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Last updated: March 3, 2016 6:32 pm
Schroders came under heavy fire from shareholder groups and investors on Thursday after the asset manager elevated its chief executive to chairman, contravening a major principle of best practice for UK companies.
Michael Dobson will step down as chief executive of Schroders after 14 years in the role to become non-executive chairman. He will be replaced by Peter Harrison, the head of investment, who has been widely tipped for the job since he joined the board in 2014.
The move flouts the UK code of corporate governance which recommends that companies should not move a chief executive to chairman, but if exceptional circumstances warrant it, a company should explain to shareholders why it has done so.
The Institute of Directors said Mr Dobson’s appointment as chairman “raised concerns” about corporate governance. “Although we understand Schroders’ desire for continuity, this should not come at the expense of board independence,” it said.
The IoD added: “Strong performance is no excuse for ignoring the corporate governance rules without a very convincing explanation.”
Alan MacDougall, managing director of Pirc, a corporate governance consultancy, called the appointment “unacceptable”. “It will be very hard for his successor to carve out an independent strategy,” he said. “Is that what Schroders plc needs right now?”
Investors also expressed their disapproval. One top 20 shareholder complained of a lack of consultation, and warned Mr Dobson risked becoming a “back seat driver”.
Another said: “We are very angry about the way Michael Dobson has been made chairman. I think it is good that Peter Harrison is taking over as CEO, but they do not need Dobson there.”
Mr Dobson defended his move, saying: “We know the code says chief executives should not become chair but the board has decided it is in the best interests of the company, bearing in mind my experience and knowledge of our clients.”
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He added: “At a professional level he [Mr Harrison] has a strong personality and has his own views. He will have a different emphasis and I will be there to support him.”
The Schroder family, which owns 45 per cent of the fund house, supported the move, said Mr Dobson, meaning it is likely to be approved at the company’s annual meeting next month. M ost investors were happy with the decision, he added, but a minority were likely to vote against his elevation.
As a counter balance to his own position, Mr Dobson said the board was changing and he would consider adding independent directors. He justified a higher chairman’s fee — £625,000 compared with £325,000 in 2014 for Andrew Beeson, his predecessor — saying he would be more active in talking to investors and partners.
Mr Harrison had been agitating for the top job since he rejoined Schroders from RWC Partners in 2013, according to people familiar with the matter. The 49-year-old began his career at Schroders as an equities analyst in 1988. His pending elevation was first reported by the Financial Times.
Schroders also announced that Massimo Tosato, executive vice-chairman and one-time favourite to replace Mr Dobson, will retire as a director and leave at the end of next year.
The asset manager announced on Thursday that profits before tax were up 14 per cent to £589m, while assets under management increased by £13bn to £313.5bn on the previous year. Schroders raised its full-year dividend by 12 per cent to 87p.
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