Keith Hellawell secured enough votes not to be sacked, but he endured public humiliation as a result. Looking cowed, he was filmed for TV standing next to chief shareholder and deputy chairman Mike Ashley while Ashley told a reporter that Hellawell would be sacked if he did not turn around the company’s reputation and share price within one year.
Indeed, the public statements issued about Sports Direct make an interesting contrast to the words issued by Bradley Singer, chief operating officer of US activist ValueAct. The investor was appointed to the board of Rolls-Royce in March after building up a 10% stake in the aerospace engine manufacturer.
It is reported Singer said: “I have been deeply impressed with the senior leadership team and directors of Rolls-Royce and their commitment to improving their operations to match the company’s world-class product portfolio and engineering capabilities.”
Still, the fearsome reputation of other US activists precedes all others, to the extent that UK pension funds are wary of investing with aggressive US activist managers.
Joel Hartley, partner at LCP, says: “[My clients] are worried about investing in a manager that hits the headlines and then they get associated with that manager and the reputational risk that might go along with that.”
Such entrenched views mean the most common observation made by experienced observers of US activists is that while some potentially damage value, many are actually beneficial to other shareholders and to those working for the company itself.
BLURRING THE LINES
According to Deborah Gilshan, head of sustainable ownership at RPMI Railpen, there is starting to be a blurring of the lines around short and long-term activism, as long-term shareholders break their traditional tenet of not making comments in public.
“What you are seeing is an evolution of traditional stewardship. The comments around Sports Direct are unprecedented… and a lot of long-term shareholders are thinking out their escalation strategies under the Stewardship Code.”
While Gilshan does not state it explicity, there is a sense that long-term shareholders are exerting to be heard in a market where activists such as ValueAct and Elliott Advisers are making the biggest headlines.
“When activist shareholders identify an issue, they are only going to be successful if they come with an idea that resonates with long-term shareholders,” she adds. “They are not going to get traction unless they can make a case that does that.”
According to Owen Walker, the author of Barbarians in the Boardroom, a study of US activists published this year, finding such resonance is a core skill of activists.
