AS boardroom shake-ups go, the long-awaited one from Dundee-based Alliance Trust would seem unlikely to make it into the global top 100 in terms of drama.
From a quick first read-through of the lengthy letter to shareholders written by Karin Forseke, who chairs the £3 billion investment trust, the thing that stood out yesterday morning was that chief executive Katherine Garrett-Cox was stepping down from the board. However, the letter also makes it plain that Ms Garrett-Cox will remain at the helm, as chief executive of subsidiary Alliance Trust Investments (ATI).
And Alliance Trust will continue to be chaired by Ms Forseke.
Alliance Trust has faced a significant rebellion from shareholders, with its investment performance dull at best in recent years and its shares having continued to trade at a significant discount to underlying net asset value.
In the face of intense pressure from Elliott Advisors, a major shareholder with a 14 per cent stake, and from other investors, Alliance Trust whetted the appetite of sector-watchers by signalling radical change was on the way. This signal came as Elliott succeeded in getting financial sector veterans Anthony Brooke and Rory Macnamara on to the Alliance Trust board in the spring, having mounted a campaign in the run-up to the annual meeting.
It is obviously notable that Ms Garrett-Cox, who joined Alliance Trust as chief investment officer in 2007 and succeeded Alan Harden as chief executive the following year, has lost her seat on the main board as part of the latest changes. But she is still very much in charge of the investment operation.
So what is actually changing?
In terms of personnel, Ms Forseke tells shareholders that, having completed the work associated with the changes, chief financial officer Alan Trotter has decided to “leave Alliance Trust to seek to continue his career in a publicly-listed company elsewhere”.
While Mr Trotter has obviously been a senior member of the Alliance Trust team, his exit hardly amounts to radical change. His departure looks very much like a side issue, with Alliance Trust signalling clearly that he is leaving because of his own career preferences.
Yet Ms Forseke, in her letter, declares that the measures implemented in the face of investor demand for change at Alliance Trust, and designed to further improve shareholder value, “represent some of the biggest changes in our history”.
The trust, founded in 1888, has a long and distinguished history.
It is easy to long for the good old days of past decades at the trust, when it sat back somewhat from the cut-and-thrust of the City of London and pursued a culture that was perhaps perceived as a bit dusty but enabled it to prosper.
This sentiment is not being expressed as the longstanding holder of a modest number of shares in Alliance, with this stake very much parked for reasons which have nothing to do with the trust’s performance or value. Rather, it is expressed as a business journalist who spoke regularly with former top brass at Alliance such as Gavin Suggett, Lyndon Bolton, and Alan Young.
In spite of the culture change at Alliance Trust, which really began when Mr Harden arrived as chief executive in 2004, it remains as important a part of Scotland’s financial sector as ever.
Ms Forseke makes no bones in her letter about the extent to which the changes announced by Alliance Trust, which also include plans to cut £6 million from its annual cost base, have been driven by shareholder discontent.
She writes: “In the run-up to our AGM (annual general meeting), many of our shareholders indicated that they sought change. We have carefully considered the feedback we received, and this is reflected in the changes we have announced.”
Allliance Trust talks about a commitment to share buy-backs to narrow the discount but is perhaps a bit short on detail on this front. It declares it will pay out all net income earned as ordinary dividends.
And it flags plans to sell off non-core investments including legacy mineral rights, bonds and property assets, ploughing the proceeds into equities.
One of the key changes is that the board of Alliance Trust will be reorganised to become “fully independent”, comprising solely non-executive directors.
This is all well and good but presumably Ms Garrett-Cox has been accountable to the board as a whole in any case when sitting on it as chief executive.
And she will continue to be accountable to the board.
Perhaps the most interesting part of the letter is the bit where Ms Forseke talks about a “full review” and consideration of the appointment of an external fund management house to run the trust if performance does not “consistently deliver” against a new benchmark.
The chosen benchmark is the MSCI All Country World Index, with a “minimum target of one per cent per annum outperformance”.
But how will “consistently deliver” be defined? And there is always the option presumably, even after what would likely be a lengthy full review after a significant period of under-performance, to keep fund management in-house with ATI.
The likes of Edinburgh investment house Baillie Gifford has a good track record in managing large-scale trusts such as Alliance.
However, there might be a significant danger that management of Alliance could go south of the Border, dealing a huge blow to Scotland’s financial sector and to Dundee. First Minister Nicola Sturgeon has been among those to highlight Alliance’s importance to the Scottish financial community.
And, in the past, switching of management contracts by investment trust boards has not always delivered expected results.
There is no reason why a self-managed Alliance Trust cannot turn in a good investment performance. Why does the structure really need to be changed? There might be extra pressure on ATI to perform, with the changes, but presumably the team is doing its best in any case.
Why not just make changes to the in-house investment team if performance lags in coming years?
All that really matters for a trust like Alliance, which has many thousands of private shareholders, is investment performance, not board structures or buy-back commitments or whatever.
It is, at the end of the day, a simple business.
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