I haven't posted any of these corporate governance case studies for a while. As the updated version of my corporate governance textbook is about to be published on 11 March 2018, I thought it was a good time to investigate the corporate governance of another interesting company. The company I have chosen is the Daily Mail and General Trust Plc (DMGT Plc), a UK company. This is a media company which owns a.o. the tabloid The Daily Mail and the free newspaper Metro. It also has a holding in Euromoney Institutional Plc and Zoopla.
I chose DMGT Plc as it is not your run-of-the-mill UK stock-market listed Plc. The typical example of a UK exchange-listed corporation would be a Plc with dispersed ownership and weak control (see Section 3.3 of my textbook International Corporate Governance or its updated version Corporate Governance. A Global Perspective). This is what I call combination A in my textbook (see below figure).
It what follows, I shall be using the 2017 annual report of DMGT Plc, which can be downloaded from here. The Chairman's Statement on Corporate Governance (see page 42) is informative as it suggests that DMGT Plc is a family company:
The rest of the Corporate Governance section is also interesting. For example, while the company complies with the recommendation of the UK Corporate Governance Code that the roles of the CEO and Chairman should be carried out by two different individuals, it does not comply with the Code's recommendation that half of the Board of Directors should be independent non-executive directors:
To sum up, Viscount Rothermere and his family control 100% of the votes in DMGT Plc. The question that arises is at what cost. In other words, what is the ownership of the Rothermere family in the DMGT Plc?
Let us return to the Remuneration Report, more specifically table 11 on page 70. The table reports the shareholdings of the directors, including Viscount Rothermere. The latter, as we already know, owns 19,890,364 or all of the ordinary shares making up 5% of the share capital as well as 61,644,654 A shares. Hence, Viscount Rothermere owns 5% + (61,644,654 / 342,204,470) x 95% = 22.11% of DMGT Plc's share capital. This violation of the one-share one-vote rule is atypical in the UK. More generally, DMGT Plc has dispersed ownership and strong control (see Section 3.4 of my textbook International Corporate Governance or its updated version Corporate Governance. A Global Perspective). This is combination B in the above figure. It is achieved via dual-class shares whereby the large controlling shareholder (the Rothermeres) holds all the voting right and the non-voting shares are dispersed (except for the Rothermere holding of A shares). Funnily enough, a British media company with an anti-EU stance has very much the run-of-the-mill control and ownership structure of a substantial number of EU family firms!
DGMT Plc is not only interesting from a corporate governance point of view, but also from a political or institutional point of view. A relatively small shareholding confers the Rothermeres relatively important political power within the UK.
If you are a minority shareholder in DMGT Plc and worried about the risk of expropriation by the company's large shareholder do not fret as on page 56 there is the following statement:
Legal disclaimer: This blog reflects my personal opinion and not necessarily that of my employer. Any links to external websites are provided for information only and I am neither responsible nor do I endorse any of the information provided by these websites. If I have infringed any copyrights, this has been done inadvertently. Any photos under copyright will be removed once I have been notified of such copyright.
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| An example of a Daily Mail front page |
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| An example of a Metro front page |
I chose DMGT Plc as it is not your run-of-the-mill UK stock-market listed Plc. The typical example of a UK exchange-listed corporation would be a Plc with dispersed ownership and weak control (see Section 3.3 of my textbook International Corporate Governance or its updated version Corporate Governance. A Global Perspective). This is what I call combination A in my textbook (see below figure).
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| Combinations of control and ownership |
It what follows, I shall be using the 2017 annual report of DMGT Plc, which can be downloaded from here. The Chairman's Statement on Corporate Governance (see page 42) is informative as it suggests that DMGT Plc is a family company:
DMGT’s approach to governance is distinctive, as in addition to typical corporate procedures, we are able to rely on and utilise the significant benefits from the family shareholding and the long-term view that this permits.This already sets DMGT Plc apart from other, more typical UK Plc's. The Chairman is Jonathan Harmsworth, the fourth Viscount Rothermere, the great-grandson of the company's founder, the first Viscount Rothermere. Actually, every holder of the title Viscount Rothermere has served as Chairman of DMGT Plc. The following page (page 43) gives us more information about the family shareholding:
Rothermere Continuation Limited (RCL) is a holding company incorporated in Bermuda. The main asset of RCL is its holding of DMGT Ordinary Shares. RCL is owned by a trust (Trust) which is held for the benefit of Lord Rothermere and his immediate family. Both RCL and the Trust are administered in Jersey, in the Channel Islands. The directors of RCL, of which there are seven, included two directors of DMGT during the reporting period: Lord Rothermere and François Morin.
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| The First Viscount Rothermere (on the left) |
The rest of the Corporate Governance section is also interesting. For example, while the company complies with the recommendation of the UK Corporate Governance Code that the roles of the CEO and Chairman should be carried out by two different individuals, it does not comply with the Code's recommendation that half of the Board of Directors should be independent non-executive directors:
The Board believes that its current composition is appropriate taking into account the heritage of the Group, the interests of our operating businesses represented on the Board, and that a good balance is achieved from the Board’s Non-Executive Directors in terms of skill and independence. The Board keeps this under review. Less than half of the Board are Independent Non-Executive Directors, which is not in line with provision B.1.2 of the Code.What follows contains detailed information about the board committees as well as the Remuneration Report. However, I am going to start with the Statutory Information on pages 81-83. First of all, Rothermere Continuation Limited (RCL) owns 100% of the ordinary shares. Second, DMGT Plc's share capital is composed of 5% of ordinary shares (or 19,890,364 ordinary shares of 12.5p each) (all owned by Rothermere) and 95% of A shares (or 342,204,470 A shares of 12.5p each). Hence, DMGT Plc is one of the UK listed Plc's with dual-class shares (see Section 3.3 of my textbook International Corporate Governance or its updated version Corporate Governance. A Global Perspective). While the Corporate Governance section does not explicitly state that A shares have no voting rights (all it does is to state that ordinary shares have voting rights), footnote 38 on page 169 clearly states the following:
The two classes of shares are equal in all respects, except that the A Ordinary Non-Voting Shares do not have voting rights and hence their holders are not entitled to vote at general meetings of the Company.So never fully rely on the Corporate Governance statement. To be fair the Corporate Governance section on page 81 refers to footnote 38, but who does read footnotes (especially those placed much further down the company report)?
To sum up, Viscount Rothermere and his family control 100% of the votes in DMGT Plc. The question that arises is at what cost. In other words, what is the ownership of the Rothermere family in the DMGT Plc?
Let us return to the Remuneration Report, more specifically table 11 on page 70. The table reports the shareholdings of the directors, including Viscount Rothermere. The latter, as we already know, owns 19,890,364 or all of the ordinary shares making up 5% of the share capital as well as 61,644,654 A shares. Hence, Viscount Rothermere owns 5% + (61,644,654 / 342,204,470) x 95% = 22.11% of DMGT Plc's share capital. This violation of the one-share one-vote rule is atypical in the UK. More generally, DMGT Plc has dispersed ownership and strong control (see Section 3.4 of my textbook International Corporate Governance or its updated version Corporate Governance. A Global Perspective). This is combination B in the above figure. It is achieved via dual-class shares whereby the large controlling shareholder (the Rothermeres) holds all the voting right and the non-voting shares are dispersed (except for the Rothermere holding of A shares). Funnily enough, a British media company with an anti-EU stance has very much the run-of-the-mill control and ownership structure of a substantial number of EU family firms!
DGMT Plc is not only interesting from a corporate governance point of view, but also from a political or institutional point of view. A relatively small shareholding confers the Rothermeres relatively important political power within the UK.
If you are a minority shareholder in DMGT Plc and worried about the risk of expropriation by the company's large shareholder do not fret as on page 56 there is the following statement:
The Chairman of the [Remuneration & Nominations] Committee is Lord Rothermere and the majority of its members are not considered to be independent under the Code. Although this does not meet Code Provision B.2.1, as holder of all the Ordinary Shares of the Company through the Trust, the Board considers that Lord Rothermere’s interests are fully aligned with those of other shareholders. [...]I hope you enjoyed this case study! While corporate governance reports contained in UK annual company reports have improved massively in recent years, the above case study nevertheless illustrates that a bit of detective work may still be required. This case study also illustrates that individual companies may deviate substantially from national norms in terms of ownership, control and governance.
Legal disclaimer: This blog reflects my personal opinion and not necessarily that of my employer. Any links to external websites are provided for information only and I am neither responsible nor do I endorse any of the information provided by these websites. If I have infringed any copyrights, this has been done inadvertently. Any photos under copyright will be removed once I have been notified of such copyright.
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