Scottish Mortgage reveals board reshuffle in aftermath of governance dispute

Scottish Mortgage Investment Trust has announced a board shake-up following a row over the appointment of new directors.

Chairman Fiona McBain will step down at the conclusion of the company’s annual general meeting sometime in June, after six years in the position and 14 years in total as a director at flagship Baillie Gifford Investment Trust.

She will be replaced by Justin Dowley, senior independent director of the fund and chairman of Melrose Industries, which is known for buying and flipping struggling tech companies.

A former investment banker, Dowley has held positions at the now-defunct investment bank Morgan Grenfell, Merrill Lynch and Intermediate Capital Group, among others, where he also served as chairman.

Professor Patrick Maxwell will succeed him as senior director, subject to investor approval, while fellow board member Professor Paola Subacchi will retire once the AGM has concluded.

Dowley said McBain had provided “essential continuity, reassurance and leadership during the extraordinary circumstances of Covid-19 and during a period of transition on the board and with managers.”

The announcement of McBain’s departure comes days after fellow board member Amar Bhidé revealed he had fallen out with the chairman and board over Scottish Mortgage’s hiring of two executives and exposure to unlisted companies.

Bhidé, a business professor at Tufts University in Massachusetts, told the Financial Times last week that the board lacked members with “professional investment experience” and “desperately needed people who knew what they were doing.”

He added that McBain was “long past the point where she had any independence,” adding that “her role, as far as I can see, is to protect managers from criticism and questioning.”

Tech giants: The value of Scottish Mortgage’s stakes in car maker Tesla and e-commerce giant Shopify fell by more than £11.5bn last year amid a global economic slowdown

The UK Financial Reporting Council’s corporate governance code recommends that board members serve up to nine years from becoming a director.

Bhidé further claimed that he warned the fund about its illiquid investments, particularly in relation to Scottish Mortgage’s significant technology investments.

Baillie Gifford’s assets under management fell by a record £113 billion last year as interest rate hikes, economic slowdown and easing of Covid-19 restrictions reversed the pandemic-induced boom in tech industry stocks.

The value of its stakes in electric car maker Tesla, where it was the second largest shareholder behind Elon Musk, and e-commerce giant Shopify fell by more than £11.5 billion.

At an investor forum in January, Tom Slater, the manager of the Scottish Mortgage Fund, said 2022 had been a “humiliating year” as he admitted the group had made a mistake in assuming consumer habits born of the pandemic would continue to exist.

However, over the past decade, SMT’s shares have risen about 333 percent while its net asset value has grown more than 400 percent, according to the Association of Investment Companies.

But Mr Bhide attributed the performance over the period to ‘an entirely anomalous period in financial history’.

He warned, “Don’t kid yourself that you can keep playing this game.”

Scottish Mortgage denied on Friday that Bhidé had resigned or been dismissed as a director, but confirmed on Tuesday that he had left the company.

“Bhide’s public moaning could be a shock to journalists eager to copy copy, but savvy investment funds know better than to bet against Scottish Mortgage in the long run,” analysts at broker Jefferies said.

Scottish Mortgage Investment Trust Shares were up 0.6 percent on Tuesday morning at 666.2 pence, meaning their value is down about a third over the past 12 months.