The French Connection boss, Stephen Marks, has been accused of “not playing it clean” in the latest round of the multimillionaire’s battle with investors.
After five years of losses, which have led to a near-60% slump in the value of the FTSE-listed fashion chain since 2013, Marks is under pressure to relinquish his hold on the business he founded 45 years ago.
Ahead of the group’s annual general meeting earlier last week, French Connection was heavily criticised by investor advisory groups including Manifest for allowing Marks to be both chairman and chief executive, for its paucity of truly independent directors and for vagueness about the targets used to decide bosses’ bonuses.
Meanwhile, a group of activist investors who control about 15% of the company’s shares, led by Gatemore Capital Management, a London-based hedge fund that has built an 8% stake, are pressing for change.
French Connection came to prominence in the 1990s with its notorious FCUK brand, which became a popular T-shirt slogan. But in recent years the firm has struggled to compete with high street rivals Next, Zara, Mango and Urban Outfitters.
Liad Meidar, a managing partner at Gatemore, has accused Marks of overseeing a “tremendous decline in value”.
The share price has dived as pre-tax losses widened to £5.3m in the year to the end of January in the company’s fifth loss-making year, compared with £3.5m in 2016. Revenues for the once globally popular brand slipped nearly 7% to £153.2m.
Mike Ashley’s Sports Direct has acquired an 11% stake in French Connection, suggesting a potential interest in a takeover.
Concerns about Marks’ handling of the business were heightened this week after French Connection’s directors waved through a controversial board reappointment with a show of hands at the AGM.
About 53% of independent shareholders who voted via proxy were against the reappointment of both Marks and the non-executive director Dean Murray. A higher proportion, nearly 56%, voted against the company’s remuneration policy after shareholder groups expressed concern about unclear targets.
Under listing rules, the election of independent non-executive directors at companies with a controlling shareholder who owns more than 30% of its stock must be approved by a majority of independent investors.
French Connection is covered by those rules as Marks owns a near 42% stake.
The company said it was not duty-bound to hold a separate vote for minority shareholders because Murray was no longer classed as an independent director under the UK corporate governance code, having spent more than nine years on its board. It said Murray had agreed to stay on as French Connection had been left with only one independent director, Claire Kent, following the resignation of former Next clothing head Christos Angelides after he joined the Reiss clothing chain.
In a company statement on its website about voting at the meeting, French Connection said all the resolutions had been “passed unanimously on a show of hands” at its AGM.
One shareholder advisory group said the assertion about Murray’s status and show of hands vote might be open to challenge by investors.
Meidar suggested French Connection’s board was relying on its affairs not gaining public attention and accused them of “not playing it clean”.
“I think it’s absurd that the outcome relied on a count of hands at the annual meeting. It’s clear that independent shareholders strongly oppose this board composition. There is no independent board. You have to ask what’s the purpose of governance code and a set of recommendations that doesn’t have teeth,” he said.
Meidar added that Marks should be running an “open and transparent process to sell the company” that would maximise value for all shareholders.
“They need to act and to act soon.”
•This article was amended on Tuesday 30 May. Gatemore Capital Management is an investment firm based in London, not in the US as stated earlier.
