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The Sunday Telegraph: Cut-price chairmen are best avoided

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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