DAVIS REPORT:THE LATEST Davis report, compiled for Denis O'Brien, says INM has failed to convince observers that its directors are sufficiently independent-minded to fulfil the prime task of a board, its ability to "hire and fire" the chief executive.

Citing the conclusions of international proxy advisers, the report says that there is a quality gap between the investor expectations on governance and the practices of the company.

The gap is particularly acute as investors place “special reliance” on governance safeguards where there is a dominant shareowner.

“If protections fall short of accepted practices, funds tend to assign higher risk to the investment, dampening stock prices and potentially raising the company’s cost of capital. By contrast, if governance features meet or exceed best practices, a company has enhanced opportunities to win long-term investor loyalty.”

On the size of the board, the report notes that there are 20 INM directors and says the peer group average is 10.6. It says investor watchdogs and governance standards consider that large boards are often less “wieldy”.

Noting that INM says a large board reflects its global breadth and has not impaired effectiveness, it says companies far larger and more international typically have fewer directors.

It says no proxy analyst agrees with INM’s designation of 11 of its directors as independent of management. “One proxy watchdog judges that the board has no independent members, the others say no more than seven (35 per cent) are independent.”

INM ranks a “distant last” among peers on the independence of its audit committee, it says. “Various proxy voting agencies have concluded that were INM to use their definitions of independence, it would be in breach of the independence principle behind the Combined Code’s section on audit committees.” Stating that INM contends its nomination and corporate governance committee is “majority independent”, it says every proxy service disagrees.