Investors oust entire board of Brazilian trust

The entire board of Foreign & Colonial's Brazilian Smaller Companies Investment Trust (Brazit) were yesterday removed by majority shareholders as a fierce row over corporate governance came to a head.

Hermes and City of London, two investment managers that have pushed the issue of corporate governance, led shareholders to a 97 per cent vote in favour of removing the directors.

The directors include Michael Hart, who is also director-general of the trade body for investment trusts, the Association of Investment Trust Companies. A Brazilian finance minister, Mailson Da Nobrega, has also been ousted.

Hermes and City of London had criticised Mr Hart's position, as distinct from his conduct, in that he was also a senior figure at Foreign & Colonial, the investment manager which picked investments.

Hermes and other investment managers have been campaigning since last March to force all listed companies to comply with rules of corporate governance as set out in the Hampel report. Hermes said this requires that non-executive directors are not only independent, but are seen to be independent.

A dispute with Mr Hart and other directors over their independence turned nasty before Christmas, after Foreign & Colonial's fund managers decided to buy 19 per cent of warrants in Brazit's trust. It appeared these could be used to block any attempt to remove Foreign & Colonial as fund managers.

Mr Hart yesterday lashed out at Hermes and City of London, branding the vote an example of "macho corporate governance". However, Hermes pointed out that it had gained the support of almost all the minority shareholders in a 70 per cent turnout.

Peter Butler, a Hermes executive, said the fund manager had been struggling since last March to ensure all non-executives were "not only independent, but seen to be independent." All investment trust directors are meant to be independent non-executives.

He said: "We are hoping we won't ever again have to remove the whole board of an investment trust. It is much, much better to do it in other ways. The problem is, people take it personally.

"We are not casting aspersions on the character of an individual. It is just that we are concerned when directors are former executives of the fund managers - or directors of other trusts managed by the same fund manager."