This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Corporate Governance at Quindell, and news on Aero Inventory

I won’t even attempt to discuss the past history of events at Quindell in this article. But recent ones suggest that it is likely to remain a controversial company. After the departure of founder and former Executive Chairman Rob Terry, Richard Rose has been appointed as Chairman and Jim Sutcliffe has been appointed as Deputy Chairman and Strategy Director.

Shareholders no doubt welcomed these experienced hands to take charge of this company after past events. But there are a couple of problems here.

Richard Rose already holds Chairmanships in public companies AO World, Crawshaw Group, Booker Group and Anpario Group. Jim Sutcliffe is also currently Chairman of Sun Life Financial, Canada and a director of Lonmin plc and Liberty Holdings, South Africa.

Only last month ShareSoc published an article entitled “How Many Roles” written by one of our directors that covered the issue of directors taking on so many jobs that they are unlikely to be able to do any of them adequately. ShareSoc has also published some guidelines for non-executive directors and the number of roles they hold (see  www.sharesoc.org/about-us/policies/)  and we suggested a limit of 4 to 5 jobs. That’s for non-executive jobs in general but for Mr Rose to take on 5 chairmanships when the obligations of a chairman of a public company are now so onerous and time consuming seems rather odd to say the least. Similar problems apply to the appointment of Jim Sutcliffe.

Even odder is that Both Mr Rose and Mr Sutcliffe have been awarded large numbers of share options which contradicts the UK Corporate Governance Code which suggests that non-executive directors should not benefit from incentive schemes as it prejudices their independence. Mr Sutcliffe should know this very well because he was Chairman of the Standards Committee of the Financial Reporting Council (FRC), which maintains the Code.  Although Mr Rose and Mr Sutcliffe are no doubt experienced and skilled directors, was it really necessary to drive a coach and horses through the UK Corporate Governance Code and “best practice” in this way? Jim Sutcliffe resigned from the FRC after his appointment at Quindell.

A Shareholders Action Group has been formed for Quindell shareholders. This group, and others, have written to the Financial Conduct Authority asking for an investigation into the affairs of Quindell and suspected market abuse. One might also question other aspects of this company’s affairs such as its underlying accounting policies, and past RNS announcements.  But the FCA has declined to provide other than minimal information even though M.P.s have also requested it. David Lawton, Director of Markets at the FCA, has refused to disclose whether there is any investigation into Quindell or the activities of short sellers in the shares of the company and simply refers inquirers to the short selling regulations.

Readers are reminded that Quindell is and was not just another tin-pot AIM company. It actually had a market cap of over £2bn at one point, was one of the largest AIM companies and its share price decline last year was one of the factors in the overall decline of the AIM index. Another large AIM company was Aero Inventory which reached more than £300m market cap before it went into administration in 2009. After four years of investigation the FRC has finally announced a formal complaint into the preparation and audit of the accounts of this company which collapsed after it was discovered that the assets have been grossly overstated. So the auditors and former finance director are under scrutiny. But the exact nature of the complaints against them have not been disclosed.

Comment: is it not ridiculous that such investigations take so long when there is such prima facie evidence that the accounts of Aero Inventory were grossly misleading. The lack of action, or unreasonable delays, by the FCA on this and other cases just demonstrates how ineffective they are at regulating auditors, the directors of companies and the stock market in general.

When even large companies such as Quindell and Aero Inventory seem not to attract adequate resources to investigate their affairs, it is obviously unlikely that smaller companies, or smaller transgressions, are ever going to merit attention by the FCA. This should be changed if we are to restore probity to the stock market.

Roger Lawson

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