The Sunday Telegraph: Cut-price chairmen
are best avoided
(Filed: 16/05/2004)
The price of FTSE100 chairmen is going up. Until recently, the going rate seemed
to be about £250,000. The latest crop - for example, Dick Olver at BAE Systems
and Niall FitzGerald at Reuters - is getting £500,000.
Chairmen are also increasingly getting big share grants. Think of Richard
Lapthorne at Cable & Wireless or, more recently, David Arculus at mmO2. Some
people will scream rip-off. But they shouldn't. This is the healthy working of
the market.
Several top UK companies are currently looking for, or about to look for, new
chairmen. The most prominent - Shell, Glaxo, Marks & Spencer and Sainsbury - all
have problems.
Shareholders need top talent. The days of boards being chaired by old buffers
are, rightly, over. Chairing today's companies, particularly the problem ones,
is a challenge. The chairman has to put his reputation on the line. The more
problematic the company, the more important it is that the chairman is
incentivised with a big slug of equity.
In some cases, like M&S, the incoming chairman may have to sack his chief
executive and hold the fort until a new one is in place. In others, like Glaxo
and Shell, the new chairmen will have to rebuild relations with the City.
The job at Sainsbury will be particularly tricky, because its next chairman will
have to deal with a founding family, which looks like it is shifting from
absentee landlord to backseat driver.
But while the demand for chairmen - and the demands on chairmen - are going up,
the supply of good candidates seems to be shrinking.
One reason is the lure of private equity. Why put your reputation on the line in
a public company when you can probably earn more out of the limelight in private
equity? Another reason is the government-inspired Higgs review. Nowadays, nobody
is supposed to chair more than one FTSE100 company.
So the laws of supply and demand are pushing up the price of chairmen. So it
would be counter-productive for shareholders to begrudge them their increased
salaries. Pay peanuts and they will get monkeys.
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