Alliance Trust: shareholder capitalism in action
It is always refreshing to see shareholder capitalism in action, says Merryn Somerset Webb. And that’s what we have seen at Alliance Trust.
I told you earlier that I was ready to be disappointed by the Alliance Trust AGM. I wasn't as disappointed as I expected. That's because it is always refreshing to see shareholder capitalism in action and that's what we have seen at Alliance Trust.
The board, who had clearly assumed that they could bat their activist shareholder demands away and carry on as normal found that they just couldn't. The numbers from the pre AGM votes weren't revealed (so much for the transparency Alliance keep promising us) but we can only assume that at best they suggested Alliance would beat Elliot by only a tiny margin. I suspect they showed that Alliance would lose (but as they won't tell us we won't ever know). Certainly the "frank and honest" feedback the board said they had received from shareholders (in some volume it seems) would have suggested just that.
The chair insisted over and over that capitulating was the best possible route for the trust. It was only giving in and taking on board candidates that they had a matter of days previously rejected as both unsuitable and not independent that would give the trust future stability. And it is only that stability that will allow Katherine Garrett Cox and her team to turn the performance of the distinctly average trust around with their so far so blah sustainability strategy.
The shareholders weren't quite having this. They sat quietly through a fair amount of guff on investing, long termism, the 48 years of rising dividends (to get to just over 2%!) and the importance of aligning pay with performance when it comes to remuneration for the executives. (This last bit was interesting in that we discovered what Alliance means when it says long term during the discussion of long-term incentive plans (LTIP). They last for five years.)
But come the questions, out poured the frustration.
The shareholders didn't like the deal they wanted to vote. The costs are too high. The executives are overpaid. The discount is too high. The performance isn't good enough. The subsidiaries are rubbish. The cost of defending the board from Elliot was stupidly high (£3m). The bonus payments for employees come with too low a hurdle. The new directors aren't independent. The new director who stood up to speak showed his lack of experience. And so on.
The board got through this. But not with any real answers. All cost and pay questions were dismissed with the comment that they were in line with peers (this is always a bad answer whether it refers to £3m of legal fees or millions paid to execs) and that pay has to be competitive (and of course, as my colleague John Stepek says, the "market for FTSE 100 chief execs in Dundee is a highly competitive global arena.")
All performance questions were answered with assurances about the future. All questions about Elliot, the (awful) way their challenge has been managed and the new directors were answered with the same set piece about this being the best choice for long term stability. And all questions about the discount were answered with an assurance that the board often discusses the matter.
Then came the resolutions. I liked this bit. If only my phone hadn't run out of battery by then (iPhone...) I would have taken a photo for you of the current directors sitting under their super smiley posed photos to be voted on while looking about as grim as it is possible for a group of late middle aged people who have been suffered two hours of mild public humiliation to look.
Part of the deal here was that Elliot did not vote against the remuneration report (although nearly 7% of shareholders quite rightly did) and that they say nothing bad about Alliance for the next 12 months. This board has got an awful lot to do in those 12 months if they want the next AGM to be any more comfortable than this one was. The shareholders are going to need better answers than they got today.
Right that's it. I know you are all bored to tears of Alliance Trust now. Me too. Not another word until next year. Probably.