Daejan mutiny demonstrates need for reform

Buried in AGM results last week is the amazing news that almost 95% of independent shareholders voted against Benzion Freshwater, the chair and chief executive of property investment business Daejan Holdings. The company is a rare example of an all-male board, something that is an increasing point of friction with investors, and it looks as though last week patience ran out.
The company is tightly controlled with a free float of barely 20%. As such it has to report the votes on its independent NEDs twice once with all shareholder votes counted and again with just minority shareholders voting. From this we can see the total number of votes accounted for by the controlling shareholders and when we strip these out of the resolutions to re-elect the chair/CEO and senior independent director the result is a vote of around 95% against.
This points to some important weakness in the UK corporate governance regime for controlled companies. Had these votes been against NEDs that the company designates as independent the company would have to re-run their election. Yet executives, or NEDs that the company designates as not independent, do not face the same challenge whatever the result.
There was a similarly odd outcome (if on a smaller scale) at the Sky Plc AGM in 2016 when James Murdoch was opposed by the majority of outside shareholders, yet because he was not designated independent did not face a re-run. Therefore an obvious reform would be to require the election re-run rule to apply to all directors.
Secondly, Daejan Holdings also does not have to make a statement on how it will respond to the shareholder revolt since, when controlling shareholder votes are included, Freshwater received a vote against of only 7.8%. It would require every single minority shareholder to vote all their stock, and to vote against, in order to achieve a ’significant’ level of opposition and thus trigger such an announcement. This is ludicrous. Far better would be for the company to have to look at minority shareholder votes only when determining whether it is required to respond to significant opposition.

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