If everyone who had been critical of Rolls-Royce over the last couple of years was invited to become a director, the aero-engine maker would need to use Wembley Stadium for board meetings. And the adjoining Wembley Arena too.
ValueAct Capital, a US activist investor, has been lobbying Rolls-Royce chairman Ian Davis for some time to get his act together. In a sort of back-handed compliment which reckons that not even Rolls’ management can stuff up what is, fundamentally, an excellent company, ValueAct took some skin in the game, spending more than £1 billion to take a 10 per cent stake.
It has also been agitating for a seat on the board. In an act of realpolitik, or recognition that its existing board has a gaping hole in its expertise, or of craven weakness, Bradley Singer, ValueAct’s chief operating officer — who Mr Davis is already familiarly referring to as Brad — has been invited in as a non-executive director of Rolls-Royce.
In the interests of disclosure, Rolls confirmed that Mr Singer cannot be considered an independent director. As Brad might say: you betcha.
Whatever the journey to today’s extraordinary appointment — five profits warnings in two years, the departure of the chief executive, a halving in earnings, a halving of the dividend, a cull of senior management — Mr Singer’s appointment raises some difficult corporate governance issues.
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Mr Singer is to be invited to sit on the board’s science and technology committee. This appears to give Mr Singer the keys to Rolls’ crown jewels: its proprietary knowledge ranging from how its larger aeroengines are better than those made by its American rivals to the nuclear engines it makes for Britain’s submarines to how far Rolls has got in its development of commercial supersonic jet engines.
Rolls would appear to be putting a lot of trust in a chap who might not necessarily hang around for long.
The nature of activist investors is that they see underperforming companies, take a punt on getting the management to turn them round, and then cash out so they can set up their next charitable foundation or whatever.
If a 10 per cent stake in Rolls is the trigger to get a seat on the board what happens when ValueAct’s stake falls below 10 per cent? If ValueAct starts drawing down its stake what mechanism is there for Rolls to get Mr Singer off the board?
Word is that one or two other major shareholders are “uncomfortable” with today’s appointment. There won’t be much chance that City types will venture as far north to Nottingham to actually attend Rolls’ annual general meeting in May. But there may be a fair chance that their votes will say something to Rolls’ chairman and his fellow directors about the state of affairs at Britain’s engineering champion.
