The latest report, which reviews the personal investment of directors and management of 279 investment companies, found 10% of board directors in post for a year or more had no investment in the company they direct, neither did 25 board chairmen.
While Canaccord report some improvement in the figures since they began publishing the review in 2012, with the total investment by boards and managers now standing at £1.68bn, marginally higher than in 2014 (£1bn) and 2012 (£687m), analysts Ben Newall and Alan Brierley strongly believe board members having their ‘skin in the game’ is a clear vote of confidence in the company’s investment prospects.
In the report, Newall and Brierley wrote: “While no guarantee of superior performance, in order to align interests, investors look for directors and managers to have a meaningful personal investment in the companies which they direct and/or manage. This is the unequivocal view of our clients, and we strongly believe that skin in the game sends a clear and powerful message to both existing and potential investors.
“We are encouraged that significant progress has been made on a number of fronts since our original review in 2012 – which provoked the infamous comment “I’m on so many boards, I couldn’t possibly have an investment in all of them”. That said, there is still room for improvement and an apparent lack of conviction by some does not sit easily with the degree of commitment expected by investors.”
In total, there were 43 investment companies where all their board members held a significant investment equivalent to more than one year of fees, but this drops to just 16 for the number of companies where all board member’s holdings were worth more than two years’ worth of fees.
Schroders Income and Growth was one of the 16 where all board members held an investment worth two years of fees or more, something which John Spedding, the firm’s head of investment trusts, said sends a ‘strong message’ to investors.
“One of the significant benefits of the investment trust structure is the oversight by an independent board of directors. The holding of shares in the trust by the directors gives a strong message to investors that those directors are aligning the interests of the investors to their own,” he said.
