The High Court heard two further instalments in the on-going case between Anglo/Dutch consumer products giant Unilever and its fund manager Merrill Lynch Investment Managers yesterday, as Merrill co-chairman Carol Galley admitted that she failed to inform the company when she ceased managing its fund, and Unilever finance director Hans Eggerstedt was accused of blackmailing the investment firm.
The Unilever Superannuation Fund (USF) filed the £130m (US$190m) lawsuit against Merrill alleging negligence and mis-management on the part of its subsidiary Mercury Asset Management when it was put in charge of a £1bn share of the £4bn pension fund. Unilever argues that Merrill’s decision to appoint the relatively inexperienced Alistair Lennard as manager in 1993 was a bad move that effectively cost the company £110m in lost earnings after he was left to run the fund without supervision two years after he took it over.
Galley admitted on her second day of questioning that she regretted failing to tell Unilever when she finished supervising Lennard: “But that was my judgment – it was a matter I wanted to handle over time … I wanted to see how Alistair was getting on.”
According to Unilever’s QC Jonathan Sumption, left to his own devices Lennard was able to “completely disregard” the expert company research meant to minimise risk, and triple the risk of the fund by 1996. By 1997, an agreed benchmark for the portfolio’s performance had been missed by 10.6%.
Sumption questioned Galley on how much knowledge she had of Lennard’s actions, to which she responded that fund managers were encouraged to “live and breathe the stock market” and thus were ultimately in control of their own funds.
Meanwhile, Galley told the court that Eggerstedt had made a crude bid to blackmail her company in January 1988 when they met to discuss the fund’s underperformance: “I was told that either we paid compensation to the USF, or Unilever and the USF would take steps to sack us as publicly as possible and to ensure that the damaging publicity associated with losing such an important client would reflect not only on Mercury as a house but also on me personally.
“This seemed to be no more than a crude attempt at blackmail.”
Unilever maintains that while Mercury increased the value of its pension fund by £210m during the 15 months to March 1998, £320m would have been earned if Mercury had matched the FTSE All Share index.