Cantillon

Inside the world of business

Doherty was a naysayer of sorts

THE BIGGEST surprise for Finnish banking expert Peter Nyberg, the latest man to investigate the crisis, was apparently that there were so few contrarians shouting stop during the property mania that gripped Ireland.

Ironically, given the furore over his €3 million departure payment from AIB, a contrarian of sorts was the bank’s former managing director, Colm Doherty.

As head of the bank’s capital markets division, Doherty had raised concerns about AIB’s growing exposure to the property market in the boardroom (where he had sat since 2003) and the “siloed” nature of AIB’s loan approval process. His stance was weakened by his proposed solution – that his own division should be put in charge of credit approvals across the entire bank.

He was accused of attempting “a land grab” by some and thereafter kept his reservations to himself. The spat was seen as part of the Bankcentre (AIB retail division) v IFSC (capital markets) power struggle at the bank.

Doherty is not exempt from blame, though. Capital markets raised funding that fuelled lending by the retail division into the property sector, which has cost the taxpayer so dearly (up to €20.5 billion). That said, the division that Doherty ran for a decade is the only remaining part of AIB that continued to make profits.

It must now gall staff within the division that former finance minister Brian Lenihan blocked the payment of €40 million in contractual bonuses last year as a condition of AIB’s second State bailout, yet directed that Doherty be paid his contractual entitlements (the €3 million payout) on the termination of his contract last September.

It is another example of the rather contradictory nature of Lenihan’s frenetic tenure in Merrion Street.

The former minister had always wanted an outsider to succeed Eugene Sheehy. This week Lenihan said that the government-appointed directors at AIB (Dick Spring and Declan Collier) lobbied him to approve Doherty’s appointment as managing director in November 2009.

Doherty clearly saw the writing on the wall at that stage and negotiated a year’s notice payment in his contract, which made up €707,000 of his €3 million payout. Lenihan’s department raised no concerns, other than to seek a cut in salary from €633,000 to €500,000. Doherty has walked away with that to which he was entitled.

Demanding answers could pay dividends

ONE THING that hasn't impressed Colm McCarthy about State companies is their dividends. Even during the good times, his report says, payments have been stingy and unreliable.

He agrees that they have less flexibility than private companies, but nonetheless his report says that, except in extreme circumstances, a minimum of 30 per cent of profits should go to the State.

Taking six companies, ESB, Bord na Móna, Bord Gáis, Coillte, Dublin Airport Authority and Dublin Port, the report shows that only Bord Gáis paid a dividend every year since 2002. The 2009 payment of €39 million was above the 30 per cent recommended by McCarthy.

The same year, the ESB's €82 million payment was short of 30 per cent, but it did make a special dividend payment of €185 million from the sale of a number of power plants to Endesa.

Coillte had an underlying loss in 2009, and paid no dividend. Ironically, Dublin Airport Authority, which McCarthy says should be excused from the dividend policy because of its large debts, paid €19.4 million.

One thing that the report does not explore is just how good – or bad – the shareholders and their representatives, that is, politicians and civil servants, have been at asserting shareholders' rights down through the years. While the Minister for Finance is the shareholder in semi-States, he is really holding that stock for the benefit of the State and its people. Presumably that implies some kind of duty to ensure that these companies are cutting the rest of us in for a fair share of the proceeds.

Ministers appoint non-executive directors to many of these boards. Their job is to look out for the interests of the company and its shareholders. Perhaps it's time that they started questioning the companies' dividends policy, or better still, demanding an explanation if the proposed payout falls short of the 30 per cent recommendation.