The Revolving Door at the GLD Gold Trust as Execs Flee

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 31^st July 2014
• Aram Shishmanian (acting): 31^st July 2014 to 8 September 2014
• William Rhind :Appointed 8^th 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.

When William Rhind was appointed to the CEO position at WGTS in September 2014, the World Gold Council issued a press release in which Aram Shishmanian said:

“Will’s career and experience to date means he is ideally placed to lead our ETF business through the next decade, sustaining and enhancing GLD’s position as the world’s leading physically backed gold ETF…"

This expectation from Shishmanian, that Rhind would be in the job for the next decade, also indicates that Rhind’s departure must have been a shock to the WGTS and WGC boards, especially to Shishmanian, who would not have envisaged that he himself would be back to being CEO of WGTS within 18 months of that statement, and not just in an ‘acting’ capacity, but rather in a full capacity.

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 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 the 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 GLD were 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).

• 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. Furthermore, GLD shareholders are essentially bank-rolling the entire operations of the World Gold Council. I wonder how many GLD shareholders are aware of this?

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 misleading 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.

In conclusion, 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.