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(Corrects fourth paragraph to show recommendations concernedonly votes on pay reports, and that the comparison was with allof last year's AGMs, not just those held before May 6)
* Several shareholders oppose resolutions at top UK firms
* Kentz becomes first UK firm to have pay plan rejected
* UK, EU politicians encourage shareholder engagement
* New breed of funds focus more on governance issues
By Jemima Kelly and Simon Jessop
LONDON, May 22 (Reuters) - Encouraged by politicians,shareholders are starting to flex their muscles again,frustrated with the slow pace of reform within companies oneverything from executive pay to appointing more womendirectors.
After the "shareholder spring" of 2012, when a number ofinvestors abandoned their traditional back-seat position on themanagement of companies, last year's round of annual shareholdermeetings was a much more subdued affair.
But the signs this year point to the return of a more activestance, with several shareholders rejecting resolutions atblue-chip firms including Barclays, AstraZeneca, National Express and Standard Chartered.
The proportion of "oppose" recommendations made by investoradvisory firm Institutional Shareholder Services (ISS) forvoting on pay reports for companies listed in Britain's FTSEAll-Share index stood at 14 percent for annual generalmeetings (AGMs) held before May 6, compared with 12 percent forall of last year's meetings.
According to ISS Corporate Services, the advisory firm hasissued 27 such recommendations out of a total of 198, versus 50from 414 for the whole of the previous AGM season.
"Last year was a year of consolidation after the shareholderspring, but this year you've quite clearly seen a reaction fromshareholders that the corporate world isn't moving fast enoughon these issues," Alan MacDougall, managing director at fellowshareholder voting advisory firm PIRC, told Reuters.
"Barclays is the tip of the iceberg," he added, referring tothe British bank's AGM on April 24, when more than a third ofshareholders declined to back its pay plan.
PIRC is either calling for a "no" vote, or supportingshareholder resolutions, against, oil firm Afren security firm G4S, advertising group WPP andfinancial group HSBC among others at upcoming AGMs.
POLITICAL SUPPORT
Executive pay has long been a controversial topic, with thepublic, politicians and investors growing angry over the rise inboardroom riches, irrespective of wider economic conditions.
Between 1998 and 2010, average pay for Britain's chiefexecutives rose 13 percent a year, despite no overall increasein the FTSE 100 blue-chip share index.
Politicians are encouraging investors to hold companies toaccount more and have given them new powers, with shareholdervotes on pay made binding in Britain in October 2013.
While most investors prefer to work behind the scenes withfirms and avoid public disagreements, there are signs they areprepared to go public when they think change is too slow.
Insurer Standard Life, Barclays' sixth-biggestinvestor, took the rare decision of announcing it had votedagainst the bank's pay plan, which increased bonuses forinvestment bankers last year despite a one-third drop in profit.
For the first time ever for a London-listed company,shareholders also voted down the remuneration policy ofengineering firm Kentz on Friday.
IT'S NOT JUST PAY
Pay is not the only topic galvanising shareholders.
At its AGM on Tuesday, 10 percent of miner GlencoreXstrata's shareholders did not back the appointment ofex-BP CEO Tony Hayward as chairman after criticism of the firm'sfailure to appoint any female board members.
A 2011 government review said all of Britain's blue-chipFTSE 100 companies should aim for at least a quarter oftheir boards to be comprised of women by 2015.
While progress has been made, with women now making up 20.4percent of board seats in FTSE 100 firms, up from 12.5 percentwhen the review was conducted, there are still laggards, and theproportion of board seats occupied by women in the next tier of250 UK listed firms is just 15.1 percent.
Glencore Xstrata, appearing to feel the pressure, promisedto appoint a woman to its board this year.
A EUROPEAN PUSH
Investors are being encouraged to get more hands-on withcompanies elsewhere.
Michel Barnier, the European Union's financial serviceschief, has proposed changes to the EU's shareholder rightsdirective that would give investors across the 28-country bloc a"say on pay".
The EU is also planning legislation to make all companiesreport non-financial data, such as their environmental record,which would make it easier for shareholders to hold businessesto account over a broader range of issues.
For now, however, the centre of shareholder activism seemslikely to remain in the UK because of the relatively high levelof institutional investor ownership in its companies.
"Where there is low insider ownership you are less likely tohave a blocking family or insider stake that is going to have asignificant sway over any voting," said Raj Hindocha, managingdirector for research at Deutsche Bank.
"So you are more likely to be able to have an influence andliaise with a board that is receptive to ideas and change."
MAKING MONEY
Ensuring businesses have good corporate governance appearsto make good business sense for investors.
A January report by fund manager Hermes found well-run firmson the MSCI World equity index outperformed poorly governed onesby an average 30 basis points a month from 2008 to 2013.
Such data has encouraged the rise of investment funds thatfocus on companies with strong track records in environmental,social and governance (ESG) matters.
Total global assets under management at ESG funds amountedto at least $13.6 trillion at the end of 2011, with Europeaccounting for 49 percent, according to the Global SustainableInvestment Alliance.
Many of these funds see it as in their interests to take atougher line on corporate governance.
"We're not here to be warm and fuzzy. We're here to makemoney," said Lewis Grant, a portfolio manager who works on theHermes global equity ESG fund, which it launched on May 1.
($1 = 0.5935 British Pounds)
($1 = 0.7302 Euros) (Editing by Alexander Smith and Mark Potter)
