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Governance rules change could create exodus to private equity

Monday, 24 September 2007

Article Index Governance rules change could create exodus to private equity Page 2 Page 1 of 2 The number of executive directors in FTSE 350 companies has declined for the fifth year running, resulting in 20 per cent less positions than there were five years ago, according to a new report by business advisory firm Deloitte. This disappearance of almost 360 roles suggests that the opportunity to become an executive director of a large UK listed company is rapidly declining. Richard Knights, office senior partner at Deloitte in Cambridge at Deloitte in Cambridge, said: “The decline of the executive director is quite extraordinary and is primarily a result of corporate governance guidelines which require half the board to be independent. “This changing shape of the board can be a positive thing, leading to more focussed and high quality debate. However, there is also a danger that as the executive element of the board shrinks, the development of strategy is pushed out of the boardroom and into executive committee meetings leaving non-executive directors with a lack of involvement in key decisions. “Given that there are fewer executive positions and the fact that the past twelve months has demonstrated that even large companies are no longer immune to being taken over, we might expect senior managers looking for the next challenge to see private equity as an attractive alternative to the plc role. The competition from private equity puts increasing pressure on remuneration committees to ensure remuneration is structured to reward superior performance and to retain and motivate senior executives.” According to the Deloitte report, shareholders expect the remuneration of executive directors to be clearly supportive of business strategy and objectives and there is real evidence that this is starting to happen. Almost a third of long term incentive plans in FTSE 100 companies and a fifth of those in FTSE 250 companies now incorporate measures of performance other than the more commonly used earnings per share or total shareholder return measures. These tend to be business sector specific. For example, plans in real estate companies will often incorporate measures of net asset value, whereas in insurance companies they may use return on embedded value. The report reveals a growing number of bespoke, one-off plans being implemented which are intended to support specific business strategies. Some of these arrangements incorporate elements akin to those found in private equity and Deloitte believes that listed companies can learn some lessons from the private equity environment. Prev - Next >>

 

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