Handbook:Shareholding, AGM, and Board Strategies
For those clubs that are listed on one or other of the Stock Exchanges – see the box below – it is at least a fairly simple matter for supporters, or a Supporters’ Trust, to acquire shares in the club. Also, it is most likely the case that individual supporters will already own shares in the club.
The first thing your Trust may wish to do, therefore, is get a copy of the company share register. Every company must have a share register and it is the responsibility of the company secretary to ensure that it is kept up to date. Any shareholder is legally entitled to inspect the register without charge. Shareholders are also entitled to request a copy of the register. The club is required to produce this within 10 days of receiving the instruction.
Inspecting the share register should give you some idea of what proportion of shares are currently in the hands of supporters. It will also enable you to write to all shareholders, letting them know of the Trust, and urging them to join. A comprehensive guide to identifying and tracing existing shareholders at your club can be found in Appendix 13 of this Handbook.
As for purchasing shares, this can be done by the Trust to be owned by the Trust, or it could be done by the Trust on behalf of its members, with those members maintaining their ownership of the shares, even if the shares are held in a collective account until such time as anyone withdraws their shares. The advantage of holding the shares collectively is of course that they can then be voted collectively.
Shareholders United at Manchester United had a monthly share-buying scheme. Trust members take out monthly standing orders for £10 a month upwards. Each month a single purchase of shares was made on behalf of the several hundred members who signed up for the scheme, amounting to around £10,000 worth of shares a month. These were then held on behalf of the individual members, within a single account, administered by Manchester United PLCs stockbrokers. It would be equally possible to run such a scheme through any stockbroker.
Further details are available from http://www.shareholdersunited.org
|London Stock Exchange (LSE)||Alternative Investment Market (AIM)||PLUS (A way of trading shares without being on the full market)|
|Leeds Sporting (Leeds United)||Charlton Athletic||Gillingham|
|Heart of Midlothian||Chelsea Village||Manchester City $|
|Leicester City||Millwall Holdings||Rangers|
|Manchester United $||Nottingham Forest|
|Newcastle United||Preston North End|
|Southampton Leisure||West Bromwich Albion|
* Celtic shares were listed on AIM until September 1998 $ Former listing, club has since returned to private ownership
The definition of a transfer for the purpose of this section is where one shareholder wishes to pass their holding in the football club to another person or organisation for no payment. This is clearly useful for Supporters’ Trusts seeking to acquire a collective shareholding.
Essentially this is not a complicated process, although there are one or two technicalities to be aware of. A shareholder should have a valid share certificate in their possession before starting the transfer process. If the shareholder holds the certificate electronically with a stockbroker they will most likely understand how to enact the transfer themselves. However their broker will be able to advise them if there is any doubt. There is also a different procedure for Public and Private companies, as described below.
Public companies (PLC)
Certificated (paper) shares in a publicly quoted company can be transferred simply by using a “Stock Transfer Form” which is available from stockbrokers, company registrars, and legal stationers. They should also be available online, and many online stockbrokers will have this form on their site in downloadable form. Electronically held shares are simple to transfer, and the broker will act on their client’s instructions.
Assuming the shares are held in certificate form the process is simple. The shareholder fills in the Stock Transfer Form and sends this along with the certificate to the Registrar. The Registrar will alter their records accordingly and issue a new certificate to the new owner, i.e. the Supporters’ Trust.
If the shareholder has lost their certificate they will need to apply for a “Letter of Indemnity” and receive a new certificate before starting the transfer process. There will normally be a charge for acquiring a new certificate, but this will be explained by the Registrar.
Electronic holdings (Nominee or CREST accounts)
If the shareholder who is initiating the transfer holds the stock in electronic form (rather than having an actual share certificate) they will need to speak to their stockbroker about the transfer process. It should be very straightforward and the broker will handle the transfer on instruction from the shareholder.
Receiving the shares
The above advice has been given on the assumption that the Trust will receive shares in paper form. If the Trust has its own Nominee or CREST account in order to hold shares electronically they should consult their own broker to ensure the transfer goes smoothly and to give the correct guidance to the shareholder who is transferring the shares.
A paper-to-paper transfer should take between two and four weeks. Any longer than this and the Registrars will need to be contacted. Any transfer involving an electronic account should take less than two weeks, and a transfer between two electronic accounts could be done in a matter of days.
Hints and advice
Be aware that the Stock Transfer form is double-sided and will need to be completed in full. The form must be signed and the certificate enclosed.
PLCs will normally employ a separate company to act as the Registrar of their share list, therefore the transfer will be with the Registrar rather than the PLC itself. The registrar’s name should appear on the share certificate but it is subject to change over time. In order to get the correct registrar either telephone the company, a friendly stockbroking office or search online at one of the many financial websites. The name of the registrar will normally be listed under the basic company information on these sites.
At the time of writing the three main registrars are Lloyds TSB, Computershare and Capita IRG. They each have multiple offices and each office handles different companies. Therefore before speaking about a particular transfer, ensure you are speaking to the right office.
As the transfer is going to an unconnected third party there may be a charge made in respect of stamp duty, although the actual transfer is free. This is something to check with the registrar before going ahead with the transfer.
Private companies (Ltd.)
Private companies are more like Industrial & Provident Societies, in that the Secretary deals with the share register and therefore share transfers. There is no stock market for shares in these companies and they generally cannot advertise their shares for sale.
The transfer of shares is dictated by the Articles of Association of the company. Therefore the starting point of any transfer is either a quick read of the latest set of Articles or a conversation with the Company Secretary.
There may be clauses in the Articles that allow the present directors to look for a buyer for any shares or to have the power to stop any transfer. Therefore in order to know what rights a shareholder has, it is essential to consult the Articles.
If transfers can be completed they will need to be initiated by the shareholder and executed through the company secretary. It may be that the company has a standard form for this, which would make it easier for the Trust to co-ordinate a large amount of transfers at once. If not it may be worthwhile creating a form with all the essential details on it and working with the company secretary to ensure they will accept transfers on this form.
The vast majority of transfers will involve paper certificates, so shareholders should ensure they have these before trying to transfer them. If the certificate is lost then the company may charge a fee for issuing a new one.
Remember that the share register will prove who owns shares and how many they own. This document is available on request, as mentioned in the previous section.
The length of time to complete the transfer is variable. However the company secretary should not create unnecessary delays in carrying this task out. Unless the Articles state a period of time before the process is started, we would suggest that one month is ample time for the whole process to be completed.
Most companies issue share capital in order to start their business. Football clubs may issue new shares as a means to raise money. The main concerns for Trusts will be when clubs issue new shares in this way.
The rules and regulations and therefore the consequences are different for Public and Private companies.
Public companies (PLC)
When a company initially offers its shares to the public and seeks a stock market listing it is called an Initial Public Offering (IPO), or flotation. The company will publish a prospectus to describe the business and what it is intending to do with the money it raises.
Subsequently the company may seek to bring in more money (capital) in order to expand the business, buy another business or asset, or to help lower other debts. The company cannot however keep raising money without regard to the rights of the current shareholders, or indeed without their authority.
In order to raise more finance a public company must pass a special resolution. This gives the present shareholders an opportunity to vote on whether they are happy for a further issue of shares to go ahead.
Should the resolution be passed the money will typically be raised through a “rights issue” although sometimes it will be done with a “placing”.
A rights issue is where the company tries to raise more money by offering existing shareholders the chance to buy more shares. They are typically offered at a significant discount to existing shares, therefore the price of shares often falls on the announcement of a rights issue.
Shareholders can opt to buy the new shares in order to retain the same percentage ownership in the company. Alternatively they can trade their rights (the chance to buy the new shares) to someone else via the stock market, buy some shares and sell some rights, or they can do nothing at all.
Without going into the consequences of each strategy, it is enough simply to state that if the shareholder does NOT take up their rights then their percentage ownership of the company will reduce.
The company offers these new shares at a discount as an incentive to current shareholders to buy them. This does not necessarily mean it is a good deal, as the price will stabilise to reflect the new, cheaper shares once they are in circulation.
Rather than seeking applications from the public for shares, the broker or issuing house looks for clients, such as wealthy individuals and financial institutions, who are willing to buy large numbers of the new shares at a fixed price.
If the company plans to issue new shares as a placing it needs to get the authority of its shareholders to allow it to do so. If they agree to waive their pre-emption rights (the right to buy new shares in proportion to their current shareholding), then the company may go ahead with a placing.
Private companies (Ltd.)
The new issue of shares in a private company is determined by the Articles of Association and may be subject to similar pre-emption rights. In other words existing shareholders may have the right to maintain their shareholding in any new issue of shares.
There may be an opportunity for the shareholders to waive their pre-emption rights by voting on a resolution that would clear the way for shares to be taken up disproportionately to the existing shareholding.
It can often be the case that resolutions on the issue of new shares or the waiving of pre-emption rights can have a time-dated element to them. For instance a resolution could be passed that would allow the company the right to issue more shares at any time within the next five years. At the end of this period the rules revert to those contained in the Articles of Association and the directors would have to seek authority, by way of a resolution, in order to issue more shares.
It should also be noted that as private companies cannot advertise their shares for purchase by the general public it is generally current shareholders who buy up new shares. This can lead to individuals concentrating their control over time, unless information on new issues is disseminated by word of mouth. This would be especially true where pre-emption rights had been waived.
Costs of issuing new shares
While it may seem straightforward for both public and private companies to issue new stock, in reality it can be a costly business. Therefore not every pound raised in such a venture will end up in the bank.
Advisors will have to be paid, there may be an underwriting fee to consider - especially for public companies - and ultimately there are the costs associated with administering the whole process. Therefore companies are unlikely to go through the process unless there is a real need for the capital injection.
Unfortunately, given the different sizes and company types of football clubs it is difficult to quote the rough cost of issuing new shares, although a rights issue aimed at raising £2million may see around 4% of the money raised being taken up in costs. This percentage would most likely reduce for larger issues.
However, rights issues are still a cheap way for public companies to raise additional finance as they avoid many of the costs associated with a brand new issue of shares, such as a prospectus, press advertising, and large underwriting fees. It is also worth remembering that the ability of existing shareholders to trade their rights on to others without buying the new shares also makes this attractive to both the company and many investors.
In reality private companies will rarely use a rights issue for this same reason. As there is no public market for private shares the investor would get little value from a rights issue and the company may be left with a significant amount of unsold shares.
22.214.171.124 Proxy voting
Article 372 (1) of the Companies Act outlines the legal right to proxy vote on behalf of shareholders in a company:
- ‘Any member of a company entitled to attend and vote at a meeting of it is entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of him; and in the case of a private company a proxy appointed to attend and vote instead of a member also has the right to speak at the meeting.’
Proxy voting is potentially a very important activity at football clubs where significant numbers of supporters hold individual shareholdings in the football club. This is because one of the primary objectives of a Supporters’ Trust is to act as a vehicle of the collective will of the supporters of the club through mobilising shareholder power. This can be achieved by:
- The Trust buying shares in the club in its own name on behalf of supporters.
- The Trust seeking to act as a proxy voter for individual shareholders.
The latter can be achieved at a PLC in two ways.
- By using the proxy voting form, which all PLCs must produce for their AGM, listing the agenda of business.
- The Trust can produce their own proxy voting forms whereby Trust members who are shareholders in the club automatically transfer their proxies to the Trust by virtue of membership of the Trust (see the box on the Watford Supporters’ Trust on the next page).
In the case of the former, shareholders simply score out the phrase ‘Chairman of the Meeting’, to whom the proxy is typically allocated to, and insert below in the space provided the words ‘The [name] Supporters’ Trust’. The standard allocation by PLCs of the proxy voting rights to the company chairman demonstrates the fact that there is nothing exceptional about the use of proxy voting. It is an entirely routine procedure. What is not typical is where shareholder groups other than the chairman of the company, in this case Supporters’ Trusts, seek to take on the role of proxy. But while not typical, it is an entirely legal and legitimate activity.
Having allocated their proxy to the Trust, the shareholder then simply posts the completed form to the football club’s share registrar. By doing this, the shareholder is making the Supporters’ Trust their proxy voter rather than the chairman of the PLC. The shareholder can either leave the voting intention boxes blank for completion by the Trust in line with Trust policy previously established by a postal ballot, or complete them, thus compelling the Trust to vote in a particular manner. Though clearly if the Trust member asked for the Trust to vote in a manner contrary to established Trust policy, this would run contrary to the spirit of Trust membership. However, there is nothing to stop a member doing this, unless the Trust rules forbid it.
In the case where the Trust produces its own proxy voting form, the proxy voting rights are automatically wielded by the Trust representative at the AGM in line with Trust policy. It should be obvious in this case that it is therefore vital that the Trust achieves a democratic mandate from its members for its voting decisions at the company AGM via a ballot of its members.
Being (a) member(s) of Watford Leisure PLC, hereby appoint a proxy to vote on my/our behalf at any Annual General Meeting or Extraordinary General Meeting, or any adjournment of such meetings. This proxy shall relate to any meetings held within one year from today.
My / Our proxy shall be a duly authorised representative of Watford Supporters’ Trust.
I/We authorise the above proxy to vote on all resolutions, or on any other matter Properly coming before the meeting, in accordance with the objectives and policies of Watford Supporters’ Trust.
The Chairman of the Watford Supporters’ Trust, Harry Rowson, says:
"In order to represent the supporters' views to the club, the Trust needs as many shareholder votes as possible. Giving the Trust a proxy over one’s votes goes a long way in helping to achieve this. Even the smallest shareholdings, when grouped together, can exert influence on the future of the club on behalf of fans.
At the club's Annual General Meeting in December 2002, the Trust had available approximately 18 million votes from 430 members who had granted proxies. This ensured that with the exception of those directors present, the Watford Supporters’ Trust held the largest vote at that meeting."
Granting a proxy vote to the Trust does not affect the ownership of shares. Shareholders continue to own their shares, and receive any dividends or any benefits associated with share ownership. Voting rites do not equate to ownership of the shares.
2.7.2 Strategies at a PLC football club AGM
There is a real potential for shareholder activism by Supporters’ Trusts to improve the quality of the management of their clubs by holding them to proper account and enforcing best practice standards of corporate governance. This is particularly the case given that many company secretaries of football companies are not meeting best practice guidelines, or in some cases even basic statutory requirements, as they relate to the facilitation of the exercise of shareholder rights. How these rights can be utilised is the subject of this section, which specifically addresses:
- Using the football club AGM as a forum for soliciting information from the club directors.
- Raising independent resolutions at your club AGM.
This draws on various best practice documents to illustrate how Trusts can achieve this. Notably this section draws on the Stock Exchange’s Committee on Corporate Governance Combined Code on Corporate Governance (or CCCG; see section 3.3 later in this Handbook), and in the Institute of Chartered Secretaries & Administrators’ (ICSA) Guide to Best Practice for Annual General Meetings (1998). The former is the key benchmarking document for evaluating standards of corporate governance at Stock Exchange quoted companies. At the end of April 2003 eighteen English clubs and four Scottish clubs had Stock Exchange quotations. In any case most of the Combined Code recommendations could equally be applied to private companies, which would cover the rest of Britain’s football clubs.
The company AGM
A key forum for the exercise of shareholder rights is the company Annual General Meeting (AGM). Section 366 of the Companies Act requires all public companies to hold such a meeting. Pensions & Investment Research Consultants highlight three reasons why the company AGM is a key forum for exercising good corporate governance:
- It is vital that shareholders have a formal means to hold company boards to account for the stewardship of the company’s businesses.
- The AGM should also enable shareholders to make representations on a range of governance matters for discussion and approval by their fellow owners.
- It should be seen as a democratic mechanism for a company board to secure a shareholder mandate for key policy proposals and practical matters on the way the company is governed.
(From PIRC (2000) The AGM: A Focus for Shareholder Involvement – PIRC’s response to the consultation document from the Company Law Review Steering Group on Company General Meetings and Shareholder Communication. London: Pensions Investment Research Consultants).
All shareholders have a right to attend their company’s AGM. Indeed, the board have a duty to make the AGM accessible. This is made clear both in the Stock Exchange’s CCCG, and in the ICSA Guide.
If a Stock Exchange listed PLC fails to comply with any aspect of the Combined Code then they must report this in their Annual Report. Such lapses should be a legitimate source of questioning of club directors by Supporters’ Trust representatives seeking to improve the standards of corporate governance at their club.
In the case of football companies, where there are large numbers of supporters who are small shareholders likely to be at their workplace during normal working hours, it is clearly not convenient to hold the company AGM other than at weekends or in the evenings. For clubs to hold their company AGMs during working hours clearly discriminates against small shareholders and makes it more difficult to exercise their rights. Supporters’ Trusts should lobby their clubs to hold the company AGM at a convenient time. That this can be achieved even at the biggest clubs is illustrated in the case of Celtic PLC. Following the putting down of an independent resolution to the 2001 AGM (see below) by the Celtic Trust requesting that future AGMs be held on a Saturday, Celtic moved their AGM to a Saturday in response.
Similarly, Shareholders United at Manchester United submitted a resolution to this effect for the 2000 AGM. They were persuaded by the board to withdraw their resolution on the grounds that this and the other matters contained within the resolution could be resolved through discussion. However, the board subsequently responded that they would not move the AGM to a weekend, as the institutional investors would not like it. This was despite the fact that many institutional investors do not attend the AGM as Manchester United PLC chooses to brief them privately.
As important as timing in running an effective AGM is the issue of location. An obvious convenient location is the football club ground, and indeed this is typically the main venue for football company AGMs - though this is not always the case. For example, in December 2000 Newcastle United PLC held their AGM in the City of London early in the morning. The board argued that this was to make it easier for institutional investors to attend the meeting. Supporter groups argued that the real motive was to make it more difficult for large numbers of shareholding supporters to attend the meeting. Previous AGMs had witnessed hundreds of shareholding supporters in attendance, many of whom had raised difficult questions for the board of the PLC. A group of independent Newcastle United shareholders in the process of forming a Supporters’ Trust had also managed to have a resolution put on the AGM agenda paper calling on the PLC to support the establishment of a Supporters’ Trust.
Supporters’ Trusts should be arguing strongly for the company AGM to be held at a location easily accessible to the majority of supporter-shareholders.
Duration of the AGM
A key purpose of the AGM is the exchange of information between directors and shareholders. In order for this to happen the AGM must have the format of a proper working meeting, with a reasonable amount of time set aside for questions and discussion. At far too many football clubs the AGM has degenerated over time into a simple 15-minute formal review of business held solely to meet the legal requirements of the Companies Act.
Supporters’ Trusts should lobby aggressively for the AGM to be a proper working meeting where shareholders have ample opportunity to raise issues of concern. Conversely, for progressive administrative managers of clubs, the AGM offers an ideal opportunity to communicate to shareholding supporters the previous year’s achievements and plans for the future. Club directors should be encouraged to view the AGM in this positive way, as an opportunity to build trust and support with shareholders and fans, and not just as a legal obligation to be dispensed with in the minimum time.
Access by the press
In the spirit of openness, clubs should be encouraged to invite the press, particularly locally-based media, to the company AGM. This has the added benefit for Trusts in that their work on behalf of the broader supporter base then gets a wider audience in the local area when the proceedings are reported. This is an example of how Supporters’ Trusts can learn from the campaigning activities of environmental campaigners. The latter routinely buy small batches of shares in large companies, which allows them to attend the AGM. They can then use this platform to address questions to the company management in the expectation that this will then be reported to a wider audience by the press. Given that much of the business of an AGM is often routine and uneventful, or will already have been disclosed to the media in the company Annual Report, the company AGM offers one of the few occasions where the press will be pre-disposed to listening to and reporting the Trust agenda. This is because it will typically be the most newsworthy aspect of the proceedings.
A formal presentation by the board of the football club and questions from the floor
A key indicator of the effectiveness of any AGM as a vehicle for communicating information to shareholders is whether or not a formal presentation is made by the board directors on key issues. Football supporters have rightly complained about the secretive approach of many, if not the vast majority of, club directors to disclosing information to supporters. One of the ‘Principles of Good Governance’ outlined in the Combined Code is ‘Constructive Use of the AGM’:
- ‘Boards should use the AGM to communicate with private investors and encourage their participation’
Similarly the ICSA state that:
- ‘We attach great importance to boards maintaining an active and constructive shareholder communications policy, both by following the minimum requirements of the Companies Act 1985 and by voluntarily maintaining principles of best practice in the handling of shareholder affairs. It is best practice for all boards to provide adequate time for shareholder questions at AGMs. Although there is no right under the Companies Act (1985) for shareholders to raise questions at the AGM, they do have a right at common law to debate matters, which are the business of the meeting. It is through that route that shareholders normally raise questions with the management.’ (Emphasis in original).
Evidence from surveys conducted by the Birkbeck Football Governance Research Centre for their Research Paper 2001/02 for Supporters Direct, The State of the Game: The Corporate Governance of Football Clubs 2001 indicates that most supporter groups are not availing themselves of the opportunity to raise their concerns via a question at the AGM. This may be because they do not yet own any shares. Purchasing even a token number of shares should be a top priority for a Supporters’ Trust, as ownership will convey the all-important right to ask questions in a public forum.
Obviously, choosing a focused and clearly expressed question is important. One of the difficulties experienced by representatives of Trusts at the AGMs of major football PLCs such as Celtic and Manchester United is where the debate degenerates into general, and often emotional, discussion on team-related issues such as the merits of the transfer policy, or even of team selection. Clearly, where the team manager is present at the AGM, to some extent such questions are inevitable. Yet these questions might be more appropriately dealt with at a fans’ forum. The company AGM is really not the appropriate forum for such issues; its purpose relates to the financial and administrative performance of the company. Where such questions dominate, the net result is that the directors are put under very little pressure to explain the company’s policy on more fundamental issues – such as the financial management of the club, ticketing policy etc. – and are effectively let ‘off the hook’. Supporters’ Trust representatives need to remember that they will often be dealing with quite skilled public speakers, who are well versed in public relations, and in deflecting criticism in particular. Questions asked need to be topical, tightly focused and clearly expressed. Many Trust representatives feel that questions by shareholders are treated dismissively by football club directors. Again, the most effective way to counter this is to keep all questions as tightly focused as possible.
126.96.36.199 Submitting resolutions to a PLC AGM
Independent shareholder resolutions
Where supporters feel that general questions at the AGM are likely to be ignored, it is possible for them to put their question on a more formal basis. This can be achieved by raising an independent resolution on a topic of particular interest for inclusion on the agenda of the football club AGM.
Basic requirements for raising a resolution
A resolution is an agreement or decision made by the directors or members (shareholders) of a company. In order for the resolution to become binding on the directors and shareholders, it must first be considered as a resolution at a general meeting of the company and affirmed by a vote of shareholders. The process by which a resolution is submitted to a company AGM is governed by Section 376 of the Companies Act 1985. The Act applies equally to private limited companies and Stock Exchange quoted companies. Before laying out the key tasks to be carried out when seeking to submit a resolution, it is useful to first outline the key elements addressed in Section 376:
- A company has a duty to give to members of the company entitled to receive notice of the next AGM (e.g. all shareholders) notice of any resolution which may be properly moved.
- The number of members (shareholders) necessary for such a requisition is either not less than 100 members (holding shares in the company in which there has been paid up an average sum, per member, of not less than £100), or any number representing not less than one twentieth of the total voting rights of all the members.
- A company is not bound to give notice of a resolution or to circulate a statement unless:
- i) A copy of the requisition signed by the requisitionists (by at least 100 shareholders) is deposited at the registered office of the company.
- ii) This must be done not less than six weeks before the meeting if it is the AGM (different rules apply to EGMs).
- iii) There is deposited with the requisition a sum reasonably sufficient to meet the cost of expenses and giving effect to it.
This means that a company can charge for the circulation of a resolution and its statement, but this would be highly unusual. Certainly in the cases of the resolutions requisitioned by Shareholders United at the Manchester United PLC AGMs in 1999 and 2002 and the Newcastle United Supporters’ Trust at the Newcastle United PLC AGM in December 2000, no charge was made. Celtic did make a charge of £250 when the Celtic Trust submitted four resolutions in 2001 (see below), but a club seeking to be obstructive could in theory attempt to levy a much higher charge for the cost. This would, however, be generally regarded as extremely bad practice. Certainly if any supporters’ group is threatened with this they should consult Supporters Direct for advice.
|Resolutions proposed at the 2001 Celtic PLC Annual General Meeting by the Celtic Trust pursuant to Section 376 Companies Act 1985|
|Resolution 11 requests that the Company instigate a programme of consultation with supporters' organisations, including quarterly meetings between board members and representatives of the Celtic Trust.|
Resolution 12 requests the directors to set up a consultation process to facilitate the appointment to the board of a representative of supporters/small shareholders.
Exercising your rights as shareholders to requisition a resolution can be an important tool through which to enhance standards of corporate governance at your club. Two good examples of this occurred at Manchester United and Sheffield Wednesday. Shareholders United put down a resolution to the 1999 Manchester United PLC AGM asking the PLC to establish a dividend re-investment scheme. The PLC subsequently introduced the scheme. In 1998, with the club in financial crisis, a Sheffield Wednesday Shareholders Association was formed. Tolerated very reluctantly at first, the group tabled a motion of no confidence in the then board of directors at an extraordinary general meeting (EGM). This proved the catalyst for a number of changes at the club, including the introduction of new shareholders and board members, and the formation of a Supporters’ Trust — The Owls Trust — which now holds an approximately 8 per cent shareholding in the club.
Nevertheless, when deciding to submit a resolution, it is important to be aware that boards of directors tend to regard this as a direct challenge to their judgement and authority. However, there is no excuse for this negative attitude from the board. As Pensions and Investment Research Consultants observe:
- ‘...shareholder resolutions are an integral part of the corporate governance process. They enable shareholders to take the initiative on issues which directors may be unwilling to address or where directors may face a conflict of interest…
- …shareholder resolutions provide shareholders with a mechanism through which they can address other members of the company, and they allow shareholders to focus on a particular area of concern without the wholesale challenge of voting against directors or selling their shares…
- …PIRC does not view shareholder resolutions as a no-confidence vote in the board (unless that is specified) but judges them on the merits of the specific issue addressed…
- …we consider that the current regulations on the requisitioning of resolutions are unnecessarily burdensome, and therefore in general support resolutions which seek to waive imposition of costs on requisitionists’.
(From PIRC (March 2001). PIRC’s Shareholder Voting Guidelines 2001. London: Pensions & Investment Research Consultants).
Submitting a resolution – the importance of obtaining a copy of the company share register
As outlined above, a Supporters’ Trust wishing to submit a resolution will require the support of at least 100 shareholders, or 5% of the total voting rights. A Trust should therefore:
- Ascertain how many of its members are shareholders in the football club company in their own right. The most effective way to do this is to have a section on the Trust membership application form requesting this information.
- Secure a copy of the share register of the company that owns the football club.
It is important to note that any shares held in common by the Trust will count as only one shareholding. Similarly, it is important to note that those who hold their shares in a nominee account at a stockbrokers, for ease of sale purposes, not only give up the voting rights associated with these shares as they pass to the nominee account holder, but also give up the right to requisition a resolution.
Section 356.1 of the Companies Act stipulates that all companies must keep a register of shareholders names that ‘shall during business hours [section 356.2 stipulates that this should be for a period of at least two hours] be open to the inspection of any member [shareholder] of the company without charge, and of any other person on payment of the appropriate charge.’ Sections 356.3 and 356.4 stipulate that any shareholder must be sent a copy of the register within 10 days of request. However, companies may charge up to the statutory rate for sending out a copy (currently £2.50 for the first 100 entries, £20 for the next 1000 entries and £15 for every subsequent 1000).
In other words, the Companies Act clearly states that shareholders have a clear right to see a copy of the shareholders’ register. This is not a privilege but a right of any shareholder. Obtaining a copy of the shareholders’ register should be a top priority for all Supporters’ Trusts, not just in circumstances where they wish to raise an independent resolution. The shareholders’ register will reveal who the true owners of the club are. In many cases those who purport to control the club may not even have a majority shareholding, but are able to exercise effective control by virtue of the fact that other shareholders are unaware of their own holding, or unaware of the existence of other shareholders. One of the benefits of the Supporters’ Trust raising an independent resolution is that it provides a vehicle to mobilise wider shareholder interest in rejuvenating the club. At many clubs it is not unusual for shares to have been unused for years without the owners being aware that they are indeed shareholders, the original owner having long since died. Details on attempting to trace and acquire these potential ‘lost shares’ in your club can be found in Appendix 13.
Supporters’ Trust representatives should not be put off by claims that they are not entitled to such information. Often the reason for such disinformation simply reflects the significant confusion that exists in many football companies regarding their wider responsibilities to minority shareholders. For example, in the case of Everton FC, in 1999 a group of shareholders was involved in an attempt to force an extraordinary general meeting (EGM). But for some time they were stymied in exercising their perfectly legal rights by the club, in part because key administrative figures in the company appeared confused about their obligations to minority shareholders.
Drafting and submitting the resolution
Given the negative attitude of most boards to resolutions from supporters, it is vital that the resolution requisition form is drafted correctly and that Trust members complete the forms in the correct manner.
Those signing the form need to provide five key pieces of information on it:
- Name: it is helpful that the name listed is exactly as on the football company register - a common error is to list a middle name on the share register but not on the requisition form.
- Address: the address on the requisition form needs to be the same as on the share register.
- Number of shares held.
- Date of signing.
Provided these forms are submitted in their proper form and in good time, the club should circulate the resolution to all shareholders prior to the AGM. It is possible that the club secretary will raise some objection to the wording of the resolution. In some cases there may be a legitimate objection, although in other cases such objections have been made quite wrongly. For example, in the case of Celtic PLC, when the Celtic Trust first submitted its resolutions it was initially argued by Celtic PLCs share registrars, Computershare, that the issues raised were not suitable for an AGM (see box below). Following correspondence with the Celtic Trust’s legal representatives, both Celtic and Computershare agreed to accept the resolutions as valid. This illustrates the value in having effective legal advice and representation when submitting independent resolutions. In this regard it is important to note the rights enshrined in the Companies Act cannot be overturned by items included in a company’s Memorandum & Articles. Companies Act provisions take precedent. This is stipulated in Section 376 of the 1985 Companies Act, clause 376 (6), which reads as follows:
- ‘The business which may be dealt with at an annual general meeting includes any resolution of which notice is given in accordance with this section; and for purposes of this subsection notice is deemed to have been so given notwithstanding the accidental omission, in giving it, of one or more members. This has effect notwithstanding anything in the company’s articles..’
It is clearly best to get the wording of the resolutions agreed with the company secretary before embarking on the collection of signatures. If you feel that the club is being obstructive then please feel free to consult Supporters Direct for legal or other advice, whether on the wording of resolutions or any other aspect. One aim of Supporters’ Trusts, and indeed of Supporters Direct, is to achieve representation on club boards through elected directors. This may therefore be an appropriate subject for a resolution to the AGM.
Calling for a poll
It is also important to note that while the resolutions may appear on the AGM agenda paper this is not a guarantee that a vote will be called. A poll needs to be formally called, as outlined by Article 373 of the Companies Act. This can be called by any five shareholders (in the case of Celtic the secretary of the Trust was able to call for a poll as the proxy representative of more than five shareholders); or by a shareholder representing not less than one tenth of the total voting rights of all the shareholders having the right to vote at the meeting.
Typically the final poll will show a large majority in favour of the directors of the company, as they will be able to draw on the support of major shareholders. However, as in the case of Celtic, and at Aston Villa in 2000, the Trust can win the hand vote at the meeting that normally precedes the formal poll. In terms of gaining positive publicity for the Trust, this can be very helpful as it demonstrates that the Trust is able to win the support of those present at the AGM and able to hear the respective arguments for and against the resolutions.
An example of how the independent resolution-raising process and associated proxy voting process can be used by a Trust to exercise some influence over its club’s policy making process is provided by the Celtic Trust at the 2001 Celtic PLC AGM. The Celtic Trust was the first Supporters’ Trust incorporated as an Industrial & Provident Society to utilise this process.
From its establishment the Celtic Trust had sought to establish a positive working relationship with the board of Celtic PLC. However, the initial response of the Celtic board was hostile. Apart from one brief meeting with PLC Chairman Brian Quinn prior to the September 2000 PLC AGM, the company essentially ignored the Trust.
In March 2001 the Trust took the decision to submit a number of resolutions to the Celtic PLC AGM. The motives of the Trust were as follows. The AGM is a public occasion; the agenda for which would have to be communicated to all 18,000 shareholders. It thus offered an ideal opportunity for the Trust to communicate its manifesto to the wider Celtic shareholder body. Secondly, the AGM is the ultimate source of authority of the company. As such it offered the opportunity for the Trust to hold the directors of Celtic accountable on key issues of concern for Trust members. Thirdly it offered the opportunity to open up a line of communication with the board of the PLC.
The four resolution topics emerged from the process above (see box above for details of the resolutions):
- March 2001 – a meeting was held of Trust members to agree resolutions.
- May 2001 – resolutions were submitted to Trust members in a postal ballot.
- June 2001 – members were asked to complete a resolution requisition form.
- June 2001 – initially personnel at Celtic PLCs registrar Computershare argued that the resolutions were of a nature that could only be discussed at an Extraordinary General Meeting (EGM). However, following correspondence with solicitors representing the Celtic Trust, both Celtic PLC and Computershare accepted that the resolutions proposed by the Trust were valid business for the AGM.
- Late July 2001 – completed requisition forms were submitted.
- Early August 2001 – Celtic PLCs company secretary wrote to the Trust secretary confirming that the resolutions were accepted as properly raised and were placed on the PLC AGM agenda.
- Mid-August 2001 – Celtic PLC posted to all shareholders its Annual Report & Accounts, the AGM agenda paper, and a supporting statement recommending that shareholders should vote against the Celtic Trust’s resolutions. The Celtic Trust was unable to include its own supporting statement for fear of incurring significant cost.
- Late August – the Celtic Trust wrote to members explaining the mechanics of transferring their proxy votes to the Trust.
- Late August – the Trust secretary wrote to the PLC company secretary advising who would be voting the proxies of Trust members, and advised that he would be calling for a show of hands on the day of the AGM.
- 8th September – the Celtic Trust AGM was addressed by Celtic PLC CEO Ian McLeod who urged the Trust to withdraw its resolutions. Trust members voted to withdraw Resolution 11 after Celtic PLC agreed to regular meetings, thus meeting the substance of the resolution.
- 15th September - the Celtic PLC AGM. The meeting was dominated by a debate on the three outstanding Trust resolutions. The Trust achieved an average vote of 677,000 or approximately 3.3 per cent of the shares cast (although a majority of shareholders present on the day backed the Trust’s resolutions).
Company law confers on shareholders certain clearly defined rights. Up to now football supporters have tended to be unaware of the potential influence that the exercise of these rights can offer. However, this influence is potentially very significant if supporters are prepared to pool their influence in a Trust structure. The club’s AGM offers a real opportunity to bring this influence to bear in a very public way.
2.7.3 Strategies at a Private Limited Company football club AGM
In contrast with the highly structured and publicly accountable nature of PLC AGMs, you are likely to find a greater diversity and informality at the AGMs of Private Limited Companies. Nonetheless, there are rules that should be adhered to, and representatives of the Trust’s shareholding should be there to ensure that they are. The first step is to obtain a copy of the club’s Memorandum and Articles of Association, and to familiarize yourself with its provisions concerning AGMs.
At worst, a club may not have held an AGM for several years, and Annual Returns and Accounts may not have been submitted to Companies House. Although this constitutes a breach of Company Law (see Appendix 13), Companies House is not an effective regulator because of the many millions of companies registered in the UK, and low staffing levels.
Unlike PLCs, shares in Private Limited Companies are often not available for purchase, and can usually only be obtained with the board’s approval. This means that the board, if they wish, can exclude individuals or groups from the AGM by denying them shares.
Also, it is not infrequent in the football industry for one person to hold over 75% of the shares, and therefore have ultimate control over all decisions. This does not, however, preclude Trusts who hold shares from using the AGM to ask important or awkward questions and insisting upon answers, as well as gaining publicity. This is covered in greater detail in the previous section of this Handboook.
Some private company football clubs have a policy of only notifying shareholders who hold more than a certain number of shares of the AGM. Cost of administration and postage is usually cited as the reason for doing this, but it can have the effect of excluding a large number of small shareholders who are entitled to be present, if they have missed the general advertisement in the small ads of the local paper. The Trust may therefore wish to publicise the AGM themselves if they want to ensure the maximum attendance of small shareholders, perhaps to back a resolution.
All shareholders are entitled to a copy of the Annual Report and Accounts. If the club operates a policy of restricted notification as described above, first ask the club for a copy. If you do not receive one, complain to Companies House and contact your Development Officer at Supporters Direct, who will download a copy and send it to you.
Lastly, encourage the local press to attend the AGM if there are any particular items or business for which the Trust wants publicity.
2.7.4 Negotiating board representation
The normal way of becoming a director of a football club that is a Private Limited Company is to invest in a shareholding, but many companies have people on the board for other expertise they have or particular skills they possess. At a football club, one such ‘skill’ is representing supporters’ views. It is important to remember that you don’t need to own a single share to be on the board of a football club, though it is the norm. Even so, at clubs with a majority shareholder, other directors may be business associates of that shareholder who don’t necessarily own shares themselves. However, when it comes to owning shares, as would apply to an individual or a Trust, there is usually an ‘asking price’. Where an individual or controlling group owns a club, there is often a reluctance to dilute or share their power with others. This will, however, vary according to the financial health of the club concerned, or perhaps the individual or Trust.
In desperate times, a club or owner may be willing to make an advantageous offer to a Trust. Also, (but more rarely), the club may be far-sighted enough to see that there are advantages beyond the financial in bringing the fans “on board”, and make an offer even when there is no immediate crisis.
Trusts with the ambition of boardroom representation should emphasise to the club the non-financial as well as financial advantages. These are many. The relationship between club and supporters changes from “us and them” to “we’re all in this together”. It makes fans less likely to blame the board for adversities, because of the element of partnership. Communication both ways is improved, and greater understanding among supporters of the constraints under which the board operates leads to fewer demands for increased expenditure to “buy” success. Issues of sustainability move up the agenda. Also, a reservoir of talent, goodwill and effort on a voluntary basis becomes available to the club, which can augment the limited professional resources the club may be able to afford.
When supporters are on the board, issues such as anti-racism, equal opportunities and access for the disabled can be highlighted more easily. The club can become a flagship for these issues within a high-profile industry, thus strengthening the bonds between the club and the whole community, not just the fans. This can lead to new partnerships with the Local Authority, to the benefit of both. At Northampton Town, a new council-built stadium was delivered on this basis. (See section 2.6.4 earlier for details).
The Trust can also provide a boost to the Football in the Community Scheme, both financially and in terms of voluntary personnel. At Luton, Swindon and Northampton among others, the benefits of this are already apparent. As for the financial and commercial benefits, gates tend to increase where Trusts are involved at boardroom level, and with them sales of merchandise increase proportionately. At Northampton, average gates have more than doubled since the Trust came in, even when results are poor. The Trust also brings an additional revenue stream through voluntary fundraising, which is incentivised and stimulated when shares are made available for purchase by the Trust.
It is therefore very much in the interests of the club to involve the Trust at shareholder and director level, whether or not it is in crisis. These arguments should be promoted both privately and publicly. As illustrated at Rotherham United, they can and do prevail even in what appeared unpromising territory. (See box in section 1.12 earlier in this Handbook).
There have been instances where an “associate” or “honorary” directorship has been offered to a Trust or supporters’ club. These offers should be treated with caution, but not dismissed out of hand. In some instances, they prove a stepping-stone to a full directorship, but more often than not it is a token gesture designed to head off the demand for a proper position. It can create an invidious situation for the individual concerned, involving responsibility without power. Some have found that they are excluded from all or part of board meetings, and denied important information. They can be unjustly blamed by Trust members and other supporters if things go wrong, when they have had no power to effect change or influence decisions. This can be the worst of both worlds.
If such a position is offered, Trusts are advised to make sure that they know how and at what cost it can be converted into a full directorship later. If the club fail to answer this question, it is an indication that they may have no real intention of allowing the Trust a proper directorship, and might be indulging in tokenism.
Lastly, it is essential that a Trust director is democratically elected and not hand-picked by the club board. Clubs often raise the fear that an unsuitable, unrepresentative or indiscreet person could be elected by a “packed” meeting. This can be effectively answered in two ways: firstly, by always holding the election by postal ballot; and secondly, by restricting the candidacy to those who have already served the Trust as elected officers or committee members. For longer–established Trusts, a minimum time in an elected position, say two years, can be stipulated. But there is no substitute for democratic election, and the position of the director is weakened both in the eyes of the club and Trust members if they are simply “appointed”. If the club is reluctant for an election to be held, or to accept its results, the signs are that they are looking for a “yes-man” rather than an effective director.
Some of the arguments often used against having supporter directors are:
- Confidentiality – the club board discusses matters of great importance and commercial confidentiality, and can't trust an elected supporter director to honour this, as they report back to the people who elected them.
This argument is a common one, but the ways to respond include:
A Trust director is a legal director of the club, and is therefore bound by the same rules as every other director. The fact that they are elected is irrelevant in this regard. Whilst the members might demand certain information, it's up to the Trust to manage expectations of what is and isn't publicly available to members. As for the supporter director revealing confidential matters, there is no reason why they are any more likely to do this than an existing director. Supporter directors will only publicise information in the public domain. Other things, such as player wages, are subject to normal practice of confidentiality. If the club board doesn't buy that argument, Trusts have to campaign on the grounds that they are being treated like unruly children who can't be trusted, when the board makes far less stringent checks on wealthy individuals who might be invited to invest and join the board. Trusts need to press their professionalism and probity, and stress they are a serious organisation that could bring added value to the management of the club.
- The club can't allow specific stakeholders to be represented on the board, as legally, the board is there to represent all shareholders, not just fans or a small group of shareholders.
If that argument is taken to its logical conclusion, then no director would be allowed to have any shareholding. The key is a good balance on the board, between shareholders and non-shareholders, executive and non-executive, and so on. It is standard practice to ensure that companies have a balanced board to ensure decisions are made in the best possible interests of the company, rather than the interests of one group. Independent directors also bring the skills and experience from whatever walk of life they have operated in to the benefit of the club. In addition, the best interests of shareholders are served by a solvent company. That means more people coming into the club as customers. Arguably, a better dialogue between club and supporters could have this effect.
- The Trust doesn't have any shares, or doesn't own enough to justify board membership. Alternatively, the Trust hasn't put in as much money as other directors.
The arguments above suffice again here – Trusts not having a shareholding could be seen as a benefit, rather than hindrance. Or, Trusts can argue they represent the supporters, who contribute a significant proportion of the club’s finances every year.
188.8.131.52 Strategies on the board
The two major objectives of a Supporters' Trust are to acquire, and thereafter maximise, a shareholding within the club, and to obtain elected representation on the club's board of directors. This may be a single directorship or may develop into a controlling interest in the club. This section is directed at those who have succeeded in getting at least one directorship.
The newly-elected board member will soon discover that every club situation is unique. The board may be under the total control of a single owner who has over 75 per cent of the shares. In a private limited company, this renders all other board members powerless other than through the goodwill of the owner, who is usually but not invariably the chairman. In these circumstances, board meetings may be infrequent, meaningless or both; but if the owner/chairman has the club at heart and has management skills, he or she will seek to involve other board members by a process of delegation of specific areas of responsibility. This creates a much healthier atmosphere than the arid dictatorship occasionally encountered.
Healthier still, in human terms if not financially, is the situation where no board member has a majority shareholding. This makes dialogue and consensus obligatory, and is likely to improve the quality of decision-making except where one rigid alliance holds control. In the more fluid situation, the newly-elected board member would be well advised to spend the first few weeks making and building positive and constructive relationships with fellow directors. This should include ascertaining their specific areas of interest and expertise, and establishing areas of common ground for future co-operation. One director may be particularly keen on youth development, another on commercial issues, and so on. The Supporters' Trust will have views on all areas of the club's life, and it is their representative's duty to express and promote these views within the board. At the same time, it needs to be remembered that the representative also has the duty to convey the views of the board to the supporters, and thereby promote two-way communication. The representative must earn respect and credibility both within the Trust and within the board, if he or she is to function effectively; and this requires interpersonal skills as well as knowledge, commitment and expertise. You must be a good listener as well as a talker, and give due weight to views other than your own.
So far we have used the word 'representative', and it is important to observe the distinction between representative and delegate. A delegate, at worst, is a mere mouthpiece for the views of others. A Company Director should never be only that, because he or she has a legal duty to use their judgment to promote whatever is best for the company. Also, a mere mouthpiece is never likely to earn or acquire the respect of fellow directors, and hence become effective. Sometimes it will be necessary to stick to a principle even at the cost of personal popularity, whether with the other directors or with Trust members. But short-term unpopularity can become long-term respect if the representative makes sure to explain and justify the stance adopted in terms of its benefit to the football club. Populism is not enough.
In the long term, this turns out to be a process of mutual education for the board and the fans, dismantling the shallow and easy prejudices which each may have had for each other when there was no proper process of communication. Boardroom snobbery should be an early casualty of this process, though this depends on the intelligence and calibre of other directors. Equally, supporters should be given the opportunity in regular open meetings to learn in detail about the constraints under which the board operates. Fans may wish to see the team improved, but not at the cost of the club's solvency and stability. A board and supporter body educated in this way will find it much easier to work in constructive partnership than before.
An elected director will, of course, find it easier to operate effectively if he or she has a colleague who can be relied upon to second any proposition. The lone elected director will have to forge a variety of alliances with others on particular subjects if the views of the Trust are to be taken on board by the club.
It is above all essential that an elected director never forgets where he or she has come from. The oft-repeated story of the director seduced by boardroom status and privileges is unfortunately true in some cases. To avoid this happening - or appearing to happen - it is essential that an elected director holds regular open meetings with the fans. Also, especially on matchdays, it is crucial for the director to balance time spent with fellow directors and with supporters, before, during and after the game. Matchday behaviour is highly visible, so you will neglect this at your peril. To spend all one's time with supporters is to neglect important informal discussions in the boardroom that often lead to decisions, so it is your duty to be there (appropriately dressed). But to be there all the time is equally unwise and will soon lead to widespread adverse comment.
Confidentiality is a key issue, and one that often causes traditional directors to fear or resist the concept of elected supporters' representatives. This fear is largely groundless, as the intellectual and professional calibre to be found within the supporter base of any club, whether large or small, substantially exceeds that which exists in the boardroom. But of course the pressure for disclosure on the fans' representative is greater. It is never legitimate to discuss players' wages and contracts, or impending transfers in or out, in public; but issues of general policy or the club's overall budget are, and should be, common currency. There are grey areas, and if you are ever in doubt, please do not hesitate to contact Supporters Direct.
It may occasionally be necessary to use the local press or media to highlight matters of principle or the mass view of supporters if the board prove totally unreceptive. This should, however, only ever be pursued as a last resort where all available internal methods of negotiation have been tried and failed.
The role of the elected director is, in the words of the Prayer Book, an 'honourable estate', and if carried out effectively and with integrity will have a beneficial effect stretching to all concerns of the club. These benefits should be equally apparent to directors and supporters alike. Here are a few suggestions which, while not relevant in every case, are worth considering by any newly-elected director.
- You should add value to the board. Identify and make available to them your own areas of expertise. You may be pleasantly surprised at how much responsibility you are given on the board's behalf. Areas of particular interest and relevance to supporters might include equal opportunities, anti-racism, access for disabled supporters, and Football in the Community. These represent whole areas of the club's life which often attract very little interest from traditional directors, but which can bind the club into its community and thus reposition and enhance its public profile to the benefit of all, as well as recruiting a new generation of fans.
- Every club, large and small, has an army of staff and volunteers who, for decades in many cases, have given their time free or at a pittance to facilitate matchday organisation simply for the love of the club. They are frequently ignored or taken for granted by the directors. Everyone likes their efforts to be appreciated, so spend some time every matchday with stewards, programme sellers, etc. and make sure they know their contribution is valued by the club. Travel to away games can be an issue. You may be given the opportunity to travel on the team coach, but may be reluctant to be thought to be accepting 'freebies'. Do not reject this opportunity. It is important that the players and the manager know that the supporters' representative is an important figure in the club, and it will help you to get player guests to come to Trust meetings and functions if you get to know them personally. At the same time, do not trade on your position. Only go sometimes, and travel at least as often on the supporters' coach, paying your way. The fans will appreciate the opportunities for the one-to-one discussions that this time provides.
With these and, no doubt, many other thoughts in mind, you will be an able and effective member of the Trust and the club. It may take up 10-20 hours a week of your own voluntary time, but you will enjoy it, and the genuine appreciation you receive will keep you going when tired or jaded.
Supporters Direct has drawn up a Code of Conduct for directors, available in Appendix 12 of this Handbook.