Pressure is building up for all Irish publicly quoted groups to split the role of chairman and chief executive. An influential group of institutional investors has urged some of Britain's largest companies to split the roles, saying they were worried about "undue concentration of power" in one individual. The Association of British Insurers (ABI), representing members with £1 trillion of assets, has written to non-executive directors of some 20 companies in the FTSE 350 that appear to have a sole person as chairman and chief executive.
When asked to comment on the compliance of Irish companies, Ms Ann Fitzgerald, secretary general of the Irish Association of Investment Managers (IAIM), said her association is carrying out a survey of the companies to establish their compliance with the combined codes on corporate governance. A report would be made on each company.
These codes say there should be a "clear division of responsibility at the head of the company which will ensure a balance of power and authority such that no one individual has unfettered powers of decision". However, there is a questionable opt-out which should be scrutinised by investors for any lame excuses. This says that if the company decides to confine the post to one person, this "should be publicly justified". The codes are rightly acknowledged as being important by both the Irish and London stock exchanges and endorsed by the IAIM, which represents Irish fund managers.
The majority of Irish publicly quoted companies abide by the rules. However, one of the major companies, Jefferson Smurfit Group, has the role of chairman and chief executive vested in one person, Dr Michael Smurfit. Its corporate governance statement claims this is "fully justified" because Dr Smurfit has been the "architect of the group's success for more than 30 years, leading its growth to become a world leader in this sector. He is widely respected as a leader in the industry". And this status, the company said "has been endorsed very strongly" by commentators and was enhanced by the merger between its US associate and Stone in the US.
Elan also has one person, Mr Donal Geaney, carrying the dual role of chairman and chief executive. Its shares are quoted on the New York Stock Exchange and the Irish Stock Exchange. Elan's reason is that its board includes 11 non-executive directors who constitute a majority of the board. Independent News and Media had a clearly defined break between the chairman, Dr Tony O'Reilly, and the chief executive, Mr Liam Healy, up to the end of April. However, since then the chief executive post has not been filled and Dr O'Reilly has assumed the role of executive chairman. Under the codes, the group will have to "publicly justify" this position in the 2000 annual report.
The banks have clear and separate roles for the chairmen and chief executives. This is true also in other major companies such as CRH.
The technology companies are very mixed. Iona Technologies, whose shares are quoted on the Irish and Nasdaq markets, for example, has one person, Dr Chris Horn, as chairman and chief executive. In contrast, SmartForce, with a dual Irish and Nasdaq listing, separates the roles: Mr Bill McCabe is chairman, while Mr Greg Priest is CEO.
Most of the smaller or medium-sized companies separate the roles but Abbey and Kingspan are among the exceptions. Sherry FitzGerald on Friday moved in line with the code by appointing a separate chairman, Mr Donal Chambers. Surprisingly, shareholders, however, rarely complain about companies having one person as a chairman and CEO. The exception has been James Crean, which has failed to live up to its promise to split the roles (its corporate governance statement said it would separate the roles "as soon as it is practicable to do so"). Most of the shareholders' ire at last July's a.g.m. was directed at Mr Ray McLoughlin for his continuing role as chairman and chief executive.
The survey being carried out by the IAIM should provide useful data on Irish companies' compliance with the codes. Eight years ago the Cadbury committee urged British companies to split the roles of chairman and chief executive. Yet one in 10 British companies still combine the roles. The push by the ABI follows the events at Tomkins, the British industrial group: Mr Greg Hutchings recently resigned as chief executive following allegations of using company jets and apartments for his private use. Advocates of retaining the dual role could point to the dual role practice in the US. Also, it could be argued that a weak and ineffective chairman would be no match for a strong highly-motivated chief executive, thereby rendering the separate non-executive chairman's role ineffective. Cases for exceptions to the code can be made, and there are instances where retention of the dual role has benefited the company and shareholders.
Concentration of power in private companies is fine but checks and balances in publicly quoted companies are essential. Checks are usually vested in the non-executive directors, which can work so long as they are not just cronies, or yes men.
But the added balance of separate roles for the chairman and chief executive is necessary for good corporate governance to work effectively. Those not complying could be penalised by institutional investors not buying the shares; but will they be brave enough to add teeth to the codes they are advocating?