PIRC – a contrary view

Here’s something that may surprise a few people. We genuinely find what Tim Martin has to say about corporate governance worth listening to (personal attacks aside). You can’t work in this field for as long as we have without recognising some of the limitations of the ways of looking at companies through a governance framework. And criticisms of our approach obviously have more weight when they come from those who have created successful businesses that continue to do well.
We also value having contrarian voices in the market. We would rather that business leaders speak out than give into a consensus that they don’t really believe in. We won’t always agree, but contrary opinions are a challenge we welcome, and we do listen to them.
Equally we hope companies respect our right to have a view. Our policies are grounded in a long-standing commitment to good governance. The ‘nine years rule’ that Tim and other executives find irritating is not an invention of PIRC, or institutional shareholders. It came from the late Jonathan Charkham and ProNED, and was based on the idea that non-executive directors should be limited to three terms of three years. This does not seem unreasonable, although, with the advent of annual elections, the basis on which it was calculated has been forgotten by most.
If Tim Martin was standing as chief executive of JD Wetherspoon the issues around his election would not arise. It’s an interesting question how many people would assume he is the chief executive, or could name the company’s actual chief executive, given the prominent role he plays. Tim Martin’s role is executive chair, and he is a major shareholder, which is why we raise the issue of independence. The company and its shareholders are obviously free to take a different view, and we absolutely defend their right to voice this publicly.
Where we are going to disagree is on the issue of political spending, which is another topic we have raised at the AGM this year. Our understanding is that the Companies Act 2006 defines political expenditure to include activities on the part of a company that are likely to influence voters in relation to a referendum. It also requires that such expenditure is approved by the members (shareholders). If expenditure is incurred without authorisation, the Act says that directors in default are jointly and severally liable to make good the expenditure. That there are a number of disclosures on the Electoral Commission website tagged to JD Wetherspoon PLC is a matter of public record. Our view is that they have not been adequately explained.
This is a question of law, not of judgment, or of contrarian views. All companies should comply with the law. We recommended a vote against the annual report because the situation is unclear. We encourage JD Wetherspoon to make clear whether it has received legal advice on this issue before the AGM takes place.

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