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Insight – Ross Goobey bids City au revoir

Alastair Ross Goobey, now 55, joined Postel Investment Management, the BT and Post Office pension scheme fund manager, in 1993. In the next few years, he pulled off something of a coup by renaming the operation Hermes and attracting third-party clients. Without the change of direction, Postel would have been heading up a one-way street to nowhere, even though the BT fund is the largest in the UK. “With just two clients, it was going to become more and more difficult to invest in the people and systems we needed to move forward,” says Ross Goobey.

But Ross Goobey has made his name in the City as much for his forthright views as for his business management skills. He took up the cause of corporate governance when many other investment managers looked on it as a distraction.

He is stepping down at a time when it is no longer just a topic for rarefied boardroom discussion, and has barged its way into newspaper headlines.

In the past few weeks, Marks & Spencer, Marconi and the London Stock Exchange itself are among big names which have been embroiled in unseemly spats over share option schemes.

The defining characteristic of Hermes under Ross Goobey’s tutelage has been a willingness to speak bluntly to boards about performance issues.

He explains it as all part of Hermes’ activist investment strategy. “When we invest in companies, we spend a lot of money analysing them. We find companies that have been underperforming their peers for a period and, if we think there is value there, we try to stimulate moves to realise it by changes to one or more of governance, management, strategy and capital structure.”

Is he telling boards what to do? “We’re not like anarchists who know what they’re against but are not quite sure what they’re for. We don’t think that would be very helpful. Although we don’t expect people to adopt our ideas hook, line and sinker, we do make positive suggestions about what might be changed. But we make it clear that board members themselves will have their own ideas and that we’ll support anything which is likely to increase long-term shareholder value. Being confrontational would be counterproductive.”

Blunt advice is often welcomed, points out Ross Goobey. “Often, we find that there’s a division in the board. Sometimes, part of the board might see us as the seventh cavalry. Others will be telling us to get our siege weapons off their lawn, pulling up the drawbridge and pouring boiling oil down on us. If they do that, we can be fairly resolute in our own response, too, because these companies are not owned by their managements.”

Just how resolute Ross Goobey can be, companies such as Tomkins, Rank and Smith & Nephew have discovered. Controversially, he also took sides in the boardroom punch-up two years ago at Mirror Group. Hermes sided with the majority of non-executive directors to remove chief executive David Montgomery.

“There are times when we have to decide which side we are going to be on,” says Ross Goobey. But he adds: “By and large, we have found that has been pretty rare and we have had reasonably cordial relations with most of the management teams we’ve been involved with.”

Ross Goobey draws a clear distinction between strategic guidance and meddling in day-to-day management. “We try to draw the line at the boardroom door. Our judgement is whether we think the board is worthy of support or not. But we believe that changing a company is much more effectively and cheaply done from the inside rather than having the deus ex machina of a takeover or merger, which only tends to enrich advisers.” In case this sounds pushy, he also points out that the Myners report suggests other fund managers could usefully be more interventionist.

Ross Goobey is bowing out after 33 years in asset management. He originally joined the then Kleinwort Benson as a graduate trainee. He had spells at James Capel, Geoffrey Morley & Partners, now part of CGNU, and Courtaulds Pension Fund before joining Postel. He says the biggest change he’s noticed in his nine years at Hermes is that companies as a whole “are much better at talking directly to shareholders about the broader questions rather than relying on stockbrokers to put their point of view”.

“Companies which clear things with their large shareholders tend to have a much easier ride than those that try and spring changes on them,” he says.

But he adds that openness with shareholders is not synonymous with holding more analysts’ briefings. “More of the contact with large shareholders ought to be face to face,” he says. “The purpose of that sort of meeting is not to talk about profit or dividends. It’s to describe strategy and governance principles; to ask for support if there’s going to be a difficult period. That is a much healthier dialogue than complaining a company has missed its profits forecast by 10 per cent and demanding a sacrificial head.”

Ross Goobey makes it clear that FDs could benefit from initiating contact with senior people in asset management firms and among portfolio managers.

But the word “senior” is key. “If a rival comes along with a hostile bid, it’s too late to start building contact at that point – and it will be the senior people among the investment managers who take decisions, not the juniors,” he says.

Although Ross Goobey is stepping down as Hermes’ chief executive, he’s not yet ready for the pipe and slippers. He is staying on as non-executive chairman of Hermes’ UK Focus fund and the soon-to-be-launched European Focus fund. He is also going to be non-executive chairman of Argent, the property development subsidiary of the BT pension fund. And, of course, he’s also on the Council of Lloyd’s and holds a couple of non-executive directorships.

But he has one major ambition. “My ideal would be to turn from gamekeeper to poacher and try to find a plc who would be prepared to have me as chairman,” he says.

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