Days are numbered for many semi-state directors

The revamping of the Telecom Eireann board will have struck a chord with Government-appointed directors of semi-state companies, such as Aer Lingus, Aer Rianta and Coillte, which are expected to eventually follow Telecom to the stock market. There is little doubt that for many, their days in State board rooms are numbered. It is just a matter of time before financial advisers trigger another purge.

The use by successive governments of their powers to dole out semi-state directorships has been the subject of long-standing cynicism. Friends and allies are often unashamedly slotted into these positions. And each of the political parties has shown itself to be adept at employing this tradition to its own advantage.

The recent round of appointments to the Aer Lingus board bore the fingerprints of the Taoiseach, Mr Ahern. His former election agent Mr Chris Wall, close friend and Fianna Fail party fundraiser Mr Des Richardson and former ministerial colleague Mrs Maire Geoghegan Quinn, received what are perceived as the most attractive directorships within the semi-state sector.

All of these positions carry very little in terms of financial gain, with directors entitled to fees of around £5,000 (#6,349) a year for the duration of their five-year term. But the Aer Lingus board is more attractive as it offers massive concessions to the directors and their family members on all air travel.

An Aer Lingus spokesman refused to disclose the terms of this arrangement, citing company policy. But within the industry it is suggested the directors qualify for the general concessions offered to Aer Lingus staff, where they and family members pay around 10 per cent of the face value of the normal airfare on any route they choose to take with any airline.

And for good measure it is understood that when directors retire, they retain this concession for a period equal to their term of service on the board.

Aer Rianta is ranked next in terms of perks as it also offers similar air travel concessions to directors, albeit confined to Aer Lingus flights.

IE - where the government must make that appointment - the Minister can put forward their candidate but must inform the Cabinet by memorandum of the individual's name. A spokesman for the Minister for Public Enterprise, Ms O'Rourke - who oversaw the recent Aer Lingus nominations - said that when making an appointment the Minister would select someone who would make a significant contribution to the board. "In some cases those skills may not be apparent in the business sense and that director would be more a representative of the ordinary consumer's interest."

But Ms O'Rourke's radical shake-up of the Telecom board - where, at the suggestion of advisors AIB Capital Markets and Merrill Lynch, the Minister sought to replace five of six Government-appointed directors - has established a precedent.

Individuals nominated for service on semi-state boards can make significant contributions, particularly where they may also be a busy executive director of an international company - offering the benefit of their experience for virtually no financial gain.

In some instances, that contribution has been hugely valuable over the years, helping to steer many of these organisations onto a more commercial path.

But when they finally take the plunge to become a fully fledged publicly quoted company, the mix of skills and experience needed and demanded by shareholders will come under more intense scrutiny than ever before and the axe may fall.

At this juncture, it's clear that money talks. The highly paid advisers enlisted to assist in the flotation of State companies must get the process away successfully by ensuring that international institutional investors will buy the shares. To achieve that they must present a board of directors that shareholders can have confidence in, that is demonstrably on top of its brief and that can be shown to have a high degree of expertise and experience and can withstand international scrutiny.

The primary function of the board of a publicly quoted company is to keep a check on the decisions and intentions of its management on behalf of the shareholders.

It should have a balance of executive and non-executive directors, with the chairman and chief executive positions preferably separate.

Mr Paul Sweetnam, head of Irish equities with Scottish-based fund manager, Standard Life, says the non-executive directors can bring crucial experience and enhance the effectiveness of the board. "It is crucial for shareholders to have confidence firstly in the company's management and to ensure that the board of directors has control of the management, that it reports to the board and has sufficient controls to ensure objectivity."

The chief attribute sought by a public quoted company when recruiting non-executive directors is experience. The same old familiar faces may turn up on several boards but the days of non-executive directors turning up for lunch a few times a year are largely gone.

These directors can command significant fees for their contribution, particularly those on the board of the major plcs where they can earn up to £80,000 a year. By the same token they are expected to sing for their supper.

The reconstructed board of Telecom Eireann bears many of the skills which impress analysts and institutional investors: a chairman with an impressive track record in the telecommunications field, Mr Brian Thompson; the founder and managing director of a publicly quoted company in Mr Jim Flavin and international and Irish board room experience in Mr Ray MacSharry.

When the next batch of family silver comes to be sold, the highly paid corporate advisers will be pressing for a similar mix - whether it's at Aer Lingus, Aer Rianta or Coillte.