THE BOTTOM LINE
Trencor beggars our belief in shareholder capitalism
Deal with subsidiary Textainer reduces the ability of shareholders to hold executives accountable
The remarkable thing about the spat between Trencor and a few of its small shareholders is that it has been left to those few small shareholders to challenge a situation that beggars our belief in shareholder capitalism.
The small shareholders, led by Chris Logan, want the Trencor board to try to remove some bizarre provisions in Textainer’s bylaws. Trencor owns 48% of Textainer, which until a few years ago was the largest container lessor in the world. Textainer is listed on the New York Stock Exchange and is registered in Bermuda.The provisions essentially drive a coach and horse through the essence of shareholder capitalism, which is all about agents (the board and the executive) managing a business on behalf of its owners (the shareholders).
For this system to work a basic requirement is that the shareholders are able to hold the board and executives to account if they are not performing adequately. If the shareholders fail to do this, there’s a good chance the underperforming company will be prey to a hostile takeover bid.
The problem for Trencor shareholders is that the provisions substantially reduce the ability to hold executives accountable and also makes a hostile takeover almost impossible. This sheltered environment means there is little incentive for Textainer executives to push for profitability.
What is surprising is that Trencor directors Hennie van der Merwe and David Nurek, who sit on the Textainer board, seem happy to tolerate the situation.
Also surprising is that powerful institutional shareholders Old Mutual, Coronation, Investec, and the PIC seem equally happy to tolerate the situation. They should be leading this charge, not Logan.