Sir Ken Morrison, who stepped down as chairman and director of Wm Morrison Supermarkets Plc after 50 years in 2008, has been fined over £200,000 by the Financial Services Authority (FSA).

Sir Ken was famously reluctant to bring non-executives onto the board at Morrisons, once asking "What is the difference between a non-exec and a supermarket trolley? Answer - You can get more wine into a non-exec!" But despite his unconventional attitude to corporate governance, and the near-disastrous takeover of Safeway in 2004, Sir Ken successfully grew the small business started by his father into the UK's fourth largest supermarket group by market share and one that has performed consistently well over recent years.

So what led to the FSA fine?

Sir Ken fell foul of the rules requiring any shareholder, whether an individual or an institution, to tell the company how many of its voting rights he holds whenever his holding reaches or passes through certain percentage thresholds. This can occur as a result of acquiring or disposing of interests in shares, or by changes in the total voting rights in the company. Companies are required to publish the total voting rights on monthly basis and whenever a material change occurs, so that shareholders can make the relevant calculation. When a shareholder makes a notification to the company, the company must then announce this information to the market.

The requirements are set out in Chapter 5 of the FSA's Disclosure and Transparency Rules (DTR), and apply to UK companies with shares traded on AIM or the PLUS quoted market as well as those traded on a regulated market such as the main market of the London Stock Exchange. The requirements also apply, but with different thresholds, to certain overseas companies with shares traded on a regulated market.

Shortly after his retirement from Morrisons in 2008, the company announced that Sir Ken had a notifiable holding of voting rights of 6.38%. There were then no further announcements relating to Sir Ken's holdings for nearly three years. In March 2011, the company announced that he had substantially cut his shareholding in a number of transactions, reducing his voting rights to 0.9%.

Sir Ken had failed to notify the company on four separate occasions when he should have done - when his holding of voting rights fell below 6%, 5%, 4% and 3%. The first three occasions related to the sale of shares in his personal capacity and the fourth arose as a result of his resignation as a trustee of certain family trusts.

Sir Ken rectified the failure after being prompted to do so by the company. However, he was significantly in breach of the obligation to make the required notifications to the company as soon as possible and in any event within two trading days (this would have been four trading days if the company had not been incorporated in the UK).

His explanation that he was not aware of the requirement to tell the company about the reductions in his holdings cut no ice with the FSA. While he did not financially benefit from breaching the DTR rules, those breaches in turn meant the company was not in a position to update the market in accordance with the rules. This resulted in the market being misled as to the ownership of voting rights in the company. It also meant that Sir Ken's shareholding was stated incorrectly in the company's 2010 annual report.

The breaches were regarded as serious due to Sir Ken's prominent position. The FSA also stressed the need for credible deterrence in this area, noting that those breaching these disclosure requirements are likely to be comparatively wealthy and/or institutional investors. It therefore proposed a fine of £300,000. As Sir Ken had co-operated with the FSA and agreed to settle at an early stage, the fine was reduced to £210,000.

This unfortunate post script to a successful business career highlights the need for directors, as well as other investors, to make sure they are aware of their disclosure obligations and to monitor their holdings carefully.

Contact us

For further information, please contact:

Partner
020 7002 8518

Danielle Harris
Professional Support Lawyer
020 7002 8542
danielle.harris@mms.co.uk

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