Alliance Trust AGM – Will Dundee cake suffice?

These are some initial impressions of the Alliance Trust AGM in Dundee yesterday – a full report can be found here.

It was not quite as exciting as it might have been after the company conceded defeat the previous day and agreed to accept two of the new directors nominated by Elliott, who then withdrew their resolutions. Alliance said it was a “compromise” but most commentators saw it as a tactical withdrawal at best. All Alliance have got is a “non-disparagement” agreement until 2016 which might even be seen as a win for Elliott in that Alliance have been slinging more mud at their opponents than Elliott anyway.

There were several hundred shareholders present to listen to the very well prepared and polished presentations by Chairman, Karin Forseke, and Chief Executive, Katherine Garrett-Cox. But speaking to a few shareholders before the meeting, and the comments of some during the meeting, it was obvious that many shareholders had turned up to the meeting without being aware of the news. It was of course given in an RNS announcement, widely published in the national and  local Scottish press and distributed elsewhere on the internet so it’s rather indicative of the ill-informed status of many of the mainly elderly shareholders who attended the meeting.  Those who were more informed had probably sold their shares after years of comparative under-performance by the Trust leaving the die-hards only and resulting in a wide share price discount to net asset value which has been only controlled to a limited extent by desultory share buy-backs. But the long term holders and defenders of the status quo were clearly insufficient to decisively win the vote on the resolutions for the new directors from Elliott, hence the need for the board to reach an “accommodation” of sorts when the proxy votes received indicated the likely outcome.

Shareholders were clearly unhappy also that they would have no say in the appointment of the two new directors who are being co-opted to the board and no opportunity to grill them beforehand. Of course this is normal public company practice with shareholders only getting to vote on new directors at the next AGM. The mood of shareholders was not improved when one of the two candidates present at the meeting Anthony Brooke (the other was not present), commenced by stating he had very little to say and that he had no knowledge of Alliance other that what he had read in the papers, and then quickly added “and in the public domain”. This generated a few boos from the audience. But he did assure the audience that he would be totally independent as he is very familiar with company law. However he is convinced that some change is necessary.

The Chairman stated early on in the meeting that the cost attempting to thwart Elliott had been £3m (i.e. similar to the bill they ran up defending against Laxey). This generated a lot of criticism, and I pointed out the initial aggressive tactics by the board were a recipe for running up the costs. I said I was horrified by the hot air and the allegations made against Elliott which were unsubstantiated, and I asked whether she was considering resigning therefore. She ducked that question by saying that it was not for her to answer questions on her position, i.e. that it was a matter for the board. Director Alastair Kerr then said that she has the full support of the board, and received some desultory applause from the somewhat partisan audience. Comment: Several people have commented to me, both at the meeting and previously, that it would have been wiser for the board to try and achieve some compromise earlier – by for example offering to accept a single nominee from Elliott.  The aggressive tactics did not impress many investors and made it look like the Chairman and CEO were more concerned with protecting their highly-paid positions and preserving the status quo than improving the strategy of the company.  Although Karin Forseke gave a polished performance, she was either badly advised or made some bad decisions on how to respond to Elliott in my view. Incidentally the pay of the Chairman and CEO got a number of complaints as one might expect (it is excessive at £120,000 p.a. and £1.3m last year), but Mr Kerr gave the usual justifications in response – they are in line with market benchmarks, we need to pay competitive salaries, etc, etc. Obviously although the Elliott resolutions were not put to the meeting (and the proxy votes received were not disclosed), the meeting did vote on all the other resolutions.

The resolutions were generally passed by large percentages although there were 7.0% against the remuneration report – perhaps this is not surprising as another aspect of the “compromise” with Elliott was that they would vote for all the AGM resolutions! Another interesting aspect of the voting was that despite all the publicity and personal canvassing of votes, only about 48% of shareholders voted on the resolutions.  So even if the Elliott resolutions had been put, it might have been the case that a minority of shareholders would have decided the matter.  This level of voting is unusual – it’s more commonly over 65% now in public companies on routine matters – for example at the AGM of Weir on the same day it was 72% on most resolutions. This surely shows how private shareholders have difficulty in voting, or the complexity of doing so puts them off trying. This is one of the iniquities of the nominee system now prevalent. It surely demonstrates that reform is necessary in this area, as ShareSoc has been campaigning for – see www.sharesoc.org/campaigns/shareholder-rights-campaign/

In conclusion, it was apparent that even the mainly elderly and Scottish shareholders attending the meeting did have some concerns about the future of the company. Some were opposed to change, but others supported it. Unfortunately this dispute may well put off the potential new private investors the company wishes to attract to its fund and investment platforms. This may mean the persistent discount to NAV will remain for example, and more vigorous action such as a tender offer that Elliott allegedly wants may yet be required. The battle over the appointment of directors might have been good knockabout stuff, but it was hardly wise to have fight it in the way done. Indeed Karin Forseke and Katherine Garrett-Cox acted rather like a couple of Marie Antoinettes defending the status quo and the investment performance in the face of the rabble.

But asking shareholders to accept Dundee cake as an alternative to the low cost bread offered by other generalist investment trusts is not an easy sell.

Roger Lawson