There is no doubt that the stormy and heated meeting that was the Eircom a.g.m. on Wednesday did have the semblance of a unique event in Irish corporate history.
However, when one looks more closely at the action of the various vested interest groups, there really was nothing very new occurring. At the heart of the anger and frustration expressed by shareholders was the poor performance of the share price since flotation. The key player in determining the IPO price was the Government. Therefore, if the weak share price is the real culprit, it is the Government which maximised the IPO price that should bear most of the public's opprobrium.
In the debate surrounding privatisation, the fact that public assets actually belong to the public is something that is rarely highlighted. The most equitable way to privatise publicly owned companies would be to give the shares free to the adult population on a pro rata basis.
In Eircom's case, to the extent that there was a real dispute between shareholders and the company's management, it centred on the remuneration of senior management and the issuing of share options and free shares to incentivise management.
In every public company there is ongoing tension between the owners of the company (the shareholders) and the management. Naturally the managers will seek to maximise the rewards that they receive, or at least ensure that they are remunerated as well as their peers in other similar positions. Shareholders have a more complex task. First they need their managers to be incentivised to maximise shareholder value, but they also need to ensure that managers do not keep the lion's share of the rewards to themselves.
In Eircom's case, institutional shareholders were represented by the Irish Association of Investment Managers (IAIM). This is the representative body of the Irish fund management industry and it has developed guidelines regarding corporate governance and, in particular, has established limits regarding the issue of options and shares to executives. Where there is a dispute between the IAIM and the company, it will boil down to the IAIM voting power.
It does seem that the Eircom board agreed to more stringent performance criteria for its share option plan because the IAIM had sufficient voting power. But for the army of small private investors, the option of acting in concert is not viable. In Eircom's case the fact that two high-profile media people, Shane Ross and Eamon Dunphy, tried to champion the cause of the private investor was a radical change.
While they achieved a huge amount of media coverage, did they and the shareholders attending the meeting achieve anything substantive?
Presumably the objective of all shareholders is to see the Eircom share price rise. Aligning the management's interests with those of shareholders through performance-related share option schemes is common practice. Management does not determine a company's share price, the ebb and flow of market sentiment does this. The actions of management will determine the company's profitability and growth in earnings.
In this respect it does not seem that the angry private shareholders made any credible case that the company had been mismanaged. Indeed, it is a pity that issues such as how the company is performing, what progress it is making in terms of its strategic goals, etc did not receive sufficient airing.
In this respect, the service done by Shane Ross and Eamon Dunphy in trying to empower private investors was something of a lost opportunity. Perhaps by playing too much to the gallery and the weak share price, they missed an opportunity to challenge the directors on their stewardship of the underlying business and the strategic options that the company faces.
Brian O'Loughlin runs his own investment advisory company, BL Fund Management, and is a former head of fund management at Irish Life and head of investment services at ABN Amro stockbrokers.
