Scottish Mortgage fires non-executive director after boardroom collision

Baillie Gifford’s flagship company, the Scottish Mortgage Investment Trust, relieved one of its non-executive directors at a board meeting on Thursday over what he said was a disagreement over the appointment of new board members at the £13.4bn FTSE listed company.

The breakup on the board of one of the UK’s best-known investment vehicles comes after a year in which the trust’s share price has plunged more than 30 percent as the rise of growth stocks that had boosted the trust’s performance over the past decade , was held back by higher interest rates.

It also follows a change in management at Scottish Mortgage after James Anderson, an early financier of companies including Tesla, Amazon and e-commerce giant Alibaba, retired last year after nearly four decades with the Edinburgh-based private partnership. He was replaced at Scottish Mortgage by his co-manager Tom Slater and Lawrence Burns.

Amar Bhidé, director of Scottish Mortgage since 2020, told the Financial Times that he had clashed with chairman Fiona McBain over the process to appoint two new board members and his assessment of the risks of the trust’s investments in privately held companies , valued at £3.8 billion at the end of January.

Bhidé, a business academic and author who holds no other directorships, said he felt he couldn’t go quietly. “I’ve been very concerned about the share price trend and the discount, and I’ve tried to get people to understand that there’s a structural reason for this.”

Bhidé said he had tried to raise concerns about the portfolio’s exposure to illiquid assets at a time when a sell-off in public technology markets heralded a private reckoning. Under Anderson’s leadership, Baillie Gifford’s pioneering shift to venture capital investing more than a decade ago was partly responsible for the rise of Scottish Mortgage.

Comparing the trust’s resources and low fee structure to those of venture capital groups and other specialists, he said: “In my opinion, they lack the capabilities and governance power to oversee the illiquid investments about which there is little audited information in the public sphere. The fact that you’ve been doing it for the past 10 years is due to a completely anomalous period in financial history. Don’t kid yourself that you can keep playing this game.”

Bhidé said there was disagreement over the criteria for new directors and the recruitment process. He said: “My concern is that no one on the board has any professional investment experience. This board urgently needed people who knew what they were doing.”

He said McBain controlled that process. “The chairman of the board is well past the nine-year date when you are supposed to retire. She is well past the point where she had any independence and her role, as far as I can tell, is to protect managers from criticism and questioning.”

The UK corporate governance code recommends a nine-year limit for CEOs from the date they become a non-executive director. McBain joined the Scottish Trust council in 2009.

In a statement, McBain said: “Current topics such as short-term volatility, stock prices and private companies are regularly discussed with shareholders in various forums by Scottish Mortgage managers. They are also extensively discussed and monitored by the board.

“As Chairman of Scottish Mortgage, I am fully confident that the Scottish Mortgage Board provides robust governance and oversight. We remain confident that the managers are following the right long-term investment approach and building a portfolio of transformational companies that can deliver returns to shareholders in five years or more.”

Scottish Mortgage has a strong long-term track record. In the 10 years to the end of February, it had gained 361.7 percent, surpassing its FTSE All-World index benchmark, which was up 183.1 percent over the same period.

Bhidé is a professor of business administration at Tufts University in Massachusetts and the author of A Call to Judgment: Wise Finance for a Dynamic Economywho advocated human decision-making in financial institutions over centralized financial models.

Last year, Baillie Gifford suffered the largest annual drop in assets under management. The Edinburgh-based partnership’s assets under management fell by a third, from £336bn at the end of 2021 to £223bn at the end of 2022. The decline was largely driven by valuation declines in the investment portfolio.

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