The full text of the letter sent to Mr Jack Nash
Mr Jack Nash
National Industrial Secretary,
SIPTU
Dear Mr Nash,
At our meeting on 5th November, 2003, I undertook to respond to your request for some further information on directors' remuneration relating to the recently published accounts for 2002.
The Irish Times Limited - 2001-2003
Following the events of November 2001 the company embarked on a comprehensive restructuring of the roles of The Irish Times Trust Limited (the sole shareholder) and The Irish Times Limited (the owner of the newspaper and the operating company) together with their boards and board sub-committees.
The purpose of the changes was to establish a clear separation of roles and responsibilities and to implement the highest standards of corporate governance. The changes also heralded a new beginning, underpinning the determination of all concerned to leave the past behind and to restore the company to prosperity.
This process of change committed The Irish Times Trust Limited to withdraw altogether from the day-to-day management of the business and the newspaper and to focus solely on its role of sole shareholder, ensuring the editorial independence and financial stability of The Irish Times Limited as reflected in its Memorandum & Articles of Association.
The board of The Irish Times Limited, as the company that owns the newspaper and operates the business, is charged with ensuring both the editorial independence of the newspaper and the financial viability of the company. The directors of The Irish Times Limited initially had to ensure the restructuring of its operations in co-operation with the staff and their trades union representatives. This has been successfully achieved.
Following the crisis that engulfed the company a loss of €21.7m (including restructuring costs) was incurred in 2001. The objective set for the new management team in 2002 was to reduce losses to a figure of under €6m, notwithstanding that much of the cost savings would not occur until the later months of 2002. This objective was exceeded, and as you know from the accounts, the loss reduced to €2.8m.
Moving into 2003 management were charged by the board with moving the company into profit with an objective of €1.5m. We know at this point that this will be exceeded and the 2003 accounts will show that further recovery.
It is important to note that this has been achieved in the face of substantial falls in the newspaper advertising market, where revenues have fallen by 30 per cent over the last three years. At the same time, the company has opened its new print facility at Citywest and successfully established a new contract print business.
In short, with the co-operation of all interest groups, The Irish Times business has been managed very successfully through a potentially disastrous situation. Throughout that difficult time, the newspaper maintained its high standards, retained its readership and increased circulation.
Governance
The restructuring included substantial changes in the structure and practice of corporate governance. These include:
• My appointment as an independent non-executive Chairman of The Irish Times Limited.
• The reduction in the number of Governors of The Irish Times Trust Limited, who are also Directors of The Irish Times Limited, from all Governors to three.
• The appointment of a number of independent non-executive directors (who are neither executives of The Irish Times Limited nor Governors of The Irish Times Trust Limited) to the board of the company, including Greg Sparks, who is broadly reflective of the Irish trade union interest as agreed in the Governance document.
• The revision of voting rights of the directors of The Irish Times Limited so that each director now has only one vote.
• The rotation and renewal of Governors and Directors on the boards of both The Irish Times Trust Limited and The Irish Times Limited
• The establishment by The Irish Times Limited of an Audit Committee and a Remuneration & Nominations Committee comprised entirely of non-executive directors.
The membership of the current 13-strong board of directors is as follows:
Chairman: Brian Patterson.
Non-Executive Directors: Alex Burns, Greg Sparks and John Fanning.
Non-Executive Directors nominated by Trust (and who are also Governors): Prof David McConnell, Prof Dervilla Donnelly and Gerry Burns.
Executive Directors: Maeve Donovan, Geraldine Kennedy, Michael Austen, Liam Kavanagh, Paul O'Neill and Eoin McVey.
It is important to emphasise the primary role of the independent directors in what is a fundamentally transformed structure of governance. My own independence as non-executive Chairman and that of my fellow non-executive directors requires us, in carrying out our duties, to be fully cognisant of the interests of all stakeholders in The Irish Times Limited.
Our obligations to be independent are absolutely clear. They are set out in company law and are met by us, both in spirit and in practice, with commitment and vigour. For your information, I have attached brief biographies of the non-executive directors.
This approach is similarly reflected in our membership of both the Audit Committee and the Remuneration & Nominations Committee. It is worth emphasising that in line with commitments made to the trades union representatives by both The Irish Times Trust Limited and The Irish Times Limited in the course of the restructuring process, the two committees were established, independent of the executive management. As mentioned, membership of the committees is comprised solely of non-executive directors.
Remuneration & Nominations Committee
As Chairman of the company, I am also Chairman of the Remunerations & Nominations Committee. The remuneration responsibilities of the committee, delegated to it by the board, are to enter into contracts and set remuneration levels for the Managing Director, Editor and other Executive Directors. The members of the committee, as well as myself, are Prof David McConnell, Gerry Burns, Alex Burns and John Fanning. Our objective is to recruit, motivate and retain management and staff of the highest calibre in a competitive market. We seek external and independent professional advice, when required, to ensure that payment levels are set with proper regard to market conditions and internal relativities.
References have been made in some quarters to executive directors setting their own rewards. Such references are absolutely incorrect. All payments to executive directors are determined by the Remuneration & Nominations Committee independently of the executives concerned.
Directors' Remuneration
We agreed to provide further information to you on directors' remuneration published in the 2002 annual financial statements. The relevant note to the accounts states the following:
"Directors' Emoluments
The average number of directors during the year was 15 of whom 11 received executive remuneration.
Fees €192,635
Executive Remuneration, including pension contributions €3,284,378"
Directors
It is important to note that 2002 was the year in which The Irish Times Limited was restructured and therefore the composition of the board saw many changes.
• We had, in total, 21 directors who held office at some stage during 2002.
• At the beginning of the year, all Governors of The Irish Times Trust Limited were also directors of The Irish Times Limited.
• Several executive directors resigned.
• A number of independent non-executives joined the board.
By way of explanation, I attach an Appendix, which provides the detail of each board member's service during that year.
In summary:
• The total number of 21 who served during the year leads to an average of 15.
• The 13 listed as receiving executive remuneration leads to an average of 11 (the average number is based on the total number of months in office divided by 12 months).
Directors' Fees
All directors of The Irish Times Limited are paid directors' fees. The basis for the fees paid in 2002 was as follows:
• Chairman of The Irish Times Limited, Chairman of The Irish Times Trust Limited and executive directors - €8,751 per annum
• Non-executive directors - €12,000 per annum plus €10,000 for service on board sub-committees.
The average fee per director in 2002 was €12,842 per annum.
Consultancy
Mr Alex Burns provided professional services in reorganising the group legal structure, the sale of Itelis Limited and certain other matters specific to Itronics Limited, for which he was paid consultancy fees.
Executive Remuneration
The list (in Table 1) details those directors who received executive remuneration and make up the €3.284 million quoted in the annual accounts for 2002. Remuneration is before all taxes and is not just salary, it includes performance-related pay, benefit-in-kind and pension costs.
Directors in receipt of Executive Remuneration in 2002 (See Table 1 )
In summary:
• 13 directors received executive remuneration in 2002 representing an average number of 11.
• 7 of these directors continue in office, which, together with the recent appointment of Paul O'Neill to the board, gives 8 directors in receipt of executive remuneration as of now.
• These 8 directors include the Chairman of The Irish Times Limited and the Chairman of The Irish Times Trust Limited.
• Executive directors, who work full time for the company, will have reduced from 11 at the beginning of 2002 to 6 at the end of 2003.
Table 2 is a summary of Executive Remuneration for 2002:
Performance-related pay is set and approved by the Remuneration & Nominations Committee on the basis of the achievement of individual, specific targets and objectives. Performance-related payments were approved in relation to 2002 but were not paid until the return to profitability at the end of the first quarter in 2003.
All remuneration is paid in full compliance with tax legislation and all payments are included in the company's annual returns to the Revenue Commissioners.
The annual salaries at the end of 2002 for the continuing executive director positions are set out in Table 3:
Other Matters
Since our meeting, a number of other questions have arisen, which I wish to clarify:
• The benefit-in-kind arrangements for executive directors relate primarily to company cars and do not include any arrangements of any kind with respect to accommodation. Nor are there any loans to directors for this or any other purpose.
• The former chairman Major McDowell is not in receipt of any remuneration from the company. He is, however, in negotiation with the company in relation to elements of a long-standing service contract.
• The positions of Group General Counsel, Technical & Resources Director and Production Director have been discontinued and there are no ongoing payments to the individuals who held these positions.
• There are a number of elderly former staff members, including former directors, who are in receipt of payments in the nature of unfunded pensions. The balance sheet at 31st December, 2002, includes the remainder of a provision, set up many years ago, of €152,144 based on actuarial assumptions, to pay the pension of one of these individuals for the rest of his life.
The Irish Times Trust Limited and charitable status
There is considerable confusion in the public domain as to the charitable status of The Irish Times Trust Limited. It has been criticised for appearing to be a "charity" or a "charitable trust" which does not support charity. In fact, The Irish Times Trust Limited is a company limited by guarantee, set up in 1974. While it has some charitable objects it is not, as is often believed, a "charitable trust".
If the company were ever to be sold or the company wound up (either of which require the approval of the High Court), the proceeds, if any, would have to be used for the charitable objectives of The Irish Times Trust Limited which include the advancement of education, the relief of poverty and the advancement of science.
The Irish Times Limited is a private company with a public interest mission, as clearly outlined in the Memorandum & Articles of Association. It does not enjoy any preferential tax status. The Irish Times Trust Limited has no income and therefore the question of tax does not arise.
Conor Brady
As you know we agree to waive our part of the confidentiality clause in the company's agreement with Conor Brady. We are currently finalising with him the arrangements to make this available to you.
Looking to the Future
The Irish Times Limited has been through an exceptionally difficult, but ultimately successful, restructuring over the past two years. During that period all matters of governance, operation, staffing and management have undergone substantial change. Co-operation between staff, management and trades unions has been central to the success of the venture.
I believe that it is in the interest of all concerned that the company now operates within normal procedures and standards for a business of its size and structure. The Irish Times Limited is going considerably further than the private company norm in releasing the range of detailed information about its annual accounts today. This policy recognises our special position as a private company with a public interest ethos.
The Irish Times Limited, in which we all have an interest, has been trading profitably since the beginning of this year and will be back in profit in its 2003 accounts. This is a direct result of the success of our co-operative efforts. It is our wish that we can now leave the past behind and move towards the stable and successful future that this newspaper deserves.
In conclusion, I believe that this letter and attachments deal comprehensively with the questions raised by the Group of Unions on Executive Directors' remuneration at our recent meeting. Neither I, nor the Remuneration & Nominations Committee, will be expanding further on the information contained in this document.
There are great challenges ahead for the company and, with the continued active participation of all, the business will achieve its true potential.
Yours sincerely,
Brian Patterson,
Chairman
APPENDIX 1
Non-Executive Directors of the board of The Irish Times Limited
Brian Patterson, who chairs the board, is also chairman of the Irish Financial Services Regulatory Authority. He is a former Chairman of the National Competitiveness Council, a director of Waterford Wedgwood plc, the Ogilvy Group, is a governor of the board of the National College of Ireland and a Trustee of The Northern Ireland Centre for Trauma and Transformation.
Alex Burns is a former senior partner in KPMG where his career spanned 45 years, 37 of them at partner level. He was also the first Chief Executive of The National Development Corporation Limited and has served on the Boards of Norwich Union Insurance and Wessel Industries.
Gerry Burns is a former Northern Ireland Ombudsman. He was also appointed by the then Northern Ireland Education Minister in 2000 to chair a review on the future of the 11-plus examination, which determines whether pupils in Northern Ireland attend secondary or grammar schools. He is a Governor of The Irish Times Trust Limited.
Dervilla Donnelly is Emeritus Professor of organic chemistry at University College Dublin and chairs the Commission on Assisted Human Reproduction which was set up by the Government in March 2000 to prepare a report on all aspects of this subject. She is also Chairwoman of the Dublin Institute for Advanced Studies. She is a Governor of The Irish Times Trust Limited.
John Fanning is executive chairman of McConnells Advertising, the largest Irish-owned advertising agency. He was a Director of the National Theatre (the Abbey) from 1993-2001.
David McConnell is Professor of Genetics at Trinity College, Dublin. He is a member of the European Molecular Biology Organisation (EMBO) and the Royal Irish Academy. He is a former president of the Zoological Society of Ireland, a former Chairman of the Adelaide Hospital and of Fota Wildlife Park. He was elected Chairman of The Irish Times Trust Limited in December 2001.
Greg Sparks is a partner in the accountancy and consultancy firm, Farrell Grant Sparks, which was engaged by the Dublin Printing Group of Unions to advise them on the restructuring process in The Irish Times Limited. He also served as programme manager to the then Labour Party leader, Mr Dick Spring, during his period as Tánaiste in the mid-1990s.