ShareSoc Chairman's Blog

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 The vote was clearly going to be lost so the resolution to introduce it was withdrawn (Mr Ashley could not vote on it due to his personal interest).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.

Posted by ShareSoc at 10:08, September 16 2012.

BAE/EADS Merger – What’s in it for private investors?

One of the biggest items of news last week was the announcement of a possible merger between BAE Systems and EADS (or European Aeronautic Defence and Space Company, to give its full name). Both companies operate in similar areas although EADS has a heaver concentration on civilian aerospace than BAE. As a result it has grown more quickly than BAE of late, which has been heavily impacted by defence cuts in the UK and USA.

You can see this to some extent on the current valuations – BAE on a p/e ratio of 7.6 and EADS on 13.6, with yields of 5.5% and 1.8% respectively. BAE has traditionally paid a high dividend and hence is a favourite long term holding of private investors who desire the income.

Relative market caps are £11bn and £17bn at the time of writing (that’s after the share price of BAE rose after the announcement, and EADS fell significantly, effectively adjusting the market caps to the proposed merger proportions – see below). Both companies have complex past histories being formed from mergers of other companies, and with significant national Government stakes or influence.

The proposal is for a “dual listed” company to be formed, with a unified management structure with BAE Systems shareholders ending up owning 40% of the company and EADS shareholders owning 60%. As with all “mergers” therefore, this looks more like a takeover of BAE by EADS in reality.

There are of course enormous practical difficulties likely to be faced because of objections from Governments such as the USA, the UK, France, Germany, Spain, Saudi Arabia, and others who wish to protect their national interests and security (IP leaking out is of major concern). They may also be “competition” issues in some market sectors and countries. However you look at it, this merger could consume an enormous amount of management time over the next year.

What might be the benefits of the merger? Obviously BAE shareholders might end up owning shares in a more diversified business, with less reliance on the defence market. It might also enable the resulting larger company to compete more effectively with large US companies such as Boeing. Whether there would be any cost savings from combining operations is not at all clear (both companies are already quite large in size). An advantage for EADS shareholders is that it might enable them to escape from the political influence they suffer from as it looks like there would need to be some concessions from the France, German and Spanish Governments if the deal is to go through. But there may remain a risk of political interference in future.

But do private shareholders in BAE get any benefit from the diversification? The answer is simply no. If they want diversification, they could simply buy some EADS shares now (or any other aerospace company less exposed to defence applications).

There is also undoubtedly a major risk to future dividends, although the announcement promises no immediate change (and some improvement to EADS shareholders), but longer term the position is much more uncertain.

Let us not prejudge the proposition before we see full details, but it may be more attractive to institutional shareholders (who may hold both companies) than UK based private shareholders. Like all such empire building though, it may be of more benefit to the management than to shareholders.

Posted by ShareSoc at 15:24, September 17 2012.

Another way to disenfranchise shareholders – Diageo AGM voting

Today my wife received a card containing an Annual Report and proxy voting form (pre-paid reply card), for the forthcoming Diageo (LON:DGE) AGM. I am also a shareholder in the company but only received a card notifying me that that the annual report is available on-line and pointing me to an “Electronic Voting” option – but this requires one to register first with their “share portal” and hence is not quickly done (this is not nearly as simple as the system used by other registrars). In other words, there was no voting card supplied!

When the new electronic voting options were introduced with the new Companies Act in 2006, it was presumed that those who opted for electronic communications would continue to receive voting cards (and I did not opt in for paper in respect of my personal holding in this case as we did not want to receive two copies of the hefty Diageo Annual Report as we are both on the share register in Personal Crest Accounts). Indeed this is what the ICSA guidelines on this subject say: “it is recommended best practice that any notification of website availability for general meeting material should not only give the website link, but where sent in hard copy should include a hard copy personalised proxy card”.

It would appear that Diageo or Capita (who are the registrars) are trying to save money, but the end result will be that many more people won’t bother to vote.

This is yet another creeping disenfranchisement of individual shareholders which needs to be stopped by a proper electronic share registration and proxy voting system. In the meantime I will complain the company, to the registrars, and at the AGM, plus also request all communications be in paper in future to ensure that I get a voting card sent.

I would encourage other shareholders to do the same. 

In reply to ShareSoc, post #134

When the new electronic voting options were introduced with the new Companies Act in 2006, it was presumed that those who opted for electronic communications would continue to receive voting cards

May I ask who presumed this and on what basis?

this is what the ICSA guidelines on this subject say: “it is recommended best practice that any notification of website availability for general meeting material should not only give the website link, but where sent in hard copy should include a hard copy personalised proxy card”......

In the meantime I will complain the company, to the registrars, and at the AGM, plus also request all communications be in paper in future to ensure that I get a voting card sent.

I've emboldened another bit. There seems to be no obligation to send a hard copy notification at all....so, that being the case, the next logical (cost-reducing) step following aggressive complaints about lack of personalised proxy cards may well be to stop sending hard copy notifications to anyone who has opted for electronic communications? Looking for all communications in paper when you expect to put the spare AR straight in the bin simply raised the company's costs further. Are these outcomes you want to encourage?

I must say that there is a tendency in this thread to:

a) focus only on complaints and give no credit  at all (or even a mention) to any companies out there who happen to be "doing the right thing" ....... if there are any, in ShareSoc's opinion

b) assume that shareholders all need to be wet-nursed into exercising their rights, irrespective of the costs or difficulties that imposes on the company (and, by extension, the rest of the shareholders who are more self-starting!). Very much "nanny knows best", IMO......

ShareSoc most certainly have a very valid case over shareholder voting in the area of trying to find better ways to facilitate the voting of shares held by private investors via nominees (voting levels are almost universally extremely low in such situations). This is far and away the dominant issue for private shareholders in relation to exercising their votes - and IMO everything else smacks of self-indulgent distraction!

ee

As regards to the first question, there was extensive discussion about how the provisions in the new Companies Act would operate in 2006 as regards shareholder voting. Clearly it was important that if a "default for electronic communication" was adopted, that shareholders did not become disenfranchised as a result. This was of particular concern with regard to elderly shareholders (of which there are very many on share registers). I was involved in the discussions on the new Bill/Act and was assured that shareholders would continue to receive postal notifications (which was of course sent, but no voting card). The extra cost to include a voting card would have been trivial. That is why the Institute of Chartered Secretaries and Administrators (ICSA) who advise Company Secretaries on how voting should operate came up with guidelines to ensure this did not happen. Diageo, and Capita their registrars, have changed the arrangements that were adopted by them and other companies without consulting anyone so far as I am aware.

As regards your other comments, it is part of ShareSoc's mandate from our members to promote the interests of shareholders. That includes bringing to public attention those examples where their interests are prejudiced. However we do congratulate those companies, and their directors, where they do the right thing without being prompted.

In reply to Roger Lawson, post #136

This was of particular concern with regard to elderly shareholders (of which there are very many on share registers). I was involved in the discussions on the new Bill/Act and was assured that shareholders would continue to receive postal notifications (which was of course sent, but no voting card). The extra cost to include a voting card would have been trivial.

Fair comment - and thanks for the clarification re the origin of the presumption. I assume that a requirement for a voting card in such circumstances didn't make it into the actual legislation though - otherwise you would be on extremely firm ground in complaining. I stick by my comments though that the main focus should be the facilitation of voting for shares held via nominees.

we do congratulate those companies, and their directors, where they do the right thing without being prompted.

Excellent. I look forward to such comments when warranted in due course. It is important to keep a balance and not only use a stick.

Perhaps Sharesoc might consider some sort of annual "awards" (without the usual hooplah) for good practice along the lines of the ICSA Hermes Transparency in Governance Awards, just as an incentive for companies to look to best practice in their dealings with smaller shareholders?

ee

We have considered running such an award scheme, but have not found the volunteers to run or sponsor it as yet. In the meantime there are others already being run. Indeed one for smaller companies sponsored by Grant Thornton is about to close and are still looking for more nominations, so you can always submit one - see www.quotedcompanyawards.com/GTQCA/nominate/nominate.thtml

Posted by ShareSoc at 00:00, September 19 2012.

RPI due for a makeover? Threats to savers and investors interests.

The Office of National Statistics (ONS) announced yesterday that they are going to undertake a consultation on changing the basis of calculation for the Retail Price Index (RPI). This is potentially a major threat to savers and investors. For example, many wise investors will have been loading up on National Savings Index Linked Savings Certificates in the past because with low market interest rates but high inflation, this was one of the few ways to protect one’s wealth in real terms. With interest (admittedly not much, and reduced further recently) and the capital appreciation both tax free this has been one of the best investments for higher rate tax payers in recent years. Many pension schemes also have their payments to pensioners indexed by RPI, and annuity rates are also quite heavily correlated to RPI because the providers are often heavily invested in index-linked gilts.

The suggestion is being made that RPI over-estimates real inflation for two reasons: 1) the statistical calculation is defective, and 2) the basket of goods is wrong. Indeed on the latter point the Government has been promoting the alternative CPI index for some time as it is typically significantly lower (or has been of late). The CPI index does of course exclude some housing costs, but why that should be excluded from any general measure of the cost of living is difficult to understand. People have to live in houses, repay mortgages (with interest) and pay council taxes do they not?

One senses some political motivation here to change the basis of calculation of RPI (the ONS is of course an arm of the Government), particularly when one bears in mind that it might save £3bn a year in interest payments on their debt in the gilts market alone according to one newspaper.

One might support the argument that RPI should reflect real cost inflation as experienced by consumers and it should be corrected for future contracts if it can be shown that an improvement to more closely align it to reality can be designed. But rewriting existing contracts for gilts, indexed linked savings certificates or pension obligations (by the Government or others), is another question altogether. If investors have taken up an investment on a certain basis, they should not be faced with a retrospective rewriting of the contract.

In the meantime, ShareSoc will review the consultation document and the arguments it puts forward for change, before responding further on this subject. But let us know if you have a view on it.

Posted by ShareSoc at 09:17, September 22 2012.

Blinkx AGM Summary Report – generally a badly run meeting

Yesterday I attended the AGM of Blinkx (LON:BLNX) in Cambridge – a 3 hour meeting starting at 9.0 a.m. Unlike many long AGM meetings, this was not because there were any contentious issues, just lots of presentations, demonstrations and questions. There is a full 3-page report on the ShareSoc Members Network here: http://sharesoc.ning.com/forum/topics/the-agm-forum (you need to register/log-in if you are not a member but it’s free to do so). Here’s a very brief summary:

There were about 20 shareholders present, with the meeting chaired by the company Chairman, Anthony Bettancourt – not particularly competently to my mind and he was generally quite unimpressive, unlike the other directors who spoke. Brian Mukherjee, who took over as CEO recently, first gave a brief overview of the company’s performance. He mentioned positive growth and particularly the acquisitions of Burst Media and PVMG in the last year. Those acquisitions have given them access to a huge ecosystem of networks and content providers. Brian was excited about future opportunities.

The Chairman then declared that all resolutions would be voted on via a poll, but I complained that this was inappropriate for this size company and was unnecessary. Definitely not the best way to do it because we would not get the poll results until later (indeed I never did get the voting details). It also proved to be a bit of a time waster later (about 10 minutes delay while people filled out poll cards) – totally unnecessary here as there were no contentious resolutions as it turned out, as would have been known from the proxy counts - which were not shown either. It was obvious that Capita had recommended this approach, and being an American, the Chairman perhaps knew no better. Let us hope they reconsider in future and do a “show of hands” vote as is still normal practice in most UK companies.

The Chairman then read out the first Resolution (to receive the Report & Accounts) and invited questions. I attempted to ask a question about the Autonomy license deal but was told that general questions would be taken later (odd bearing in mind that it is referred to in the Report & Accounts). Another shareholder was also rebuffed when he attempted to ask a question. Again poor AGM practice – questions should be taken before voting on resolutions.

However, as the next resolution was to re-elect Mr Bettancourt himself, I asked him to clarify whether he was in fact “independent”. This question was prompted by the fact that his profile shows that he had past connections with Autonomy (was CEO of their subsidiaries so likely knew Mr Lynch for example). He assured me he was independent. But it’s worth mentioning that another non-executive, Mark Opzoomer, was also a director of Autonomy, and of course Mike Lynch was also. It hardly looks like there are any really independent non-executives at this company! The Chairman later mentioned to me that some institutions did question Mr Lynch’s independence.

When it came to resolution 8 (on share buy-backs), a shareholder mentioned that with the share price once at 150p, but later falling to 30p (yes it has been a rather roller-coaster ride), why didn’t the company take the opportunity to buy back some shares when they were cheaper? Surunga Chandratillake, former CEO and now “President and Chief Strategy Officer” said it was a “standard resolution” but the board considered it was best to use cash to reinvest in the business. I said I agreed with that stance.

After wasting time on filling out polls cards, Surunga gave a presentation (I understand it is available on their web site). He then covered the Autonomy licensing arrangement. Surunga is a fast talking and impressive communicator. Brian (another fast talker) then covered the financial model and monetisation. He said there is a big opportunity to sell advertising on the back of video search.

We then had a demonstration of the new version of the Blinkx web site which had just been released as a public beta (i.e. you can try it). They can now show a stream of videos that might interest you (you can put in a profile of your interests, or Blinkx can extract that information from your Facebook or Twitter accounts). They have de-emphasised clutter on the new site – hence it is more minimalist like Apple products. There was also a presentation by Julia, Marketing Manager and a demonstration of how they are linking to “internet TV” suppliers. The demonstrations contained a number of technical hitches – not very impressive for a technology company, but to be expected!

We then went into more general questions (which had been collected in writing previously) – see the full report for details. No obviously new news came out but quite a lot of additional background that may not have been obvious to all shareholders.

The meeting then concluded with the Chairman declaring all resolutions passed on the poll. I asked the Chairman for the voting figures but he did not have them (the registrars had by then long since gone). But he said they were over 96% on all resolutions and over 99% on many.

Summary: impressive technology, impressive executive management, but poor corporate governance and AGM processes. The debacle of the high share price placing and subsequent fall in forecasts, and hence share price, cannot have impressed institutional investors. The AGM was certainly well worth attending and I appreciated the time and effort the management put into it.

Very good report for those with an interest in the company!

Just one small point:

However, as the next resolution was to re-elect Mr Bettancourt himself, I asked him to clarify whether he was in fact “independent”. This question was prompted by the fact that his profile shows that he had past connections with Autonomy (was CEO of their subsidiaries so likely knew Mr Lynch for example). He assured me he was independent. But it’s worth mentioning that another non-executive, Mark Opzoomer, was also a director of Autonomy, and of course Mike Lynch was also. It hardly looks like there are any really independent non-executives at this company!

Whether or not a director is considered "independent" under the Code is a matter which is usually considered in some detail in the formal annual report. It will therefore be clearly stated as a matter of fact in the AR whether or not a particular director is considered to be "independent" under the tests in the Code.

I would observe, however, that such tests of independence should be regarded by shareholders as only a guide. It is possible for a director to be challenging and demonstrably independent without managing to qualify as "independent" by ticking all the boxes of the code. Conversely, a director being deemed to be independent under the code is no guarantee that he provides any challenge or useful input whatsoever

Posted by ShareSoc at 10:29, September 25 2012.

JJB Sports – the latest pre-pack administration

JJB Sports (LON:JJB) shares have been suspended and it is obvious from the announcement made by the company that it is about to be put through a pre-pack administration. It is clear that the business has been put up for sale, and “final offers” have been received, but that “no value will be attributable to the Company’s ordinary shares” and they do “not now expect to receive an offer for the shares of JJB”.

Pre-pack administrations are where a deal is done to sell the assets of a company, before an administrator is formally appointed. When the administrator is appointed, he condones the deal that has been arranged (and completes it immediately), typically to the prejudice of the unsecured creditors of the company and often to the prejudice of shareholders. Not that in the case of JJB Sports was there likely to be any value for shareholders due to its excessive level of debt.

ShareSoc has always argued that pre-packs are unethical, and should be banned, but bankers like them as do insolvency practitioners – it simplifies their jobs enormously. Indeed this is what the ShareSoc manifesto says on the subject:

“Insolvency law should be reformed. Insolvency law should be changed to prohibit “pre-pack” administrations which often prejudice minority shareholders, and competitors of the company which is in difficulties while enabling “phoenix” companies to arise with the same former directors and controlling owners. Administration should provide more means for a company to trade out of their difficulties and avoid a sale or insolvency process, leaving nothing for shareholders while large fees are paid to the administrators or liquidators, as happens at present.”

Pre-packs are the cause of many abuses, particularly in smaller companies but sometimes even in listed public companies. We have written to Government Ministers in the past on the subject of pre-packs and you can see more on the main ShareSoc web site about this issue. But if you were a shareholder in JJB Sports, our condolences, because there is little that can be done about it until the law is changed.

I'm unsure what exactly is unethical about a potential pre-pack at JJB? Or to that mind why pre-packs should be banned given the particular example of JJB? Or even why a shareholders group should care about this particular case given that the group that most likely would have a complaint (*IF* a valid complaint existed) would be the unsecured creditors rather than shareholders?

It's as clear as day that JJB is bust. It should also be clear that JJB has been in the company equivalent of the hospital ER with the defibrillator held over its chest (and applied twice) for a number of years now.

From a shareholders perspective JJB has been a complete punt for at least two years and it shouldn’t be a shock that the company has gone under. From a corporate perspective any pre-pack (and there’s no actual evidence that there is one) will help to dispose of JJB’s various individual shops as going concerns thus (a) preserving maximum value for secured and unsecured creditors, and (b) preserving jobs where possible, which is sadly probably limited to “where financially viable”.

There is nothing unethical about JJB’s pre-pack; on the contrary it would be unethical for shareholders, who no longer have any genuine economic interest in JJB, to be able to interfere with a sales process where those with the real interest are secured/unsecured creditors and employees.

JakNife

In reply to ShareSoc, post #142

It isn't so much the shareholders that I worry about with pre-packs. At least they have usually had plenty of warning and an opportunity to salvage something.

The people I think it really damages are the unsecured creditors - typically suppliers of goods and services - who end up going unpaid whilst the phoenix company rises from the ashes and continues trading.  Often these are small local businesses too and they may be fatally damaged by the bad debt.

There was a pre-pack with one of the local shop chains some years ago and lots of local businesses were "done over" in the process (especially as the "new" company looked very similar to the old one, with common directors etc). I've never bought from them again, on principle.