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Boardroom dispute leaves Scottish Mortgage under spotlight 

March 2023


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Acrimonious director arguments do not often surface into the light, and judging by what is happening at Scottish Mortgage Investment Trust, that is just as well. The normally sedate investment company has lost a director and its chair over a boardroom spat turned barroom media brawl concerning its strategy and, particularly, the transparency of its directorship appointments. 

The argument raises questions over the correct balance of power when it comes to the appointment of directors — which is what eventually brought the issue into the public realm — and having processes in place to deal with legitimate, or otherwise, concerns. 

At heart, Scottish Mortgage is about what happens when dispute management goes bad. 

So how did things get to where they are now, the loss of both the chair and the activist director, plus unwanted headlines and a negative impact on the company’s share price? 

Scottish Mortgage is the largest of the UK’s 377 investment trusts and Amar Bhidé joined the board of Baillie Gifford’s flagship investment trust three years ago with a reputation as someone who would not be shy away from taking the company’s investment managers to task. 

He departed in acrimony this March, after criticising colleagues for a “natural avoidance of difficult questions after things have gone so well for so long”, as the FTSE 100-listed company announced a boardroom shake-up, with chair Fiona McBain also to stand down after this year’s AGM, while director Paola Subacchi will also retire from the board after nine years. 

Governance at heart of dispute 

The Edinburgh-based private partnership has found itself at the centre of an embarrassing episode that spotlights governance as much as investment experience or management after a scathing attack by Bhidé, who went public with his concerns about the length of McBain’s tenure, the board’s lack of investment expertise, its shareholder communications and the trust’s investments in unlisted companies. 

The dispute came to a head at a director meeting at Baillie Gifford’s offices in which Bhidé was unhappy with the process to recruit two new directors and was asked to resign. 

Refusing, he said he would have to be fired — and left the meeting under the impression that he had been. “Unambiguously I had been removed at the end of the meeting,” he said. 

But after the Financial Times reported his exit on March 17, Scottish Mortgage said the following day that in fact he remained on the board, before confirming his departure on March 21. 

Bhidé has subsequently presented his concerns to the Financial Conduct Authority over the trust’s director selection process and, in a LinkedIn post, he said: “I believe I fulfilled my duty to stockholders by attempting to make public my concerns about the director selection process to the FT. I have provided evidentiary back up to the Authority and will be speaking to them shortly.” 

According to him, going public was a “last resort after numerous private attempts I made to rectify, going back several months, failed”. 

Whatever the reality of the matter, where Scottish Mortgage’s governance failed is in finding a way to resolve the boardroom dispute internally, with a clear and unambiguous process that allowed Bhidé to raise his concerns and for them to be dealt with through the company’s statutory channels. 

“One of the reasons that dispute processes are so important is that they need to provide all parties with an agreed and prescribed pathway to resolution and it is the Company Secretary who can ensure that proper procedures are followed and that the complainant is given a voice,” says Bridgehouse director Ibi Eso. 

“Equally, the Company Secretary is there to document everything that has been said, and capture the tone and intention of conversations, so that the company’s actions in applying policies and procedures as discussed within meetings are transparent and are clear to those not in attendance,” adds Ibi. 

“What any company wants is for these disagreements — and it’s inevitable that there will be differences of opinions among motivated and passionate directors — to be dealt with in an equitable and timely manner that does not end up having a negative impact on the company’s reputation.”