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The Observer: A red card for teams behaving badly


Heather Connon talks to Robert Talbut of Isis, which is leading negotiations with Shell over its governance structure


Sunday April 11, 2004


When Wayne Bridge scored the 87th-minute goal that sent Chelsea through to the Champions League semi-final, Robert Talbut was on the edge of his chair. 


A season ticket holder at Stamford Bridge, he could not get a ticket for the game but: 'I shouted, I screamed, I clapped, I dreamed.'

That is not a bad description of what he does in his day job as chief investment officer at Isis Asset Management, albeit with rather more restraint than when watching his beloved Blues seeing off Arsenal.


In the league table of shareholder activism, Isis has a secure position in the Premier League and Talbut is not afraid to scream - or at least to talk publicly, which is the fund manager's equivalent of using a loud-hailer - when he sees manoeuvres he doesn't like. Equally, however, he is willing to applaud if he thinks a management team's performance is good enough to justify ignoring the offside rule.


Although created in its current guise just two years ago, Isis can trace its roots back to 1895, when Ivory & Sime established its first investment trust in Edinburgh. That firm spawned many of the current crop of fund management stars, including Aberforth and Artemis, but struggled to keep its team of stars under control and, in 1998, it was acquired by Friends Provident as a way of getting a public quotation for the insurance group's fund management arm. Four years later, Friends Ivory & Sime acquired the investment management arm of Royal & Sun Alliance and changed its name in the process.


Following that deal, it has 63 billion under management, spread between a range of products including investment trusts, pension funds and private equity funds and speaks for around 1 per cent of the UK stock market.


Isis is a relative newcomer to shareholder activism. None of the firm's parents had much of a reputation for corporate governance activity although Friends, whose Stewardship Fund was the first-ever ethical fund in Europe, had a strong history of socially responsible investment. This included a commitment to voting on all resolutions that has become part of a wider commitment to shareholder activism.


'The two do go well together,' said Talbut. 'We would argue that, if a company performs unethically, it is unlikely to be a good financial investment. We also understand that not everyone wants a pure ethical approach but people increasingly want their fund managers to engage with companies to improve financial performance.'


Isis has been involved in four of the five major corporate governance battles over the last year - the exception was the protest against J Sainsbury's brief appointment of Sir Ian Prosser as its chairman-elect - and is leading the negotiations with Shell over its governance structure following the surprise reduction of reserve estimates and departure of chairman Philip Watts. Many more negotiations have been done quietly and, while Talbut thinks 'it is generally to be regretted' if things have to go into the public domain 'it can be very successful in bringing about change'.


It can also be a useful signal to observers, both from the corporate sector and government. 'If you do not see some things going public, you do not understand that there is a lot of work going on behind the scenes. So it is probably useful to demonstrate that shareholders are prepared to stand up for things they feel strongly about.'


Despite these spats, Talbut believes that relations between companies and investors remain good. He identifies two key gripes among companies: that investors should name an equivalent of a senior independent director to be company's main point of contact (Isis's is Richard Singleton) and that they all have too many codes.


The latter complaint, he says, misses the point that all are based on the same framework: the Stock Exchange's combined code. Besides, he adds, if everyone had the same codes, institutions could really be accused of box-ticking. 'It should be seen as a success that we take different views on different issues.'


He admits that there is a danger of getting 'carried away and believing that the role of investors is to micro-manage the company'. But he is clear that their interest should be restricted to the big strategic decisions: the appointment of the chairman, if the company is in an uncertain position; mergers and acquisitions and the significant decisions on pay. The rest is up to management.


He is concerned, however, about the increasing pressure being put on company chairmen. He can identify a dozen FTSE 100 companies, including MM02, Severn Trent, GlaxoSmithKline, Sainsbury and WH Smith that are either publicly searching for candidates to fill the post or have privately signalled they will do so within the next year.


'I'm told companies are finding it difficult to finds lists of who to consider.' He pointed to recent appointments at Reuters and BAE Systems, where the salaries agreed have risen considerably. 'Remuneration has increased a lot but it is still tricky to find quality candidates.'


Man of the match


Robert Talbut was a footballer, and is now in the unusual position of having been made man of the match despite being on the losing side. As head of investment management at Royal & Sun Alliance when the business was bought by Friends Ivory & Sime two years ago, he would normally have been expected to cede that role to his opposite number at the acquiring firm.


Instead, however, he was chosen to head the investment business and has since set about raising the profile of its fund managers as well as involving himself in many of the more contentious corporate governance disputes, like GlaxoSmithKline's remuneration package and the leadership of ITV.


Yet Talbut does not seem particularly imbued with fighting spirit. Quietly spoken and measured in his comments, he also displays flashes of humour that suggest he does not always take his role so seriously.


Indeed, he was sufficiently light-hearted to submit himself to an analysis of his handwriting by a newspaper a year ago: the graphologist found that he was 'capable of creating a public image that is far removed from [his] true and inner personality' and 'extreme independence in [his] work environment' - both characteristics that are doubt less valuable in fund manage-ment.


It has been his sole career to date - although at 43 he has plenty of time to consider others should he so wish. He graduated from Warwick University with a BA in economics in 1983, adding the General Management Program at business school Insead five years ago.


His career started at Royal London Asset Management and he also worked at Chase Manhattan and before joining Royal & Sun in 1996.


He is married with four children. As well as supporting Chelsea, he enjoys travel, music and golf.


It's time to split on Wall Street for US bosses


Within five years, most American companies will have separate chairmen and chief executives, predicts Jamie Heard, vice chairman of the leading proxy voting agency, Institutional Shareholder Services.


It may not sound that radical - after all, it has been the norm here for almost 10 years. But if he is right, it would be a clear signal that the US was finally taking corporate governance seriously.


His optimism is based partly on Disney, where a record 46 per cent of shareholders voted against the re-appointment of Michael Eisner, forcing him to stand down as chairman while keeping the chief executive's post. This, Heard says, has given 'real impetus' to the campaign.


But he points to companies like Dell and Oracle, which have also recently split the roles. 'They have not all done it in the optimal way,' he said. 'Both bosses stepped up to be chairman rather than staying as chief executive. It would be best to have someone independent coming in as chairman but it is a step in the right direction.'


Heard, who was chief executive of ISS - one of the first ever corporate governance pressure groups - for a decade, was in London attending a board meeting of REV, ISS's proxy voting joint venture with the National Association of Pension Funds. He thinks that the size of the vote against Disney indicates that more US shareholders are following the lead of our own, more activist, institutions. While he does not expect activism to reach the intensity it has here, he believes that legislative changes forcing mutual funds to disclose how they vote is forcing them to take their responsibilities more seriously.


'The scandals have also awakened the major institutions. They realise that bad corporate governance is a risk factor.'


He sees the excessive levels of executive pay as the Achilles heel in the corporate governance system but accepts that it is unlikely that absolute levels will be reduced. While many companies are still resisting that, Heard sees reason for encouragement even here. 'IBM is now setting performance targets for share options. That is very positive.',6903,1189510,00.html

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