How Anne Richards toppled a damaged Iain Watt
SHE is the Edinburgh woman who engineered the biggest palace coup against cronyism — and male-dominated business — that a Scottish boardroom has seen in a very long time, or perhaps ever.
Anne Richards has ushered in a new era in Scotland by unseating the Edinburgh Fund Managers chief executive Iain Watt while at the same time precipitating the departure of its chairman John Wright along with three other non-executive directors including Scotland’s most famous and revered business figure, Sir Angus Grossart.
And while the future is uncertain for the Haymarket-based company, EFM’s chief investment officer has swept away this old guard to replace it with openness and improved corporate governance. Overnight, the 38-year-old fund manager, who only joined Edinburgh Fund Managers from London based Merrill Lynch Investment Managers (MLIM) a few months ago, has given a new sense of hope to the 240 staff at EFM’s head office as well as to its long-suffering shareholders.
The former engineer, who controlled assets worth around £10 billion at MLIM’s ‘alpha’ team, which oversees funds for smaller institutional clients, has also created a healthier climate in which EFM should be able to draw a line under an unhappy few years and recover some credibility in the market.
“This is a terrific opportunity for us,” said one of EFM’s more fired up staff members after the events of last week. “There’s a breath of fresh air blowing through the building.”
Things came to a head last Tuesday when two EFM executive directors — Richards and chief operating officer Rod MacRae — attended a meeting at the City offices of investors M&G on Laurence Pountney Hill.
A group of exasperated shareholders holding more than 50% of EFM’s shares called for a special board meeting to be held at the earliest possible opportunity. They had had enough, and wanted Watt’s head “on a platter”.
It has been a long time coming. Talk to anyone in the investment business — or even almost any EFM employee — and they usually wonder how the irascible Watt clung on to the reins for so long. His track record at EFM had been lamentable and investors have been wanting him out for many months.
Angus MacDonald, chairman of eFinancial News, resigned as a non-executive director of Edinburgh Fund Managers in March because he was increasingly unhappy with the job that Watt was doing and believed the asset management group needed a new chief executive.
EFM has been struggling to remain profitable as falling stock markets have eaten into revenues and hit new business. Investment performance has been poor, leading to the loss of leading clients, including the £1.2bn Edinburgh Investment Trust.
Assets under management have halved this year. Profits for the half year to the end of July fell 22 per cent, and in August the firm said it would close its US and Canadian offices. Some shareholders believe the group is poised to plunge into the red.
To these circumstances, Watt’s only response was to say “Don’t worry, things can only get better,” according to one shareholder. Many industry observers argue a key problem with Watt’s strategy was it was unfocused. They say unless the firm abandons its aspirations to remain a player in the highly competitive retail investment market, it will hit the buffers.
One Edinburgh Fund Managers insider said: “Iain had lost support not just inside the business but also among shareholders and clients. The only constituents who still supported him were John Wright (chairman of EFM) and the non-executives. In the last few months Anne and Rod have been having to keep him ring-fenced, ensuring he did not come into contact with either shareholders or clients.”
The hammer blows came last Thursday morning in two separate board meetings held in the Georgian splendour of Noble Grossart’s offices at 48 Queen Street. Legal advisers, including Bruce Minto of solicitors Dickson Minto, were present throughout. First to be ‘removed’ from the board was Watt. Then in an extraordinary sequence of events, Watt’s remaining cheerleaders on the EFM board — Grossart, Wright, Donald MacDonald and Johnnie Blair — all resigned.
Rod MacRae, who joined EFM as compliance officer in the early 1990s and stepped up to the board last May, said: “We were called back into the meeting to be told the non- executives had resigned as a group. We had thought one or two might resign but not all four. It really was most unusual.”
A shareholder denied the quartet of Watt supporters had been forced out. He said: “It was their decision to resign — and they did this because they were too close to the management.”
Johnnie Blair (a partner in law firm Anderson Stathern WS) and Donald MacDonald (co-founder of MacDonald Orr and City Inns) had apparently also discussed the situation privately and decided that, following Wright and Grossart’s resignations they should follow suit in the interests of corporate collective responsibility. One insider said: “The pair could see the way the wind was blowing they had no alternative but to leave the board.”
However, corporate governance experts surprised by the massed exodus, suggesting a board’s responsibility is to its shareholders and other stakeholders rather than to a friend who is failing as chief executive. The sources said: “It’s astonishing. Board directors are supposed to face up to their difficulties rather than walk away.
“The duties of non-executive directors are meant to be to all stakeholders including the shareholders, clients and staff.” Asked whether Grossart would be upset by what happened, the source said: “Angus has rhinoceros hide skin. He’ll just say ‘the caravan moves on and I move with it’.”
So where now for EFM? It seems shareholders are happy to give Richards and MacRae, now joint managing directors, their head to assess the situation and launch a revised strategy which may or may not involve joining forces with another industry player. However it appears that Tony Watson, the chief executive of Hermes Pensions Management, who resigned as an EFM non-executive director in August, has no interest in making a another attempted takeover of Edinburgh Fund Managers, having pulled out of talks to acquire it in March,
Wright, former chief executive of Clydesdale Bank and Yorkshire Bank, and Donald MacDonald (no relations of Donald Macdonald founder of Macdonald Hotels) are expected to continue with their other directorships.
And Richards? She has become a corporate hero overnight.
This article was published in the Sunday Herald on 1 December 2002