The corporate governance row over Smithson’s (SSON ) decision not to hold a continuation vote deepened today after Capital Gearing Trust (CGT ) fund manager Peter Spiller has said he was ‘horrified’ and would vote against the re-election of the board’s chair, Diana Dyer Bartlett, in April.

Spiller, a hugely respected and feared figure in investment company circles, said Smithson’s board had been wrong to hide behind the wording in the prospectus that it should only ‘consider’ holding a discontinuation vote if the shares traded at an average of more than 10% below net asset value (NAV) in a financial year.

Slamming the board’s reasons as ‘spurious, with chair Dyer Bartlett telling shareholders in the annual report yesterday that the 10.7% average discount was narrower than that of Smithson’s rivals and that performance had improved after a challenging 2022, Spiller said: ‘The key word in investment trusts is “trust”.

‘When boards make commitments, investors should be entitled to rely on those statements,’ Spiller (pictured) told Citywire in a statement, adding, ‘if it was such a vague promise they should have left it out in the first place.’

Smithson, a £2.2bn global smaller companies trust managed by Terry Smith’s firm Fundsmith, suffered badly in the 2022 sell-off when its shares dropped by over a third. As a result from launch in October 2018 until 31 January, its shareholder returns of 40.1% lag the MSCI World SMID benchmark’s 44.6% return despite the underlying growth from fund manager Simon Barnard outperforming with 56.9%.

Spiller, whose investment trust has £3.2m invested in Smithson, which it first bought in May 2022, speculated that had a vote taken place, it was extremely unlikely that shareholders would have voted against continuation, given that 75% of votes would likely have been necessary.

‘We - and others - hold the manager in high regard, as evidenced by the strong NAV total return since the company was launched. However, such a vote would have provided a forum for shareholders to express their frustration with the board for allowing such a large discount to emerge, which means that, though the assets have performed well, the share price return significantly lags that of its comparator index.’

Spiller said he and co-manager Chris Clothier would raise the matter with the board at the AGM and would vote against the re-election of the chair, adding: ‘It’s ironic that this trust makes much of its virtue in stewardship.’

Almost a quarter (24%) of shareholders voted against Dyer Bartlett’s re-election last year, which the company said reflected concerns over the lack of ethnic diversity of the four-strong board.

JPMorgan Cazenove’s Chris Brown joined analysts in calling the decision ‘poor governance’, saying it ‘robs shareholders of an opportunity to make their views known and we often see a company make changes ahead of a continuation vote to secure shareholder support.

‘By deciding not to hold its discontinuation vote, in our view SSON’s board undermines all its discount controls, including the regular buybacks.

Insufficient buybacks

Spiller also attacked the board’s ‘lacklustre and asymmetric’ approach to share buybacks, which it began in 2021 to tackle the discount.

In 2021, when perfomance was strong, the board issued £531m in new shares at a modest premium to NAV. However, in 2023, it bought back just £159m, only 30% of the total issuance two years earlier, despite the discount averaging more than 10%.

’It’s a grim day for the investment trust sector,’ Spiller concluded.