Top Richemont investors set to vote against activist’s plan to shake up board

Several top investors in Richemont are planning to vote against proposals by an activist investor to shake up the Swiss luxury group’s board and challenge its controlling shareholder and chair Johann Rupert.

London-based hedge fund Bluebell Capital Partners, which owns a small stake in Richemont, has proposed three resolutions to be voted on at a shareholder meeting next Wednesday, including one that would nominate former Bluebell partner and luxury industry veteran Francesco Trapani to the board.

They contend that Richemont, whose biggest brands are Cartier and Van Cleef & Arpels, has underperformed peers such as LVMH and Hermès and has been hurt by poor governance and strategic choices, such as sticking with money-losing ventures in fashion and ecommerce.

Bluebell, which has been part of successful campaigns at Danone and Hugo Boss, has also called out Rupert for behaving like a “padre-padrone” or godfather-like figure, who makes most decisions at Richemont even though he owns only a minority stake.

But Stephen Paice, head of European equities at Baillie Gifford, which is a top 15 investor in Richemont, said the fund was planning to vote against Bluebell’s resolutions.

“You can see that the composition of the board has changed over the past five years and Richemont has tried to address some of the gaps in the skillset,” said Paice. “I think the direction of travel is positive.”

A second top 15 investor said that changes by Richemont to its board —  notably the appointment last year of Patrick Thomas, the former chief executive of luxury rival Hermès — showed that “the company is going in the right direction”.

This person added: “I wouldn’t be overly aggressive in pushing them for change because I think they have made some noticeable progress.”

Rupert, 72, who built Richemont into a powerhouse in jewellery and watches with a market value of about SFr63bn ($65bn), has said shaking up the board is not necessary and has opposed Trapani because of his links to major competitor LVMH, who he worked for until 2016.

Although he owns only a 9.1 per cent stake in Richemont, Rupert has almost total power to set strategy and choose directors because he owns B shares that carry 50 per cent of the voting rights.

Proxy advisory firms Institutional Shareholder Services and Glass Lewis have opposed Trapani joining the board.

Bluebell has proposed Trapani’s nomination as a board member to specifically represent the A shareholders as provided for in the company’s bylaws but never applied by Richemont.

The company has agreed to appoint a representative of the A shareholders but wants to name a current board member Wendy Luhabe to the post.

It also has come out against Bluebell’s other proposals to increase the minimum size of the board and mandate that A and B holders each had equal representation.

Bluebell partner Guiseppe Bivona said he was confident about the vote after having canvassed other shareholders. “We think we have the support of some of the largest shareholders,” he added.

A third top 15 Richemont shareholder said it was voting against all three of Bluebell’s proposals and agreed that Trapani’s appointment to the board was “not advisable”.

It said that Bluebell had not given sufficient detail as to how it intended to improve Richemont’s governance and said that it could not be ruled out that the activist hedge fund was pursuing its own interests, “which are not long term and in the interests of all shareholders”. 

Bluebell’s campaign at Richemont became public in July and since then executives at the Swiss group, including Rupert, have been holding calls with top shareholders. This marks a change in approach for a company that usually restricts its investor communication to its twice-yearly earnings.

Baillie Gifford’s Paice said that the Rupert family’s long-term investment horizon and its patriarch’s influence on strategy had been a big benefit for Richemont.

He pointed to the Chinese government’s crackdown on gift giving to fight corruption, which began about a decade ago and hurt Swiss watch exports to Hong Kong and mainland China.

During this period Richemont bought back inventory from its distributors, which came at a financial cost but protected the brands over the long term.

Paice said: “I think that’s some of the parts of governance which are sometimes overlooked —  everyone thinks about the composition of the board . . . many people forget just how long term and how beneficial having a family involved with Richemont has been over the years.”  

Richemont declined to comment.