Up to the ISE to act over directors' pay

It is now up the Irish Stock Exchange (ISE) to set an example on transparency following the retrograde step taken by the Institute of Directors in Ireland (IOD). There has not been a murmur from the ISE since it promised seven weeks ago to examine the new guidelines on disclosure of individual directors' remuneration by the Irish Association of Investment Managers (IAIM), and the warning by the Tanaiste and Minister for Enterprise, Trade and Employment, Ms Harney.

She stressed she would bring in legislation to force disclosure, if the guidelines are not adopted. The directors, by adopting such a hard line against the proposals, are probably trying to influence the ISE to follow its unacceptable route. That should be stoutly resisted. The ISE - which holds its monthly board meeting on Friday when the issue is expected to be discussed - should not drag its heels. Instead, it should accelerate its decision, and make it known, before Ms Harney announces some amendments - possibly on directors' disclosures - to the Companies Acts.

In some ways the stance adopted by the directors should make it easier for the ISE to accept the IAIM proposals. It should be hard for anyone to align themselves to the institute's views on disclosure, views that are clearly out of step with the moves towards greater transparency. Indeed, the words used by the Institute of Directors display a non-compromising rigidity. Its president, Dr Paddy Galvin, made a number of pronouncements at the institute's annual dinner. One was the sweeping statement that such information would "serve no purpose and would inevitably be pay inflationary".

Maybe it would serve no purpose to the directors themselves, as all too often they operate their groups as if they owned them. But the directors invariably own only a small proportion of the equity. What they forget is that the shareholders own the companies, and these shareholders have the right to know what they are paying their chief executives, and other senior executives. Indeed, it is preposterous to deny them this information. At the moment, a ludicrous situation exists, with only the aggregate remuneration being disclosed. This leads to average figures being used which can be misleading. CRH's annual report, for example, disclosed the total remuneration of its five executive directors. This worked out at an average of €616,990 (£486,000) for each executive. However, it is obvious that the chief executive, Mr Don Godson, and chief executive of the US operations, Mr Liam O'Mahony, each got much more than the average.

The claim that the disclosure of individual directors' remuneration would inevitably be pay inflationary is curious, to say the least. Is the institute saying that the increase in remuneration of the chief executive should be hidden for fear that the workers would seek a similar increase? Mr Galvin then went on to assert that "the present level of disclosure is already exceptionally high. In Europe, outside the UK, there is no greater level of disclosure than that required of Irish public limited companies". True. However, Irish corporations have to decide to be to the forefront in transparency, or to be laggards in what is the best practice. Clearly, the Irish institute is opting for the latter even though its affiliated members, in both Northern Ireland and the UK, sit on boards which give individual breakdowns of their executives' remuneration. He also said the proposed changes would affect somewhat fewer than 200. "This is inequitable as there are no comparable requirements proposed for other limited companies or partnerships, or other types of business organisations", is how he put it. There is a big distinction between partnership and private companies - these can look after themselves - and publicly-quoted groups. The shareholders (or partners) in the former categories know (or should know) what their chief executives are paid; in contrast, the shareholders of the latter are kept in the dark.

He was on a little firmer ground when he said that disclosure could "act as a disincentive to companies thinking of going public and damage the overall development of the market". But he could have gone further and said that going public is a traumatic experience for any private company because of all the listing requirements, which at the moment do not incorporate individual disclosure of directors' pay. Also, such companies then leave themselves open to public scrutiny; and that is the way it should be. But any company that seeks a public listing for its shares, thereby enjoying the benefits that accrue, also has extra responsibilities. And that has to incorporate total transparency. The alternative would allow directors to choose what information they consider should be hidden. That is clearly a non-runner, and directors who think otherwise should perhaps not be on the boards of publicly-quoted companies.