30 November 2021

J D WETHERSPOON PLC

The Importance of Being Frank

In a recent press release (Appendix 1), Wetherspoon said that some investors and corporate governance advisers, including the fund manager Fidelity, were adopting a box-ticking approach to corporate governance, and were not adhering themselves to the rules they required of investees.

In particular, Wetherspoon said that one Fidelity company, which owned shares in Wetherspoon, had voted against two of Wetherspoon's non-executive directors (NEDs) on the basis that they had exceeded the 'nine-year rule'.

However, the UK corporate governance code emphasises the importance of 'comply or explain', so that individual company circumstances can be taken into account.

Wetherspoon has fully explained the importance of experienced NEDs and the dangers inherent in the nine-year rule.

One major Fidelity company, Fidelity Investments, a Wetherspoon shareholder, with over $4 trillion of funds under management, does not appear to adhere to the nine-year rule itself.

Another Fidelity company, Fidelity International, is also a Wetherspoon shareholder. It voted against the re-election of two Wetherspoon NEDs.

Fidelity International has defended its position in the Telegraph (Appendix 2), where a spokesman stated that "a majority of the Fidelity International Limited board members joined the board within the past nine years".

However, it is impossible to verify the length of service of Fidelity International's board members, because this information does not appear to be available on their website.

Nor does there appear to be any statement of policy in the public documents about adherence to a nine-year rule.

In addition, the statement that "a majority of the Fidelity International Limited board members joined the board within the past nine years" does not infer compliance with the UK code, since the code requires a majority of independent non-executive directors - not that a majority of "board members joined the board within the past nine years".

The Fidelity spokesman has also argued that Fidelity International, which voted against two Wetherspoon NEDs, and Fidelity Investments are "completely separate entities".

However, the chairman, CEO and major shareholder of Fidelity Investments, Abigail Johnson, is also a director and appears to be a major shareholder of Fidelity International.

It is therefore stretching a point for the spokesman to describe these Fidelity companies as completely separate entities.

Inexplicably, whereas Fidelity International voted against two Wetherspoon NEDs, Fidelity Investments, without notice, voted against chairman Tim Martin and the company's three executive directors - yet, with no apparent logic, they voted in favour of all NEDs, including the two NEDs opposed by Fidelity International.

Wetherspoon chairman, Tim Martin, said:

"Wetherspoon has been a PLC since its flotation in 1992. During that time, relationships with shareholders have been generally harmonious. We recognise that sensible corporate governance is necessary and beneficial.

"However, an inflexible interpretation of the nine-year rule, and other rules, can result in perverse outcomes and has generally resulted in inexperienced and vulnerable boards of directors in the UK - with, for example, almost no NEDs on boards today who have had experience of the last recession (2008-10) at their current company.

"Wetherspoon has explained its position, and has had a generally favourable response from institutional shareholders to its approach.

"A strange fact is that corporate governance has almost never been raised as an issue in the thousands of shareholder meetings I and the management team have had since our flotation.

"These sorts of issues, for many PLCs, seem to stem from the way in which the corporate governance personnel, who work for major institutions, cast their votes for annual general meetings.

"We believe it's important for the future of our business, and for the UK economy, for the comply or explain aspect of the Code to be more closely adhered to, in practice, by institutional investors - and for investors to practice what they preach."

Appendix 1

J D Wetherspoon Press Release 25^th November 2021

Major investors and advisors are breaching the Corporate Governance Code, says Wetherspoon

Wetherspoon is disappointed to note that a minority of major investors and corporate governance advisors are breaching the 2018 Corporate Governance Code (the "Code") by using a "box-ticking" approach to its guidelines.

The Code explicitly discourages box -ticking and states that its guidelines should not be implemented in a "mechanistic" way. 

The Code requires investors to pay "due regard to individual circumstances" of companies and to "assess differing company approaches thoughtfully".

However, Wetherspoon's observations are that some advisors and institutions pay lip service to the Code, and appear to exercise their votes in an entirely mechanistic way. 

For example, if non-executive directors have been on a board for more than nine years, some investors will vote against them for the purposes of the AGM, for being in breach of the so called "nine-year rule", without proper consideration of a company's explanations, which drives a coach-and- four through the "comply or explain" aspect of the Code.

This rigid approach is especially questionable where investors themselves, on their own boards, do not observe the nine-year rule, but then try to impose that rule on others.

Fidelity, a major investor, has voted against two experienced Wetherspoon non-executive directors. However, it does not seem that the boards of Fidelity companies themselves observe the nine-year rule.

For example, Fidelity Investments, which has over $4 trillion of assets under management, has, according to Bloomberg (see appendix 1), four directors and does not have a majority of independent directors - nor are there any dates, transparently disclosed, regarding the length of tenure of the directors.

If major investors do not observe the rules themselves, it cannot be right to vote against directors of investee companies, especially when investees have adhered to the "comply or explain" requirements. 

As for corporate governance advisors such as PIRC, ISS and IVIS, they also seem to base their recommendations on a "mechanistic" approach, in breach of the Code's requirements. 

They do not to appear to engage with individual companies, in our experience, and have certainly never engaged with Wetherspoon, in any meaningful way.

Companies like Wetherspoon are only advised of the AGM voting recommendations of governance advisors a few hours before the deadline they impose for responses. 

The advisors invariably limit the scope for responses to their recommendations to 'factual corrections only' - which in Wetherspoon's view, does not comply with the spirit of the Code, since the Code says that:

"investors should engage constructively …and pay due regard to individual circumstances.... explanations must not be evaluated in a mechanistic way".

Wetherspoon chairman Tim Martin said:

"The harsh reality, in our opinion, is that corporate governance advisors, and some major investors, are themselves in breach of the Code.

"This is creating a situation in which many UK PLCs have, to their detriment, inexperienced boards. Almost no UK PLCs today have any NEDs who were at the company in the last (2008-2010) recession, for example.

"It's noticeable that many successful American companies do not adhere to the arbitrary nine-year rule, which, Wetherspoon believes, is a sensible approach.

"However, some American companies seek, even so, to impose the nine-year rule on their investees. 

"In order for there to be commercial success, companies must retain experience and culture.

"The corporate governance world needs to gets its act together, by eschewing a box-ticking approach, or it will inevitably continue to weaken the structure of businesses which are important to the UK economy"

Appendix 2

Daily Telegraph Article 25^th November 2021 by Lucy Burton (Banking Editor)

Wetherspoon boss Tim Martin goes to war on 'box-ticking' shareholders

Pub chain's founder accuses major investor Fidelity of damaging public companies over its approach to governance while breaking rules itself

Tim Martin is the founder of JD Wetherspoon

The founder of JD Wetherspoon has launched an extraordinary attack on one of the pub chain's biggest shareholders, accusing Fidelity of damaging public companies with a "box-ticking" approach to governance while breaking the rules itself.

Tim Martin lashed out at the investment giant after it opposed the reappointment of two Wetherspoon directors beyond the nine-year limit imposed by the accounting regulator's Corporate Governance Code.

In an announcement to the stock exchange, the 66-year-old chairman complained that Fidelity's "rigid approach" to the rule "drives a coach and horses through the 'comply or explain' aspect of the Code.

Mr Martin, an outspoken entrepreneur who has previously chafed against City red tape, said: "The corporate governance world needs to get its act together by eschewing a box-ticking approach or it will inevitably continue to weaken the structure of businesses which are important to the UK economy."

He accused Fidelity of hypocrisy, alleging that the asset manager is itself in breach of governance rules including the nine-year limit in some of its subsidiaries.

Mr Martin said: "Fidelity Investments, which has over $4 trillion of assets under management, has… four directors and does not have a majority of independent directors - nor are there any dates, transparently disclosed, regarding the length of tenure of the directors.

"If major investors do not observe the rules themselves, it cannot be right to vote against directors of investee companies, especially when investees have adhered to the 'comply or explain' requirements."

It comes after Institutional Shareholder Services (ISS), the influential shareholder advisory firm, recommended earlier this month that investors oppose the re-election of Debra van Gene and Sir Richard Beckett as non-executives and abstain on re-electing Mr Martin.

Fidelity Investments is Wetherspoon's 13th largest shareholder while Fidelity International, its international arm before it was spun off into a separate company, is its fifth biggest. The latter is still part-owned by members of the original Fidelity founding family. 

Mr Martin said his comments applied to both companies, which share some directors and shareholders.

A spokesman for Fidelity International said Wetherspoon's broadside included "significant misinformation" as "we are completely separate entities". Fidelity Investments did not respond at the time of writing. 

"A majority of the Fidelity International Limited board members joined the board within the past nine years," a spokesman said. "We appreciate the value of having experienced members on the board with a deep knowledge of the business. We do, however, believe that there is value in having a critical mass of qualified and independent outside directors on the board". 

Mr Martin has for years argued that red tape for listed firms is harming Britain, in 2019 launching a tirade against top shareholders Columbia Threadneedle and Blackrock after they also refused to support the re-election of two of his directors due to the nine-year rule. 

He said: "This is creating a situation in which many UK plcs have, to their detriment, inexperienced boards. Almost no UK plcs today have any non-executive directors who were at the company in the last recession." 

Wetherspoon has been criticised by shareholder advisory firms - which influence the voting decisions of many institutional investors - for the independence of non-executive directors, boardroom diversity and spending money on pro-Brexit campaigning.

Mr Martin's comments are likely to anger the investors. One senior fund manager said: "He doesn't believe in shareholder democracy."

Enquiries:

John Hutson                 Chief Executive Officer              07970 477377

Ben Whitley                  Finance Director                        07970 477428

Eddie Gershon             Company Spokesman               07956 392234

Nigel Connor                Company Secretary                   07818 232529

Please send any questions by email to investorqueries@jdwetherspoon.co.uk 

Notes to editors

1.     J D Wetherspoon owns and operates pubs throughout the UK. The company aims to provide customers with good-quality food and drink, served by well-trained and friendly staff, at reasonable prices. The pubs are individually designed, and the company aims to maintain them in excellent condition.

2.     Visit our website: www.jdwetherspoon.com      

3.     This announcement has been prepared solely to provide additional information to the shareholders of J D Wetherspoon, to meet the requirements of the FCA's Disclosure and Transparency Rules. It should not be relied on by any other party, for any other purposes. Forward-looking statements have been made by the directors in good faith, using information available up until the date on which they approved this statement. Forward-looking statements should be regarded with caution, because of the inherent uncertainties in economic trends and business risks.

4.     The current financial year comprises 53 trading weeks to 31 July 2022.