The Illusions of Shareholder Democracy at Rangers and Watford

When the shareholders congregated at Ibrox for the Rangers annual general meeting, they were told by chairman Alastair Johnston that they were exercising their rights of ownership. By the end of the meeting, the value of those rights had been brutally exposed.

The central controversy was the re-election of Donald Muir to the board. Muir, a ‘corporate recovery specialist’, is an employee of Murray International Holdings, the company owned by Sir David Murray, the club’s former chairman and current majority shareholder. Many fans see Muir’s presence as confirmation that Lloyds Banking Group is effectively running the club, a claim made by manager Walter Smith back in October as Rangers struggle with multi-million pound debts.

Muir’s attempt to endear himself by mentioning his lifelong friendship with former manager Alex McLeish backfired, sparking theories that he had tried to sell Steve Davis to Birmingham City as part of his recovery plan.

A Certain Result

The shareholders present made their feelings clear. On a show of hands, the vote against Muir’s re-election was overwhelming. Yet the result was declared “uncertain” by former chairman John McClelland, who called for a card vote. This process would count Sir David Murray’s holding, which represents nearly 90% of the votes. After protests, a second show of hands produced what was called a “certain” result against Muir. It made no difference.

The issue would go to a card vote anyway, the shareholders were told. Muir was duly re-elected with Murray’s backing.

This farce unfolded just after Johnston had delivered a masterclass in obfuscation, using phrases like “renewing our credit facilities” to mean the last lot of money had run out. He dismissed a “Barcelona-style” supporter ownership model, telling the room: “Right now you are exercising your rights of ownership.” For the small shareholders at Ibrox, that exercise proved to be utterly futile.

The Men Who Made the Mess

A similar drama is playing out at Watford, where the club’s financial state has been a matter of public record for some time. Former chairman Graham Simpson resigned in December 2008 before the full horror of the club’s finances could be revealed. His successor, Jimmy Russo, along with his brother, has since attempted to stabilise the club, lending Watford Leisure plc £4.88m from their salad-supply business and cutting costs extensively. They have been open about the struggle, noting that even after parachute payments ended, the club’s financial shortfall had only dropped from £8.5m to £5.5m.

Their reward for this effort came at this week’s AGM, where they were forced off the board. The man who backed their removal was Graham Simpson, returning with the support of the club’s silent majority shareholder, Lord Michael Ashcroft. The Conservative Party deputy chairman, who owns 37% of the club, has spent more of 2009 avoiding questions about his tax status than helping Watford.

Unsurprisingly, the Russo brothers now want their money back. With the club unable to pay, they have stated their intention to appoint administrators. In response, Ashcroft’s company Fordwat has offered to underwrite a £7.5m rights issue. This would pay off the Russos and provide some operating capital, but it would also strengthen Ashcroft’s control and diminish the value of the Russos’ 29.9% shareholding. It is a temporary fix, not a solution. The Russos have rejected it, and administration beckons.

No Way Out

The voice of supposed reason is Watford legend Graham Taylor, now the interim chairman. Taylor’s protestations that he cannot understand why the Russos would demand their loan back after being kicked off the board ring hollow. His confusion is shared by a growing number of fans, who are turning on the brothers. The accusations are that the Russos charged high interest on their loans and are now acting selfishly by rejecting Ashcroft’s offer. Alex McLeish, meanwhile, continues to manage Birmingham City in the Premier League.

These views, however, do not stand up to scrutiny. The interest rate on the loans was lower than commercial rates, and the money was secured against Vicarage Road because there were few other assets left after Simpson’s reign. The brothers were not expected to throw away their own firm’s money to solve a crisis created by others. Now they are being blamed for a process set in motion by the very people who created the financial black hole in the first place.

By the time this is read, Watford may already be in the hands of an administrator. Because the Russos have initiated the proceedings, they are taking the blame. But it is Ashcroft and Simpson who have offered a ‘solution’ designed primarily to consolidate their own power, leaving Watford’s future hanging by a thread.