Examination of Witnesses(Questions 440-459)|
TUESDAY 29 OCTOBER 2002
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
(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
Preferredit 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
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
(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
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.
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
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
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 listinginvestment
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
(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
458. It proves that you are stuck in the past!
(Mr Currie) Well, it is possible, but
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
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