Rarely has an annual general meeting attracted such interest as today's gathering of Eircom shareholders in Dublin. The board, chaired by Mr Ray MacSharry and the management team, led by Mr Alfie Kane, will face intense questioning on a range of issues. Their answers will be interesting.
Presumably Mr MacSharry will be prepared to speak openly and clearly to the people who are, after all, the company's owners. He needs to deal with a number of matters, including the following. On what basis did Eircom's two senior executives receive their generous bonuses? How will the proposed share option scheme be structured? And what is Eircom's strategy in a fast-moving telecoms market? The first two questions will generate the most controversy. But the third is the most important.
Mr MacSharry must explain the basis of bonus payments of £1.7 million given last year to Mr Kane and to Mr Malcolm Fallen, the finance director, and say whether further payments will be made in future. Even by the generous standards of big public companies, this level of payment is exceptional. It has now emerged that some of the money paid was an ex gratia payment at the discretion of the board, made in addition to bonuses paid on foot of agreed targets.
Whatever about a performance-related bonus, paying a further ex gratia sum to senior executives immediately after privatisation could only fuel the perception that Eircom executives saw moving out of public ownership as a guarantee of personal riches. Shareholders need to know why this happened. What of the proposed share option scheme, which will be voted on separately? The difficulty is that shareholders are not being told the price at which the options will be granted. Normally options would be granted on flotation, at the price at which the share listed on the market. However the Minister for Public Enterprise, Ms O'Rourke, ensured no such scheme was put in place at that time.
Share option schemes are legitimate ways to provide senior management with an incentive. But putting forward such a scheme at this time is bound to raise shareholder ire. Given that the Eircom share is only listed for one year and that the entire telecoms sector is depressed, the board should consider waiting until the longer-term share price trend is clear, before putting such a scheme in place.
Finally, there is the question of company strategy. It is this which will determine the return to shareholders from their investment. And Eircom, which has seen a strategic partnership with KPN of the Netherlands and Telia of Sweden fall apart, appears to be in something of a limbo. Its board must convey to shareholders today, even if only in broad terms, how it intends to meet its objectives of tackling competition in the home market and expanding internationally.
Much of the hysteria surround today's meeting is overdone. Yes, people were encouraged to buy shares in the company. But equally it is long established that share prices fall as well as rise. And, while the drop in Eircom's share price is partly due to doubts about its strategy, the drop in telecom shares internationally has also been a major factor.
Shareholders can send a clear message about executive remuneration at today's meeting. But the key issue is whether, as they leave the meeting, they have confidence that the company board and management have a coherent strategy mapped out for the future.