Anthony Hilton: Edward Bramson's victory exposes our system’s flaws

The fate of Electra is a case in point. Two years ago, activist investor Edward Bramson bought a 25% stake in Electra, an investment trust with a long record of successfully nurturing and growing private companies, and agitated to be given a seat on the board.

The other directors refused because they already had a board and did not want to concede the principle that they should give a position on it to someone whose purpose looked to be to pursue his narrow personal interest, rather than the long-term interests of the company as a whole and all its shareholders.

Perhaps they also noted what had happened in his previous outing at fund management group F&C. There Bramson had again used a large minority shareholding to force out chairman Nick McAndrew, gain control of the board and then go on fundamentally to change the culture of the business — all without ever making a bid for the company. There are mixed views on what he achieved, and whether F&C is a better, more sustainable business as a result. There is agreement that the whole exercise was very profitable for Bramson.

Meanwhile, this is how the Electra story has played out. Finding his board appointment blocked but having secured support from Aviva, Fidelity and Insight (which had also supported him at F&C), Bramson pressed his claim at a specially convened shareholder meeting. But an overwhelming majority of the independent shareholders outvoted the bloc of supporters and he was defeated.

Some people might take such a defeat as confirmation that their ideas were unacceptable and decide to move on. But activists, like politicians, know that people can be worn down; the best way to counter an adverse vote is simply to ask the electorate to vote again and again and again until they come up with the “right” answer.

It usually works because normal people get bored with the shenanigans. As fewer and fewer bother to vote, eventually their majority falls away. Activists win most often not by the power of their arguments but simply by breaking the other side’s will to resist.

So this is what Bramson did. Increasing his stake slightly to 29.9%, and with the continued support of the three outside shareholders, he demanded another vote last year — and this time he got the result he wanted, albeit by the thinnest of margins.

Electra chairman Roger Yates, who had led the opposition to Bramson’s appointment, felt he had to resign. Kate Barker, an existing non-executive director, was appointed as a stopgap but she left a couple of months ago. A strategic review was launched at Bramson’s instigation. A new chairman, presumably one with whom Bramson felt more empathy, was appointed earlier this spring,

Bramson took over as chief executive, and the final coup de grâce came last week when the board gave notice to the fund management team that has been responsible for Electra’s exceptionally good performance down the years.

The team’s members, perhaps naively, thought their exceptionally good performance would persuade Bramson that they were part of the solution, not part of the problem but they clearly misread things.

So, still with just 29.9% of the shares, Bramson is now in effective control of the whole business — without ever having had to bid for it, let alone pay a control premium.

No one has done anything illegal but it is not how the system is meant to work. You would have expected someone to complain, or at least comment caustically from the sidelines, but no one seems interested. Bramson planned this two years ago, executed his plan flawlessly and now has his hands on the business.

He is like Marmite — equally liked or loathed. I am one of those who thinks his record is patchy and that he has been better off at extracting short-term value to suit his own ends rather than creating long-term value for the benefit of everyone.

Others disagree and he has a fan club. But that is not the point. If the rules say no control without a bid, the shareholders ought to enforce it — not collude as they did, or stay silent.