Noble's chairman should not be on key committee, says proxy firm

Noble Group, the trader accused of aggressive accounting practices, should make major changes to a key board committee to restore investor confidence in its financial reporting, according to an influential shareholder advisory firm.

In a report issued ahead of Noble's annual meeting on Friday, Institutional Shareholder Services called on the Hong Kong-based company to overhaul the membership of its audit committee, including by removing Richard Elman, group executive chairman and its biggest shareholder.

Shares in Noble, Asia's largest commodities trader by revenue, have dropped more than 25 per cent since the middle of February when an unknown firm called Iceberg Research published the first of three reports criticising the Singapore listed company's financial reporting.

Noble has also since been attacked by Muddy Waters, the US short seller, which has questioned the trader's financial strength and governance.

"In light of Iceberg's accusations, the company's audit committee should be comprised entirely of non-executive [directors], chaired by a director who is not overcommitted so as to help restore investor confidence in the company's auditing and financial reporting practices," ISS said.

Noble's audit committee currently comprises five members, three being independent non-executive directors, including its chairman Iain Bruce who serves on the boards of seven public companies and heads a number of audit committees.

A spokeswoman for Noble did not offer any comment on the ISS report, but pointed to the company's annual report which said Mr Elman, group chairman, was a member of the audit committee in view of his "extensive knowledge of the operations and history of the group, and the benefits he is able to bring to discussions and deliberations on a wide range of topics".

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"Two directors have been on the board for 19 years. The 'oldest' five directors have been on the board for an average of 15 years," Iceberg wrote in the report. "Either their willpower is so strong that they have extremely independent minds, or they are de facto employees."

The company has rejected all the claims made by Iceberg and Muddy Waters, calling them variously "inaccurate" and "misleading". It has rejected Iceberg's allegations that it books too much of the profit from its long-term deals too quickly, and says a disgruntled ex-employee is behind Iceberg.

ISS is one the largest proxy advisers for institutional investments and its recommendations can have an impact on how shareholders vote. It said none of the allegations made by Iceberg warranted a vote against any of the 12 motions that will be put before shareholders on Friday. However, it is advising investors to block four resolutions, including those linked to share options and awards.

Noble's biggest shareholders are China Investment Corp, Templeton Investments, Orbis Investment, Eastspring Investments and Invesco. They cumulatively own 30 per cent of the company. Mr Elman owns about 21 per cent.

Noble mines, ships and finances iron ore, coal and agricultural commodities including grain, sugar, palm oil and coffee.

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