City grandees face a warning this week: they may win abolition of the public register of shareholder revolts but investment managers and their advisers ”will always know who’s suffered a rebellion, who cast the votes and why”.

The notice came from Sarah Wilson, chief executive of Minerva Analytics, a proxy adviser, in a letter to the Financial Times. She was responding to a document from the Capital Markets Industry Taskforce (CMIT), a body set up and chaired by the London Stock Exchange (LSE), which calls for the closure of the public register and the end of “explanations” from boards when they suffer a rebellion of 20% of shareholders or more. The 20% threshold is laid out in the UK’s corporate governance code.

Wilson not only criticises the taskforce’s approach as “regression to the lowest common denominator of shareholder exploitation”, but also suggests the 20% marker would be better at 10%, given voting levels. She also takes aim at the LSE’s wider agenda.

‘Stalin and Mao’

“As service providers, we will continue to analyse the corporate disclosures that inform ownership decisions,” Wilson writes. “Abolition of a list won’t stop capital providers exercising their democratic rights the way they see fit—unless what the LSE and its lobbyists (paid for by LSE’s shareholders) are suggesting is that accountability and shareholder democracy are what they really want to abolish? Stalin and Mao would be proud.”

The current clash flared when it emerged CMIT had written an open letter entitled “Resetting the UK’s approach to corporate governance” in which it called for the end of the 20% threshold and the public register.

“This threshold is arbitrary and distorting. In the context of a refreshed and enhanced framework of board and shareholder engagements, it should not be necessary,” the CMIT letter says.

Another proposal from CMIT is that the much respected “comply or explain” principle, underlying the UK code, be changed to “apply or explain “ to “make clear that explanation can be compliant”.

It also suggests that rules that prevent dilution of shares should be dumped because they have a “materially limiting effect” on the ability of many companies to “remain competitive” on executive pay.

A red flag

Wilson received some support from other quarters. Daniele Vitale, head of ESG in Europe at shareholder advisory firm Georgeson, says that the 20% level would remain a key test, whether it is removed from the governance code or not. “As a result of the prevailing standard, most companies are likely to continue to view the 20% opposition as a red flag despite any regulatory changes,” Vitale says.

“Whilst 20% opposition does not automatically imply that something is wrong, it does suggest that a sizeable portion of shareholders is dissatisfied with a particular proposal or decision.

“A high level of opposition may suggest a risk for future challenges and shareholder discontent can escalate if the underlying issues are not addressed.”

Some observers see new trends at work on the voting landscape. Ali Saribas, partner at AQTION, a platform for shareholder transparency, says in a world where there are many “single issue” shareholders focused on public interest topics, a threshold of 50%+1 looks increasingly like a win for boards. Board also face an increase of so-called “meme voting”—votes coordinated through social media and powered by “voting choice” tools now entering the market.

“It is important to engage with shareholders to understand what are the frustrations on a certain topic,” says Saribas, “but setting a specific threshold may involuntarily make this exercise one that loses the spirit of what was intended.”

That said, Saribas points to a number of fund managers‚ among them Glass Lewis, Legal and General and Artemis Investment Management, who namecheck 20% votes as a moment for managements to engaged with shareholders. Others mention their potential response to “dissent” but fail to mention specific thresholds.

Board Agenda understands that some investors may be “consulting” on the CMIT statement.

The London Stock Exchange has been battling against a slow decline which has seen the number of listed companies fall from a high of 3,305 in 2007 to 1,908 this year.

In recent months, chief executive Julia Hoggett has surprised City observers with efforts to cut regulation facing listed boards and to change attitudes to City firms.

In May this year, Hoggett attracted accusations of being “tone deaf” after publishing an article in which she argued a “broader discussion” about executive pay was needed, so that UK companies could “compete for talent on a global basis”.

Last month, Hoggett appeared on a government press release lauding a U-turn on new regulations that would have seen boards begin reporting on their risk and resilience preparations, audit and assurance policies, efforts to combat fraud and their distributable profits.

The regulations had been proposed as part of audit reforms that have been under discussion since the collapse of Carillion in 2018. Some observers labelled the decision as based on “mistaken” beliefs about regulation and making “little sense”.

Sides are now being drawn up in a key debate for the future of listed companies in London. On one side are those, like the London Stock Exchange and figures in Whitehall, who seek less regulation to make London more competitive. On the other side are those who argue trust in equity markets could be undermined if key figures “dismiss the value of governance”.

The argument is set to run for some time to come.