Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 440-459)



Dr Palmer

  440. You have referred to the Board. How did the Board feel about these developments? Did you get any warning or instructions through Aberdeen as the share prices and the level of zero cover plummeted?

  (Mr Fishwick) Do you mean the Board of Aberdeen plc?

  441. Yes.

  (Mr Fishwick) Were there any concerns as they plummeted? I think we all started to get concerned 18 months ago as markets continued to fall because the Board of Aberdeen are intelligent people, as are most people in the City, and quite clearly if you borrow money and assets go down, you start to get in trouble. It is straightforward mathematics. Anyone who thinks any different must be crazy.

  442. What about the Board of Aberdeen Preferred Income Trust, to be a bit more specific? Did they express concern at any point?

  (Mr Fishwick) We and the Board of Aberdeen Preferred—it is interesting because it is a very old fund, a fund which was launched just before I arrived back in 1991, so it is a twelve-year-old fund which met between six and twelve times a year, full of some pretty clever, sophisticated people. They completely understood the portfolio evolving.

  443. So they were relaxed about the development?

  (Mr Fishwick) No, I think when assets start to fall, you are not relaxed and that is why they took the action, as we did, to try and repay the debt, significant amounts of debt. We have repaid £100 million of debt in the last 12 months in conditions that were very, very difficult, so we have been attempting to de-gear these assets. We have not just borrowed a lot of money, sat there, let the markets fall and do nothing, as people believe. We have repaid over £1 billion in the last 12 months against hostile conditions. The thing is that we actually should have sold all our stock when the Index was at 7,000 and re-paid all our debt, but we actually have been working tirelessly, 18 hours a day, and the Board were meeting every two or three days over the last two months, so yes, they are working.

  444. That is the last two months, but you will agree, I think, that the roots of the problem are quite some time ago. Do you, in retrospect, feel that the Board took action early enough?

  (Mr Fishwick) I think at the end of the day on the basis that the shares have now become of no value, did they take action early enough? One would have loved to have taken action before. I will repeat it again: that we should have sold every single share at the very top, but I think the best way of answering that question would be for you to read the minutes of every Board meeting of Aberdeen Preferred and you can then see totally, just like the FSA, how they were aware of what was going on.

  445. How independent in practice was the Board of Aberdeen Preferred Income Trust of its managers? How many Aberdeen directors and employees formed the Board?

  (Mr Fishwick) I was the only Aberdeen representative on the Board.[12]

  446. Were there any employees or ex-directors or ex-employees on the Board, apart from yourself?

  (Mr Fishwick) No.

  447. None at all?

  (Mr Fishwick) No.

  448. So everybody else, apart from you, had no connection with Aberdeen on the Board?

  (Mr Fishwick) Well, certainly one member of the Board was on some other trust.

  449. An Aberdeen trust?

  (Mr Fishwick) Yes, and, to be fair, he was a director of a company because Aberdeen bought its business before I came. He sold the business to Aberdeen in 1988.

  450. So that is two of the members.

  (Mr Fishwick) No, it is the same man.

  451. Sorry, that is you and him.

  (Mr Fishwick) Yes.

  452. And everybody else on the Board had no involvement in any other Aberdeen trust?

  (Mr Fishwick) The Chairman was not on any other boards, Neil Osborn was on some of our other boards, Harry Hyman joined the Board, Robert Wild never was, Ian Marks never was.

  453. So about three out of seven?

  (Mr Fishwick) There were six members of the Board. Two of them has past connections to Aberdeen in different guises, ie, selling your business to them, et cetera.

  454. What about non-Aberdeen trusts? Were they involved in other split trusts?

  (Mr Fishwick) Well, as you know, because we sent you a piece of paper yesterday, they were involved in other people's trusts, yes.

  455. So just to conclude my section of the questioning here, do you not feel that the Board in practice was very deeply involved in this whole operation both directly and through interests in other trusts in which Aberdeen were investing?

   (Mr Fishwick) No, I do not because I think again there is a huge misunderstanding in this sector. The UK Listing.[13] They welcomed and wanted people to be on more than one board. That is exactly what they were looking for. They were looking for people who had the appropriate experience to help direct these trusts. That is exactly what they wanted.

  The relevant Section of the UKLA's Listing Rules is set out in Chapter 21—"Investment Entities", which prescribes the rules to be followed by open and closed ended investment companies when both applying for a Listing and whilst a Listing is in place. The key "Condition for Listing" is set out in 21.9(a) as follows:

"Conditions for listing—investment companies other than investment trusts

21.9  An investment company (other than an investment trust) must comply with the conditions for listing, as set out in chapter 3, with the following modifications and additional conditions (see overleaf):

(a)  if the investment company is not able to satisfy fully the conditions set out in paragraph 3.3(a) (audited accounts for three years) and paragraph 2.6 (nature and duration of business activities), it must satisfy the UK Listing Authority that its directors and investment managers have sufficient and satisfactory experience in the management of investments of the type in which the company proposes to invest."456. But what people see is a cross-network of cross-investment and of personal relationships across the companies which we associate more with the Japanese financial landscape than with the British landscape, do you not agree?

  (Mr Fishwick) I do not agree and let me answer you with what my colleague Mr Currie was saying to me this morning. He was reading something at breakfast actually which I did not know because it was some time ago and I think this puts it in context. Piers, do you want to read what you read to me this morning?
  (Mr Currie) Well, it is not found from the Internet, but a friend from Scotland has just passed me a copy of The Economist describing, "There seems to be a ring of trust directors where we find certain names, such as those of Lord Cecil, Sir C E Lewis, Sir P F Rose, Major General McLean and Messrs Clark, Trotter, Monkton appearing and reappearing on the boards of a great number of trust companies while the brokers who act for them and advise them are also naturally confined to a few well-known and old-established investment firms." This is The Economist, but it is from 113 years ago in 1889 regarding the foundation of the investment trust movement. I think all we are arguing there is that the same issues—


  457. What does that prove then?

  (Mr Currie) Well, it proves, regarding directors—

  458. It proves that you are stuck in the past!

  (Mr Currie) Well, it is possible, but 113 years—

  459. This information that you mentioned to Mr Fishwick and Mr Gilbert that you sent to us, the clerks to my Committee left at seven o'clock last night and it was not delivered at that time, so we have not had time to read it this morning, so this is another example of information coming to us at the last minute, and maybe it will result in your having to come back again when we read this and find there is something we do not like. That is just unacceptable.

  (Mr Gilbert) Apologies, Chairman.

12   Note by Witness: Independence-ÐThe provisions of the Combined Code on Corporate Governance are relatively undemanding on the subject of independence where investment trusts are concerned. The Code requires only that at least one third of the board are non-executive and that the majority of non-executive directors are independent. It is Chapter 21 of the Yellow Book which stipulates the minimum requirements for investment trusts, that a majority of the board should be independent of the fund management. (Source: AITC: A Handbook for Directors of Investment Trusts: Chapter 4: Boards and board meetings). Back

13   Note by Witness: The Listing Rules of the UK Listing Authority ("UKLA"), a division of the Financial Services Authority, require that directors of an investment trust or company applying for listing have sufficient experience in managing investments of the type in which the company proposes to invest. Over the period in which split issuance was greatest, the UKLA definition of "appropriate experience" hardened considerably from those with broad investment experience or offshore company management skills to more specific knowledge of the product type and the underlying investment mandate. Back

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