A remarkable but little noticed development has occurred behind the scenes
of the SPDR Gold
Trust (GLD) over the last 3 years. This development concerns the very
high level of executive staff turnover at World Gold Trust Services, the New
York based ‘Sponsor’ of the mammoth gold GLD gold-backed Exchange Traded Fund
that is listed on the NYSE.
For within the space of less than 3 years, World Gold Trust Services has
gone through 4 Chief Executive Officers (CEOs) and 3 Chief Financial Officers
(CFOs). By any standard this is a huge amount of senior executives moving
through the roles, and would normally ring alarm bells in the corporate
governance departments of major institutional investors. Perhaps it has
caused concern among institutional investors of the SPDR Gold Trust (GLD),
but if it has, it has gone unreported.
New York based World Gold Trust Services (WGTS) LLC is a fully owned
subsidiary of the London-based World Gold Council. WGTS is a Delaware
registered limited liability company (for-profit) established
in 2003 by the World Gold Council and run out of offices at 685
Third Avenue, in midtown Manhattan, New York. The World Gold Council
(WGC) itself is a non-profit
association registered in Geneva under Swiss Civil Code Article 60. So
the structure of the relationship is a non-profit organization, the World
Gold Council, owning 100% of a for-profit company, World Gold Trust Services.
In summary, here are the lists of CEOs and CFOs of World Gold Trust
Services between 2013- 2016:
Chief Executive Officers (CEOs) of WGTS
- Jason Toussaint: April 2009 – left July 2013
- Kevin Feldman: Appointed June 2013 – Resigned 31st
July 2014
- Aram Shishmanian (acting): 31st July 2014 to
8 September 2014
- William Rhind :Appointed 8th Sept 2014 –
Resigned 9 February 2016
- Aram Shishmanian (appointed): 10 February 2016
Chief Financial Officers (CFOs) of WGTS
- Robin Lee : H1 2010 – Left WGTS / WGC December 2014
- Adrian Pound: Appointed Oct 2013 – Resigned 10
March 2015
- Samantha McDonald: Appointed March 2015
Last In First Out
On 10th February 2016, the SPDR Gold Trust filed
a form 8-K with the US Securities and Exchange Commission (SEC) informing
the market that WGTS CEO William Rhind had resigned,
effective 12 February. The filing stated that:
“Mr. Rhind’s resignation was a personal decision and was not as a
result of any CEO or WGTS performance-related issue or any other matters
related to the operations, policies or practices of the Trust.”
On the same day, the board of WGTS (about which more below)
appointed Aram Shishmanian, CEO of the World Gold Council, as CEO of
WGTS, meaning that Mr Shishmanian is now CEO of both entities:
“On February 10, 2016, the Board of Directors of WGTS
appointed Aram Shishmanian, Executive Director of WGTS, as the Chief
Executive Officer of WGTS.”
William Rhind had only been appointed
CEO of WGTS on 8 September 2014, and so was CEO for a relatively short period
of 17 months. Rhind’s departure looked to be sudden, since more than a month
later in March 2016, the SEC was still addressing
a letter to Mr Rhind even though he had departed.
Rewinding further, William Rhind had been appointed
CEO of WGTS because the former CEO Kevin Feldman had himself
resigned, on 31 July 2014, effective 15 August 2014. This too seemed to be a
sudden departure because on 31 July 2014, the board had to make Aram
Shishmanian “Acting Chief Executive Officer”, suggesting that the Board did
not have the time to have line up a successor or to run a search campaign.
Shishmanian’s Acting CEO position lasted nearly a month until Rhind’s
appointment in September 2014.
In its form 8-K
filing with the SEC detailing Kevin Feldman’s resignation, the SPDR Gold
Trust statement says that:
“Mr. Feldman’s resignation was a personal decision and was not as
a result of any CEO or WGTS performance-related issue or any other matters
related to the operations, policies or practices of the Trust.”
Kevin Feldman had only been appointed
as CEO of WGTS in late June 2013 when he joined the World Gold
Council’s Investment area as an external appointment. This means that when
Feldman resigned as CEO of WGTS on 31 July 2014, he had been in that role for
about a year only.
Jason Toussaint, the predecessor CEO of WGTS departed in July 2013,
and had been in his role since April 2009 following his appointment
as head of the World Gold Council’s Exchange Traded Gold (ETG) group
(which included the SPDR Gold Trust) in April 2009.
So overall, that’s 4 CEOs of World Gold Trust Services in less than a 3
year period.
A Run on the Pound
Turning to the number-crunchers, current WGTS CFO Samantha
McDonald was appointed by the WGTS board of directors on 10 March 2015 “with
immediate effect”, on the day that the previous WGTS CFO Adrian Pound
resigned. Pound had been both Chief Financial Officer and Treasurer of World
Gold Trust Services. The SPDR Gold Trust 8-K
filing to the SEC about Pound’s resignation stated that:
“His [Mr. Pound’s] resignation did not arise from any disagreement on
any matter relating to the operations, policies or practices of the SPDR® Gold
Trust.”
Adrian Pound had only been appointed as WGTS CFO in October 2013, and so
was only in the role for about 17 months, the same duration as William
Rhind’s stint as WGTS CEO. Pound’s departure also looks unexpected since it
was only announced to the SEC on 11 March 2015, and furthermore,Samantha
McDonald took over the role “with immediate effect” and without a
transition period.
Prior to October 2013, Robin Lee, the Secretary of the World Gold Council,
had been the CFO and Treasurer of WGTS before Pound came in, and Lee signed
off the accounts, for example in Q2
2013. Robin Lee resigned
as Secretary of the World Gold Council on 31 December 2014, and looks to
have stepped down as CFO of WGTS by October 2013.
So, overall, that’s 3 CFOs of World Gold Trust Services in less than a year
and a half.
The Board and Corporate Governance
World Gold Trust Services, the sponsor of the SPDR Gold Trust, has a Board
of directors, however, according to a SPDR
Gold Trust filing, this Board was only established on 24 January 2013.
The Board consists of William J. Shea (Chairman), Rocco Maggiotto,
Neal Wolkoff, and WGTS CEO Aram Shishmanian. The Board (Shea, Maggiotto,
Wolkoff and Shishmanian) also established an audit committee and appointed
Shea, Maggiotto and Wolkoff to serve as members of this audit committee.
As a reminder, Aram Shishmanian is CEO of the World Gold Council and
is also CEO of World Gold Trust Services, and is also a board member of World
Gold Trust Services. Aram Shishmanian became
CEO of the World Gold Council in January 2009.
As CEO of the World Gold Council, Shishmanian has decision rights on the
tenure of service and compensation of Shea, Maggiotto, and Wolkoff. In
his role as CEO of WGTS, Shishmanian reports to the Chairman of the
Board William Shea. This appears to be a very complicated and unusual
organization structure of corporate governance. Furthermore, as mentioned
above, World Gold Trust Services is a for-profit limited liability company
and the World Gold Council is a non-profit Swiss Association. Potentially
there could be conflicts of interest between the pursuit of commercial goals
through WGTS and the pursuit of non-commercial goals through the WGC,
especially as they have the same CEO.
The Rush to Leave?
There are plenty of reasons why executives leave companies, including
changes in reporting lines, smaller budgets, changes in job description, lack
of opportunities, a fear of the company imploding, or just the pursuit of
more attractive opportunities. Some of the above departures would surely fall
into one or more of these categories. The short stints of CEO Kevin Geldman,
CEO William Rhind, and CFO Adrian Pound are curious though since none of
these people really stayed in their roles very long.
CEO Feldman resigned on 31 July 2014, and CFO Pound resigned on 10 March
2015, and CEO Rhind resigned on 9 February 2016. Although I am second guessing,
in my view, some or all of these departures could be related to one or both
of the following factors:
a) An environment of revenue and cost cuts at the World Gold Council and
WGTS during 2014-2015
b) Pressure from the World Gold Council or elsewhere to push through a
complicated and stressful ‘consent solicitation campaign’ in 2014 / 2015 that
was required so as to alter the SPDR Gold Trust sponsor fee setup that
allowed WGTS to collect a greater sponsor fee.
Point a) is pretty self-explanatory but I will illustrate it briefly
below.
Point b) will make sense to readers after they have read future
BullionStar coverage of the “GLD proxy consent solicitation campaign”
which is very complex and quite shocking to the extent of the sheer constant
barrage that WGTS unleashed on both institutional and retail GLD holders for
months and months in the second half of 2014 and early 2015 to get the
required proxy voting majority. This consent campaign eventually got the
required ~51% of votes by the end of Q1 2015, and was effective by July 2015,
after which WGTS began collecting 0.40% of the GLD NAV as sponsor fees.
However, I’ll explain it very briefly.
Before the sponsor fee change, the GLD Sponsor Fee was 0.15% of the
Adjusted NAV, or 15 basis points. The Marketing Agent fee (for State
Street Global Advisors) was also set at 0.15% of the ANAV. The Trustee fee
(to BoNY Mellon) was set at an annual rate of 0.02% of the ANAV, “subject to
a minimum fee of $500,000 and a maximum fee of $2 million per year. The
custodian’s fee (to HSBC) was approximately 0.06% of the NAV.
As mentioned in BullionStar blog “The
funding model of the World Gold Council: GLD Fees and Gold Miner Dues”
from June 2015:
“Between June 2014 and February 2015, the GLD Sponsor, World Gold
Trust Services, ran a protracted and non-stop blitz-like global consent
solicitation campaign (using Broadridge and DF King) to try to persuade 51%
of the beneficial owners of GLD Shares to consent to (vote for) 2 proposals
that WGTS was desperate to push through. These two Sponsor proposals were to:
a)increase the Sponsor fee from 0.15% per annum to 0.40% per
annum
b)to be permitted to compensate the World Gold Council and
its affiliates for the provision of marketing and other services to the SPDR
Gold Trust
Teeing up these 2 proposals for implementation required
amendments to the GLD Trust Indenture. Changes
of this nature to the Trust Indenture required 51% of GLD Shareholders to
consent, hence the consent solicitation campaign. This 51% threshold was
eventually reached on 25 February 2015, after which the consent solicitation
campaign was halted.”
What WGTS and the World Gold Council did essentially was boost the
sponsor fee to themselves while then having the power to pay out the rest of
the fees to the other parties, i.e. to the Marketing Agent, Trustee and
Custodian. This basically allows WGTS to keep the extra fees for itself and
these are used as revenue by the World Gold Council. As you will see below,
this strategy started to become lucrative in 2015.
The vast majority of World Gold Council funding has traditionally been
made up of member dues (from its gold mining company members) and sponsor
fees (from the SPDR Gold Trust). The sponsor fees pass through WGTS and are
booked as revenue of the WGC (since WGC fully owns WGTS). This revenue model
was altered over 2014/2015 as member dues were phased out and the World Gold
Council / World Gold Trust Services eventually pushed through an amendment
(by proxy solicitation campaign) to alter the fee structure of the GLD.
According to the WGC
annual accounts for the year to 31 December 2014, in 2014, the WGC’s
member dues fell to $12.5 million compared to $28.2 million in
2013. In 2014, sponsor fees from the GLDwere down to $46.1 million from
$75.1 million earned in 2013. This was because of a lower NAV of the SPDR
Gold trust, i.e. smaller gold holdings of GLD multiplied by a lower gold
price. By 2015 member dues had been phased out to zero and WGC was even
more reliant on the sponsor fees from GLD. It appears the gold mining
companies no longer were willing or able to fund the World Gold Council.
The WGC’s overall revenue for 2014 was $61
million, which was $42 million less than 2013 total revenue of $103
million. WGC expenditure for 2014 was $85.3 million, down
from $115.7 million in 2013.
Most of the expenditure drop came from reduced marketing
development expenditure, with a small drop in general and admin expenditure,
and a small reduction in personnel expenditure. With Revenue <
Expenditure, the WGC had to eat into its cash, and the group’s cash holdings
fell from $63.8 million in 2013 to $45.7 million in 2014, i.e. a reduction of
$18.1 million in cash holdings.
Staff numbers at the World Gold Council stayed essentially
unchanged in 2014, at 91 in December 2014, vs 92 in December 2013. However a
reduction in the workforce was announced in January 2015 in Note 21 of the
accounts, which stated:
“Note 21: Subsequent events:
On 20 January 2015, the company announced to its
employees that it would be eliminating certain activities that will result in
a reduction of its workforce and lower office requirements. It is expected
that the costs of the restructuring will be in the region of $15 million. A
provision of $11 million was made in the year ended 31 December 2014.”
From the World
Gold Council 2015 accounts, by 2015, all WGC member dues (from the gold
mining company members) had been phased out to zero, and the bulk of revenue,
$66.9 million, came from the Sponsor Fees from the SPDR Gold
Trust. Total revenue was $68.8 million. This meant that as
of 2015, the GLD (a commercial ETF) was basically funding all of the
operations of the World Gold Council (a non-profit association).
The WGC 2015 accounts also show (on page 34) that WGTS paid out the following
fees in 2015 to the Marketing Agent, Trustee and Custodian, and some
ancillary expenses:
- Marketing Agent fees: $16.6 million
- Custodian fees $4.1 million
- Trustee fees $0.92 million
- Other GLD Expenses: $4.9 million
- Total of the above for 2015: $ 26.574
million
Given that the World Gold Council took in $66.9 million as Sponsor
Fees from GLD for 2015, that’s a cool $ 40.3 million that the WGC kept out of
the total Sponsor fee inflows. Now you can see why they were so eager to push
through the consent solicitation campaign in 2014 and early 2015.
Finally, WGC expenses for 2015 continued to drop slightly to $82.3
million. Probably the most shocking thing about the 2015 World Gold Council
accounts is that the employee headcount had dropped to 51 at the end of 2015
from 91 at the end of 2014. Therefore there were 40 fewer people employed by
the group. That’s a 44% reduction in headcount over one year.
My guess is that in a World Gold Council environment of cost cutting over
2014 / 2015 and mass personnel departures, the work environment probably
contributed to some of the CEO / CFO departures by the WGTS execs.
Furthermore, as you will see in a future post about the ‘GLD consent
solicitation proxy vote campaign’, because this was, in my opinion, a very
sneaky and confusing non-stop campaign that bordered on bullying GLD
shareholders, especially the retail shareholders, this could have also taken
its toll and resulted in CEO/ CFO departures from the SPDR Gold Trust
sponsor, i.e. New York based World Gold Trust Services.
Finally, it would be interesting to see what the large
institutional shareholders of GLD such as Paulson and Blackrock make of
this high turnover rate in GLD Sponsor executives, and what their corporate
governance and proxy voting teams think of the WGTS driven GLD proxy
solicitation campaign and the rather unusual governance structure of the
World Gold Council and World Gold Trust Services.
Ronan Manly
E-mail Ronan Manly on:
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