There was much surprise in corporate Ireland last week when Independent News & Media (INM) reclassified two of its supposedly “independent” directors as “non-independent”. This came following inquiries from this newspaper.
The corporate governance codes to which listed companies must adhere are very specific on the circumstances that might compromise a non-executive director’s independence. These include time served; having worked for the company; or links to it or to shareholders – the grounds that forced INM to reclassify.
INM isn’t exactly an outlier, however. A close examination of the boards of other Iseq-listed companies reveals many take the definition of “independent” to the edge of what seems reasonable when designating directors.
But here’s the rub: even if a director doesn’t meet the definition of independence in the codes, they are still considered independent if the board says so.
That’s the Orwellian beauty of the “comply or explain” principle of the governance codes. Even when you’re not following the code, you’re meeting the code. As long as you say why with a straight face, as perfunctory as you like.
When it comes to director independence, company boards get to mark their own homework. But shareholders don’t seem to give a hoot.
Under the codes, the chairman is meant to be independent upon appointment. Eugene Murtagh became chairman of Kingspan in 2005. This was 40 years after he founded the company, of which he owns 16 per cent. He clearly was not independent, as Kingspan acknowledges, but nobody cared. He was re-elected last week.
Family links
Family links to senior executives are also frowned upon in the code. Yet Murtagh’s son, Gene Murtagh, was appointed chief executive to replace him. Everybody knows Eugene and Gene are father and son. Yet you would still think it might warrant a mention in the corporate governance report.
Goodbody is the company’s broker, while McCann Fitzgerald is Kingspan’s lawyer. Goodbody’s Linda Hickey and McCann’s John Cronin both sit on the Kingspan board. Meanwhile, senior independent director Helen Kirkpatrick’s decade on the board is higher than the nine-year cap for independence in the codes.
Yet all three are properly, under the code, considered “independent” simply because Kingspan says they are.
Over at packaging giant Smurfit Kappa Group, directors Gary McGann and Frits Beurskens are both designated by it as “not independent” because they both have had executive roles – Beurskens over a decade ago.
But at Ryanair, former deputy chief executives Howard Millar and Michael Cawley both joined the board within a year of stepping down from their day jobs. Yet both are designated “independent” because Ryanair says their former jobs “in no way” compromise independence.
Reconcile
How do you reconcile the approaches of Smurfit Kappa and Ryanair? Both are top members of the same stock exchange. Both do it differently. Both meet the code.
Ryanair chairman David Bonderman has been in situ for 20 years, more than double the nine-year cap suggested under the codes for recognition of independence. But Ryanair still designates Bonderman independent.
Here’s the best bit: the annual report says Bonderman owns about 7.5 million shares, which at this week’s valuation would be worth more than €123 million. Yet Ryanair says it doesn’t compromise his independence because it is “not material. . . in light of [Bonderman’s] financial interests”.
Bonderman? Loadedman, more like.
Retiring chief executives are not supposed to step into the chairman’s role under the code. Yet Tullow Oil’s shareholders voted last week to approve Aidan Heavey doing precisely that because the company said it was necessary.
Irish Continental Group’s chairman John McGuckian wasn’t independent under the code’s principles when he was appointed in 2004, as he had already been a director for 16 years. Kerry Group’s chairman Michael Dowling was 17 years a director on appointment two years ago, while FBD’s chairman Michael Berkery had served just the 13 years when he was appointed in 1996.
But all these companies meet the code.
Biggest shareholder
Then you have travel technology company Datalex, where financier Dermot Desmond is the biggest shareholder with 27 per cent.
Its chairman is Paschal Taggart, who was a shareholder when he was appointed in 2009 and has been on the board for a total of almost 17 years. Datalex says he is independent.
The company acknowledges in its annual report that “some shareholders might question the independence” of directors John Bateson and Peter Lennon, both of whom have served over a decade on the board.
Lennon is a partner in Maples & Calder, Datalex’s legal firm. Bateson, meanwhile, is possibly Desmond’s closest associate, as managing director of his International and Investment Underwriting vehicle. Datalex says both men are independent.
Datalex’s senior independent director is Roger Conan, who used to work for Desmond at NCB. Then he worked for Desmond at Dedeir. Then he served 14 years with the financier on the board of Desmond’s IFSC South Block.
All of these companies are mentioned in Conan’s biography in the company’s annual report. Conan also previously served eight years on the board of Desmond’s IIU, but this is not mentioned in the annual report. Datalex considers him independent, and under the criteria of the codes, the company is correct.
Let us be absolutely clear: in every respect quoted above, when it says it is in compliance with the code and the directors are independent, Datalex is not wrong. Nor are Irish Continental, Tullow Oil, Ryanair or Kingspan.
So . . . is the code right?
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Airline chief misses transfer from Arsenal to Manchester City
Former Aer Lingus chief executive Christoph Mueller had been tipped for the vacant top job at Etihad, the Abu Dhabi flag carrier and generous contributor to Pep Guardiola’s transfer kitty with its sponsorship of Manchester City.
Mueller, a former An Post chairman who left Aer Lingus for Malaysia Airlines, has missed out running the airline, however. The role went instead to Norwegian executive Robin Kamark, who has been appointed chief executive of Ethiad’s Airline Equity Partners.
Mueller remains chief digital officer at Emirates, the flag carrier of Dubai and a generous contributor to Arsène Wenger’s (unwisely spent) transfer kitty at Arsenal.
Australian James Hogan, whose family roots are in Tipperary, will leave the Etihad Group CEO role on July 1st. Under Hogan, the airlines took a number of investment punts, including one on Alitalia, which in recent weeks slipped into insolvency, yet again.
It’s a wonder that Ryanair boss Michael O’Leary didn’t go for the Etihad job. O’Leary is, of course, a fanatical Manchester City fan. The more success he would have had at Etihad, the more lucre Pep would have had to stockpile midfielders.
Surely it would have been the perfect motivation?
Pub dispute costs a lot of lemon wedge
Publican and nightclub owner Edward O’Donoghue has had a judgment of €1.2 million registered against his 50 per cent shareholding in the company behind the well-known Hairy Lemon pub in Dublin, according to documents filed this week.
The judgment was registered by Daniel Ryan, who was the manager of Conway’s pub on Parnell Street. In 2008, a legal dispute emerged between Ryan on one side, and O’Donoghue and Philip Mahon on the other.
O’Donoghue and Mahon said they were the owners of Conway’s, but Ryan argued he had a beneficial shareholding.
He obtained a judgment against O’Donoghue for €1.2 million in 2010, and in recent weeks he succeeded in gaining a High Court order to attach the charge against the publican’s shares in Hairy Lemon.
A bitter falling-out . . .
