M&C Report group editor Paul Charity examines the turmoil on the board of Mitchells & Butlers:
It’s got to the stage where the game of musical chairs at Mitchells & Butlers (M&B) is turning to farce as the power struggle for control of the company rumbles on.
The company is currently looking for its fourth chairman in 18 months - and still hasn’t filled its chief executive vacancy four months after the sudden departure of chief executive Adam Fowle.
The exit of chairman Simon Burke on Thursday was left unexplained - he’d only lasted five months. For the moment there’s an acting chief executive, Jeremy Blood, and an acting chairman, Bob Ivell. Thursday also saw non-executive director Michael Balfour step down - both Burke and Balfour’s details had been erased from the M&B website by noon.
The boardroom situation has become so unstable at M&B that Paul Hickman, of Peel Hunt, moved to a sell recommendation on account of the constant flux.
Small shareholders (and would-be shareholders) have every right to be wary of the latest developments. Perception is the same as reality and from the outside it looks like only one thing - independent board directors are finding it very hard to work with the companies two largest shareholders, Joe Lewis and Elpida, who are looking to exert as much control as possible on the company.
The appointment of Bob Ivell as interim chairman will only heighten the fears of institutional investors and small shareholders that there interests are not being independently represented. Ivell has plenty of experience within licensed retail. But he also has very strong links with Elpida - he was deputy chairman of fitness chain Next Generation at a time when it was owned by a group of Irish investors including Elpida owners JP McManus and John Magnier. (M&C Report columnist Simon Bowers noted last month that a biography of Bob Ivell on the M&B website mentioned many past directorships but left off his Next Generation stint. It’s now on there.)
It’s hard to argue that Ivell is a completely “distanced” appointment. Adding to the concerns is the (unusual) appointment of Piedmont representative Ron Robson as non-executive deputy chairman, a new role that seems to position him as Ivell’s successor should things not work out.
The rumour mill has gone into overdrive again. My sources talk about turmoil on the M&B board between independent directors and the two majority shareholders. One suggestion is that Burke found non-executive nominees of his blocked and therefore felt his only option was to step down.
A second source went further and suggested that Burke had offered up a preferred candidate for the chief executive position - and found it vetoed. Another rumour doing the rounds is that Adam Fowle decided his position was untenable in March after a number of acquisition and disposal recommendations had been blocked by the two largest shareholders.
I think the situation does speak to a fundamental weakness in corporate governance. It has clearly proving impossible to keep the two large shareholders’ interests - with a total shareholding above 40% - in balance with the remainder of the share register.
Some are speculating that Piedmont and Elpida are planning to take the company private fairly soon. Others tell me they think the issue is entirely about control for now - with a bid for ownership of the company, at a depressed price, more of a long-term goal within the next two or three years.
I wonder why you’d bother to take the company private when you can direct strategy, in the tradition of Piedmont’s predecessor Robert Tchenguiz’s R20, from a smaller ownership base.
What is for certain is that M&B has now clocked-up a half-decade of board level disruption and uncertainty if you count the R20 period of involvement stretching back to 2006. It’s been remarkable that M&B has still been delivering operationally during that period.
It is surprising, though, that Joe Lewis is willing to risk the disaffection of the key operational staff at M&B in the current fashion. The executives at his United States restaurant business Tavistock Leisure I met in Chicago in May talked about him with warmth - and said they valued his input on a number of operational issues.
The danger for Lewis and his Irish co-investors is that the unstable situation they have created within the M&B board ends up spreading through the organisation’s real talent. M&B might well have the UK’s best licensed retail property portfolio - but former chief executive Tim Clarke used to argue it had the “best people’ too. Great property remains great property - great people can move on. And performance, as we’ve seen in the past, can slip remarkably quickly.
