French Connection not quite connecting…

Ted Baker, SuperGroup and French Connection are all well-known fashion brands. It appears though that some shareholders in French Connection aren’t too happy at the moment and feel the company has fallen behind the other leading fashion brands.

French connection was established in the early 1970s, owns the famous FCUK logo and is listed on the London Stock Exchange.

Gatemore Capital Management, an American fund holds an 8% stake in French Connection and last week they wrote to the board of French Connection and criticised the company’s “disappointing” performance over recent years. Their comments raise some interesting examples for anyone studying a professional qualification with a corporate governance element to it (e.g. ACCA P1 or CIMA E1).

In their letter to the board, the fund urged the founder of French Connection, Stephen Marks to split his roles as chairman and chief executive. Best practice in UK corporate governance encourages the chairman and chief executive roles to be held by different people so as to avoid too much power being in the hands of one person. Mr Marks though holds both roles.

The fund also wanted the replacement of 2 of the non-executive directors. They highlighted that Dean Murray and Claire Kent would both “soon be losing their status as independent” as they had been on the board for 8 years. A key feature of non-executive directors, or NEDs as they are often referred to, is that they should be independent so that they can for example challenge the strategy put forward by the executive directors. NEDs shouldn’t be on the board of the same company for more than 9 years.

The financial performance of French Connection since the 2008 financial crisis hasn’t been particularly impressive. The share price has fallen from 100p to 40p since then and Gatemore felt that the company could catch up on its rivals by reducing the size of their product ranges and speeding up the closure of loss-making stores.

One interesting observation they had was that they wanted the company to drop the FCUK logo as it was no longer felt to be “aspirational”. Are we about to see the end of the famous logo?

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