ShareSoc Chairman's Blog

In reply to Roger Lawson, post #112

But one has to be realistic and accept that many people cannot spare the time, or the cost, to attend meetings.

Just on that point, ShareSoc might also "name and shame" companies who choose to hold shareholder meetings at times or in places that appear to be designed to maximise inconvenience for their shareholders.

So...for example....holding meetings just before Christmas on Jersey or the Caymans?

UK-listed companies holding meetings in the city/town of their operational HQ, or in London, at 10.00-11.00 am in the middle of the week might be considered to be a reasonable norm? Choosing a Friday afternoon in Poulton-Le-Fylde might not......though it probably wouldn't deter David ;-)

In reply to emptyend, post #113

We do when they come to our attention. For example we criticised Halfords for holding their AGM in Birmingham at 9.00 am last year (thankfully moved to a more reasonable time this year as they took note). Or how about Blinkx in Cambridge at 9.00 on Sept 21st this year, when they give a London office address?

In reply to emptyend, post #113

Good idea, ee, and this is something we're actively looking at. Besides brickbats, we would also like to award "bouquets" to companies that go the extra mile and really do take shareholder engagement seriously (especially with individual investors).

One issue worth noting, however, is that I understand that those listed/quoted entities that are registered in tax havens can run into tax difficulties if they hold their GMs in the UK. I guess that's another downside you just have to be aware of if you choose to invest in such entities (besides the fact that they may not be subject to the UK Companies Act and the City Code).

Regards,

Mark

In reply to marben100, post #115

One issue worth noting, however, is that I understand that those listed/quoted entities that are registered in tax havens can run into tax difficulties if they hold their GMs in the UK. I guess that's another downside you just have to be aware of if you choose to invest in such entities (besides the fact that they may not be subject to the UK Companies Act and the City Code).

mmmmm......

...however, you know at least one company that alternates its AGM between the city of its main listing and the city where its HQ is - and then has been in the practice of holding an information meeting for shareholders on the following day in the other centre.

Making the formal meeting accessible is clearly important - but so is giving shareholders an interface opportunity, even if it doesn't carry the legal weight of a formal AGM.

It is possible to "cover the bases" without major expense....though some who are registered in tax havens may not particularly wish to do that?

Posted by ShareSoc at 16:07, August 28 2012.

Victoria – ShareSoc issues voting recommendations

A previous blog post described some of the past history of the shareholder disputes at Victoria (LON:VCP) . There has now been a further General Meeting requisition to remove the current directors and put in place at least some of the directors who were elected to the board but then resigned. They resigned because it appears they were unable to force through a bonus scheme, which would mainly benefit themselves as non-executive directors.

We have now issued some voting recommendations for the General Meeting on Friday and the prospective EGM which will probably take place in early October. It recommends that shareholders support the existing board simply because ShareSoc considers the proposals that the current board rightly rejected as totally unacceptable (and of course they are contrary to normal practice as regards the remuneration of non-executive directors). See www.sharesoc.org/press_releases.html for more information.

Posted by ShareSoc at 08:07, August 30 2012.

Lighthouse and jobs for the boys

In my blog post on the 19^th August I suggested that David Hickey, Chairman of Lighthouse (LON:LGT) might find it wiser to resign, rather than risk being ignominiously booted out. That followed the defeat of his proposal to de-list the company from AIM and the subsequent requisition of an EGM to remove him as a director. Well this morning it was announced that he has taken that wise step and resigned. Director Richard Last is taking over as Chairman.

Not that it is probably relevant to Lighthouse, but a fascinating article in the Daily Telegraph this morning reported on research by Bristol University on what contributes to the success of applicants for board positions on UK Plc boards. It suggested that it is not what you know but who you know. For example, it said that applicants were about four times more likely to be made directors if they were a member of the same golf club as one of the board. Likewise, if they share the same private club as one of the board, their chances doubled. The research, led by Helen Simpson, concluded that the impact of social networks tended to count against women because they were less likely to be members of golf or private clubs. Educational connections such as going to the same school or university also had a positive influence, but less than current social connections.

I find it astonishing that this culture of picking people with the right social connections rather than those with the most relevant experience and abilities still persists in Britain.  

Posted by ShareSoc at 08:29, September 2 2012.

Victoria – The issue is really quite simple

I attended the AGM of Victoria (LON:VCP) on Friday. ShareSoc previously issued some voting recommendations for that meeting and the prospective EGM which will probably take place in early October. It recommended that shareholders support the existing board simply because ShareSoc considers the proposals that the current board rightly rejected as totally unacceptable, and what was said at the AGM did not change my view on that matter although it was revealed that Geoff Wilding was willing to act as an executive director rather than simply a non-executive. See www.sharesoc.org/press_releases.html for more background information.

A full report (5 pages) on the AGM is present on the ShareSoc Members Network. It was of course quite a contentious meeting with employee shareholders concerned about their jobs if there was a break-up of the company. Both the current board and the “concert party” (the Anton family backed by New Fortress Finance) evaded discussing the details of their future strategy – but it looked at times like a battle between traditionalists and asset strippers with the concert party being characterised as the latter.

At the end of the meeting the poll results were decisively in favour of the concert party and therefore the four directors up for re-election were defeated (including the CEO). One of those removed (Mr Garman) was immediately reappointed as otherwise only Katherine Innes Ker would remain. The CEO, Mr Bullock, and Mr Poynter, who leads the Australian operations, will continue in an executive role. The vote numbers indicate it will be very difficult for the current board to win the forthcoming EGM so the concert party may well gain control in a few weeks time unless some of the Anton family shareholders change their position, an enormous number of smaller shareholders manage to vote or the process can be thwarted by an appeal to the Takeover Panel.

On reflection, there seems to be only one issue in essence because the future business strategy of the current board and of the concert party does not obviously differ greatly (indeed when Anton and Wilding were on the board, they seemed to agree it). So far as shareholders can see at present, it might only differ in aggressiveness. So the only real issue is who might get the benefit of the improved value or return of cash to shareholders and on what terms. Should there be enormous bonuses paid out to Wilding and others for their roles or not?

I simply think they should get a fair reward for the effort they might expend, but certainly no non-executive director should be remunerated via an incentive scheme.

In reply to ShareSoc, post #119

Should there be enormous bonuses paid out to Wilding and others for their roles or not?

I simply think they should get a fair reward for the effort they might expend, but certainly no non-executive director should be remunerated via an incentive scheme.

Sadly this seems to be yet another situation where you are generalising (without pause for thought) from a specific example ("enormous bonuses") to something that purports to be a general rule ("certainly....." etc).

The point is surely dependent on the scale? Nobody would support "enormous bonuses" - but that is a long way away from the general statement you have made, which is sweeping and ill-considered.

“There is nothing wrong with trying to sell the company, but a scheme so skewed in favour of directors—in particular non-executives—is wrong”. Dominic O’Connell in the Sunday Times yesterday about the events at Victoria. It seems at least one other person agrees with me.

Suggest also that folks read this report from Hardman which spells out why the proposed deal from the concerty party was a stinker, and how it potentially extracted returns that should go to other shareholders:

http://www.baystreet.ca/articles/research_reports/hardman/Victoria-August2012.pdf

In reply to Roger Lawson, post #121

It seems at least one other person agrees with me.

Just to be clear, I have no problem with your specific comments about Victoria Carpets!

But you should be careful not to generalise from the specific to the general. It is wrong to conclude generally that:

certainly no non-executive director should be remunerated via an incentive scheme

...without providing any context for that comment. For example, it isn't difficult to think that sometimes investors might be faced with needing to either pay NEDs via incentives or to put up fresh cash to pay salaries....or to see the NEDs resign. Seeking to tie the hands of management via a box-ticking preclusion of some forms of compensation may have dangerous and damaging consequences.

Such things are a matter of scale - but I certainly wouldn't defend excessive payments.

In reply to emptyend, post #123

Yes, there are exceptions to every rule. In some exceptional cases incentives for non-execs may be justified. In those cases, the reasons should be clearly explained to and ratified by shareholders.

From the Code:

Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning.

The danger of substantial incentives for non-execs is that they may compromise their ability act solely in the interests of the company, rather than in their own self-interest. Certainly, such incentives cast a cloud of suspicion over their motivation. MBL (LON:MUBL) is one example of such suspicion, where relations between the chairman and shareholders have soured due to the former's receipt of a substantial bonus (he regarded his base salary as "petrol money"), together with the CEO, just before a major collapse in the company's business. 

In reply to marben100, post #124

The danger of substantial incentives for non-execs is that they may compromise their ability act solely in the interests of the company, rather than in their own self-interest.

Yup - hence my point in post 120:

The point is surely dependent on the scale? Nobody would support "enormous bonuses" - but that is a long way away from the general statement you have made, which is sweeping and ill-considered.

Good to see a rational comment.

Posted by ShareSoc at 15:11, September 6 2012.

Retailers in focus – Sports Direct, JJB Sports, Carpetright, United Carpets and Victoria

Yesterday Sports Direct International (LON:SPD) investors forced the company to abandon a proposed incentive scheme for Mike Ashley (Executive Deputy Chairman and 71% shareholder). The vote was clearly going to be lost so the resolution to introduce it was withdrawn (Mr Ashley could not vote on it due to his personal interest). The ABI issued a warning to vote against it and it was certainly a generous scheme. It’s good to see shareholders defeating inappropriate remuneration schemes.

Meanwhile Sports Direct’s competitor JJB Sports (LON:JJB) is now almost worthless (share price now 0.35p). This follows the announcement from the company a few days ago of a further deterioration in trading and the need for more funding to keep them afloat. Indeed the company has said it is now up for sale but there may be nothing left for shareholders after repayment of debt. This is certainly a sad end to the story of a company that was one of the most successful UK retailers but seemed to lose their way after the founder Dave Whelan bowed out. Indeed he recently said (referring to the management of late) that “In five years they’ve taken it from a £1bn business to one that’s worthless”. I was a shareholder at one time but sold in 2004 which was probably one of my better investment decisions. It would certainly be an interesting business case study to compare the actions and performance of Sports Direct and JJB Sports over the last few years.

Today I attended the AGM of Carpetright (LON:CPR) and met some old colleagues. A full (but brief report because it was a very brief meeting) is on the ShareSoc Members Network. One story that came up there were the events at United Carpets. As an example of how tough the carpet market is in the UK, United Carpets (LON:UCG) , a publicly listed carpet retailer, has suspended its shares on AIM recently because of financial uncertainties following the announcement of some store closures and termination of franchisees.

Victoria (LON:VCP) , another company operating in the carpet sector and currently in the news, issued a notice of the EGM due on the 3^rd October. It gives the current board’s point of view on recent events but it’s probably best to wait and see what the “concert party” (who are trying the remove the board) have to say before deciding how to vote.

Posted by ShareSoc at 11:21, September 8 2012.

Monitise – Who will make money?

Monitise (LON:MONI) issued their preliminary results for the year to June last Tuesday. Revenue more than doubled to £36m, helped by a major US acquisition. Loss for the year was higher than last year at £16m however (which even included an “exceptional profit” of £10m as a result of the accounting for the acquisition). The company appears hesitant to forecast when they might actually make an overall profit, although some operations appear to be so even now – but it seems that there are so many opportunities for expansion that investment is the name of the game. In August they raised another £22m to fund further expansion.

The current valuation of the company looks to value it at about 5 times next year’s revenue, which is typical of high growth technology companies in a hot sector.

On Friday the company announced that another 2 million share options had been granted under the Performance Share Plan to CEO Alastair Lukies, and 1 million to Lee Cameron, Chief Commercial Officer, at 32.75p which was probably the market price when decided. No performance conditions were specified.

Mr Lukies already has 17.9m options, mostly at 1p (i.e. “nominal cost” options), under the “Performance Share Plan” and 276,000 options at 0p (i.e. they are “nil cost” options) under the “Deferred Annual Bonus Plan” according to the last Annual Report. What the performance required under the “Performance Share Plan” is unclear, but the Annual Report also says “On 25 March 2010, shareholders approved a change in the plan rules, allowing for share options to be issued under this plan with no performance conditions….”.

The Report also states (page 16) that Mr Lukies made a gain of £880,000 on exercise of options in the prior year (total emoluments otherwise were £514,000).

Whether shareholders will ever make any money from this company remains to be seen, but it would seem that the executive directors are certainly likely to do so. Why more options needed to be granted is unclear, and the only good aspect is at least they are not nil or nominal cost options. I will try and find out some more but obviously this may be a question for the AGM in due course.

Posted by ShareSoc at 10:17, September 12 2012.

 Performance Fees – Professional investors turn against them

A report in the Financial Times yesterday suggested that UK asset managers are turning against performance fees. It suggested there was a “backlash from independent advisers and mounting evidence that their introduction has failed to lift returns for investors”. The number of open-ended funds being launched with performance fees is down substantially according to Lipper, and only 3% of such funds now have performance based management fees.

ShareSoc has reported in the past on the evidence for the failure of performance fees to stimulate improved returns. Indeed the evidence is simply that the higher overall management fees that they produce simply erode overall investor returns. We spelled out some of the evidence in our submission to the Kay Review – indeed we summarised our views by saying: “We would like to see much clearer and more comprehensive reporting of fund costs, and the strict control of performance fees which we suggest should generally be discouraged if not banned altogether.”

But private investors are still being suckered into investing in funds (open-ended and closed ones such as investment trusts) that promote performance fees as aligning fund managers’ interests with investors. In theory it may do so, but in practice it simply does not work, as the professionals have clearly now decided. But the message has not yet sunk in to private investors. 

In reply to ShareSoc, post #128

Great stuff ShareSoc.   In general I agree.  It ought to be said though that performance fees can work, but only if managers incentives can be aligned with investors.  That's not easy to create though as most managers won't accept a job with shared downside risk unless seriously bullied into it. Only investors with the power of someone like David Swensen at Yale can structure those kinds of deals, but then he's got $30bn or something to invest.  Hey ho.

2% and 20% is a moronic price to pay for anything though.  I can't believe all the rich people who have been suckered into paying  that as the 'standard' price for a slice of a 'hedge fund'.  Most hedge funds these days are just glorified mutual funds with a short element.  Would you pay 2 and 20 for a fidelity fund + a put option?

I've written extensively about fund over-charging in a previous article http://j.mp/QcJLf1

2% and 20% is a moronic price to pay for anything though. I can't believe all the rich people who have been suckered into paying that as the 'standard' price for a slice of a 'hedge fund'. Most hedge funds these days are just glorified mutual funds with a short element. Would you pay 2 and 20 for a fidelity fund + a put option?

Quite so.

As it happens, I've just today bought a new hardback copy of "How to Invest in Hedge Funds" from my local bookshop for £1.25, compared to the notional RPI of £65.95. I intend to put it in my "collectors items" section, where it will join some serious collectors items like the (limited circulation) 1988 Barings Guide to Investing in Japanese Equity Warrants (a book full of charts ....:-)....obtained from my former colleague Mr McCarthy who used to work at Schroders in the absolute heyday of the Japanese Warrant market, when people would fall over themselves to pay to lend money on negative-interest bonds, just to obtain the equity warrants that were attached to them) and my 1988 hardback copy of The Financial Samurai which explained that (with the Nikkei index at 39,000) the Japanese were set to take over the financial world.

Hedge funds are a business whose time has come - and is now going.....quite rapidly!

Some 14 years ago, I was advising one of the UK's top 10 pension funds on ways to manage its cash liquidity efficiently - and was gobsmacked to hear that the head of investments was about to pile into hedge funds in a big way. I hope he thought better of it in time!

Meanwhile, for Joe Public, the maxim "Caveat Emptor" seems to be as relevant now as it ever was....but it is something that people need to get to grips with personally, not by relying on others to point out where risks are not worth taking!

2+20 always was a mugs game - and the industry has now run out of mugs.

ee

Posted by ShareSoc at 08:22, September 13 2012.

Cummings gets his comeuppance

It has been announced by the FSA that Peter Cummings, the former HBOS director, has been fined £500,000 and banned for life from working in financial institutions. Peter Cummings led the drive into commercial property lending at HBOS which almost brought the company to its knees. Indeed it is alleged the company was bust, having had to take undisclosed funding from the Bank of England to keep it afloat, when it was taken over by LloydsTSB. This was much to the disadvantage of LloydsTSB shareholders.

As a former LloydsTSB shareholder who was involved in representations to the LloydsTSB directors not to proceed with the takeover, I recall talking to more than one commercial property expert about the position of HBOS. They all thought it was not an acquisition any sensible person would make. Indeed one said to me that HBOS was well known as a sucker to whom one took commercial property propositions when nobody else would touch them.

More background on what happened comes from the recently published book “Hubris: How HBOS wrecked the best bank in Britain”. In there it is disclosed that Andy Hornsby, HBOS CEO and other members of the management team put “heavy pressure on corporate to make up the slack” in other areas of lending. So the corporate lending division set a target of 10%-12% growth in 2007, but that was increased to 22%, then to 30% in April 2007 and even to 35% in June. To achieve that level of profit growth, HBOS focussed on high-risk opportunities.

In response to his fine, Mr Cummings is quoted in the Telegraph as saying “Many people must bear collective responsibility for what happened….”, and “The decision to single me out for investigation is even more grotesque given than even the FSA has to admit that other senior people were involved in the critical decisions for which I am taken to task”.

No doubt shareholders would welcome investigation of other HBOS staff, but to argue it is not fair because others are escaping, particularly when Cummings was a director of the company, and led the relevant division, is surely special pleading?

Posted by ShareSoc at 09:33, September 15 2012.

2ergo – the kind of placing that horrifies AIM investors

On Friday 2Ergo (LON:RGO)  announced a placing and subscription to raise £2.2 million (22m shares at 10p). Not only is this significantly dilutive, but the placing price was at a discount of 74% to the pre-existing market share price of 38.5p. In addition the company’s broker, Numis, has an option to place up to an additional 4.8m shares at the same price. The placing is of course to institutional investors, and to three directors, who are taking up 7 million of the 22 million to be issued.

If you hold shares in 2ergo, can you participate? Probably not, unless you have a good relationship with your stockbroker and he is able to acquire some of the additional shares available from Numis. So in summary this is a good example of how AIM companies prejudice private investors, and how insiders take advantage of their position in such companies. This kind of thing would not be acceptable in fully listed companies, but anything goes on AIM where there are no significant restrictions on such share issues so long as they can get a vote passed. ShareSoc would like to see an “open offer” in all such cases.

The share price fell 36% on the day of the announcement, but it’s also worth looking at the share price and volumes earlier in the week. Overall the share price fell 42% over the previous week with significant falls and trading volumes in the two days prior to the announcement. Indeed the share price had been falling for the last month. It would appear to be a good example of news leaking out of the pending placing. No doubt the company’s broker has been hawking around the fund raising in the City in the last few weeks, so one can see how a lot of people knew about it, except of course the typical private investor. Shareholders might wish to ask the FSA to investigate this “insider dealing”.

Why was the placing at such a large discount? Undoubtedly because it was a very unattractive proposition in the eyes of many. For example, the reason given for the placing is that it “will be used by the Company to provide the Group with access to additional working capital” and the capital resources required to roll out new contactless mobile technology platforms. This follows a prior placing only 18 months ago when they raised £3m and the recent sale of a US business for £1.7m. It looks like the company is consuming cash at a great rate and is betting on the new products to return to profitability (they have lost money in the last two years). In addition the placing document warns about a legal action in the USA which might threaten US$750,000 held in escrow from the US sale.

The writer has to admit to holding shares in this company in the past (I sold in early 2010). Why did I sell? Because the statements from the directors seemed to be consistently over-optimistic about future prospects. I was also never impressed by the fact that they held their AGM early in the morning in Manchester, which discouraged most people from attending. And when I lose trust in the management of an AIM company, I always sell. One can perhaps see why the reception for a further placing might have been less than enthusiastic.

Should shareholders vote in favour of the placing? Make your own mind up I suggest, but if I was still holding shares in this company, I would vote against.