Glencore should stick to the rules
THE stock market is littered with alpha-male chief executives who think they have a special pass to ignore the rules of good boardroom behaviour. Glencore, the giant commodity trader and miner led by Ivan Glasenberg, is one of those companies that considers itself above the usual conventions.
True to f orm, the heavily indebted group has infuriated some of its shareholders by riding roughshod over their rights in a £ 1.6bn f undraising exercise, staged earlier this month in a bid to reduce its borrowings.
The Swiss-based company was rapped on the knuckles by the Investor Forum, a lobby group representing institutions with more than £5.5trillion of assets, and by the Institute of Directors.
Some individual fund managers plainly are furious about i ts conduct, and as they see it, the contempt with which Glencore has treated its shareholders.
The nub of the dispute is a bit arcane. Glencore did not give existing investors their normal ‘pre-emption rights’, or first dibs on buying new shares in order to avoid having their stakes diluted. Directors, including Glasenberg, ploughed in $550m to maintain their 22pc combined holding.
The shares have subsequently fallen, touching all-time lows below £1 since the 125p-a-share-placing. That has prompted some to argue that the fund managers had a lucky escape and should pipe down. Glencore cannot wriggle off the hook that easily, however.
Regardless of how the shares have performed since, the company said at its annual meeting in May it would uphold pre-emption rights, but broke its pledge mere months later, when it suited its book to do so.
True, it needed to raise funds in a hurry, but the urgency of its need for capital is not an excuse: companies cannot be allowed to ignore the rules just because they are feeling financial strain. Investors are worried that Glencore’s behaviour may set a bad example. Some say that they have had to warn off other companies from attempting to do the same.
As for Glencore, there has been disquiet over governance since it floated at 530p a share in 2011.
Simon Murray, the former chairman, disgraced himself with misogynistic remarks about female directors and the company was the last in the FTSE 100 to appoint a woman to its board.
Despite its London listing, Glencore is based in Switzerland – making it a bit inconvenient for small shareholders to get to AGMs, and prior to the float was viewed as one of the most secretive operations in the world.
Glencore shares have continued to tank, as some analysts doubt it has done enough to reduce its debt and restructure its balance sheet. This does not seem a good moment to alienate investors.
Glasenberg may feel that, as a large shareholder in his own right, the usual governance guidelines need not apply. That seems to be the view of Mike Ashley, at Sports Direct, who also has a big personal stake in his company.
A major individual holding does not give bosses carte blanche to do as they please. If they want the benefits of a London listing, they need to play by the rules.
London calling
THE City this week elbowed Wall Street out of the top slot of the Global Financial Centres Index, but is that such a cause for celebration? Given that we are living on a small island and lack the huge domestic market the US enjoys, the City can only achieve supremacy by looking overseas.
That is admirable, but an opendoor policy can be taken too far.
As part of his love-in with Beijing, George Osborne says he wants London to be the venue of choice when China raises finance on international markets.
Chinese banks are already issuing bonds in London, and the Chancellor wants to see ‘ our stock markets formally linked’, with UK firms raising funds from Chinese savers and Chinese firms listing in London.
Is this wise? Considering the recent volatility on Chinese markets, Osborne might want to proceed with caution.
The London share markets are hospitable to companies with little or no real connection to the UK but the results have not always been happy, as the Glencore experience shows.
The FTSE 100 is heavy on miners and commodity groups, which means that small investors with savings or pensions in tracker funds are exposed to the global commodities cycle whether they like it or not.
Of course we are also perfectly capable of producing homegrown domestic debacles, such as AIM-listed Quindell, whose founder Rob Terry is trying to make a comeback despite a Serious Fraud Office probe.
The City is an important part of the economy, but in its zeal to find new business it must remember the need to re- establish its integrity. Otherwise the Corbynites will be storming the ramparts.