Insulting behaviour at Interserve plc

Wednesday, 25th April 2018 09:24 - by Eric Chalker

 Some boards of directors reach out to their private investors.  Others demonstrate contempt.  The latest shocking example of the latter coming to my notice is the board of Interserve plc, chaired by Mr Glyn Barker.  It has called a meeting for 8.0 am (yes, really), one purpose of which is to exonerate directors for a breach of the company’s rules.

  There can be no justification for calling any general meeting at such an early hour.  The chairman hasn’t attempted to provide one, even when asked to do so.  It is nothing but insulting to those who have invested in his company.  General meetings should not be called at a time which only suits the directors and those who work close by.  This is a particularly shocking example of how the needs of private investors are ignored, either carelessly or deliberately.  All meetings for any company’s shareholders should be no earlier than can be comfortably reached by the majority of those travelling from home, which in London means no earlier than 10.30 and preferably 11.00.

  It is not as though Interserve has only a few private investors.  The last annual report gives the number as 3,446, but this is just those who hold their shares directly.  Banks, institutions and nominees hold more than thirteen times as many shares and it is a fair guess that the majority of these are held by nominees for other private investors.  The latter group are particularly disadvantaged in the calling of this meeting, because only a few of them are likely to hear about it, as only 14 days’ notice was given to the nominees.  

So why have the meeting at 8.0 am? 

  Doesn’t this timing make it a rather hole-and-corner affair?  Considering the purpose of the meeting, can this be said to live up to the “core values and the ethical standards” which the directors proclaim for the company?

  One assumes the timing won’t inconvenience the directors, who, if not living in central London, will presumably be staying overnight at the company’s expense.  Any City workers required to attend the meeting won’t be starting work any earlier than normal.  No doubt it is useful to get the meeting over and done with first thing in the morning, to get on with other work.  But why should those who just have shares in the business be deliberately disadvantaged – effectively shut out? 

  It’s not as though the purpose of this meeting is of little consequence.  Interserve is in serious trouble.  Like bankrupt Carillion, it has over-extended itself, over-relied upon “goodwill” to bolster the balance sheet (120% of the company’s net book value at the half year) and over-relied upon debt.  Now the chickens have home to roost and the only possible consolation is that the company (rather belatedly) has a new chief executive and a new chief financial officer. 

What is the purpose of this extraordinarily timed meeting?

  Meeting just as City offices are opening, Interserve’s directors’ purpose is twofold.  One purpose is to increase the borrowing limit of this already hugely indebted company.  The other is to let the directors off the hook for the fact they allowed the company to be in breach of its current limits.  Whoops!  Isn’t this something that ought to be properly debated by the company’s owners before they are asked to vote upon it?  It seems that even those who do manage to get to the meeting on time will be frustrated though, because the chairman has made it clear that, while shareholders “participation is important to us”, the questions they will be allowed to ask will be severely limited.  Another insult.

  The chairman’s letter introducing the two resolutions shareholders are asked to approve seems straightforward, but it does beg a number of questions.  The resolutions themselves, attempting to cover all eventualities, are best described as tortuous, expressed as single sentences with not a comma in sight among the 193 words of the first and barely any in the second (162 words).  It is resolutions like this that make one suspicious of what directors are asking and, when these are set for approval at 8.0 am and only 14 days’ notice has been given, one is entitled to be seriously worried.

  The present rule states that Interserve’s borrowing must not exceed four times the value of certain balance sheet items.  At the half year (end of June 2017), loans did not exceed this figure, based on the published values.  Those values are now known to be false.  Quite when they became false is a matter of conjecture, but at some point during the past year they dropped below the level that could justify the company’s loans, so for this reason the directors are guilty of allowing the borrowing rule to be broken.  The board now seeks shareholder approval to change the wording of the borrowing limit so that it won’t be broken by planned additional borrowing (an increase of 42 per cent) and, at the same time, exculpate all directors, past as well as present, for allowing the limit to be broken prior to this.

  Of course, all of this begs the question, how could the borrowing rule have been broken if the directors, including the non-executives, had all been properly doing the jobs for which the shareholders have been paying them (unlikely to be less than £2.5 million)?  Were they, perhaps, distracted by other responsibilities?  Interserve’s investors might find it discouraging that the new CEO and new CFO actually have more external appointments than their predecessors.  They might wonder, too, at how the chairman copes, with five other directorships to his name. 

  Most crucially, Interserve’s investors might wonder whether they can now have confidence in a board of directors which has broken not only the rules but the company too.  Or in a board of directors which then insults its investors by expecting them to forgive this poor stewardship, at short notice, meeting at 8.0 am.  I have decided I can’t, so I’ve dumped my shares.

Eric Chalker, UK Shareholders’ Association Policy Co-ordinator & Director, 2012-2016