British e-commerce group THG is on course for a shareholder rebellion at its annual meeting this month over the reappointment of a long-serving non-executive director.
Two shareholder advisory groups have urged investors to vote against re-electing Iain McDonald to the board of the company, which sells nutrition and beauty products online through websites such as Lookfantastic and Myprotein.
Institutional Shareholder Services and Glass Lewis have expressed concerns about McDonald’s independence.
McDonald joined the board of THG, formerly known as The Hut Group, in 2010 and currently sits on the compensation, nominating and sustainability committees. He is also the founder and chief investment officer of investment advisory firm Belerion Capital, which last year worked with asset manager King Street Capital on a unsuccessful bid for THG.
The recommendation ahead of THG’s annual meeting on June 21 comes after a turbulent period for the group and its chief executive, Matthew Moulding, including several profit warnings and concerns about corporate governance.
Molding co-founded the company in 2004. He listed with a valuation of £5.4 billion in 2020 but now has a market capitalization of £800m. He was highly critical of the London Stock Exchange and described the company’s decision to register as a “mistake”.
ISS said that while pragmatic in cases where a non-executive director’s tenure has reached or exceeded nine years, McDonald’s was “not considered independent” because he sits on the board with the founders. Molding and John Gallemore for 13 years.
Glass Lewis also said he was an “affiliate or insider” of the compensation committee. ISS added in its report: “The shortcomings include the fact that the compensation committee is not fully independent.”
In the company’s latest annual report, the board defended McDonald’s position on the compensation committee. He said he “recognizes the need for an independent composition” of the compensation committee, but added “it would not be in the interests of the company and its shareholders for Iain McDonald to resign”.
His “experience and broad financial expertise and strong investment acumen make him well equipped to serve on the compensation committee,” the report adds.
McDonald’s previously withdrew from board discussions of takeover proposals due to a “conflict of interest”, according to ISS. When THG rejected Belerion’s £2billion in May last year, it confirmed there had been three takeover approaches for the company.
Glass Lewis also urged shareholders to reject THG’s compensation report over an “unwarranted” salary increase for the company’s new chief financial officer. Damian Sanders will earn £500,000 a year, 11% more than his predecessor, Gallemore.
THG said: “Charles Allen joined the Board as Independent Non-Executive Chairman in March 2022 with a clear mandate to improve governance, transparency and to strengthen and refresh the Board by enhancing its independence and diversity.
“Since then, the board has appointed three new independent directors (non-executive directors) in Gillian Kent, Dean Moore and Sue Farr, as senior independent non-executive directors, and with a commitment for further appointments in accordance to good corporate governance and as a priority issue in 2023.”