ENRC oligarch strikes back (with interest) in governance row

It's hard to know what really went on at ENRC. But its co-founder's riposte to all the recent criticism makes some reasonable points about boardroom accountability...

by James Taylor
Last Updated: 19 Aug 2013
'More Soviet than City'; this was the damning verdict on the inner workings of FTSE 100 miner Eurasian Natural Resources Corporation from Ken Olisa, one of the two directors recently ousted from the board by the group's Kazakh owners. But today the company's co-founder Alexander Machkevitch has hit back forcefully at his critics - arguing that the boardroom changes were the only way to improve the company's governance, and suggesting that 'a situation in which very highly paid directors cling to their positions as of right has more in common with Soviet practices than one which provides for democratic accountability.' Ouch...

Machkevitch insists that much of the media criticism has been misplaced and unfair ('I am still struggling to master the English idiom, but there seldom has been an occasion when so many commentators got the wrong end of the stick,' he said, with apparent mastery of the English idiom). It's not true that he and his other two co-founders failed to comply with the UK Corporate Governance Code, he insists; in fact, the only reason they acted was because boardroom relations had broken down completely, and this was having an impact on the share price. The board of 14 had become 'unwieldy and dysfunctional,’ he said; ‘relations between different board factions progressively worsened, resulting in a breakdown in communications.'

As such, the three co-founders wanted ‘to create a smaller, more committed and cohesive board of directors exercising strong central control, with each member immersed in the affairs of the company to a greater extent than has been the case.' This is presumably a pop at outgoing directors Olisa and Sir Richard Sykes, who he said were in favour of shareholder elections being 'a mere rubber stamping of the resolutions put forward' by the directors; they were subsequently voted off by (a fairly conclusive) 84% of shareholder votes cast. In fact, says Machkevitch, their only regret was that 'out of a desire to reach agreement amicably, we did not act earlier'.

There's clearly a degree of special pleading here: Machkevitch knows how much reputational damage has been done to ENRC - and its share price - by this sordid affair, and so it's no surprise that he's trying to paint himself and his co-founders as paragons of virtue and best practice. Equally, it's not hard to imagine that this situation was dealt with in a rather more forceful way than these matters are usually handled in the City.

On the other hand, he's got a point that directors ought to be answerable to shareholders; and that if shareholders think that a board isn’t doing a good enough job, they should be free to change it without being accused of sharp practice. Apparently this was the first time a FTSE director has been voted off the board at an AGM in ten years; since it seems unlikely that every single one has been consistently adding value for the last decade, we're not convinced this is necessarily a healthy state of affairs.

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