Alliance Trust: What are rules on independence?

Alliance Trust: What are rules on independence?

One of the main attractions of investment trusts over mutual funds is that they are led by a board, which includes independent directors standing ready to back investors’ interests.

On most trusts the investment managers are from an external company and the board has full powers to hold the managers to account, or even move to replace them if necessary.

Alliance Trust, however, is a self-managed trust with members of the executive overseeing investment management.

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It still has a board, including independent non-executive directors, which is boundby various regulations forcing them to act independently in protecting investors’ interests.

Elliott Advisors is the largest shareholder in Alliance Trust, owning 12 per cent of its shares. The company wants to appoint three more independent non-executive directors to Alliance Trust’s board to increase scrutiny of the executive, consisting of chief executive Katherine Garrett-Cox and chief financial officer Alan Trotter.

But should the directors be appointed, they would be bound by the UK Governance Code of the Financial Reporting Council, which publishes a checklist of factors that could call a board member’s independence into question (see below).

The rules would appear to prevent them from acting on behalf of one particular shareholder over others’ interests.

The three nominees to be voted on later this month appear to be fully compliant with these stipulations.


The Financial Reporting Council UK Governance Code states:

Code Provisions B1.1: The board should identify in the annual report each non-executive director it considers to be independent.

The board should determine whether the director is independent in character and judgement and whether there are relationships or circumstances that are likely to affect, or could appear to affect, the director’s judgement.

The board should state its reasons if it determines that a director is independent, notwithstanding the existence of relationships or circumstances that may appear relevant to its determination, including if the director:

• Has been an employee of the company or group within the last five years;

• Has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company;

• Has received or receives additional remuneration from the company apart from a director’s fee, participates in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme;

• Has close family ties with any of the company’s advisers, directors or senior employees;

• Holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;

• Represents a significant shareholder; or

• Has served on the board for more than nine years from the date of their first election.