If prison is a good deterrent to business crime why don't we use it more?
This article first appeared in Aimzine, www.aimzine.co.uk
Although I regard myself as very tech-savvy I’m not an avid Facebook user. Therefore I rely on old-fashioned techniques such as email and the telephone to keep in touch with what friends are up to. Recently though, one of my best friends from school was the subject of an article in the Evening Standard, which at least saved me a phone call. I say school friend but it will become apparent why I now need to refer to him as an acquaintance or even just someone I vaguely knew. “Oh, him. Yes I think I spoke to him once or twice”, I’ll have to respond when people question me about our secondary school friendship.
The reason is that he, let’s calls him PS, was in a crown court recently facing charges of fraud. It seems that his persona of being a successful property developer turned out to be a house of cards. The stunning home he and his wife owned (albeit partly with a fraudulently obtained mortgage) in the Guildford countryside, along with the obligatory Porsche and Land Rover parked outside, were funded mostly by asking parents from his children’s exclusive independent school to invest in his property empire that never was. Many “investors” put in six figure sums and actually those amounts were invested in property but it’s just that they were invested into his Guildford home. So, fair enough that PS is now serving time at Her Majesty’s pleasure and I daresay he’s probably not enjoying it, unless of course he’s discussing plans for a new business with two ex-directors of a Torex Retail subsidiary.
Last month, Edwin Dayan and Christopher Ford previously directors of XN Checkout which supplied software for shop tills to the likes of McDonald’s, Argos and Homebase were sentenced to prison for falsifying invoices to create the impression that XN had made £1.65 million more profit than it really had. Sentencing the two, the judge said 'such sentences may seem harsh on a personal level, but a strong deterrent is needed'. Again, it’s difficult to argue with that conclusion.
These two stories received a fair bit of coverage in the daily press, but of equal interest is the story of someone not going to prison.
Not going to prison
During the month, The Insolvency Service announced that it had applied to the High Court to disqualify all of the former directors of Farepak and its parent company EHR. You may remember that in 2006, just weeks before Christmas, Farepak went into administration. The company collects monthly payments from its customers then distributes vouchers back to those customers for use over the Christmas period. During that time it builds up substantial cash balances and had loaned £35m of those balances to another EHR group company which also went into administration. Savers, many of whom are from the poorest parts of society, lost out entirely that Christmas and only much later did they recover around a third of what they had saved. The Insolvency Service said that the directors’ conduct made them “unfit to be concerned in the management of a company”.
Something that doesn’t seem to have been addressed clearly enough though is the directors’ obligations under the Companies Act 2006. The Act, CA2006, was the largest piece of legislation to ever go through Parliament and codified much of what had previously been case law; you’d think therefore that it would be effective. One obligation it places on directors is that they use reasonable care, skill and diligence in exercising their duties. The extent of their obligation is related to the experience and knowledge they possess. Therefore a director who has more experience, knowledge and skill will have a higher threshold in discharging this duty. You’d think then that Sir Clive Thomson, chairman of EHR at the time, who has served on the boards of six FTSE companies, and ran Rentokil for two decades might have had some expectation on him as to his thinking during the Farepak crisis and a high threshold as to how he discharged his duties.
Independent judgement
Another obligation on directors is to “exercise independent judgement”. It’s not clear whether the directors of Farepak fulfilled that responsibility when they agreed to loan £35m of their customers’ cash to another group company. A degree of independence might have led them to question whether the credit risk was good and whether they would have made a loan to a third party in a similar situation.
However, we will never know as apparently CA2006 doesn’t allow investigations such as the one into the circumstances around Farepak’s collapse to be made public. We therefore have to trust the government and its agencies that their priorities are correct and that there are no other factors for stronger action not to have been taken.
From my layman’s position I find it hard to differentiate between someone who took other people’s money to invest in his own house, and a group of directors who took other people’s money from a savings plan to prop up another company that they were directors of.
The judge in the Torex case had it spot on when he sought to give a sentence which would act as a deterrent but of course for judges to do that the government and its agencies have to ensure that people with a case to answer do actually appear in the dock in the first place. The history of business misdemeanours over the last thirty years seems to indicate that government agencies whether the Serious Fraud Office, or the City of London Police or others have been either too indifferent or too incompetent to address this failing.
© Ash Mehta
Showing posts with label aimzine. Show all posts
Showing posts with label aimzine. Show all posts
Wednesday, 16 March 2011
Thursday, 16 December 2010
The all new whiter-than-white fund manager
Is Fundsmith a new improved fund manager or just a different packaging?
This article first appeared in Aimzine, www.aimzine.co.uk .
There’s nothing I like better on a Wednesday evening than sitting down with a glass of red wine to watch The Apprentice. It’s so warming on a cold evening to be able to righteously mock the young candidates undertaking tasks when they make mistakes that we probably all made at that age but had the good fortune to not have broadcast on prime time TV.
A recent task that was especially challenging was to create a launch advert for a new cleaning product. It sounds quite mundane but that was the point. How do you inject new ideas into a product category that frankly has been advertised to death for the last fifty years? A product category in which there are few, if any, real improvements and in which enhancements are typically product variations such as tablets rather than powder, or a fresh scent. One of the teams produced a TV advert which impressively, but I assume unintentionally, managed to combine sexism, cheesiness, ritual humiliation and a 1960’s style all into a 30 second piece http://www.bbc.co.uk/programmes/p00c2bs6 . I doubt it could have been any better (or worse, depending on your view) if it had been an intentional parody of a 1960’s advert. Worryingly, that team won, or as the Sugar daddy put it, “The other team lost”.
In the real world, this month saw the launch of another apparently new variation of a long established product. Terry Smith launched Fundsmith; a new fund management company. Like selling cleaning products, it’s difficult to make any truly new claims about a fund manager so it all comes down to marketing and advertising messages and Mr Smith has those in abundance.
Mr Smith says that the fund management industry is congested with fund managers ranging from the mediocre to the bad who trade too often thereby eroding investor returns, and that many fund managers are bloated with high fee levels.
Therefore, the Fundsmith whiter-than-white approach will be to run a fund which will have a unique investment process, a long term view and lower costs.
The investment process is that the fund will select a relatively small number of global stocks, probably 20 to 30, and will hold them for long periods with lower levels of trading than other funds, and hence lower expenses being incurred in the fund. It all sounds quite sensible and you begin to wonder why other funds don’t do the same thing. Well, one reason could be that if as a fund manager you’re not buying and selling stocks it can look as if you’re not doing much work at all. In which case how do you justify your fat fees? Another reason is that you want investment ideas which often come from brokers, but brokers aren’t going to call you if you never trade with them. The flow of broker commissions from fund managers can be an important factor as to which fund managers the broker will call from his list.
Clearly some fund managers have done well by this approach of selecting global stocks for the long term. The obvious example is Warren Buffett who has held stakes in companies such as Coca Cola, American Express and Wells Fargo for many years, through his investment vehicle Berkshire Hathaway which was formed over 40 years ago. So, perhaps the Fundsmith investment process isn’t actually so new or unique.
Fundsmith’s claim to be taking the long term view should also be questioned. No long-only fund manager would claim to run their fund on a short term view, although the old joke that a long-term investment is a short-term investment gone wrong probably applies more often than many fund managers would care to admit. A long term view is possible if a fund or fund manager has a track record of performing over the long term but for a new fund it can be difficult to hold out if performance is poor in the short term because the widespread ability that investors have these days of comparing fund performance through online tools makes the pressure on underperforming funds all the greater.
Finally the advantage of lower costs is an interesting one. There is the benefit of lower trading expenses mentioned above. On top of that Fundsmith is charging 1% to 1.5% as an annual fee but that’s no lower than any other fund manager. Infact some fund managers investing in exchange traded funds charge as little as 0.6%. Fundsmith has no initial fee on investment into the fund but, whilst this always used to be a big drag on returns and was usually around 5%, for some time now it has been handed back to investors when they invest through an online funds website.
So, all in all it’s difficult to see any compelling reason for investing in Fundsmith funds as opposed to any other. At least with cleaning products, you can hold your white sheets up to the sun and see that the gravy and ketchup stains have been dissolved away but anyone investing in Fundsmith does not have anything tangible on which to make the buying decision. Many of course will be swayed by Mr Smith’s decision to put his money where his mouth is, but then some might say that he has plenty of both of those assets to play with. Even so, an investment of £25 million isn’t pin money even to Terry Smith.
As with washing powder, it may claim to be new and improved and it might well be, but frankly it’s quite difficult to tell the difference between two white sheets, and right now it’s even more difficult to tell the difference between Fundsmith and other fund managers. If you like the idea of investing to the Fundsmith tune then you could always use their selection criteria (on their website) to build your own portfolio of 20-30 companies or even better still wait for their investment reports to be published and then buy into those stocks directly
Ash Mehta is an independent Finance Director consultant working with a portfolio of growing companies, having recently sold Orchard Growth Partners where he was Founder and CEO. He is also part-time Finance Director of Northbridge Industrial Services plc, an AIM-quoted hire company, and he sits on the Executive Committee of the Quoted Companies Alliance, the representative body for smaller quoted companies. The views expressed are his own and do not necessarily represent the views of those organisations. You can read his blog at www.ashmehta.co.uk and comment on this article by emailing ash@ashmehta.co.uk .
This article first appeared in Aimzine, www.aimzine.co.uk .
There’s nothing I like better on a Wednesday evening than sitting down with a glass of red wine to watch The Apprentice. It’s so warming on a cold evening to be able to righteously mock the young candidates undertaking tasks when they make mistakes that we probably all made at that age but had the good fortune to not have broadcast on prime time TV.
A recent task that was especially challenging was to create a launch advert for a new cleaning product. It sounds quite mundane but that was the point. How do you inject new ideas into a product category that frankly has been advertised to death for the last fifty years? A product category in which there are few, if any, real improvements and in which enhancements are typically product variations such as tablets rather than powder, or a fresh scent. One of the teams produced a TV advert which impressively, but I assume unintentionally, managed to combine sexism, cheesiness, ritual humiliation and a 1960’s style all into a 30 second piece http://www.bbc.co.uk/programmes/p00c2bs6 . I doubt it could have been any better (or worse, depending on your view) if it had been an intentional parody of a 1960’s advert. Worryingly, that team won, or as the Sugar daddy put it, “The other team lost”.
In the real world, this month saw the launch of another apparently new variation of a long established product. Terry Smith launched Fundsmith; a new fund management company. Like selling cleaning products, it’s difficult to make any truly new claims about a fund manager so it all comes down to marketing and advertising messages and Mr Smith has those in abundance.
Mr Smith says that the fund management industry is congested with fund managers ranging from the mediocre to the bad who trade too often thereby eroding investor returns, and that many fund managers are bloated with high fee levels.
Therefore, the Fundsmith whiter-than-white approach will be to run a fund which will have a unique investment process, a long term view and lower costs.
The investment process is that the fund will select a relatively small number of global stocks, probably 20 to 30, and will hold them for long periods with lower levels of trading than other funds, and hence lower expenses being incurred in the fund. It all sounds quite sensible and you begin to wonder why other funds don’t do the same thing. Well, one reason could be that if as a fund manager you’re not buying and selling stocks it can look as if you’re not doing much work at all. In which case how do you justify your fat fees? Another reason is that you want investment ideas which often come from brokers, but brokers aren’t going to call you if you never trade with them. The flow of broker commissions from fund managers can be an important factor as to which fund managers the broker will call from his list.
Clearly some fund managers have done well by this approach of selecting global stocks for the long term. The obvious example is Warren Buffett who has held stakes in companies such as Coca Cola, American Express and Wells Fargo for many years, through his investment vehicle Berkshire Hathaway which was formed over 40 years ago. So, perhaps the Fundsmith investment process isn’t actually so new or unique.
Fundsmith’s claim to be taking the long term view should also be questioned. No long-only fund manager would claim to run their fund on a short term view, although the old joke that a long-term investment is a short-term investment gone wrong probably applies more often than many fund managers would care to admit. A long term view is possible if a fund or fund manager has a track record of performing over the long term but for a new fund it can be difficult to hold out if performance is poor in the short term because the widespread ability that investors have these days of comparing fund performance through online tools makes the pressure on underperforming funds all the greater.
Finally the advantage of lower costs is an interesting one. There is the benefit of lower trading expenses mentioned above. On top of that Fundsmith is charging 1% to 1.5% as an annual fee but that’s no lower than any other fund manager. Infact some fund managers investing in exchange traded funds charge as little as 0.6%. Fundsmith has no initial fee on investment into the fund but, whilst this always used to be a big drag on returns and was usually around 5%, for some time now it has been handed back to investors when they invest through an online funds website.
So, all in all it’s difficult to see any compelling reason for investing in Fundsmith funds as opposed to any other. At least with cleaning products, you can hold your white sheets up to the sun and see that the gravy and ketchup stains have been dissolved away but anyone investing in Fundsmith does not have anything tangible on which to make the buying decision. Many of course will be swayed by Mr Smith’s decision to put his money where his mouth is, but then some might say that he has plenty of both of those assets to play with. Even so, an investment of £25 million isn’t pin money even to Terry Smith.
As with washing powder, it may claim to be new and improved and it might well be, but frankly it’s quite difficult to tell the difference between two white sheets, and right now it’s even more difficult to tell the difference between Fundsmith and other fund managers. If you like the idea of investing to the Fundsmith tune then you could always use their selection criteria (on their website) to build your own portfolio of 20-30 companies or even better still wait for their investment reports to be published and then buy into those stocks directly
Ash Mehta is an independent Finance Director consultant working with a portfolio of growing companies, having recently sold Orchard Growth Partners where he was Founder and CEO. He is also part-time Finance Director of Northbridge Industrial Services plc, an AIM-quoted hire company, and he sits on the Executive Committee of the Quoted Companies Alliance, the representative body for smaller quoted companies. The views expressed are his own and do not necessarily represent the views of those organisations. You can read his blog at www.ashmehta.co.uk and comment on this article by emailing ash@ashmehta.co.uk .
Tuesday, 16 November 2010
Keeping it in the family
Why investors always need to watch out for related party transactions
This first appeared in Aimzine, an online publication for the AIM community www.aimzine.co.uk
This month I had the pleasure of speaking at an event run by Cityzone which is a network for entrepreneurs, SMEs, investors and advisers. The event was part of their IPO Club which seeks to assist companies in considering their options and preparing for IPO. Introduced by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, I gave a presentation which I’ve often given before at PLUS Markets seminars and also to entrepreneurs looking to raise Angel and VC funding; it’s a fairly versatile presentation because the issues it raises are common for companies seeking funding from whatever type of investor.
It seemed a good time to raise these issues because with the credit crunch firmly behind us companies are again looking at their options for growth funding and need to be aware of common gripes that potential investors raise. It is also a good time because one of the key issues the presentation raises is the matter of related-party transactions (RPTs) which have been in the news again (more on that later).
RPTs and shareholders
In private owner-managed companies it is not unusual for there to be RPTs. Of course, if there are no other shareholders it really doesn’t matter to anyone if the owner is running the business out of a property that he himself owns and is paying rent out of the company to himself. If there are other shareholders, then quite rightly they would expect to be told of such an arrangement to ensure that it is a normal commercial transaction at normal commercial rates and also to ensure that the owner cannot hold the company hostage at any time.
IFRS defines a related party as one which is related to the company preparing financial statements by way of joint control, management, ownership or significant influence.
When giving examples in my presentation I always presage the RPT section by saying that obviously these are old examples and of course no one would dream of having any such transactions in their company these days. It’s interesting at that point to see the looks on the faces of entrepreneurs. My co-presenters from the accounting firm BDO and the lawyers, Fasken Martineau, gave me wry smiles reiterating that infact such transactions are still commonplace in companies coming to IPO and even in many companies post-IPO. The point, of course, is that shareholders will put up with RPTs whilst things are good and the founder or CEO or director is critical to the business but soon become unforgiving about them when the business falters.
Clarity example
Such was the case a few years ago when Clarity Commerce Solutions, an AIM-quoted software company, was headed up by its founder Graham York. Amongst the various dubious activities going on in the company at the time was an expense of over £270,000 which had been incurred for the hire of an executive jet. Now we all know the hubris of CEOs having corporate jets, but this seems all the more bizarre for the fact that Clarity at that time only had revenues of around £20m. In this incident though, the facts were even more bizarre because the company which was providing the jet had as a director and principal shareholder none other than Graham York.
This was clearly an extreme and rather gratuitous example but this month a more subtle example of related party transactions was in the news again.
Recent example
A company called Eco City Vehicles plc (“ECV”) gave an update at the beginning of November about some litigation involving Cabvision, an associate company in which ECV holds a 29% stake. ECV is not a party to the Cabvision litigation but it came to the attention of the non executive directors that KPM, a wholly-owned subsidiary of ECV had been making payments, totalling over £500,000, as loans to Cabvision in order to, amongst other things, fund Cabvision’s litigation. Whilst these payments were recorded correctly in ECV’s books they were not disclosed separately in the management accounts circulated to the board, and clearly hadn’t been approved by the board or any assessment undertaken as to whether they are reasonable.
The commercial logic of those loans would be questionable under normal circumstances but in this case, the picture was muddied by the fact that Cabvision is majority owned by relations of three directors of ECV. Fortunately, any loss to ECV’s shareholders would be covered by indemnities given by the directors of ECV when they undertook the reverse takeover that gave rise to ECV. However, that should not reduce the significance of these events and infact the lesson is that the facts behind related party transactions should never be overlooked.
Following a period when corporate governance has generally been improving, we should not lose sight of the fact that companies both on AIM and coming to AIM may have related party transactions. Many of these will be in the normal course of business and of no concern but you should always turn to note 93 (or wherever they’re tucked away) in annual reports to see if there are any related party transactions, and if the description doesn’t tell you all you need to know then it’s worth calling the company to find out more. The chances are that there may well be more to the transaction than meets the eye.
This first appeared in Aimzine, an online publication for the AIM community www.aimzine.co.uk
This month I had the pleasure of speaking at an event run by Cityzone which is a network for entrepreneurs, SMEs, investors and advisers. The event was part of their IPO Club which seeks to assist companies in considering their options and preparing for IPO. Introduced by the silky-tongued, boy-band sound-a-like, founder of Cityzone, Ronan Bryan, I gave a presentation which I’ve often given before at PLUS Markets seminars and also to entrepreneurs looking to raise Angel and VC funding; it’s a fairly versatile presentation because the issues it raises are common for companies seeking funding from whatever type of investor.
It seemed a good time to raise these issues because with the credit crunch firmly behind us companies are again looking at their options for growth funding and need to be aware of common gripes that potential investors raise. It is also a good time because one of the key issues the presentation raises is the matter of related-party transactions (RPTs) which have been in the news again (more on that later).
RPTs and shareholders
In private owner-managed companies it is not unusual for there to be RPTs. Of course, if there are no other shareholders it really doesn’t matter to anyone if the owner is running the business out of a property that he himself owns and is paying rent out of the company to himself. If there are other shareholders, then quite rightly they would expect to be told of such an arrangement to ensure that it is a normal commercial transaction at normal commercial rates and also to ensure that the owner cannot hold the company hostage at any time.
IFRS defines a related party as one which is related to the company preparing financial statements by way of joint control, management, ownership or significant influence.
When giving examples in my presentation I always presage the RPT section by saying that obviously these are old examples and of course no one would dream of having any such transactions in their company these days. It’s interesting at that point to see the looks on the faces of entrepreneurs. My co-presenters from the accounting firm BDO and the lawyers, Fasken Martineau, gave me wry smiles reiterating that infact such transactions are still commonplace in companies coming to IPO and even in many companies post-IPO. The point, of course, is that shareholders will put up with RPTs whilst things are good and the founder or CEO or director is critical to the business but soon become unforgiving about them when the business falters.
Clarity example
Such was the case a few years ago when Clarity Commerce Solutions, an AIM-quoted software company, was headed up by its founder Graham York. Amongst the various dubious activities going on in the company at the time was an expense of over £270,000 which had been incurred for the hire of an executive jet. Now we all know the hubris of CEOs having corporate jets, but this seems all the more bizarre for the fact that Clarity at that time only had revenues of around £20m. In this incident though, the facts were even more bizarre because the company which was providing the jet had as a director and principal shareholder none other than Graham York.
This was clearly an extreme and rather gratuitous example but this month a more subtle example of related party transactions was in the news again.
Recent example
A company called Eco City Vehicles plc (“ECV”) gave an update at the beginning of November about some litigation involving Cabvision, an associate company in which ECV holds a 29% stake. ECV is not a party to the Cabvision litigation but it came to the attention of the non executive directors that KPM, a wholly-owned subsidiary of ECV had been making payments, totalling over £500,000, as loans to Cabvision in order to, amongst other things, fund Cabvision’s litigation. Whilst these payments were recorded correctly in ECV’s books they were not disclosed separately in the management accounts circulated to the board, and clearly hadn’t been approved by the board or any assessment undertaken as to whether they are reasonable.
The commercial logic of those loans would be questionable under normal circumstances but in this case, the picture was muddied by the fact that Cabvision is majority owned by relations of three directors of ECV. Fortunately, any loss to ECV’s shareholders would be covered by indemnities given by the directors of ECV when they undertook the reverse takeover that gave rise to ECV. However, that should not reduce the significance of these events and infact the lesson is that the facts behind related party transactions should never be overlooked.
Following a period when corporate governance has generally been improving, we should not lose sight of the fact that companies both on AIM and coming to AIM may have related party transactions. Many of these will be in the normal course of business and of no concern but you should always turn to note 93 (or wherever they’re tucked away) in annual reports to see if there are any related party transactions, and if the description doesn’t tell you all you need to know then it’s worth calling the company to find out more. The chances are that there may well be more to the transaction than meets the eye.
Tuesday, 7 September 2010
It's our party and we'll cry if we want to
Are we destined to be the organisers whilst others are the winners and is it a crying matter?
This article was first published in Aimzine www.aimzine.co.uk
After the intense effort for the fundraising and acquisition at Northbridge during June and July, it was nice to relax a little in August. We took off to Turkey to enjoy a resort with numerous swimming pools, tennis courts, and a bit of peace and quiet. Frisky, chirping crickets aside it was fairly peaceful. The rowdy England-shirted football supporters with scary tattoos we have encountered occasionally in resorts past were nowhere to be seen, partly because I suspect they thought that an England shirt was no appropriate attire for a football-lover, and partly because the majority of the people in the resort were German and Russian; none of which you particularly want to get into a football skirmish with.
To the delight of my children, I was dragged up on stage during the entertainment; the main purpose of which, that evening, seemed to be to humiliate the very people who had paid a not-inconsiderable amount of hard-earned cash to be there. In my case the humiliation involved the presenter asking guests to speak English and I was asked to say certain words such as water. How humiliating could that be I hear you say? Well the point was that when I pronounced the word as “war-ter” the presenter and his accomplices fell about laughing saying that I could not possibly be English because if I were I would pronounce it as “war-er”. I shall spare you the gory details of the non-stop hilarity and mirth that ensued for the rest of the show. Suffice to say that it’s a sorry state of affairs when “foreigners” (and I don’t mean “foreigners” in a Daily Express sort of way of course) not only speak better English than British people, but also feel that they can rebuke us for it.
It got me thinking that perhaps here was the ultimate example of something invented here (well not invented exactly but developed) that was now done better by others overseas. Is it the case that we can add the speaking of the English language to a myriad of other activities invented (or at least codified) here that are now done better by foreigners?
Quarter final specialists
It’s generally accepted, even by the French, that Wimbledon is the best tennis tournament in the world, and it’s not difficult to argue that the Premier League is the best football league. It even looks as if Lord Coe and Boris Johnson will contrive to make the 2012 Olympics a success.
So why can’t a Brit win Wimbledon? Why is the England football team destined to peak around the quarter finals of the World Cup? Infact why are we destined to be in the quarter-final (ie. the top eight) of almost everything, but never the winners? I don’t mean just sport. Let’s take for example GDP (6th), exports (9th), ease of doing business (5th), income per capita (8th) and so on.
The only activities we seem to go beyond the quarter finals in regularly are those where there are so few competitors that you reach the quarter finals simply by the fact of playing, such as cricket. Apologies to all Italians out there – I know that you have a cricket team but playing in Division 4 of the World Cricket League really doesn’t count in practical terms.
Anyone over 45 years old will remember a song by Barbara Gaskin (and if you’re over 55 then you may remember the original version by Leslie Gore) in which she sang “It’s my party and I’ll cry if I want to” and that seems to be quite an apt phrase for the country, because she also went on to bemoan that she had lost her Johnny. The question is that whilst we are good at organising the party, have we as a nation lost our winning Johnny and if so is it a crying matter?
That got me thinking about AIM and whether it also reflects this tendency. Has the LSE created an excellent platform only for overseas companies to be the winners on, and should we cry about it?
Not getting our share of the pie
Looking at the data it was interesting to see that although overseas companies account for only 38% of the number of companies, they represent 59% by value of the total market capitalisation of AIM. That’s not entirely unexpected as investors supporting IPOs often want to see overseas companies which are larger than a typical British company coming to market, to mitigate for the perceived additional risk in an overseas company. However, the 59% figure did surprise me because what started out as a junior market to provide a route for growing British companies has become a powerful marketing story that the LSE has used to increase its visibility in overseas markets. Over the years the LSE has run roadshows in many countries including India, China, Germany, United States, Sweden and Norway. This marketing has been a success if you judge it by the overseas companies quoted on AIM and is undoubtedly good not just for the LSE but also for London’s reputation as a financial centre.
As well as promoting AIM to overseas companies the LSE has also made advances in extending the AIM brand overseas. Following its 2007 acquisition of Borsa Italiana the LSE launched AIM Italia which now provides a quote to ten companies. Also, in May 2009 Tokyo AIM, a joint venture between the LSE and Tokyo Stock Exchange obtained its license, though whilst a number of so called J-Nomads have been approved the market still awaits its first AIM-quoted companies.
Does it matter that AIM London is increasingly becoming an overseas company market or should we be pleased that this is another British market leader in the making? Well if it brings business to the UK then it can’t be a bad thing as long as investors are happy to provide the funds for such companies to obtain their quote. On the other hand, we have seen over the last two years that the strategic options for growth companies in the UK have been limited, partly by reduced bank lending, partly by the growth of the equity gap ie. the disappearance of funds for second round growth capital, and now by the planned downsizing of regional development agencies. Are the options for smaller British companies limited further by AIM effectively outgrowing those companies and moving away from what it was originally intended to do? If so is there another way to assist growing British companies?
Regional Stock Exchanges
A discussion that has gathered momentum over the last twelve months is the re-establishment of regional stock exchanges. This movement has grown from the regions but has also garnered support from some politicians and in July the Business Secretary Vince Cable launched a consultation paper for views on whether regional stock exchanges could be made to work successfully.
Supporters of this idea claim that such stock exchanges will allow investors to reconnect with local companies, as well as giving entrepreneurs the ability to raise funding from investors with which they have some connection rather than investors a long distance away. However, even ardent supporters accept that the regional exchanges would not be bricks and mortar entities, but virtual in nature.
But these supporters overlook investor trends over the last 10 years. The use of the internet has made share dealing a frequent activity for many investors. Moreover the increased number of overseas companies on AIM and also the globalisation of many apparently British companies means that investors seem to have no fear about investing in companies in which they have little chance of seeing the operations and may only see the management once a year at the AGM. With AIM already suffering from limited liquidity, fragmenting that liquidity by having regional exchanges can’t be in anyone’s interest.
Supporters also overlook a recent example of a regional stock exchange which was funded by public money through Advantage West Midlands. Investbx launched in Birmingham in 2007 with the aim of creating a market for companies in the region. Three years later it has just three companies on its market. This might be down to the credit crunch and economic downturn but I expect that part of it is that investors just don’t see a need for it. It also perhaps illustrates that allowing the private sector to make decisions on innovations such as new stock exchanges might lead to better decision making than leaving it to public funds to drive such decision making.
So, yes let’s recognise that in the UK we might have lost our winning Johnny but we have little to cry about as we are actually quite good at creating and organising things. However, as for regional stock exchanges let’s not get carried away and expect that we can make a success out of ideas that are fundamentally flawed because they address no specific need.
(c) Ash Mehta 2010
This article was first published in Aimzine www.aimzine.co.uk
After the intense effort for the fundraising and acquisition at Northbridge during June and July, it was nice to relax a little in August. We took off to Turkey to enjoy a resort with numerous swimming pools, tennis courts, and a bit of peace and quiet. Frisky, chirping crickets aside it was fairly peaceful. The rowdy England-shirted football supporters with scary tattoos we have encountered occasionally in resorts past were nowhere to be seen, partly because I suspect they thought that an England shirt was no appropriate attire for a football-lover, and partly because the majority of the people in the resort were German and Russian; none of which you particularly want to get into a football skirmish with.
To the delight of my children, I was dragged up on stage during the entertainment; the main purpose of which, that evening, seemed to be to humiliate the very people who had paid a not-inconsiderable amount of hard-earned cash to be there. In my case the humiliation involved the presenter asking guests to speak English and I was asked to say certain words such as water. How humiliating could that be I hear you say? Well the point was that when I pronounced the word as “war-ter” the presenter and his accomplices fell about laughing saying that I could not possibly be English because if I were I would pronounce it as “war-er”. I shall spare you the gory details of the non-stop hilarity and mirth that ensued for the rest of the show. Suffice to say that it’s a sorry state of affairs when “foreigners” (and I don’t mean “foreigners” in a Daily Express sort of way of course) not only speak better English than British people, but also feel that they can rebuke us for it.
It got me thinking that perhaps here was the ultimate example of something invented here (well not invented exactly but developed) that was now done better by others overseas. Is it the case that we can add the speaking of the English language to a myriad of other activities invented (or at least codified) here that are now done better by foreigners?
Quarter final specialists
It’s generally accepted, even by the French, that Wimbledon is the best tennis tournament in the world, and it’s not difficult to argue that the Premier League is the best football league. It even looks as if Lord Coe and Boris Johnson will contrive to make the 2012 Olympics a success.
So why can’t a Brit win Wimbledon? Why is the England football team destined to peak around the quarter finals of the World Cup? Infact why are we destined to be in the quarter-final (ie. the top eight) of almost everything, but never the winners? I don’t mean just sport. Let’s take for example GDP (6th), exports (9th), ease of doing business (5th), income per capita (8th) and so on.
The only activities we seem to go beyond the quarter finals in regularly are those where there are so few competitors that you reach the quarter finals simply by the fact of playing, such as cricket. Apologies to all Italians out there – I know that you have a cricket team but playing in Division 4 of the World Cricket League really doesn’t count in practical terms.
Anyone over 45 years old will remember a song by Barbara Gaskin (and if you’re over 55 then you may remember the original version by Leslie Gore) in which she sang “It’s my party and I’ll cry if I want to” and that seems to be quite an apt phrase for the country, because she also went on to bemoan that she had lost her Johnny. The question is that whilst we are good at organising the party, have we as a nation lost our winning Johnny and if so is it a crying matter?
That got me thinking about AIM and whether it also reflects this tendency. Has the LSE created an excellent platform only for overseas companies to be the winners on, and should we cry about it?
Not getting our share of the pie
Looking at the data it was interesting to see that although overseas companies account for only 38% of the number of companies, they represent 59% by value of the total market capitalisation of AIM. That’s not entirely unexpected as investors supporting IPOs often want to see overseas companies which are larger than a typical British company coming to market, to mitigate for the perceived additional risk in an overseas company. However, the 59% figure did surprise me because what started out as a junior market to provide a route for growing British companies has become a powerful marketing story that the LSE has used to increase its visibility in overseas markets. Over the years the LSE has run roadshows in many countries including India, China, Germany, United States, Sweden and Norway. This marketing has been a success if you judge it by the overseas companies quoted on AIM and is undoubtedly good not just for the LSE but also for London’s reputation as a financial centre.
As well as promoting AIM to overseas companies the LSE has also made advances in extending the AIM brand overseas. Following its 2007 acquisition of Borsa Italiana the LSE launched AIM Italia which now provides a quote to ten companies. Also, in May 2009 Tokyo AIM, a joint venture between the LSE and Tokyo Stock Exchange obtained its license, though whilst a number of so called J-Nomads have been approved the market still awaits its first AIM-quoted companies.
Does it matter that AIM London is increasingly becoming an overseas company market or should we be pleased that this is another British market leader in the making? Well if it brings business to the UK then it can’t be a bad thing as long as investors are happy to provide the funds for such companies to obtain their quote. On the other hand, we have seen over the last two years that the strategic options for growth companies in the UK have been limited, partly by reduced bank lending, partly by the growth of the equity gap ie. the disappearance of funds for second round growth capital, and now by the planned downsizing of regional development agencies. Are the options for smaller British companies limited further by AIM effectively outgrowing those companies and moving away from what it was originally intended to do? If so is there another way to assist growing British companies?
Regional Stock Exchanges
A discussion that has gathered momentum over the last twelve months is the re-establishment of regional stock exchanges. This movement has grown from the regions but has also garnered support from some politicians and in July the Business Secretary Vince Cable launched a consultation paper for views on whether regional stock exchanges could be made to work successfully.
Supporters of this idea claim that such stock exchanges will allow investors to reconnect with local companies, as well as giving entrepreneurs the ability to raise funding from investors with which they have some connection rather than investors a long distance away. However, even ardent supporters accept that the regional exchanges would not be bricks and mortar entities, but virtual in nature.
But these supporters overlook investor trends over the last 10 years. The use of the internet has made share dealing a frequent activity for many investors. Moreover the increased number of overseas companies on AIM and also the globalisation of many apparently British companies means that investors seem to have no fear about investing in companies in which they have little chance of seeing the operations and may only see the management once a year at the AGM. With AIM already suffering from limited liquidity, fragmenting that liquidity by having regional exchanges can’t be in anyone’s interest.
Supporters also overlook a recent example of a regional stock exchange which was funded by public money through Advantage West Midlands. Investbx launched in Birmingham in 2007 with the aim of creating a market for companies in the region. Three years later it has just three companies on its market. This might be down to the credit crunch and economic downturn but I expect that part of it is that investors just don’t see a need for it. It also perhaps illustrates that allowing the private sector to make decisions on innovations such as new stock exchanges might lead to better decision making than leaving it to public funds to drive such decision making.
So, yes let’s recognise that in the UK we might have lost our winning Johnny but we have little to cry about as we are actually quite good at creating and organising things. However, as for regional stock exchanges let’s not get carried away and expect that we can make a success out of ideas that are fundamentally flawed because they address no specific need.
(c) Ash Mehta 2010
Tuesday, 1 June 2010
Vote? I think I'll outsource that
Do fund managers have a duty to decide for themselves how to vote?
Well thank goodness its June and two major events are over. Firstly the eruption of that volcano with the long name beginning with E which I won t write because it isn t in my spell-check. I sympathise with people who were stranded far from home for long periods of time but I would like to point out the disruption to my working day of listening to people talking about Ash being a nuisance. If I had one Icelandic Krona for every such comment I think I would be very wealthy now, in Icelandic Krona at least (how much is that in Great British Pounds?).
Secondly, the general election. Like many in the business community I m pleased it s all over because with spending cuts announced and a budget imminent from the new government we should now have a period, coalition permitting, of some economic certainty; however unpleasant the certainty might be. One thing that surprised me about the election period was that there was relatively little mudslinging and few shenanigans despite the last government being the most unpopular for some time.
Passing on Responsibility
The most eye-catching shenanigans were reports of the alleged fraudulent abuse of postal voting in some parts of the country. There were accusations that in some households there were as many as eight people registered to vote and that this must be due to fraudulent registrations. Channel 4 News covered this story very well and went into the house of a local councillor in south east London implicated in the affair. She showed them eight beds and eight toothbrushes which seemed to indicate that there were indeed eight voters in the house.
But this story got me thinking; so what if some people were voting on behalf of others? Perhaps those other people were happy with this. Perhaps some people just couldn t be bothered to read the parties manifestos (and let s face it how many of us did?), but still felt they ought to participate in the democratic process. What if those people passed the responsibility on to other more knowledgeable people whom they trusted to evaluate the manifestos and accepted advice on how to vote in the best way for the country and themselves. Would there be anything wrong with that? Is it bringing the democratic process into disrepute? Is it morally and ethically suspect? Do we have a duty to decide for ourselves how we vote?
AGM Time
May, of course, is also the month of AGMs for many companies. Whilst few companies get a good turnout of shareholders, it s always interesting to see how the proxy votes have been cast for resolutions at an AGM, especially where there is something potentially controversial.
Unfortunately, its not unknown for lazy institutional shareholders to just put a tick in the For column assuming that this is the default that the company wants and I heard that in one case this caused a problem because a dissident shareholder was inadvertently voted onto the board of a company due to shareholders not reading the notice of AGM properly.
So, in light of Lord Myners pleading post credit crunch that institutional shareholders should engage with companies they invest in and not become absentee landlords , how seriously do institutional shareholders take their voting responsibilities? Talking to various advisers in the City, it seems to be generally accepted that institutional shareholders don t devote a great deal of time on deciding how to vote and actually executing their votes. This can be especially troublesome when there is a corporate transaction to get passed at a general meeting of a company. The company would often like to show a high level of support from shareholders for a transaction but brokers often worry that those supportive shareholders will not get their act together to submit their votes.
PAFs
Over the last month or two many Finance Directors of public companies will have received questionnaires from proxy advisory firms ( PAFs ) requesting further information relating to resolutions to be tabled at forthcoming AGMS. Whilst these firms provide a wide range of services including risk management, automated voting and financial research, a core offering is analysing Annual Reports and AGM resolutions of public companies and issuing advisory notes to their fund manager clients. PAFs now form a rapidly growing business and the largest, RiskMetrics, services 2,400 clients worldwide and recently reported revenues of $77 million for the first quarter of 2010.
PAFs are now becoming increasingly vocal about governance matters and arguably providing a useful voice in the governance debate. Only last week RiskMetrics issued a critical note of the Prudential s proposed acquisition of AIA, the Asian business of AIG, and urged its clients to vote against the deal.
Over the last year, other companies have been the subject of proxy advisory firms ire; Marks and Spencer, BT and Tesco are amongst those to have come under the spotlight for their remuneration excesses. Infact, in 2009 RiskMetrics recommended voting against the re-election of 20% of the directors in the companies it covers worldwide.
But is this growing influence by PAFs a problem? Surely not, as the Association of British Insurers has been undertaking such a role for some time, issuing red, amber, blue and green "tops" to alert members to corporate governance issues in annual reports. Supporters would argue that this analysis is increasing the sum of all knowledge and allowing shareholders to make informed decisions about how to vote. In fact the industry is even increasing the range of topics covered. Recently, Glass Lewis, a US proxy advisory firm, began to include environmental and social data to its research service; a response to client demand in recognition of the fact that this is a growing area of risk for many companies and hence a factor in shareholder returns.
Important Issues
Another trend over recent years has been that in many financial institutions the people actually voting for or against resolutions in companies now form departments of their own, staffed by corporate governance experts, totally separate from the fund managers holding the investment. This whole area gives rise to what I believe are some very important issues.
Should we question whether this separation is healthy and does the additional layering of a third party in the form of PAFs make it any less (or more) healthy?
Does it mean that these corporate governance departments vote on a tick-box basis without really understanding the specific circumstances of each company their colleagues in fund management are invested in.
Should boards of public companies be concerned that at the recommendation of one advisory firm they could face a massive block vote due to investors blindly following advice from advisory firms?
What does the intermediary role of PAFs mean for the engagement by investors with companies they invest in? Is it potentially undermining the increased engagement sought by regulators and governments?
Should we expect our pension fund and investment managers to be forming their own opinions on the acceptability of transgressions by companies, taking them in the full context of company performance and history rather than on a purely standalone governance basis?
Moreover do fund managers have the skills to play this role and do their bosses allow them to perform it?
I don't know the answers to these questions but as we slowly emerge from the banking crisis these are probably matters we need to be asking if we are to avert a crisis in this sector. It may sound like a relative backwater in the financial world but then so did ratings agencies before the credit crunch.
Finally, let s accept that in any business there will be competition and the PAF industry is no different. As a PAF how do you differentiate yourself from your competitors? Do you become more strident? Do you seek conflict to demonstrate your strength and gain headlines and publicity for your own business needs?
All publications like to promote their power and influence. After the 1992 general election which unexpectedly produced a fourth successive Conservative victory, The Sun proudly proclaimed, in true Kelvin Mackenzie style, It's The Sun Wot Won It . How many people actually outsourced their voting decision to The Sun, we will never know. If PAFs become too powerful and there is more outsourcing of proxy voting then will the shareholder engagement which Lord Myners has been encouraging for effective challenge to boards of public companies be lost for ever?
If so, that could have serious ramifications for the City and make a few fraudulent postal votes in general elections seem fairly trivial.
(c) Ash Mehta
This article first appeared in Aimzine, www.aimzine.co.uk .
Well thank goodness its June and two major events are over. Firstly the eruption of that volcano with the long name beginning with E which I won t write because it isn t in my spell-check. I sympathise with people who were stranded far from home for long periods of time but I would like to point out the disruption to my working day of listening to people talking about Ash being a nuisance. If I had one Icelandic Krona for every such comment I think I would be very wealthy now, in Icelandic Krona at least (how much is that in Great British Pounds?).
Secondly, the general election. Like many in the business community I m pleased it s all over because with spending cuts announced and a budget imminent from the new government we should now have a period, coalition permitting, of some economic certainty; however unpleasant the certainty might be. One thing that surprised me about the election period was that there was relatively little mudslinging and few shenanigans despite the last government being the most unpopular for some time.
Passing on Responsibility
The most eye-catching shenanigans were reports of the alleged fraudulent abuse of postal voting in some parts of the country. There were accusations that in some households there were as many as eight people registered to vote and that this must be due to fraudulent registrations. Channel 4 News covered this story very well and went into the house of a local councillor in south east London implicated in the affair. She showed them eight beds and eight toothbrushes which seemed to indicate that there were indeed eight voters in the house.
But this story got me thinking; so what if some people were voting on behalf of others? Perhaps those other people were happy with this. Perhaps some people just couldn t be bothered to read the parties manifestos (and let s face it how many of us did?), but still felt they ought to participate in the democratic process. What if those people passed the responsibility on to other more knowledgeable people whom they trusted to evaluate the manifestos and accepted advice on how to vote in the best way for the country and themselves. Would there be anything wrong with that? Is it bringing the democratic process into disrepute? Is it morally and ethically suspect? Do we have a duty to decide for ourselves how we vote?
AGM Time
May, of course, is also the month of AGMs for many companies. Whilst few companies get a good turnout of shareholders, it s always interesting to see how the proxy votes have been cast for resolutions at an AGM, especially where there is something potentially controversial.
Unfortunately, its not unknown for lazy institutional shareholders to just put a tick in the For column assuming that this is the default that the company wants and I heard that in one case this caused a problem because a dissident shareholder was inadvertently voted onto the board of a company due to shareholders not reading the notice of AGM properly.
So, in light of Lord Myners pleading post credit crunch that institutional shareholders should engage with companies they invest in and not become absentee landlords , how seriously do institutional shareholders take their voting responsibilities? Talking to various advisers in the City, it seems to be generally accepted that institutional shareholders don t devote a great deal of time on deciding how to vote and actually executing their votes. This can be especially troublesome when there is a corporate transaction to get passed at a general meeting of a company. The company would often like to show a high level of support from shareholders for a transaction but brokers often worry that those supportive shareholders will not get their act together to submit their votes.
PAFs
Over the last month or two many Finance Directors of public companies will have received questionnaires from proxy advisory firms ( PAFs ) requesting further information relating to resolutions to be tabled at forthcoming AGMS. Whilst these firms provide a wide range of services including risk management, automated voting and financial research, a core offering is analysing Annual Reports and AGM resolutions of public companies and issuing advisory notes to their fund manager clients. PAFs now form a rapidly growing business and the largest, RiskMetrics, services 2,400 clients worldwide and recently reported revenues of $77 million for the first quarter of 2010.
PAFs are now becoming increasingly vocal about governance matters and arguably providing a useful voice in the governance debate. Only last week RiskMetrics issued a critical note of the Prudential s proposed acquisition of AIA, the Asian business of AIG, and urged its clients to vote against the deal.
Over the last year, other companies have been the subject of proxy advisory firms ire; Marks and Spencer, BT and Tesco are amongst those to have come under the spotlight for their remuneration excesses. Infact, in 2009 RiskMetrics recommended voting against the re-election of 20% of the directors in the companies it covers worldwide.
But is this growing influence by PAFs a problem? Surely not, as the Association of British Insurers has been undertaking such a role for some time, issuing red, amber, blue and green "tops" to alert members to corporate governance issues in annual reports. Supporters would argue that this analysis is increasing the sum of all knowledge and allowing shareholders to make informed decisions about how to vote. In fact the industry is even increasing the range of topics covered. Recently, Glass Lewis, a US proxy advisory firm, began to include environmental and social data to its research service; a response to client demand in recognition of the fact that this is a growing area of risk for many companies and hence a factor in shareholder returns.
Important Issues
Another trend over recent years has been that in many financial institutions the people actually voting for or against resolutions in companies now form departments of their own, staffed by corporate governance experts, totally separate from the fund managers holding the investment. This whole area gives rise to what I believe are some very important issues.
Should we question whether this separation is healthy and does the additional layering of a third party in the form of PAFs make it any less (or more) healthy?
Does it mean that these corporate governance departments vote on a tick-box basis without really understanding the specific circumstances of each company their colleagues in fund management are invested in.
Should boards of public companies be concerned that at the recommendation of one advisory firm they could face a massive block vote due to investors blindly following advice from advisory firms?
What does the intermediary role of PAFs mean for the engagement by investors with companies they invest in? Is it potentially undermining the increased engagement sought by regulators and governments?
Should we expect our pension fund and investment managers to be forming their own opinions on the acceptability of transgressions by companies, taking them in the full context of company performance and history rather than on a purely standalone governance basis?
Moreover do fund managers have the skills to play this role and do their bosses allow them to perform it?
I don't know the answers to these questions but as we slowly emerge from the banking crisis these are probably matters we need to be asking if we are to avert a crisis in this sector. It may sound like a relative backwater in the financial world but then so did ratings agencies before the credit crunch.
Finally, let s accept that in any business there will be competition and the PAF industry is no different. As a PAF how do you differentiate yourself from your competitors? Do you become more strident? Do you seek conflict to demonstrate your strength and gain headlines and publicity for your own business needs?
All publications like to promote their power and influence. After the 1992 general election which unexpectedly produced a fourth successive Conservative victory, The Sun proudly proclaimed, in true Kelvin Mackenzie style, It's The Sun Wot Won It . How many people actually outsourced their voting decision to The Sun, we will never know. If PAFs become too powerful and there is more outsourcing of proxy voting then will the shareholder engagement which Lord Myners has been encouraging for effective challenge to boards of public companies be lost for ever?
If so, that could have serious ramifications for the City and make a few fraudulent postal votes in general elections seem fairly trivial.
(c) Ash Mehta
This article first appeared in Aimzine, www.aimzine.co.uk .
Friday, 23 April 2010
AIM – Not enough liquidity, but plenty at Grocers Hall
Off to Grocers Hall in the City for the Growth Company Awards where we sip champagne in a beautiful red velvet room adorned by paintings of well known grocers of shopping days past, including er…. Lord Carrington. I’m not sure what his connection is; perhaps like me he worked at Sainsbury’s while he was a student (though somehow I doubt it).
The Awards are sponsored by Sharemark, promoting its leading alternative share-trading platform which allows small businesses to raise liquidity (even for businesses already quoted on another exchange). These events can become a bit indistinguishable from each other especially after plenty of liquidity of the bubbly kind and so it was good to see that Gavin Oldham, the founder and CEO of Share plc, Sharemark’s parent company, was the headline speaker to kick the evening off.
Mr Oldham always has something memorable to say, based on his many years in the City and having set up not only Share plc but also Barclays Stockbrokers. He is a fierce advocate of private shareholder rights and not afraid to point his finger at the City when he feels it appropriate, and that was what he did this evening. He had taken part in a breakfast seminar with a dozen CEOs of AIM companies and all were questioning the benefit of staying on the market; not surprising when you consider that 257 companies delisted from AIM last year.
The thrust of his talk was that too often companies are taken down the IPO route onto AIM or PLUS but that thereafter they get little support from advisers in making the most of their listing, and become “stranded”. The problem is often that too few companies focus on liquidity or get support from advisers on managing liquidity. This in turn is usually due to the IPO process almost invariably being satisfied by a placing to institutional shareholders and having too few retail shareholders on board. He suggested that City brokers should get retail brokers involved so the company has more private shareholders on its share register. These are the people who provide liquidity through frequent trading whereas institutional shareholders tend to hold their shares and not trade frequently and sometimes the shares stagnate due to minimal trading.
You can’t fault Mr Oldham’s logic but equally looking at this commercially from a City brokers point of view, it’s much easier to just talk to a few institutions and get the placing done rather than deal with tens or hundreds of private shareholders. Of course, Mr Oldham would point out that Share plc can handle this nightmare for City brokers, but this is too rational an argument; the City, despite its dynamic image, is actually quite slow at changing its ways whatever those ways are. Hence, Mr Oldham’s rallying call that this area requires a change of attitude from corporate advisers.
An excellent evening overall, and a good point made by Mr Oldham, but I was left wondering why something called the Growth Company Awards only has two of its nine awards for growth companies and the remainder for City advisers. Surely shome misthtake as they say after too much fizzy liquidity.
The Awards are sponsored by Sharemark, promoting its leading alternative share-trading platform which allows small businesses to raise liquidity (even for businesses already quoted on another exchange). These events can become a bit indistinguishable from each other especially after plenty of liquidity of the bubbly kind and so it was good to see that Gavin Oldham, the founder and CEO of Share plc, Sharemark’s parent company, was the headline speaker to kick the evening off.
Mr Oldham always has something memorable to say, based on his many years in the City and having set up not only Share plc but also Barclays Stockbrokers. He is a fierce advocate of private shareholder rights and not afraid to point his finger at the City when he feels it appropriate, and that was what he did this evening. He had taken part in a breakfast seminar with a dozen CEOs of AIM companies and all were questioning the benefit of staying on the market; not surprising when you consider that 257 companies delisted from AIM last year.
The thrust of his talk was that too often companies are taken down the IPO route onto AIM or PLUS but that thereafter they get little support from advisers in making the most of their listing, and become “stranded”. The problem is often that too few companies focus on liquidity or get support from advisers on managing liquidity. This in turn is usually due to the IPO process almost invariably being satisfied by a placing to institutional shareholders and having too few retail shareholders on board. He suggested that City brokers should get retail brokers involved so the company has more private shareholders on its share register. These are the people who provide liquidity through frequent trading whereas institutional shareholders tend to hold their shares and not trade frequently and sometimes the shares stagnate due to minimal trading.
You can’t fault Mr Oldham’s logic but equally looking at this commercially from a City brokers point of view, it’s much easier to just talk to a few institutions and get the placing done rather than deal with tens or hundreds of private shareholders. Of course, Mr Oldham would point out that Share plc can handle this nightmare for City brokers, but this is too rational an argument; the City, despite its dynamic image, is actually quite slow at changing its ways whatever those ways are. Hence, Mr Oldham’s rallying call that this area requires a change of attitude from corporate advisers.
An excellent evening overall, and a good point made by Mr Oldham, but I was left wondering why something called the Growth Company Awards only has two of its nine awards for growth companies and the remainder for City advisers. Surely shome misthtake as they say after too much fizzy liquidity.
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