Kelso, the London-listed activist investor seeking to tighten its grip on The Works, has accused the retailer's board of attempting to sway a crucial shareholder vote.

The activist has been locked in a weeks-long row with the arts and craft retailer, which trades on London's AIM market, over its campaign to convince shareholders to appoint Graeme Coulthard, a former Card Factory executive, to the board. The Works had sought to frustrate those efforts, refusing to meet with Coulthard and warning shareholders that his presence on the board would "derail" its strategy.

When the motion was put to shareholders on Monday, The Works prevailed, with Coulthard's board seat refused by 51.6 per cent of votes to 48.4 — a margin narrow enough that the treatment of the EBT's shares has become the focal point of the dispute, and a reminder of how contested boardroom votes at small-cap companies can hinge on blocs of shares beyond ordinary institutional investors.

Employee Benefit Trust dispute

But John Goold, Kelso's chief executive, has accused the retailer's board of inappropriately allowing its Employee Benefit Trust (EBT) – which holds four per cent of the company, to be issued as bonuses to management – to determine the outcome of the vote. He claims the EBT, which is run by an independent board of trustees, voted in line with The Works' board and blocked Coulthard's bid for a board seat. The dispute touches on a long-running debate in UK governance circles: guidance in the UK has generally discouraged, and at times restricted, employee share trusts from voting their unallocated shares, precisely because of concerns that shares earmarked for management incentives should not influence shareholder outcomes.

Goold told City AM: "In these tight situations, they should not be voting. They definitely should not be deciding who wins.

"Anyone in the City will tell you [EBT] should not be deciding the result of a tight [vote] like this."

A person close to The Works said its EBT is administered by an independent trustee company and that the board has no control over how it votes in shareholder motions.

'I'm staggered'

Speaking at the group's Annual General Meeting, Goold praised the retailer's "standout performance" in recent months, before saying he was "very disappointed" by the board's "aggressive reaction" to his push for Coulthard to gain a seat. What "should have been a day of celebration" had instead become engulfed by a "really quite needless fallout with a major shareholder", he said.

Goold later told City AM he was "staggered" by the alleged refusal of The Works' board members to meet with Coulthard.

During its row with the retailer, Kelso has also accused chairman Steve Bellamy of switching his primary residence to New Zealand – where he is a citizen – and dialling in to crucial board meetings. Bellamy hit back at these claims during the meeting, telling shareholders that Kelso's accusations are "not correct" and that he has remained a dual resident of New Zealand and the UK throughout his chairmanship.

'Maybe he's still on the 212 bus'

Kelso, which owns 10 per cent of The Works, voted for Bellamy to be ousted as chairman, though he survived the attempt, winning 77.6 per cent of the vote.

The row over boardroom attendance then turned back on Kelso when a shareholder questioned why Coulthard had not attended the AGM. "Maybe he's still on the 212 bus," Bellamy replied.

Goold told City AM that Coulthard chose not to attend. "There's no point in having a debate with Graham when he's there. The board did not speak to Graham ahead of this vote. They just took a view. I'm staggered by it."

Commenting on Coulthard's failed bid, a spokesperson for The Works said: "While 48.39 per cent of votes cast in respect of Resolution 15 were in favour of Mr Coulthard's appointment, the Board notes that these votes were from a small number of shareholders.

"The Board is grateful for the support of its other shareholders who voted in accordance with its recommendations."

Ahead of the vote, The Works had warned investors that Coulthard's presence on the board would "create unnecessary distraction [and] risk derailing" the board's growth strategy. With Coulthard's resolution defeated but nearly half the votes cast in favour, and Kelso showing no sign of retreating, the standoff between the activist and the board remains unresolved heading into the coming months.