DEFA14A: Burford Capital Defends Director Re-Elections Amid ISS Recommendation Against

Burford Capital is urging shareholders to re-elect directors Christopher Halmy and Robert Gillespie, despite a recommendation against their re-election from Institutional Shareholder Services (ISS).

Summary

• Burford Capital is addressing a recommendation from Institutional Shareholder Services (ISS) against the re-election of directors Christopher Halmy and Robert Gillespie.
• ISS's recommendation is based on concerns about ineffective internal control over financial reporting since FY2021, which ISS believes poses risks to shareholders and indicates insufficient audit committee oversight.
• Burford argues that ISS is conflating modifications to the valuation approach driven by SEC engagement with a material weakness in financial controls related to the precision of management's review of fair value assumptions.
• Burford states that the material weakness did not result in misstatements to the consolidated financial statements.
• The company highlights that Glass Lewis supports the re-election of both directors.
• Burford also addresses ISS's recommendation against executive compensation due to the use of carried interest allocations, a common practice among alternative firms.
• Burford defends its executive compensation approach, stating that carried interest allocations align management's interests with shareholders by rewarding profitable cash flow generation.
• The company emphasizes the qualifications and contributions of both Mr. Halmy and Mr. Gillespie to Burford's success, including overseeing the NYSE listing and the transition to US GAAP reporting.
• Mr. Halmy has served as a director since May 2022 and has extensive experience in finance, accounting, and treasury.
• Mr. Gillespie has served as a director since May 2020 and has a long career in investment banking and governance roles.

Sentiment

Score: 5

Explanation: The document presents a defensive stance against criticism from ISS, highlighting both positive aspects and acknowledging negative points. The sentiment is neutral, aiming to persuade shareholders rather than expressing strong optimism or pessimism.

Positives

• Glass Lewis supports the re-election of both directors, providing a counterpoint to ISS's recommendation.
• Burford successfully transitioned to US GAAP reporting, leading to increased trading volume in the United States.
• The company defends its executive compensation structure as aligning management's interests with shareholders.
• Both Mr. Halmy and Mr. Gillespie are described as highly qualified and experienced directors with significant contributions to Burford's success.

Negatives

• ISS recommends against the re-election of two directors due to concerns about ineffective internal control over financial reporting since FY2021.
• ISS also recommends against executive compensation due to the use of carried interest allocations.
• The company acknowledges a material weakness in financial controls related to the precision of management's review of fair value assumptions.

Risks

• The disagreement with ISS could influence shareholder voting decisions.
• The material weakness in financial controls, even if it did not result in misstatements, could raise concerns among investors.
• Negative sentiment from ISS regarding executive compensation could lead to shareholder dissatisfaction.

Future Outlook

Burford intends to continue engaging with shareholders and addressing concerns raised by ISS and other stakeholders.

Management Comments

• We ask shareholders to disregard ISS recommendation and re-elect Messrs Halmy and Gillespie to the Board of Directors.
• We encourage shareholders to vote in favor of our executive compensation, which is consistent with our approach to compensation for many years, has been fully described to shareholders and is commensurate with our cash performance.

Industry Context

The document highlights the debate around carried interest allocations, a common practice in the alternative investment industry, with ISS often recommending against it at firms like Ares, TPG, Carlyle, and Apollo.

Comparison to Industry Standards

• The document mentions that ISS regularly recommends against compensation at other alternatives firms including Ares, TPG, Carlyle and Apollo on the same basis as Burford, which is the use of carried interest allocations.
• Burford's transition to US GAAP reporting is a significant step, aligning it with US market standards and potentially increasing investor confidence, similar to other companies that have made this transition to attract US investors.

Stakeholder Impact

• Shareholders are directly impacted by the recommendations regarding director re-election and executive compensation.
• Employees could be indirectly affected by changes in corporate governance or executive compensation policies.

Next Steps

• Shareholders will vote on the re-election of directors and executive compensation.
• Burford will continue to engage with shareholders to address their concerns.

Key Dates

Keywords

Burford Capital, directors, re-election, ISS, Glass Lewis, proxy statement, corporate governance, financial controls, executive compensation, carried interest, shareholders, audit committee