Monday 19 November 2018

Top of the agenda. Shane Ross

Close friends of the family IS IT time to say something nice about the Smurfit clan?

No. I don't think so, not this week. But let me try.

The great thing about the Smurfit board is that they are all good chums. Board meetings are noted for their harmony. Most directors play a good game of golf. And no doubt many key decisions are made in the K-Club.

Last year, they were all so chummy that they only met four times. What a wonderful way to run a company.

Wonderful for the directors. Not for shareholders. Last week's news, that Michael and family wanted to buy out the company, hardly heralded an outbreak of good corporate governance. Michael and the lads stuck two fingers firmly in the faces of the small shareholders.

Quite correctly, Michael's cronies set up an "independent" sub-committee of the board to evaluate the bid by the Smurfit-led venture capitalists. All of the executive directors face a conflict of interest. So they cannot sit on the judging committee. Michael is out. Dermot is out. Alan is out. Tony is out. Managing director designate, Gary McGann, is out.

Enter centre stage, the Smurfit non-executive directors mates of Michael to a man. They are supposedly the only "independents" available to measure the merits of Smurfit bros and son's bid.

And who was appointed to the committee of three "independents"?

Let us start with Howard Kilroy. Howard has made a fortune in his day. He would never have done it without Michael. He has been with Smurfits since 1973. He has probably played more rounds of golf with Michael than he has sailed boats around Dublin Bay.

What is more, Howard is not yet out of Michael's hair. According to the annual report, he is not just an ordinary non-executive director. Howard collects quite a tidy packet from Smurfits, above his modest ?40,000 directors' fees. Last year, Howard was lucky enough to be given ?127,000 in "consultancy" fees.

According to the Combined Code on Corporate Governance, a director may not be independent if he receives consultancy payments. Nor if he is a former executive. Nor if he has "any business or other relationship which could materially interfere with the exercise of his independent judgement".

Howard fails on all three counts. He is a consultant. He is a former executive. He has a business relationship with the company as a director of Smurfit Stone (US).

And worse still, he fails the overall "independence" test: does the board member "have significant personal ties to key directors"?

Ho hum. Michael's chum.

So Howard's independence is a trifle doubtful. Well, what about the mighty Martin?

Martin Rafferty, chairman of the sub-committee, was not around for a chat last week. He was on holiday. And why not? There was nothing happening at home, except one of the biggest ever Irish corporate deals. Martin is a key figure in the destiny of the deal. Where better to make independent judgments than in sunny Spain? Martin managed to ring in from Spain to attend the board meeting, via conference call, last Monday.

Two years ago, I remember Martin obliging the chief at an EGM by steering an awkward little item through the meeting. Michael had bought a nice piece of land adjacent to the K-Club from Smurfit plc at an agreed price. It never went out to tender. Martin backed the boss.

Martin is also chairman of the compensation committee, the generous little trio which gave Michael a £6m package in 2000.

Last of those appointed to the "independent" sub-committee is Ray MacSharry. He too is an unapologetic member of the compensation committee. At a recent AGM, Ray did himself no service as the poor sod selected to speak in favour of the chief's vast rewards. He made a lame speech. Ray receives ?54,000 per annum from the Smurfit coffers. He has a close relationship with the Smurfits through the John Jefferson Monegasque Foundation, where he is chairman.

Ho hum. Michael's chum.

Three allies of the Smurfit family are about to make an "independent" judgment on the merits of the Smurfits bidding for the family company. They must judge whether the price is fair to all shareholders.

@@STYL sw,8 In the past they have staunchly defended the chairman.

@@STYL sw,8.2 But perhaps the large shareholders will revolt? Perhaps AIB and BoI will kick up? Just bear in mind that Martin Rafferty is a former managing director of AIB Investment Bank. Just bear in mind that Ray is on the board of the BoI and that Howard was its last governor. In the incestuous world of Irish fund managers and cross-directorships, expect the three lads to be given the all-clear by our spineless investment institutions.

Instead, the fund managers should be demanding an external sub-committee of disinterested outsiders who just might reach objective decisions on the merits of the buyout people who have never played golf with the chairman.

Top choice should be Professor Niamh Brennan, lecturer in Financial Reporting at UCD. Not a hope. Untamed women with an expertise in good corporate governance would be unwelcome on the Smurfit board.

Next in line would be Des O'Malley, who is retiring from politics. His impartiality would never be in question. Besides, Michael has a weakness for ex-ministers on his board. Inexplicably, they always come from the FF stable.

A report from Niamh and Des on a Smurfit-led bid would have credibility. It would consider the interests of small shareholders.

Which is not Smurfits' strongest suit.

Which is why I was wrong to set out to say something nice about the Smurfit clan.

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