Aviva Plc (AV/) Chief Executive Officer Andrew Moss is under mounting pressure to boost shareholder returns or step down from the U.K.’s second-biggest insurer by market value.
Fifty-four percent of the insurer’s shareholders voted against its compensation plan last week following five years of underperforming its rivals and losing almost 12 billion pounds ($19.4 billion) of market value. Moss may not have time to repair the damage, investors say.
“It might be getting to the stage where it’s getting too late for him,” said Alan Beaney, who helps manage 200 million pounds including Aviva stock at RC Brown Investment Management Plc in Bristol, England. The vote “increases the pressure tremendously on the chief executive. Effectively, it was a vote of no confidence in him.” Beaney voted against the pay report.
Moss, 54, is the latest CEO to come under pressure in a wave of protest from investors that has claimed the bosses of AstraZeneca Plc (AZN) and Trinity Mirror Plc. Still nursing losses on bank and insurance stocks since the financial crisis, investors have increased protest votes against pay not linked to performance.
Aviva is the worst performer in the nine-member FTSE ASX Life Insurance Index (FALIFE) since July 2007, when Moss was promoted from finance director to CEO, falling 59 percent compared with the index’s 30 percent drop.
Prudential Plc, by contrast, has climbed 3 percent in that period. London-based Prudential’s market value was about 2 billion pounds less than Aviva’s in July 2007 and is now 18.6 billion pounds, or almost 10 billion pounds more than Aviva’s.
‘Twice the Value’
Moss announced a strategy dubbed “One Aviva Twice the Value” when he began as CEO five years ago and the London-based firm had a market value of about 20 billion pounds. The company, which has 18 million customers in continental Europe, is now valued at less than 9 billion pounds.
“The market has got frustrated and it has lost confidence in the chief executive and that has been reflected in the vote,” said Chris White, who manages 550 million pounds of U.K. equities including Aviva shares at Premier Asset Management Plc in Guildford, England. “It was a reaction to a long period of underperformance relative to the sector.”
Investors voted down the firm’s compensation report last week even though Moss had waived a salary increase of 5 percent to 1 million pounds. It’s only the fourth time since 2003 a FTSE 100 (UKX) company has lost a vote on compensation, according to Manifest Information Services Ltd., a proxy voting agency.
Moss has “tinkered” with the strategy throughout his tenure, confusing investors about what he is trying to achieve, said Kevin Ryan, a London-based analyst at Investec Plc.
As finance director, Moss approved the company’s $3.1 billion acquisition of Des Moines, Iowa-based Amerus Group Co. to expand in the U.S. He deemed the U.S. division one of the company’s 12 key markets last year.
Yet last month he told investors he may sell the unit to concentrate on fewer countries, according to two people with knowledge of the talks. A sale will cause the company to post a 1 billion-pound loss, the Sunday Times said April 22.
In 2009, he pushed a plan to integrate and expand Aviva’s European businesses from a single regional hub in Dublin. Moss said life insurance and pension sales in Europe would be higher than anywhere in the world over the following five years, citing a study by Oliver Wyman Group.
Since then he switched the regional headquarters to London, sales dropped due to the sovereign debt crisis and two Aviva Europe CEOs departed. Last month its heads of Europe, North America, Russia and investment management announced they were stepping down as part of a reorganization of the firm into developed markets and higher growth markets.
“There’s a tendency now for shareholders to vote against on companies where there’s a feeling of consistent disappointment against expectations,” said Tim Rees, who helps manage 270 million pounds at Insight Investment Ltd. in London. “This was a response to what was a pretty prolonged and unhappy experience as shareholders.”
At Aviva’s annual meeting last week, Moss defended his strategy, saying its U.S., Canadian and Spanish units delivered record profits in 2011 while U.K. life insurance doubled earnings over the last six years.
CEOs Under Fire
“I care deeply about the Aviva share price and I’m as frustrated about it as anybody in this room,” he said. “Yet despite the difficult external environment in Europe we have many things to celebrate and many reasons to be excited about the future.”
Other CEOs have also been feeling the pressure from shareholders. Trinity Mirror Plc (TNI)’s CEO Sly Bailey announced she would stand down at the end of the year after presiding over a 90 percent fall in the share price since 2003. She earned 1 million pounds in cash in 2011.
AstraZeneca Plc CEO David Brennan resigned last month following criticism from investors about the company’s pipeline of drugs. About 40 percent of investors opposed Inmarsat Plc (ISAT)’s compensation report last week.
Not all shareholders say Moss is entirely to blame for Aviva’s lagging stock price.
‘Outside His Control’
“The media storm against Moss has been a bit harsh as the stock has been weighed down by factors outside his control like the sovereign debt crisis and the recessionary environment,” said James Lowen, who helps manage 1 billion pounds including Aviva shares at JO Hambro Capital Management Ltd. in London. “He has also significantly reduced costs, deleveraged the company and started to refocus it in the last three years.”
Following the company’s annual general meeting last week, Chairman Colin Sharman said he would be talking to shareholders to change the company’s compensation plans. That may help to refocus the firm’s strategy, according to Lowen.
“We would welcome an acceleration in this strategic reshaping, simplification and cost optimization,” he said. “The good thing that will come out of the investor and media focus of the last few days is that this is more likely to occur, which will ultimately be a powerful driver of the share price.”
Any leadership change will only benefit the shares if it is conducted in an orderly manner under new chairman John McFarlane, who starts in June, according to Investec’s Ryan.
“For the share price to benefit, you need a coordinated and sensible handover,” he said.
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