One in five Irish publicly quoted companies has not separated the roles of chairman and chief executive and has not given adequate reasons for the same person filling both roles, according to the Irish Association of Investment Managers (IAIM).
In its Corporate Governance Review 2001, the IAIM found that 21 per cent of Irish publicly quoted firms combined both roles despite best corporate governance practice requiring their separation. Of the top 15 companies on the ISEQ - which account for 88 per cent of market capitalisation - 12 had separated the roles. Elan and Kingspan are among those where the roles are combined.
"The issue involved is the fundamental one of accountability, of who hires and fires the chief executive," according to IAIM secretary general Ms Ann Fitzgerald, whose organisation represents fund managers. Undertaken late last year before Mr Michael Smurfit announced his intention to relinquish his chief executive role at the Smurfit Group from October 2002 while retaining chairmanship, the review found that 79 per cent of the companies on the Irish Stock Exchange had separated the roles.
Stating that one of the main responsibilities of an independent chairman is to ensure the chief executive is and continues to be the appropriate person for the position, the IAIM says "this is clearly not feasible where both positions are combined in one person".
And the IAIM considers it neither "fair or appropriate" to rely on non-executive directors to fulfil this responsibility given that they probably owe their board positions to the chairman/chief executive. This has been an important element of corporate governance for many years in Ireland and Britain and was now becoming an issue in the US, said Ms Fitzgerald.
IAIM found that non-executive directors made up the majority of the board at 60 per cent of Irish quoted companies. Stressing their importance, the IAIM called on companies to begin a programme at least to achieve an equal number of executive and non-executive directors on the board. And it suggested remuneration for non-executive directors should reflect the "onerous responsibilities they bear".
IAIM expressed concern about different interpretations of the term "independent" as it applied to non-executive directors and called on all the parties involved to agree a definition.
It wanted companies to put in place as soon as possible internal limitations on the number of terms any non-executive director could serve so that "fresh perspectives" could be brought on to boards on a regular basis.
IAIM said its survey found "a very high level of compliance" with best corporate governance practices among Irish companies.
This shows that "corporate governance is taken seriously by Irish companies and underpins the credibility of the Irish market as a place to invest", it concluded. But it said there was room for improvement. It found a wide variety in the quality of remuneration committee reports since full disclosure was required from January 1st, 2001 and said it would continue to monitor this area.
On audit committees and internal control the survey found that 79 per cent of Irish quoted companies fulfilled the corporate governance requirement of an audit committee with at least three non-executive directors.
Stating that a minority of mainly smaller companies did not have an internal audit function, IAIM said it "has considerable difficulty in understanding how an audit committee of non-executive directors, regardless of the size of the company, can carry out its duties effectively, in the interests of shareholders, in the absence of an internal audit function". It called on such companies to either set up such a function or explain why it was not necessary.
