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Chairmen on the target list

Public company chairmen and chairwomen have targets painted on their backs by the Australian Shareholders Association (ASA).

The Association has identified 35 chairmen who receive more cash annually than the value of their shareholdings in the company. At the top of the list is energy utility Spark Infrastructure’s (ASX:SKI) chairman Brian Scullin, who holds no shares in the company, despite being elected to lead the company nearly two years ago.

Adelaide Brighton (ASX:ABC) chair Les Hosking holds shares in the building materials manufacturer worth just 6% of his last annual fee of $269,178 according to the ASA, although he has only been chairman since May 2012.

Former Woolworths Limited (ASX:WOW) wonderboy and now Fairfax Media (ASX:FXJ) chairman Roger Corbett has been taken to task before over his holdings in the media group. He holds just $48,000 worth of stock – compared to his annual salary of $432,730.

“There have been too many examples over the years — Pasminco, Fairfax Media and Qantas come to mind — where some of the non-executive directors have not generally held meaningful shareholdings during a time of serious underperformance,” the ASA reports.

Having ‘skin in the game’ is important for chairpersons according to the ASA. The association believes that chairmens’ interests should align with those of shareholders, and has called on them to increase their investment before the main AGM season. A chairman with significant holdings in the company they lead would appear to be more likely to act in the shareholders’ best interests.

The issue could also be that executive remuneration is overly focused on cash rather than longer term incentives such as paying a larger portion of the directors’ or chairman’s salary in the form of shares, or options to acquire shares.

Foolish takeaway

Directors and chairpersons are facing greater scrutiny of their actions, and over the past few years we’ve seen a heavy focus on executive remuneration, with many CEOs receiving massive bonuses despite poor company performance and the share price underperforming. Any action that leads to better management of companies should be a good thing.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Fairfax.

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