Investors called on to give boardroom leaders greater scrutiny

Thu Apr 23, 2015 11:08am EDT
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By Simon Jessop and Sinead Cruise

LONDON (Reuters) - After taking top executives to task over excessive pay and bonuses, investors are slowly turning their attention to the role of the chairperson, as concern about weak governance grows.

As the person responsible for hiring and firing the chief executive and ensuring company strategy is on track, the chair is crucial to protecting shareholder returns over the long term, even though few ever find themselves rejected at the company's annual meeting.

But as pension funds and other long-term asset owners demand investment firms be more active stewards of their stock, some money managers are reconsidering how they rate chairpersons, with a view to making them more accountable for company performance.

"I'm not sure shareholders as a whole are particularly good at that. I think there's a little bit of an unwillingness to take a view on individuals and, frankly, I think we need to do that more," said Paul Lee, head of corporate governance at Aberdeen Asset Management.

UK fund firm trade body the Investment Association and consultancy EY recently launched a report calling for investors to engage more in how companies are run, including around the 'lynchpin' chair role.

"The majority of chairmen understand the role but we sometimes find the board doesn't intervene as quickly as we would like. They sometimes give the benefit of the doubt," said Shade Duffy, head of corporate governance at AXA Investment Managers, the fund arm of French insurer AXA.

"That's why we think it's important for chairmen to have a good relationship with investors, so they can access what markets think about the performance of the company and executives."


Ferdinand Piech (R), chairman of the supervisory board of German carmaker Volkswagen walks beside President and CEO of Porsche Automobil Holding SE Martin Winterkorn as they attend the annual shareholders meeting of Porsche in Leipzig, April 30, 2013. REUTERS/Fabrizio Bensch