Thursday, 6 July 2017

Nex Group chair costs himself £25,000

Next Group, the successor company to ICAP, just managed to publicly humiliate itself by spending company funds on political campaigns.

The company has its AGM next Wednesday and disclosed in the notice of meeting that it had spent £25,000 funding five Conservative Party candidates facing Liberal Democrat challengers in the last election. This was literally a waste of money, since three of the Tory candidates lost.

Following exposure of the donations by The Independent, backed up by a great comment piece, the company issued a statement that the donations were the initiative of the chairman, Charles Gregson, and that he would personally pay back the £25,000. In addition to the media coverage it was clear that various proxy advisers had recommended opposing the resolution at next week's AGM seeking authority to... err... make political donations, and that a number of shareholders would indeed have voted against.  

And they may still. Because there is something pretty disturbing about this case. A PLC can't make donations without shareholder approval. This will be Nex Group's first AGM, so it had not sought prior approval as Nex Group. But the forerunner company had sought shareholder approval at its AGM last year.

Here's what it put in the notes to the resolutions (my emphasis added) in their notice of meeting:

Authority to make political donations (resolution 12)
Resolution 12 is to approve the making of political donations and incurring of political expenditure by the Company and any of its subsidiary companies of up to an aggregate amount of £100,000 in the period up to the Company’s annual general meeting to be held in 2017. The Act contains restrictions on companies making donations to political organisations or incurring political expenditure without prior shareholder approval. The directors have no present intention to make political donations but, because of the broad definitions of political donations and political expenditure contained within the Act, the directors consider it prudent to obtain this shareholder approval. There has been no expenditure under the corresponding authority obtained at the 2015 annual general meeting of the Company. 
This is important. Many companies seek authority to make political donations, but do so to avoid being caught by a wider definition of "political expenditure" (paying for stands at conferences etc). When seeking these authorities companies typically explicitly state that the authority will not be used to make political donations. As you can see, ICAP strongly suggested this would be the case. But donations were made by Nex Group in any case (assuming Nex used the carried over ICAP authority).

At the least this is a breach of investor trust, and I seriously question why any shareholder would vote for the resolution next week after this has happened. But I wonder whether a shareholder could argue that this is actively misleading - I've seen cases taken over misleading IPO docs for example. Companies rarely completely fold to campaigners' demands immediately, but the fact that the chair immediately agreed to pay the money back out of his own pocket makes me wonder if the board thinks they crossed a line.

More generally, perhaps it is time that shareholders toughened up on the issue of political spending overall. Why not ask for disclosure of any spending that the company thinks falls within the wider definition of political expenditure? It might shake some interesting data out, and reveal things shareholders may be uncomfortable with.

Finally, I can't help but notice that the chair of Nex Group is also a non-executive director of Caledonia Investments, which people may remember had a bit of history of this kind of thing which also ended badly.

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