How Allan Gray’s Orbis Investment Advisory fell into disfavour
An Allan Gray company has been censured because of its stake in a firm with alleged governance issues
Orbis Investment Advisory, part of the Bermuda-based investment manager established by Allan Gray in 1989, has incurred the wrath of one of its clients because of governance concerns.
Australia-based First Super, which oversees the funds of 45,000 workers, placed its investment with Orbis on watch due to Orbis’s holding in US-listed freight and logistics company XPO Logistics. First Super reckons XPO is exposed to legal, regulatory and reputational risk in North America and Europe due to allegations of labour law and occupational health and safety violations. Orbis is the single largest investor in XPO, with a 23% stake, so it is well placed to exert a positive influence on XPO. But, says First Super CEO Bill Watson, Orbis has ignored its concerns and has not only voted against a shareholder resolution that would have split the role of XPO chair from CEO, but also "against shareholder proposals calling for sustainability reporting and policies to strengthen the prevention of workplace sexual harassment".
Watson believes XPO’s poor governance and labour policies are factors in the company’s underperformance.
As is to be expected, XPO disputes the charges. In an e-mailed response to the FM, Bob Josephson, vice-president of communications at XPO, says the labour-related allegations are taken seriously and the company has strict policies to prevent harassment and discrimination. He says an investigation into allegations of sexual harassment found no supporting evidence.
As for being a drag on Orbis’s returns, Josephson says XPO contributed 0.1%, 2%, 3.3% and 3.5% to the relative performance of the Orbis Global Equity Fund over one, three, five and 10 years respectively, according to Orbis’s own statistics. He also notes that in December, when First Super said it was putting Orbis on watch, the XPO share price was up more than 44% for the year.
As for Orbis, it seems delighted with its investment in XPO. A spokesperson tells the FM that XPO continues to win more business from its existing customers and to grow its customer base rapidly, while maintaining low rates of employee turnover and strong ratings in employee surveys. "In Orbis’s view it is simply not possible to run a business as complex as global logistics, to grow your customer base and hire more workers, with a poorly treated and demoralised workforce," says the spokesperson.
But the International Brotherhood of Teamsters, whose president, James Hoffa, told delegates at a conference in Durban last year of the widespread allegations against XPO, isn’t persuaded. The Teamsters’ Louis Malizia told the FM this week that workers’ engagement with the union paints a different picture to the one presented by XPO and Orbis. He questions whether Orbis has done a proper due diligence on its investment.