Up the Spout

Tim Martin’s outspoken stance on corporate governance should give us food for thought

The chairman of JD Wetherspoon, Tim Martin, has never been one to shy away from voicing his views. He’s perhaps best known for his outspoken stance on Brexit and has now turned his attention towards corporate governance.

Martin has become infamous for his lengthy tirades in Wetherspoon’s stock exchange statements and has used his latest one to dismiss UK corporate governance rules as “up the spout” and to criticise two major institutions that own part of the company he built.

The diatribe dominated a scheduled trading statement to the stock exchange that runs to more than 3,000 words, of which only 20 referred to the pub company’s recent trading.He also attacked the investor advisory group Pensions & Investment Research Consultants (PIRC), which has publicly criticised Martin for spending £95,000 of company money on pro-Brexit literature without first seeking approval from shareholders.

Corporate Calamity

The latest subject of the publican’s ire was the City, particularly corporate governance rules, box-ticking shareholders and the groups that advise them on how to vote at annual investors’ meetings.

Martin reserved the strongest criticism for PIRC, which provides research and advice on corporate governance issues to institutional shareholders.

PIRC claims to provide “a robust, independent and unconflicted view of the companies in which our clients invest” – and recently urged shareholders to vote against the Wetherspoon’s annual report.

It cited the pub chain’s £95,000 outlay – without seeking shareholder approval – on almost 2m pro-leave beer mats, posters and other anti-EU booklets before the 2016 referendum.

The pubs boss flagged the Twitter profile of Alan MacDougall, the founder of Pirc, where the corporate governance expert describes himself as an “ex-Eurocommunist”.

Martin wrote: “In my opinion, many people equate communism with fascism, since millions of Europeans perished or were imprisoned under its yoke”.

Pirc also advised investors to vote against Martin’s re-election as a director at Wetherspoons’ annual meeting on 21 November on the basis that he has been chairman for more than nine years. In fact he has been chairman of the company, which he founded 40 years ago, for 36 years. Martin pointed out that MacDougall still sits on his own board after 33 years.

The nine-year limit is one of many UK corporate governance guidelines which Martin blamed for the “failure or chronic underperformance of many businesses, including banks, supermarkets, and pubs”. Too much power, he said, was vested in part-time non-executive directors, who tended to be inexperienced, rather than executives with “real expertise”.

He wrote that none of the UK’s big banks now have any non-executive directors with experience of the last banking crisis “when it is clear that inexperienced boards were a major factor in that crisis”.
He also pointed to collapsed companies that complied with governance guidelines, like Carillion, Thomas Cook and Northern Rock, and declared: “The UK corporate governance system is up the spout – and is itself a threat to listed companies – and therefore to the UK economy”.

A core problem with the governance guidelines, he said, “is that corporate governance institutionalises short-termism, inexperience and navel-gazing”. Martin also criticised two of his own major shareholders, Columbia Threadneedle and BlackRock, which opposed the re-election of some of Wetherspoon’s long-serving non-executive directors at last year’s annual meeting, pointing out that they also had directors on their own boards who breached the nine-year rule.

A Columbia Threadneedle spokesperson said: “We shared our views on corporate governance issues in a private meeting with Wetherspoon, as is our normal approach. We remain a long-term investor in the company.”

A spokesperson for BlackRock said: “Board governance and director accountability are at the heart of investment stewardship. Our vote against the non-executive directors reflects our concerns about executive remuneration and board independence, which based on our analysis is well below market norm of 50%. With respect to BlackRock’s own governance, our board is more than 80% independent”.

Business is Booming

Weatherspoon’s and Martin has long attracted criticism, but contained business success shows that consumers haven’t been put off by his behaviour. While many high street operators struggling Weatherspoon’s like-for-like sales, which strip out the impact of pub openings and closures, were up by 5.3% in the last three months.

The company’s last set of annual figures showed a 4.5% fall in pre-tax profit which some suggested was evidence that Martin’s opinions, which have inspired such Twitter hashtags as #BoycottWetherspoons, were finally turning customers away. However, ales – the real measure of what customers think – were up 7.4% and profits only fell due to an increase in costs.

Now, despite the recent rows, shareholders too have thrown their weight behind the founder and chairman with Martin received an overwhelming endorsement at Weatherspoon’s AGM, with 98% of voting shareholders backing him. He received a warm reception, largely from shareholder who approve of his outspokenness and visibility. One private shareholder, appearing to be making a dig at all-powerful institutional investors who often fail to show up at annual general meetings, asked why votes were not being passed by a show of hands.

“Surely the true shareholders are the ones that are here now?” he said to a chorus of approval. Another complained about big investors abstaining on thorny issues: “You can’t make your mind up? That sounds like Jeremy Corbyn on Brexit”.

After the meeting, Martin continued to share his thoughts on governance, railing against the “absurdity” of the nine-year complain, stating: “They are saying I should have left in 1992 and the board should be dominated by people who are not connected to the company – and the net effect of that is the culture isn’t retained. The fund managers we are dealing with at big institutions seem to be very good but [I think] it is the conflict within their own organisations, where you have got people who are trying to box-tick a set of rules”.

Despite facing criticism, Martin said he had no plans to take the company private: “I am trying to find a platform for the company that lasts beyond me. The public markets should be the right place for a company like Wetherspoons”. Martin concluded that the “weirdest thing” about corporate governance, was that in the end “nothing ever happens”. He had written to shareholders but said he did not receive any replies. “The box tickers have barked but the caravan has moved on,” he said.

Martin’s statements are clearly a step too far. One only has to look at the abuses that happen in the absence of good governance. Nobody, surely, wants to return to the days of three-year rolling contracts for executive directors, signed off by nodding non-executives who routinely stayed so long they became part of the furniture. Boardrooms require fresh blood in order to encourage free thinking. And the expectation that “a chief executive should not go on to be chairman of the same company” exists for sound reasons.

Martin’s argument that “one-size-fits-all does not work in the real world” is however, compelling. Good governance necessarily involves a set of standardised checks and balances, but a holistic approach is needed in order to ensure continued success. It is perhaps Martin’s ability to buck trends and expectations alongside continued growth that means he’s been able to maintain shareholder support, despite losing the backing of the corporate governance professionals.