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Collins Stewart options packages under attack

Rachel Stevenson
Tuesday 18 February 2003 01:00 GMT
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Terry Smith, the chief executive of Collins Stewart and scourge of company accounting, was under fire yesterday from his own shareholders for trying to sneak through a new share scheme that would grant management huge options packages.

At an extraordinary general meeting from which the press was barred, shareholders were asked to vote on the group's planned £250m acquisition of the inter-dealer bond broker Tullett. Controversially, a fourth resolution to introduce a new management share scheme was also bundled on to the agenda, spurring several objections from investors.

The broker plans for up to 8.5 million shares, about 4.5 per cent of the company's share capital after it issues new shares to fund the acquisition, to be put under option in a new scheme for its management. There would be no limit on how much one individual could be granted.

Both Manifest, the corporate governance agency, and the National Association of Pension Funds, recommended shareholders vote against the share option resolution, saying it breached established corporate governance codes and that the scheme had the potential to dilute considerably the value of holdings.

Although the resolutions were passed, Mr Smith faced a barrage of questions from investors wanting to know why the share scheme plans had been rolled into the vote on the acquisition. Mr Smith, however, described the opposition to his group's plans as coming from "pen-pushing idiots who are just trying to pick a point". He added: "If they [the corporate governance groups] have a problem, we can speak about it with them. But instead of that they have just leaked things to the press to raise their profile."

One shareholder said the decision to exclude the press was "unusual" and did not do much for transparency. "Shareholders felt the directors should not have bundled the options vote into the acquisition vote," the shareholder said. "It was not necessarily the size of the options themselves that was questioned, but the principle behind how they have handled it."

Sarah Wilson, the managing director at Manifest, said Mr Smith had "flown against best practice" by including the acquisition and option resolutions together and had potentially breached the stock exchange's listing rules. "Shareholders should be given the opportunity to vote separately on the share option issue," Ms Wilson said.

Manifest has also voiced concerns over the pay package of Bruce Collins, the chief executive of Tullett. He will join the Collins Stewart board on a basic salary of £625,000, and will receive bonuses that take his package to at least £1m a year.

Mr Smith is well known in the City for questioning the accounting practices of several large companies and was ousted from UBS Philips & Drew in 1992 for writing a book, Accounting for Growth, that exposed some of the tricks used by companies to flatter their balance sheets.

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