Alliance Trust was on the back foot yesterday as two corporate governance advisory groups backed the attempts by activist Laxey Partners to force through reforms at its annual meeting next week.
Both Pensions and Investment Research Consultants (Pirc) and Institutional Shareholder Services (ISS) came out in support of Laxey’s key resolution urging Alliance to introduce a discount control mechanism to protect the value of its shares.
Pirc also supports Laxey’s opposition to Alliance’s remuneration report, which changes the measurement basis of the company’s long-term incentive plan to dilute the importance of share price.
However Pirc is only objecting to “potentially excessive” awards, while ISS supports the “more holistic” assessment of the trust’s performance.
In a detailed analysis, ISS cites the examples of Murray International, whose shares trade at a premium despite an absence of share buybacks, and Scottish Investment Trust, where systematic buybacks have helped maintain a steady discount but not improved performance.
“Buying back shares does not necessarily address the core issue of underperformance,” ISS says.
It also cautions that rigid discount control is “not ideal” because of potential effects on share liquidity, expense ratio, and performance. But it says Alliance has made little use of buybacks until recently, when purchases have seemed unconnected to market factors, and “has not sufficiently addressed the issue of the discount nor made a counterproposal”.
ISS says Laxey’s proposal leaves Alliance some room and time to manoeuvre, and any change could be put up for a periodic shareholder vote.
“Based on these factors, we recommend shareholders vote for this proposal.”
Colin Kingsnorth, chief executive of Laxey Partners, said: “These recommendations from ISS and PIRC are further evidence that Alliance Trust needs to adopt updated practices. We are seeking the adoption of sensible measures that will improve value for all shareholders.”
Alliance, led by chief executive Katherine Garrett-Cox, has said performance is the key to narrowing the discount and that the trust’s performance is on an upward trend.
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