Barclays, Bramson, and Lessons Learned
Barclays, one of the UK’s largest banks recently has recently come under attack by activist investor Edward Bramson. Bramson threatened major changes in the boardroom after announcing plans for a shareholder vote on the company’s leadership and strategy. In order to push his agenda forward, Mr. Bramson spent approximately GBP 900m building a 5.5% stake in Barclays through his investment vehicle Sherborne Investors. After acquiring this stake, he told his own shareholders that such vote was necessary at Barclay’s, given that “consistent engagement” with the bank had failed to yield results. At the time, Bramson’s argument touched on the classic activist stance of reorganizing a company’s capital allocation and growth strategy in this instance by pushing the company to scale back its investment banking business, which he said has “strategic weaknesses”. Instead, he argued that resources should instead be funneled towards the bank’s “attractive” consumer retail operations.
In a letter to shareholders, Edward Bramson, submitted a resolution to ask shareholders to appoint him to the board at the company’s annual general meeting, which was scheduled to be held May 2, 2019.
This move represented the first formal attempt by Bramson to win shareholder support for his campaign, after Barclays rejected his previous request to become a non-executive director in September 2018. In a letter to Sherbrooke investors in December, Bramson indicated that he would seek board changes at the meeting in May or call a special meeting of shareholders.
In February 2019, Barclays announced its full year results for the financial year ended December 31, 2018. The financial year results disclosed the following key highlights:
When Barclays released the full year results for 2018, market watchers praised it as a victory for the company in its fight against Bramson. Aviva Investors, formerly a staunch supporter of Edward Bramson as a candidate, said it will support the Bank and vote against Edward’s election to the Board. The announcement from Aviva came as Barclays’ markets division reported fourth-quarter results that were better than European peers. This strong performance punched a hole in Mr Bramson’s theory that the unit should be scaled back.
A key feature in the consideration of the initial launch of Bramson’s campaign represents an almost formulaic approach for activists. Historically, lowered financial returns have motivated activist entities to seek a board seat or management change in order to influence the company’s capital allocation or business strategy. Initial research by CGLytics to be published in a forthcoming article on the red flags for investor activism indicates that lowered financial returns often allows a crack in the door for activists to enter into the debate over company strategy. Once a part of the argument, the activists push change at a higher corporate level. This is often compounded by a lack of technology expertise on the board, as technology is being incorporated into the vast majority of business operations. A cursory look at the board composition of Barclays indicates that it used to fit these two criteria, with at least two of the red flags present: initial lowered financial returns and a lack technology expertise on the board.
At the Annual General Meeting on May 2, 2019, the resolution to elect Edward Bramson to the Board only received the support of 12.79% of shareholders. Although an anticlimactic end to a six-month campaign, many found the results unsurprising. The influence of proxy advisors could not also be overlooked. Ahead of the meeting, Bramson’s attempt was dealt a heavy blow when the two largest proxy advisors, ISS and Glass Lewis, came out in support of Barclays and recommended against the election of Bramson to the board.
As indicated above, corporate boards increasingly require a broader range of analytical tools to identify the red flags that may potential make them a target for activists such as Bramson.
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