Leadership

AIB may break stock-exchange code in O’Connor appointment

11.11.2009
The Corporate Governance Association of Ireland (CGAI) has added its voice to calls for concern over speculation that AIB is to appoint an executive chairman on an interim basis having failed to reach agreement with the Government on the appointment of a Chief Executive.

It was reported earlier this week that the current Chairman of AIB Dan O’Connor is expected to be appointed as Executive Chairman of the bank, which would see him take over the day-to-day running of the group.

In breach of code
According to the CGAI, should AIB proceed with the O’Connor appointment it may well find itself in breach of the Combined Code that applies to all companies with a full stock exchange listing in Dublin and London.

This code, the CGAI said, requires that the two top roles in a company, the Chairman and the Chief Executive, should be filled by different people.

While the CGAI acknowledges that the code allows for a company to depart from the rules regarding the Chairman and Chief Executive role, provided the reasons are explained in the annual report, it contends that the proposed AIB appointment would “simply not be best practice”.

Strong, independent non-executive directors needed at AIB
“The various problems AIB has encountered in recent years indicate a need for a board with strong independent non-executive directors capable of providing effective oversight of management,” said Jerry Kelly (pictured), Chairman of the CGAI.

“The Chairman is meant to be a neutral manager of the board’s processes and procedures. When the Chairman of the board is also the head of the management team the objectivity of the Chairman is potentially compromised. There is also a danger the non-executive directors become disempowered.”

Sending out the wrong signals
The CGAI also said it is hard to understand how the Government, AIB’s largest shareholder, would agree to such a breach of the code, even on an interim basis, as it sends out the wrong signals to the international investment community.

It also pointed out that it is hard to understand the potential move in the context of the Renewed Programme for Government agreed between Fianna Fáil and the Green Party, in which the Government promised to bring in legislation requiring the segregation of the roles of CEO and Chair in Irish banks.

Labour and Ross weigh in on potential appointment
O’Connor’s rumoured appointment has also come under fire from the Labour Party, which said the move would send out a message of ‘no change’ in the banks and would be contrary to the principles of good corporate governance.

Independent senator Shane Ross has also criticised the potential move as defying all rules of good corporate governance.