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Daily Insurance Industry News
Tuesday 23rd of January 2018
September 28, 2011

ABI tackles boardroom “fat cats”

by Gill Montia

Story link: ABI tackles boardroom “fat cats”

Insurers have given UK company boards “the clearest indication yet” of how executive pay should correlate with effective performance, in a blast from the Association of British Insurers (ABI).

ABI members are major investors in UK businesses and the Association’s first report on Board Effectiveness along with its revised Principles of Remuneration set out key issues in making a board effective.

These include: board diversity – including women in the boardroom; succession planning – board engagement in planning for succession for all senior management; board evaluation – including discussions on risk management, corporate strategy, geographic markets of operation and reporting.

Greater transparency is also on the agenda and a “renewed concern” on executive pay means that companies in which ABI members hold a stake need to “strongly resisting” any payment for failure and ditch “crude benchmarking” when seeking to justify executive pay rises.

Firms should also understand that excessive or undeserved remuneration “undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests”.

The Association’s director general, Otto Thoresen, comments:

“The board effectiveness report and long standing remuneration guidelines represent UK best practice.

“They aim to ensure that remuneration is linked to performance and shareholders’ interests are protected.

“We continue to favour evolution, building on what we have learnt from recent years to make sure companies act in shareholder’s interests and deliver long term economic growth that will benefit society as a whole.”

The role of institutional investors in the financial crisis has come under scrutiny in recent years, investors having been criticised in particular over their lack of influence with the boards of UK banks.

At one point, it emerged that Legal & General Investment Management (LGIM) had been ineffective in its demand for the resignations of Royal Bank of Scotland’s (RBS’s) then chairman, Sir Tom McKillop, and then chief executive, Sir Fred Goodwin, back in 2008.

The confrontation came shortly after the bank had announced its £12 billion rights issue, despite LGIM having been told that the bank had no need to raise capital.

The rights issue went ahead anyway, to be labelled by Michael Lamoureux, founder of the RBS shareholder action group, “the biggest crime in financial history in the UK”, as the bank toppled into majority state ownership.

 

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