Thirty UK premium stocks that have more conflict-of-interest risk than Starling Bank

OK, so let’s revisit this weird story from Thursday:

The founder of Starling Bank, Anne Boden, is stepping down as chief executive in a surprise announcement she said was to remove any potential conflict of interest from her being a significant shareholder in the fintech.

Boden, who owns 4.9 per cent of the bank she founded in 2014, said she would step down at the end of June following discussions with the board about the risk of a conflict.

Boden’s 4.9 per cent stake in Starling carries 18 per cent voting rights so it’s not quite as excessively virtuous as it looks. But for a private company, the explanation still seems excessively virtuous. The London Stock Exchange’s gold standard premium listing requires only that a stock has a 25 per cent free float, with no specifics on how much or little is held by executive management.

Might Boden’s departure set the de facto conflict-of-interest-risk threshold at 4.9 per cent of shares outstanding?

That’d be bad news for CMC Markets, whose CEO Lord Peter Cruddas has a 59.2 per cent stake. It’d be bad news also for the CEOs of IWG (57.2 per cent), Wag Payment Solutions (47.2 per cent), ME Group International (36.4 per cent), Ashmore (31 per cent), Superdry (26.3 per cent), UP Global Sourcing (20.8 per cent), AO World (18.6 per cent), Saga (26.5 per cent), Pershing Square Capital (21.8 per cent), Luceco (18 per cent), EnQuest (12.5 per cent), Kainos (11.4 per cent), Motorpoint (9.9 per cent), Record (8.2 per cent), Morgan Sindall (7.4 per cent), JTC (7.2 per cent) and FDM Group (6.7 per cent).

Might acting CEOs be held to the same standard? That’d be bad news for Hikma Pharmaceuticals (27.2 per cent).

What about board chairs and their deputies? Potentially bad news for Aston Martin (55.9 per cent), Renishaw (36.2 per cent), Dunelm (37.9 per cent), PPHE Hotel Group (28.8 per cent), JD Wetherspoon (23.9 per cent), Capital Ltd (12.8 per cent) and Telecom Plus (10.6 per cent). And what about presidents? Possible bad news for RIT Capital Partners (29.7 per cent) and TBC Bank (9.9 per cent).

All the companies named have LSE premium listings.

If non-execs, family trusts and related party vehicles are included in the conflict detector the total more than doubles. Bloomberg data shows 61 LSE premium-listed stocks in the FTSE All-Share have 5 per cent or more of their shares outstanding held by insiders. At pixel time none of their executives has resigned.

Starling’s guidance 18 months ago had been for a float as early as this year. What happened instead was a £130mn fundraising in April from existing investors. “IPO markets are closed and we don’t really know when they’re going to open,” Boden said yesterday.

For the moment, the bank’s clearest link to public markets is through Chrysalis Investments, an early-stage backer. Starling accounted for 16 per cent of the trust’s portfolio at the end of the first quarter.

Chrysalis doubled down on Starling in February by buying shares from Jupiter Fund Management, its own adviser, after it hit the limits on its unquoted company investments.

It wasn’t a popular decision: Chrysalis shares tanked 38 per cent between the purchase announcement and March 28, though have since approximately halved that loss.

The stock’s near-50 per cent discount to the last reported net asset value reflects tight cash and a portfolio full of cash burners. That’s what made the choice to spend £20mn buying its biggest shareholder out of a stale position all the more baffling.

Chrysalis avoids potential CEO conflicts of interest by having no CEO. Here’s what it had to say on about Boden’s departure:

Nick Williamson & Richard Watts (co-portfolio managers) comment:

“We would like to thank Anne for her tremendous efforts in growing Starling Bank to what has become the UK’s leading digital bank with 3.6m customers. We have worked with Anne very closely since our initial investment in 2019 and would like to congratulate her on the extraordinary achievement in getting Starling to where it is now. 

The latest set of results published today are very strong and this is testament to the hard work and dedication shown by Anne and her team. We believe there is great strength and depth at Starling and look forward to working closely with John [Mountain, interim CEO], David Sproul as Chair and the rest of the executive team as they continue to further grow and develop the bank.”

In 2022, famously, Watts and Williamson were awarded more than £60mn in performance fees that they chose to take in Chrysalis shares. They have never hit the threshold that would require a disclosure of shareholding and are on the payroll of Jupiter, not Chrysalis, so measuring potential conflicts of interest is more of a holistic exercise than by simple percentages.

Further reading:
— ‘A whiff of Woodford’: how Jupiter’s Chrysalis came unstuck with unlisted companies (FT)
— Starling Bank faces questions over reliance on state-backed funding (FT)
— The IPO outlook in one word (FTAV)