Plc boards must reform to shake 'self-perpetuating oligarchies' tag

CURRENT ACCOUNT: Paul Myners has won deserved praise for last year's report on the British pension fund industry, particularly the relationship between pension funds and the investment managers that manage their funds.

So when Mr Myners - chairman of Gartmore and a man reputed to have the ear of British Chancellor of the Exchequer Gordon Brown - starts musing about the relationship between non-executive directors and institutional investors, the industry should sit up and listen. When he describes many plc boards as "self-perpetuating oligarchies", plc boards will probably sit up.

Whether these self-perpetuating oligarchies, to use the Myners term, will actually listen is another matter.

There is a view in this State that the system of non-executive directors is a cosy club, with the same names cropping up regularly on various plc boards. What they actually do and what their responsibilities are is a source of mystery to many small shareholders, the very group whose interests the non-executives are supposedly there to protect.

No doubt there are many excellent non-executive directors around who ask the difficult questions. But there is a perception that many non-executives are pretty feeble when it comes to questioning the executive board and generally look on a couple of non-executive directorships as a handy little post-retirement earner.

Under what Paul Myners has proposed, non-executive directors would get paid substantially more but would also be expected to do a lot more work and play a far more pro-active role in dealing with major institutional shareholders.

Myners wants non-executives to hold a formal meeting with a plc's biggest half-dozen shareholders once a year, without the executive directors being present.

At these meetings, the non-executives would be free to talk to shareholders about issues like remuneration, management succession and mergers/ acquisitions policy.

There are pluses and minuses to such an arrangement. On the minus side, formalised meetings between non-executive directors and the biggest institutional shareholders would reinforce the suspicion that the big institutions will always have the inside track, and as usual it will be the small shareholders who will left out in the cold.

Why should the big institutions be given such preferential status at the expense of the punter?

The other side of the equation is that such an arrangement would give non-executives some teeth and dispel the perception that they are simply members of a club whose main aim is not to upset the apple-cart for the executive directors.

It might also mean that the institutions - a noticeably reticent breed even when confronted with the most extreme corporate excess - would be more likely to tell the non-executives what needs to be done.

Who knows, if such an arrangement existed last year, Ray MacSharry might have been made aware of institutional reservations before he leapt to the defence of Michael Smurfit's €6 million pay packet at last year's Smurfit AGM!

Given the regard in which Paul Myners is held, there is a strong likelihood that his thoughts this week will lead to a Cadbury-type review of the role and responsibilities of non-executive directors in the UK.

One would hope that the various interest groups here would embark on a similar review.

Recent events involving Irish plcs have not surprisingly unnerved many small investors.

They need some reassurance that their interests are being looked after, and that reassurance will only come if small investors here believe that there is a strong band of non-executive directors looking after their interests.