governance especially the standards outlined in the ORRs Rm3 management maturity model. It's clear that the days of directors/trustees being nominated and elected in ways that might be appropriate for a members' preservation society are over. Election on the basis of popularity may not result in a board with the experience and competencies that are increasingly essential for the running of what have often become substantial businesses. A primary duty of any board. and particularly its Chair, is to ensure an effective board. In many cases this is leading to the use of techniques like skill matrices to identify those that are needed and even candidate selection in line with normal company practice.
The proposal looks like a sensible means of facilitating an effective and competent Board that can engender the confidence of key external entities such as the ORR, Banks, and potential Grant funders etc.

 

It might be interesting to see what effect a counter proposal removing part (a) of the proposal would have, and requiring any candidate to show support of 5% of shares issued and entitled to vote - I suspect it’s a hurdle that few board members would easily surmount, anywhere.

The holding of veto powers by a board over who may be elected to join that board should always be a matter of grave concern, whether a hurdle as here or a selection committee as at NYMR. Under normal conditions, it should be possible for a board to argue why their preferred candidate(s) should prevail over challengers and, if not, a mature board should be able to work with that challenger. If there is a genuine dispute over direction, then the ability of incumbents to block challengers outright becomes a concerning matter of preventing effective challenge and locking in a possibly failing consensus.

With directors and trustees bound by collective responsibility and legal duties, the arguments of some that direction can’t just be about an exercise in member democracy are at best weak.


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So either you have to be approved by the board, or you can't be approved at all, because no-one can contact the shareholders due to gdpr laws.
It's obviously important to comply with company law, but there has to be a way to bring the volunteers with you too. Putting in an unnecessary approval rule doesn't seem to be the way to do it

 

Our posts crossed in the ether. There’s a lot of good in what you say, but the remedy will cause somewhere to fail as groupthink prevails.

There are plenty of ways that a board can go about seeking new blood, making very clear what skills they’re after and why - and then using that to justify their preferences when it comes to time to vote.

We’ve crossed swords over the changes at NYMR. The method is different, and being worse executed, but the consequences are the same.

Legal remedies are there for when it’s not possible to work things through, and it’s instead necessary to go back to a rule book. This loads the dice firmly and clearly on one side, and will inevitably reduce the chance of compromise in dispute as one side in that dispute will almost certainly hold the levers, and therefore keep the safety valves tied down till the pressure bursts.


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That's it, both sections basically prohibit shareholders from proposing a candidate.

 

There's no time to discuss, it's just two weeks now to the date of the EGM.
And it was with the proxies that the board managed to outvote the proposed candidate last year. The GWSR has many small shareholders, and these send it postal votes, with some left blank for the chairman to choose. The called up capital of the operating company is £3.7m, so 5% of that is £185.000. In practical terms that is impossible to achieve, particularly as we can't discuss among ourselves.

Note also that the EGM is being held on the railway in a meeting room, not the large facility at the race course for a full AGM. Clearly not many are expected to attend. The volunteers will fill the room, but are likely to be outvoted by the proxies.
And who reads right through the 4 page summary of the new articles, and understands the implications? The covering letter makes no mention of the significant change in the election system. It's disingenuous.

There was talk of a large share issue for a project recently (since shelved) but the proposed emasculation of shareholder rights can only discourage future participation.

 

As I recall, those seeking change were able to obtain access to those lists for the purposes of seeking nomination, though in one case having to take action to do so.

Again, the issue is not the objective but the means - this is poison pill territory, that puts all power into the hands of the board.


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I think that you need a new board.

Bob.

 

That's a somewhat extreme reaction!...

 

Data Protection Law does not prevent a shareholder from getting access to the shareholder register but it must be for a "proper purpose". Contacting shareholders to seek support for a member's resolution would be a proper purpose but the practical restriction is that it would normally be at the cost of those seeking to make such contact.
Some of the posts appear to deride the use of proxies although companies are bound by law to make proxy voting available. They don't have a choice. It has the democratic advantage that all shareholders have the ability to vote, not just those who attend the meeting at which a resolution is tabled.

 

Thank you for confirming the position on access - and also the practical hurdle that it represents to someone not favoured by an incumbent board.

As regards proxies, the issue is not their existence but the way that they easily become an instrument for incumbents to use to further reinforce their position. Taking a non-railway example, the life insurance backing my mortgage is with LV. Each year, I get a pile of bumph from them, inviting me to vote and offering me the option of giving the Chair my proxy. The reality is that, from a distance, I lack much knowledge of the issues to be able to make an informed decision. In the recent debate over the takeover, it was only the exertions of relatively few dissenters that got the issues with the proposal enough airtime to cut through to those like me without the detailed knowledge, and saw the board given the necessary challenge. Similarly, campaigns for Labour and Conservative Party Democracy have both used the forms of democracy to disproportionately advantage small activist groups, creating results that though reached through democratic forms actually have very limited real support.

My fear is that this approach to governance may create a self-perpetuating cadre of leaders who are effectively insulated from challenge, and detached from the memberships and volunteers without which their organisations could not exist. If so, the cure may well be worse than the disease of "good ol boy" boards elected on the basis of who has been known longest.

 

That's it, @35B !!!

I was mulling how to explain that. And re the voting: On the day the room is filled with volunteers who are in daily contact with the railway, but their show of hands is outvoted by the proxies of people who live far away, have no close personal experience of what's actually going on, and just send in their paper with 'I expect the chairman knows what he's doing and I better support him, it's all I can do from out here.'

And re the self perpetuating cadre of leaders: I respect how the board has sought new blood from outside and they have done well to find it. But in two recent cases they had no previous railway experience, and they drafted a proposal for a modern concrete and glass building slap in the middle of Toddington station, because that had worked where they came from. (proposal since parked, but not gone away). These same people then get to choose who next joins the board, and in this way we drift away from our original objective. (To build and maintain a railway museum). In fact the plc has the most wide ranging objectives in its M&AA , it could do anything it wanted, it's the supporting Trust that is specifically dedicated to a museum end. We lose the checks and balances if we lose our right to propose candidate directors.

 

So your proposition is that one member one vote shouldn't be allowed because (to borrow from George Orwell) some members who are volunteers are more important than others? The usual criticism of incorporated companies is that they are not democratic (which of course they are not intended to be) but it's bizarre to see suggestions that they should be even less democratic than is already the case.

 

The reality is that in a volunteer-staffed organisation there is a very real difference in worth between active volunteers and armchair members. See how the railway fares when those volunteers who disagree with board decisions decide they can no longer support it as volunteers. Best not to risk finding out, imho, because such a situation might be very difficult to recover from - you've only to look at the Covid effect, where volunteer numbers have generally dropped and not recovered, because people have rediscovered other things to do with their lives.

 

Understood but that can't change Company Law!

 

I refer you to the WSR thread where in fairly recent times, such a request was emphatically refused by the incumbent board. What is your solution to such a scenario?

 

I’m not familiar with the particular circumstances but misunderstanding of the effect of data protection law is common leading to the mistaken belief that shareholder details cannot be released. That may be one reason or the shareholder requesting the information may not have been able to demonstrate that access was required for a proper purpose.