Ex-Charterhouse Partner ‘Rocked’ by $66 Million Pay Cut Proposal

A former executive at Charterhouse Capital Partners LLP told a court he was “shocked” when the firm’s chairman, James Gordon Bonnyman, suggested he take a pay cut of as much as 40 million pounds ($66 million).

Geoff Arbuthnott is suing Bonnyman and the 16 other owners of the London-based private-equity firm for trying to seize his stake for less than he says it’s worth. In the London trial today, Arbuthnott said his relationship with Bonnyman soured before he resigned in 2008.

Bonnyman called Arbuthnott into his office in December 2006 to discuss his performance and carried interest, the share of a fund’s profits that private-equity partners receive as compensation. Arbuthnott said he was told that the other executives wanted to cut his share of profits in half from a fund which he estimated would have cost him as much as 40 million pounds.

“I was rocked back on my heels,” Arbuthnott said. “I’m just getting mugged here,” he said he thought at the time. “There is no point trying to have a sensible conversation.”

The two later agreed on a significantly smaller reduction, he said.

Both sides in the dispute have accused the other of improper conduct. Arbuthnott, who worked for Royal Bank of Scotland Group Plc and the accounting firm Deloitte & Touche LLP before spending 20 years at Charterhouse, said he raised concerns about secret meetings with managers at takeover targets. The other Charterhouse executives say he was trying to blackmail them into paying more for his shares in the firm.

Too Frightened

The private-equity firm investigated the claims and found no evidence of regulatory breaches or dishonesty, its lawyers said in documents from the trial. Jonathan Hawker, a spokesman for Bonnyman and the other owners, didn’t immediately respond to an e-mail seeking comment.

Arbuthnott testified today he was too frightened of Bonnyman to pursue his concerns at the time. He also denied claims he hadn’t played an active role in the business, saying he helped attract billions of euros from investors from 2001 to 2006.

Charterhouse, Britain’s oldest buyout firm, manages about 8 billion euros ($11 billion) and more than doubled investors’ pledges under Bonnyman’s leadership between 1990 and 2010.

The 2011 restructuring at the center of the lawsuit was intended to give active managers a bigger stake in Charterhouse’s success and reduce the shareholding of retired members, Bonnyman’s lawyers said in court documents. Arbuthnott says he was offered about 1.4 million pounds in 2011, when his stake in Charterhouse was actually worth about 27 million pounds.

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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