BUSINESS OPINION:SOME TIME in the next few days, possibly this morning, Denis O'Brien will issue a report on corporate governance at Independent News & Media (IN&M), where he is the second largest individual shareholder with a 25 per cent stake, writes John McManus.

It is timed to coincide with the company's annual general meeting in London on Wednesday. It will be something of a surprise if the report - commissioned from Yale academic Dr Stephen Davis - is any less critical than its predecessor, prepared by the same author in advance of the company's last annual general meeting.

That report said there were doubts about the independence of every single non-executive director and that the board risked being branded a "crony" board.

This in turn undermined investor confidence and increased the cost of capital to the company through a discounted share price.

While O'Brien's report has to be seen in the context of his ambition to wrest control of IN&M from 27 per cent shareholder Tony O'Reilly, it's a credible and damaging critique of corporate governance at the company. Not surprisingly, the board of IN&M has decided to get its retaliation in first this year and has issued its own report by another Ivy League academic, Harvard Business School's Professor Jay W Lorsch.

He found that while the IN&M board was not perfect, it functioned well when judged by the yardstick of the company's financial results. In particular, he noted a "healthy culture of open debate".

In the process he dismissed Dr Davis's report as a one-sided attack from a corporate governance guru.

The best course of action for non-aligned shareholders might be to ignore both reports, given the context in which they have been commissioned and by whom.

But at the same time it would be foolish to ignore the issues raised and indeed, the context in which they are raised.

There is a battle under way for the control of IN&M and the independence of the IN&M board will be critical in determining whether the outcome is the right one for the non-aligned shareholders, employees and, dare one say it, the public good.

IN&M, it must be remembered, is the largest media organisation in Ireland, dominating the newspaper markets. In that light the views of independent proxy advisory consultants about the independence of the IN&M board are very pertinent. And they do not make very pleasant reading.

Manifest, one of the larger consultancies, has highlighted independence issues in respect of each of the company's 13 non-executive directors.

Peter Cosgrove, Joe Davy, Maurice Hayes, Liam Healy, Ivor Kenny, Cameron O'Reilly and Bernard Somers have all been on the board too long to be independent. Cosgrove, Hayes, Healy and Cameron O'Reilly also fail the test because they received remuneration other than director's fees as do Kenneth Clarke, Charles Daly, Brian Mulroney and Baroness Jay of Paddington.

Davy and Mulroney also fall foul of the rule that independent directors should not provide professional services to the company and Frank Murray is caught by his recent business relationship with the company.

Tony O'Reilly jnr along with his brother Cameron are also flagged over their familial relationships.

Manifest argues it was unfortunate that the company did not take advantage of a recent vacancy to appoint someone who would be unquestionably seen to be independent.

Instead, former British chancellor Kenneth Clarke was appointed to the group board after eight years on the board of its UK subsidiary.

Manifest also flags issues about the independence of non-executive members of the nomination committee, and also the membership of the remuneration committee and the audit committee.

The size of the 20-strong board is also an issue, as is the practice of paying fees to directors in addition to their director's fees.

ISS, another leading proxy advisory service, is also critical, but not as critical as Manifest.

It considers four of the 13 non-executive directors, Clarke, Daly, Jay and Murray, to be independent and believes steps have been taken to improve the level of governance.

ISS has recommended that shareholders vote against the re-election of three of the non-executives on Wednesday - Joe Davy, Liam Healy and Ivor Kenny. It is worth noting that both ISS and Manifest observe that the company has engaged with both of them to explain at some length why it feels their criticisms are unjustified.

However, their arguments do seem to run along the lines that corporate governance norms do not apply to IN&M directors because they are special.

But there is no getting away from the fact that independence of the board is compromised at what looks like being a very critical juncture. It is far from inconceivable that the non-executive directors of IN&M could shortly have to consider a bid from Denis O'Brien and possibly a counter-offer from O'Reilly.

Their independence or otherwise will be critical and next Wednesday represents an opportunity for non-aligned or independent shareholders to do something about it, as they may well hold the balance of power between the O'Reilly camp and Denis O'Brien in any vote.

If Davy, Healy and Kenny were not re-elected, IN&M might start to take its corporate governance more seriously.