McGann defends reappointment of Smurfit as chairman, chief executive

Jefferson Smurfit's president and chief operations officer, Mr Gary McGann, has strongly defended the group's decision to renew Dr Michael Smurfit's contract as chairman and chief executive officer for another year.

Dr Smurfit has held the chairman and chief executive positions at Jefferson Smurfit for the past 24 years, even though corporate governance guidelines from both the Irish Association of Investment Managers (IAIM) and the Association of British Insurers (ABI) call for the two positions to be separated.

Jefferson Smurfit is one of a small group of Irish public companies that have ignored the IAIM and ABI guidelines in this regard.

The group's unwillingness to conform to the IAIM guidelines may reflect the declining proportion of the firm's shares held by Irish institutional investors. At the end of 2000, Irish institutions held 26 per cent of the equity compared to the 60 per cent of shares they held in 1995. As Irish institutions have sold the shares over that period, US investors have bought and are the largest single shareholding block with 42 per cent of the equity.

Mr McGann quoted a recent survey on European corporate governance by US financial magazine Barrons that placed the Smurfit group fifth out of 250 European companies. The methodology used in the survey was not detailed but, in its statement, Smurfit said: "The survey graded individual companies against various statutory and practical criteria of corporate governance. These criteria included the accessibility of a company's capital and shareholding structure, the quality of board control and the integrity of corporate practices."

Mr McGann admitted that the Barrons survey reflected a US view of corporate governance. But he stated bluntly: "Michael Smurfit has been at the helm of this organisation for a significant number of years, back to when it was a small box plant in Dublin. Now he has created significant value in the industry."

Referring to the growth in Smurfit's net asset value and dividends, Mr McGann said: "The person who delivered that is Michael Smurfit. There is no reason to change his positions."

Dr Smurfit's new contract is expected to be confirmed in the group's annual report, but that document is unlikely to give a detailed breakdown of the remuneration packages for Dr Smurfit and his fellow directors.

Because Smurfit's year-end is December 31st, 2000, this year's annual report is not required to give an individual breakdown of each directors' remuneration in 2000, although this will be required in succeeding years. In 1999, however, the five directors - Dr Smurfit, his brothers Alan and Dermot, his son Tony, and Mr McGann - shared combined remuneration of €7.8 million (£6.14 million), while Dr Smurfit also received more than €5.5 million under his long-term incentive plan.

While Smurfit management has enjoyed remuneration packages far larger than any other Irish public companies - including larger companies with better profit records - the group's shareholders have had a dismal time. Yesterday's share price of €2.03 compares to a 1998 high of €3.52 and is lower than the price the shares reached 10 years ago when Smurfit was one of the market's biggest companies. It is currently the 10th largest Irish public company.