F&C says Sherborne attack threatens its governance role

Asset manager faces up to activist investor

Asset manager F&C says the attempt by activist investor Edward Bramson’s Sherborne Investors to oust chairman Nick MacAndrew threatens to undermine its role as a provider of governance services to institutional investors.

Sherborne launched its attack on F&C last month after building a 17.5% stake in the firm, calling on it to hold an extraordinary general meeting which is now set for February 3.

F&C is a signatory to the United Nations Principles for Responsible Investment and is known for its engagement and voting activities, with an 18-strong Governance & Sustainable Investment team. Clients of its responsible engagement overlay (REO) service include major pension fund investors such as PGGM, PensionDanmark and Mn Services.

F&C fears Sherborne’s actions could leave it out of step with the UK’s Corporate Governance Code. “Does Sherborne understand the negative impact that not being in compliance with the UK Corporate Governance Code could have on F&C’s business given its major franchise in providing governance services to institutional investors?” it asked in a filing.

Sherborne says the code is a comply-or-explain measure, so it would be “relatively straightforward” to explain the situation to shareholders who have voted for its proposals.“As a leading fund manager, with a major franchise in the provision of governance services to other institutional investors, F&C has considerable duties under the Stewardship Code and a strong commercial interest in being able to demonstrate that it maintains the highest standards of corporate governance,” F&C argues. Sherborne has made no reference to F&C’s responsible investment efforts.

F&C also questions whether Sherborne’s proposed board is appropriate for a fund manager with fiduciary responsibilities. Sherborne also wants to oust former 3i CEO Brian Larcombe from F&C’s board and appoint Ian Brindle, PricewaterhouseCoopers’ former UK chairman and Derham O’Neill, a former Clifford Chance partner.

A twist in the saga is that Sherborne is backed by Aviva, whose Aviva Investors arm is a prominent responsible investor. The Financial Times estimates Bramson could muster almost 40% of votes with Aviva’s backing. Bramson, if elected, intends to offer himself for re-election to the board annually.

AIM-quoted Sherborne says F&C has underperformed a peer group of Aberdeen Asset Management, Henderson Group and Schroders. But F&C says Sherborne has failed to articulate an alternative strategy.

F&C said its assets under management at the end of 2010 was £105.8bn, up from £97.8bn a year before.