Alliance Trust AGM – Will Dundee cake suffice?

These are some initial impressions of the Alliance Trust AGM in Dundee yesterday – a full report will be posted on the ShareSoc Members Network later today.  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 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


ShareSoc Masterclass in Manchester

After our very successful Masterclass events in London and Peterborough, we have now scheduled a similar event in Altrincham (near Manchester) for the 11th June.

Our Masterclasses are designed to offer an entertaining and educational experience for investors. They enable you to learn from proven experts on how to make money in the stock market (or avoid losing it)! Our panel will consist of ISA millionaire Leon Boros, Keith Ashworth-Lord, manager of the ConBrio Sanford DeLand UK Buffettology Fund, Stockopedia CEO Edward Page-Croft and Roger Lawson, an experienced private investor and writer on investment topics.

You will find full details of the event here:

and you can purchase tickets here:

This is a great opportunity to meet ShareSoc Members in the North of England. I will also be giving a brief presentation on ShareSoc’s recent activities and progress on our Shareholder Rights campaign.

Tesco Results and Elementis AGM

Tesco (TSCO) and Elementis (ELM) – two very different companies. The first announced their preliminary results this morning, and the second held their AGM today which I attended.

The opening line of the Tesco announcement says  it all: “It’s has been a very difficult year for Tesco“. Although it said like-for-like sales volumes were up for the first time in four years, the rest of the commentary was pretty negative and of course there will be no final dividend.

Debts are rising, pension deficit is rising, the size of the provision for previous profit over-statements related to accounting issues is increased,  and there are lots of asset write-offs. The new CEO is taking a bath as the saying goes. It’s tough trading conditions in Europe, and in Asia. The only bright spot is that they do seem to be taking some tough decisions to rationalise the business.

Is there any “outlook” statement in the announcement?  Only a brief one which commences with “The market is still challenging and we are not expecting any let up in the months ahead.  When you add to this the fundamental changes we are making to our business and our offer, it is likely to lead to an increased level of volatility in short-term performance.  Our clear priority – and the one that will deliver sustainable value for our shareholders – is to improve consistently for customers.  The changes we have made and will continue to make put us in a stronger position to do this.”

That’s enough to spook any investor and the share price is down 5% at the time of writing.

Elementis and Voting Arrangements

This is a FTSE-250 speciality chemical company with a rather more predictable business than Tesco. The AGM was unexceptional this year after a positive trading statement was issued in the morning except that it was unusual in using an electronic voting system. This is normally the domain of large FTSE-100 companies but I did complain a couple of years ago about the change to the Articles which mandated a poll on all resolutions. For a relatively small company (only about 30 shareholders at the AGM), doing a poll using poll cards wastes time and delays getting the results out – so people cannot see what the votes are at the meeting, or ask questions about the numbers. The use of electronic voting devices solves those problems and is a good alternative to “show of hands” voting. So the company is to be congratulated on doing it this way. However it might be cheaper to change the Articles again and revert to “show of hands”.

There is a full report on the Elementis AGM on the ShareSoc Members Network.

Roger Lawson

Change at the top at Rolls-Royce

Rolls-Royce (RR.) have announced the abrupt departure of CEO John Rishton, although apparently it was his desire to retire and “have a change of lifestyle” that prompted this rather than pressure from the board or from shareholders. It would appear he may not have been enjoying the job of late. After the dismal last set of results it is not a surprise. I commented then (in February) by saying “My view: it may be a great business with great products but they need to do a lot better than this“. They seemed to have a massive number of orders, but be incapable of delivering them for a variety of reasons.

The new CEO will be Warren East, who had a good record at Arm Holdings, and has two advantages. Firstly he has been on the board as a non-executive director for some time, and also has a degree in Engineering.

The share price has been moving up significantly in the last few days (perhaps the news leaked), and is up 3.6% today at the time of writing – it was even higher initially. That tells you what investors thought of the previous CEO who presumably will be able to duck answering any awkward questions at the AGM of the company on the 8th May. A pity because I had some in mind.

Roger Lawson

Why Share Certificates are Dangerous and We Need a New System

The national press have covered the story of Deryn and Derek Hemment who face a demand for £25,000 from Capita to replace lost share certificates. They held shares in Compass Group worth £1.5 million and Capita posted them new certificates via second class post. But they never arrived and cannot be traced. Capita says it’s not their problem because their terms and conditions make it clear that certificates are sent at the recipients risk. Capita appear to have been acting as both stockbroker and registrar in this case.

The £25,000 being demanded is an indemnity required by the share registrar’s insurers to cover the risk that the shares represented by the certificates might be sold. This is a common complaint to ShareSoc in circumstances where certificates are lost or mislaid (not a rare event) but this is certainly one of the highest cost examples ever seen.

It has been suggested that the registrar could simply cancel the lost certificates, but the problem is that certificates are prima facie evidence of ownership and a stockbroker could accept a sale of them upon presentation by anyone. They have no quick way of checking against the register that the certificates are valid or that the presenter actually owns them and the broker might therefore settle the transaction, i.e. pay the presenter cash in a few days, before the problem came to light.

This is a long-standing defect in the share trading system but paper share certificates are archaic and have risks and costs associated with their use. There are a lot of paper share certificates still out there (for example received by employees of a company as in this case, or held by older investors who prefer to have their name on the share register). The alternative of using nominee accounts is problematic because they are both legally uncertain and dangerous if your stockbroker gets into financial difficulties (as they often do). Personal crest accounts are a better solution but few brokers offer them.

It highlights the point that we need a new low cost electronic share registration system and the sooner the better – see the ShareSoc shareholder rights campaign for more on this issue here: . There is a document available from that page called “Reforming UK Share Ownership” which spells out how we think the share ownership system should be improved.

In the meantime Mr and Mrs Hemment are threatening legal action on the basis that sending certificates by second class post was reckless for those of such high potential value. This could be a costly and complex legal claim however.

Roger Lawson

Governance in Investment Trusts – Alliance Trust, Baronsmead VCT 3 and the Core VCTs

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 of that meeting on the ShareSoc Members Network. 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


Help needed please !!!

The Eurovote Project allows investors in other countries to have their shares voted at British AGMS. One of our shareholders takes authorisation supplied by us to the allotted AGM. Recent illness has prevented this from happening in six of our eighteen allocations. We are asking if anyone with shares in the companies below would be prepared to help us to do this. There is no significant effort involved if you are going to the AGM anyway, and a proxy is provided if you have an interest in the company and otherwise would like to attend the AGM.

Please contact Stan Grierson for further details if you can assist on 01628 522514 or by e-mail at:                         

BARCLAYS 23-Apr-15
TESCO 27-Jun-14