The battle for the soul of Alliance Trust continues – or so their Chairman would have it. But even institutional proxy advisors ISS and PIRC have now come out in support of Elliott Advisors and their resolutions to appoint three new directors at the AGM on the 29th April. Alliance have said they are looking for a new truly independent non-executive director, but will they be anyone who is likely to disagree with the existing board or take a contrary view? I doubt it. Perhaps it is more a move to cram the board so as to outvote any new directors appointed by the wish of shareholders.
Alliance also issued a quarterly trading statement which was generally positive, and are also sending another letter to all their shareholders – there is no expense being spared on this battle by either side but it is shareholders who will be in essence footing the bill on the company’s side of course. The letter does not say much new but simply appeals to investors with the headline question “who do you trust to run your company?”. This of course suggests that Elliott are trying to take over the company and wish to run it, which is far from the truth.
It was interesting to speak to a couple of Alliance Trust shareholders over lunch at the Baronsmead VCT 3 AGM yesterday, one a former shareholder. He had sold his shares some time ago due to poor performance. The other was still holding but was intending to vote for Elliott’s resolutions. Perhaps not a large sample but indicative that the matter could be a close run contest.
The Baronsmead VCT 3 is another investment trust where corporate governance issues are of concern, although one can certainly not question the historic investment performance of the company in this case. Two directors have served on the board since 2001, and one (Gillian Nott) also serves on the boards of two other of the Baronsmead VCTs. In addition the Chairman, Anthony Townsend, has 6 other directorships of public companies, including 5 chairmanships, and other directors also have multiple roles that exceed the guidelines published by ShareSoc for the number of jobs non-executive directors should have.
Do you think that directors of investment trusts should serve for more than 9 years (the limit recommended by the UK Corporate Governance Code)? Can they be considered independent if they have other directorships with the same fund manager? This writer suggests the answer should be no to both those questions based on my past experience, but let me know your views.
I made these points at the AGM and there is a full write-up here. A number of shareholders clearly agreed with me. It is unfortunate that the Chairman and other directors seem reluctant to tackle these issues.
Across town on the same day the investors in the Core VCTs were meeting to approve a wind-up of the companies (Core VCTs 1, 4 and 5, as 2 and 3 had previously been merged into 1). These VCTs have had a complex and chequered history, and investors might prefer to see the back of them. They didn’t really have much choice than to vote for the wind-up because the companies cash holdings might have breached VCT regulations, but one investor said to me that the “whole thing stinks”.
Roger Lawson
Given that VCTs from the same manager are often near-clones of each other I’m not sure it’s especially problematic to have cross-directorships and may even help – although one might ask if the directors take reduced fees to account for much of the work being shared! On the length of tenure, the key question is whether the board can act decisively if things start to go wrong. The VCT sector has seen quite a few restructurings of poorly-performing trusts so there must be some data on which boards have been most effective, but personally I have no sense of whether long tenure has been a problem. With VCTs the problem may not just be identification with the manager but with the investee companies too – it may be difficult for both managers and directors to stop supporting companies they’ve been involved with for many years.
With VCTs it’s usually clear when things are going badly – the problem with more mainstream ITs is that the performance may be pedestrian but not disastrous so it’s unclear when a change of manager and/or strategy may be appropriate. Also unlike VCTs, mainstream ITs rarely seem to solicit the views of their shareholders, e.g. as far as I’m aware Alliance made no attempt to find out if ordinary shareholders wanted the recent change of manager and strategy, and even now the board are just saying “trust us”, rather than asking shareholders what they want. Having a higher turnover of directors might help if they took it as an opportunity to reconsider the strategy, but if you just change one director every couple of years I doubt that it would make much difference unless they were unusually strong-minded.
Length of tenure is certainly an issue in my experience if you want prompt action in response to problems in investment trusts. Long standing directors are often keener to avoid tackling their own past mistakes or admit to failings that require some change be made. Length of tenure combined with age does not help, while a fresh view from new directors is often helpful. In addition the longer the directors are there, the more sympathetic they can be to the established fund manager(s).
Roger Lawson