How shareholder advisory groups are urging investors to vote against the reappointment of Iain McDonald, a longtime non-executive director of British e-commerce group, THG.
THG faces shareholder rebellion at June annual meeting
The Hospital Group, THG, is set to encounter a shareholder rebellion at its June annual meeting, as two shareholder advisory groups have urged investors to vote against the re-election of its longtime non-executive director, Iain McDonald. McDonald, who has served on the board since 2010, is facing concerns over his independence. The groups are Glass Lewis and Institutional Shareholder Services, and they have warned investors against re-electing McDonald citing his association with THG’s CEO, Matthew Moulding, and the company’s co-founder, John Gallemore, as well as the compensation committee.
Concerns over McDonald’s independence
Despite McDonald’s position on the compensation, nominations, and sustainability committee, both advisory groups have deemed him insufficiently independent to be responsible for such a role. Moreover, ISS criticized the remuneration committee for lacking independence, stating that there is an “unhealthy power dynamic” within the group. The group raised caution over the tenure of McDonald because he has served alongside founders Molding and Gallemore for over 13 years, making his association with the company and its directors tenuous at best.
Turbulent times for THG and Matthew Moulding
The recommendation for McDonald’s removal comes amid a turbulent time for THG, which has faced several profit warnings and corporate governance concerns over the last year. The e-commerce group’s CEO, Matthew Moulding, has had his fair share of difficulties. He has been very critical of the London Stock Exchange, calling the company’s decision to go public a “mistake”. THG was previously valued at £5.4bn in 2020, but the company’s current market valuation has dropped to £800m.
Calls to reject THG payroll report
In addition to the recommendations against McDonald’s reappointment, Glass Lewis urged shareholders to reject THG’s payroll report, stating that there was an “unwarranted” increase in the salary of the company’s new chief financial officer, Damian Sanders. Sanders will earn £500,000 per year, 11% more than his predecessor, Gallemore.
THG’s response
THG has responded to the recommendations by stating that it has appointed three new independent non-executives as senior independent non-executives and that it will appoint further independent non-executive directors in 2023.
Additional Piece
Corporate governance has a significant impact on companies’ success, and a lack of independence in board members can affect a company’s longevity. Board members are expected to act in the best interests of shareholders and ensure that executive management is making the right decisions to enhance the company’s growth. Independence is paramount in this area as it means that the board can provide unbiased recommendations with no personal interests in the company or its leadership. When the board lacks independence, the power dynamic is compromised, and decisions can be made to the detriment of stakeholders and shareholders alike.
THG and Iain McDonald’s case indicate that the company may be experiencing boardroom stagnation, as it has failed to appoint new independent non-executives in over a decade. As a result, ISS and Glass Lewis claim that the remuneration committee is not fully independent, which raises concerns over the committee’s decisions and recommendations to reward company executives.
It is essential that a company’s board has the right mix of skillsets and experience to support its executive management. The board must have a diversity of thought, expertise, and experience to provide balanced guidance and counsel. When board members have served for an extended period, there is a tendency to become complacent and risk losing sight of what is best for the company’s stakeholders. Thus, regular appointments and refreshers are essential to prevent stagnation and loss of independence.
Corporate governance is a critical element of any business’s success, and it plays a critical role in ensuring that companies grow in a sustainable and responsible manner. A lack of independence can compromise decision-making and lead to unfortunate situations such as shareholder rebellions. Companies must make necessary changes within their board to create an independent and diverse group that is ready to guide the business towards success.
Summary
THG, British e-commerce group, is facing a shareholder rebellion as two shareholder advisory groups urge investors to reject the re-appointment of non-executive director Iain McDonald. The groups claim McDonald’s tenure is too long, raising concerns over his independence, and association with THG’s executive management and founders. The corporate governance breakdown within THG has led to significant losses and controversies resulting in several profit warnings, leading to recommendational voting against THG’s payroll report. THG’s board reacted by appointing three new independent non-executives and promised to appoint more in 2023. Corporate governance is a crucial element for business success, and compliance with corporate governance rules and processes goes a long way to ensure long-term success for businesses in all sectors.
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British e-commerce group THG is on track for a shareholder rebellion at its annual meeting this month to reappoint a longtime non-executive director.
Two shareholder advisory groups have urged investors to vote against the re-election of Iain McDonald to the board of the company, which sells nutrition and beauty products online through websites including Lookfantastic and Myprotein.
Both Institutional Shareholder Services and Glass Lewis have expressed concerns about McDonald’s independence.
McDonald joined the board of THG, formerly known as The Hut Group, in 2010 and currently serves on the compensation, nominations and sustainability committees. He is also the founder and chief investment officer of investment advisory firm Belerion Capital, which last year worked with wealth manager King Street Capital on a bid failed for THG.
The recommendation ahead of THG’s annual meeting on June 21 comes after a turbulent time for the group and its chief executive, Matthew Moulding, including several profit warnings and corporate governance concerns.
Molding co-founded the company in 2004. It listed at a valuation of £5.4bn in 2020 but now has a market capitalization of £800m. He was very critical of the London Stock Exchange and described the company’s decision to go public as a “mistake”.
The ISS said that while it has been pragmatic about cases where a non-executive director’s tenure has reached or exceeded nine years, McDonald “was not considered independent” because he has served on the board alongside founders Molding and John Gallemore for 13 years.
Glass Lewis also said he was an “affiliate or insider” on the compensation committee. ISS added in its report: “Among the shortcomings is the fact that the remuneration committee is not fully independent.”
In the company’s latest annual report, the board defended McDonald’s position on the compensation committee. He said he “recognized the need for independent membership” on the compensation committee but added “it would not be in the best interest of the company and its shareholders for Iain McDonald to step down.”
His “experience, broad financial expertise and investment acumen make him well equipped to serve on the remuneration committee,” the report adds.
McDonald’s previously withdrew from board discussions of the proposed acquisitions due to a “conflict of interest,” according to ISS. When THG rejected the £2bn from Belerion in May last year, he confirmed there had been three takeover approaches for the company.
Glass Lewis also urged shareholders to reject THG’s payroll report due to an “unwarranted” increase in the salary of the company’s new chief financial officer. Damian Sanders will earn £500,000 a year, 11% more than his predecessor, Gallemore.
THG said: “Charles Allen joined the board as an independent non-executive chairman in March 2022 with a clear mandate to improve governance, transparency, and strengthen and update the board by enhancing its independence and diversity.
“The board has since appointed three new independents [non-executive directors] in Gillian Kent, Dean Moore and Sue Farr, as senior independent non-executives, and with a commitment to further appointments consistent with good corporate governance and priorities during 2023”.
https://www.ft.com/content/08004111-ba1d-4100-8f9d-e1b33e3006d2
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