Frontline and DHT governance spat in spotlight

The debate over corporate-governance standards for public shipowners is sometimes viewed as the province of policy nerds, with some questioning just how much investors are actually engaged.

But there is a very prominent real-world example of governance gaining traction in the high-profile takeover dance of tanker owners Frontline and DHT Holdings.

And with Wells Fargo analyst Michael Webber issuing updated scores this week, there is fresh ammunition for the verbal sparring between the two camps (see story, page 30). 

DHT ranks 14th among 52 companies in Webber’s new “governance scorecard”, while Frontline sits at 28. On the surface, this appears to provide support for the barbs DHT’s board aimed at the John Fredriksen company in an open letter on 7 May.

“All of our business resides within the DHT group,” the board argued. “We do not have a dominant shareholder siphoning off returns via an externally owned management company. When we raise debt, we do so through reputable financial institutions instead of obtaining credit facilities from related parties.

“With all due respect, Frontline and its dominant shareholder cannot make these same claims,” the board said, making a clear allusion to Fredriksen.

Frontline chief executive Robert Hvide Macleod fired back this week, challenging DHT’s use of co-chief executives and “the costs duplication, corporate governance complexities and inefficiencies of that arrangement”.

Wells Fargo has consistently ranked DHT above Frontline in the governance sphere. In the previous scorecard last autumn, DHT ranked 5th to Frontline’s 26th.

The new report looks not only at related-party conflicts but increasingly at board composition and practices. In the update, DHT has dropped nine positions and Frontline two.

In an interview this week, Webber said he considers the gap between the two companies in his rankings to be “appreciable”.

But he also confirmed a point that is likely to provide some comfort to Frontline — that one reason for DHT’s drop was its decision to implement a one-year “poison pill” protection limiting Fredriksen’s ability to accumulate shares.

“It does weigh on the company's score,” Webber said.

An outside specialist in corporate governance, Nicolaas Koster of New York's Penmon, worked with Webber on the report. Speaking generally about poison pills, he also cited a negative perception.

“If companies use one, they need to do a good job explaining why they’re doing this,” Koster said.

“There’s a lot of evidence indicating that although poison pills can result in a higher bid premium, shareholders are overall worse off because they tend to entrench the board and management and prevent deals that might be in the interest of shareholders.”