14th August 2012
Much has been made of the benefits that celebrity association can bring to a company. In recent years a number of stars from stage and screen have taken the leap into the world of investing. These include Ashton Kutcher, Justin Beiber, Kim Kardashian, Lady Gaga and Justin Timberlake, who recently played Napster co-founder Sean Parker in the movie The Social Network.
Sir Stelios can hardly be said to carry the international profile of these individuals, but his actions suggest an interesting problem: If a company has been built on the reputation of an individual should they be able to wield greater influence then their shareholding would allow?
His attempt to oust Sir Mike Rake mark the second time in six months that easyJet's founder has tried and failed to topple its chairman. Coming less than a month after the budget airline increased its forecast for pre-tax profits the vote reveals a clear disintegration of the relationship between the two men. Afterwards Rake reportedly said that he has not even spoken to Sir Stelios since early 2011.
Of course, this will not please policymakers in Westminster. The British government has made its push for greater activism among shareholders over boardroom remuneration and corporate governance a flagship policy. Despite having watered down the proposals in June business secretary Vince Cable, who has lead the initiative, has stayed firm over shifting votes on pay from playing an advisory role to a binding one.
While this has been broadly welcomed, it is unlikely that the Coalition envisaged the program empowering activist investors like Sir Stelios. This, however, may well prove the case if the broader shareholder base maintain their traditionally passive role.
"The other stakeholders [in easyJet] have to vote and the real worry so far is their failure to participate in the debate," says Ketan Patel, Senior Socially Responsible Investment Analyst at Ecclesiastical. "In the US there is a long history of activist investors who come in and try to shake up the way a company is being run. The question is whether it is only in their interests or in the interests of all shareholders."
In effect passivity hands control of the debate to the individual, or individuals, with the largest megaphone. This can have a disruptive impact on the efficient running of a company as its senior management have to spend more time convincing shareholders of their ability to run the business and less actually running it.
Due to this, the fact that Sir Stelios has again been defeated should be less a cause for celebration and more a concern for the future. Already Rake has signalled frustration at his treatment and the two sides appear unable to find any common ground to begin a discussion over the future of easyJet. If the majority of shareholder really do support him this latest feud should perhaps be a prompt to do so more vociferously.
After all, as Patel asks:
"How do you attract talented managers to businesses that are constantly under attack by its own shareholders?"
Yet the case also suggests that those who become part of the brand of a company may struggle to take a back seat in its management. The dispute may manifest itself as a clash of personalities but at its heart is a collision between corporate culture and ego. For Stelios, as with other high-profile individuals who aim to build brands around themselves, it becomes increasingly hard to prize a vanity project from those whose ego it sustains.
Whether the traditionally monochrome world of finance could do with a bit more glitz and glamour is certainly open for debate. However, establishing the principle that companies can use the cult of celebrity to bridge the gap in trust between markets and investors would be clearly unwise for all involved.
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