Big guns will put down gas shareholders' revolt

BRITISH GAS looks certain to defeat opposition to its controversial pay package for directors at this week's annual meeting after intensive lobbying of major shareholders.

But it is likely to be a pyrrhic victory. Richard Giordano, the non-executive chairman, will be given a rough ride by thousands of irate shareholders at what could be the largest and rowdiest AGM ever held by a British company. Support from some quarters is so lukewarm that British Gas may eventually have to back down on its pay policy anyway.

Mr Giordano has visited at least 60 institutions to secure their support against two resolutions attacking directors' pay. In some cases he has told fund managers that a vote in favour of the resolutions would be a vote of no confidence in the board. The Association of British Insurers has advised its members to support the management as a matter of principle.

But although many institutions have promised to back the company, many more are abstaining or have offered only qualified support. Standard Life, for example, has said it will support the company but wants to see the remuneration package changed within the next year. The National Association of Pension Funds, which represents the pension fund managers, has advised its members to vote but has refrained from saying which way.

British Gas caused outrage among small shareholders earlier this year by revealing a new pay policy for directors which included a 70 per cent salary rise for Cedric Brown, the chief executive, to a basic pounds 475,000. Shareholders and consumers saw the increase as excessive for a public utility, particularly at a time when it was making thousands of redundancies. But Mr Giordano, the architect of the new pay policy and who himself earns more than pounds 400,000 from British Gas, has refused to back down in what is widely seen as a public relations disaster.

Following the outcry, nearly 7,000 of the company's 1.8 million private shareholders from all over Britain have said they will come to the meeting at the London Arena in Docklands.

Two critical resolutions are being put forward. One calls for an independent consultative body within British Gas to represent shareholders. The other, sponsored by Pensions & Investments Research Consultants (Pirc), demands that the company follows "best practice" in its remuneration policy. Cedric Brown is also up for re-election.

Both resolutions are likely to win on a show of hands among the small shareholders. They will probably then be defeated in a card vote when proxy votes from institutions are counted.

But even if the management wins the vote, many institutional investors believe the company will have to back down afterwards. "In some sense, Pirc has won even before the vote," said one institutional investor. "The whole thing has become an issue and can no longer be waived through as British Gas had hoped. I don't think the issue will go away - and it is not just a British Gas issue."