KE Y INSIGHTS FOR BUSINESS LE ADERS 2016

“This house believes that Non Executive Directors (NEDs) have abrogated their

responsibility to align executive pay with performance.”

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Introduction from NEDgroup Chairman, Barry Gamble

Welcome to the 2016 edition of BOARDtalk from NEDgroup.

NEDgroup has been creating a community of Non Executive Directors (NEDs), aspiring NEDs and people who hire NEDs since 2005.

Our modus operandi is threefold; our annual BOARD-talk publication, our quarterly NED events and our NEDsearch service.

I believe there is a parallel between a debate and a boardroom. In each situation, there must be respect for the opposing view, but also an atmosphere of constructive challenge, after careful listening.

A good decision will hopefully result through the examination of alternative approaches, with the whole board buying in to the process.

Following the precedent of previous BOARDtalks, the debate report in this edition avoids ascribing statements or comments made to individual debaters or to those from the floor of the house.

We hope this protocol “loosens up” the arguments and produces some original insights into what is an immensely difficult area for boards and NEDs in particular.

The debate format also avoids the often stilted but still ubiquitous offering of presentation followed by a Q&A session.

Whilst this has its place, we feel the formal debate style wins through - particularly when tackling difficult and contentious topics.

I would like to thank the highly knowledgeable, able and good humoured debaters who very kindly agreed to my request to take the positions on the debate, whether or not they were their views.

They spoke without powerpoint, presentations or props and relied on their words alone to persuade and win over the floor.

We may never know their true personal positions, but we hope that through their energetic participation we have made a tangible contribution to thought leadership on this topic.

Whether on the winning or losing side, I hope the debaters and everyone who participated so energetically valued and enjoyed the experience.

Inside This Issue

KE Y INSIGHTS FOR BUSINESS LE ADERS 2016

Barry Gamble has been Chairman of NEDgroup since 2010. Barry is an experienced Chairman in the publicly quoted, private and charitable sectors.

He is a former ‘Editor at Large’ of BoardRoom magazine, a writer and commentator on corporate governance and the roles / responsibilities of Directors.

As well as coaching and advising a number of companies - which he sees as a possible first stage to a full NED role for both company and coach - he is Chairman of AIM quoted LightwaveRF PLC and Finance Chairman at Tudor Hall School.

Barry Gamble Editor of BOARDtalk, Chairman of NEDgroup

2 Introduction from Barry Gamble, NEDgroup Chairman

4-5 Our Partners

• Russam GMS

• Moore Stephens

6-7 NEDsearch

• Our History

• Melissa Baxter: Director, Executive Search

• How to secure that elusive first NED position

8-9 Recent Events

• Marcus Stuttard, Head of AIM, London Stock Exchange

• Giles Derry, Partner, Dunedin Private Equity

10-11 The Annual Debate

12-13 The Build Up

14-15 The Players

16-21 The Arguments

• The Corporate Framework

• RemCos

• Metrics

• Risk & Reward

• Simple Solutions

• The Atmosphere of Debate

22-23 The Result

24-25 Recent Events

• Sheryl Cuisia, Managing Director & Founder, Boudicca Proxy Consultants

26-27 Selected Speakers

28 About NEDgroup

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Our Partners

Moore Stephens is a UK top ten independent accounting and consulting network, comprising of over 1,300 partners and employees in 35 locations.

Moore Stephens is an independent member firm of Moore Stephens International Limited, one of the world’s major accounting and consulting networks with 667 offices in 105 countries.

Founded in London in 1907, their success stems from their niche industry focus, enabling them to provide an innovative and personal service to their clients. Their policy is to be regarded by clients as the first port-of-call for all business decisions.

The Moore Stephens philosophy is to cater for their clients’ needs wherever required, but not to grow for the sake of size alone. Historic growth has been organic and they have never been involved in a major merger. As a result, a client-orientated culture has developed over a number of years, which ensures that they are able to provide a highly personalised service.

It is their commitment to clients, which ensures they provide added value services for them, as well as a stimulating career for their people.

For further information, please contact Phil Cowan in London or Duncan Swift in Southampton:

Moore Stephens LLP www.moorestephens.co.uk

150 Aldersgate Street London EC1A 4ABT (020) 7334 9191

Russam GMS is the UK’s longest established Interim Management & Executive Search provider.

Founded in 1981, the company employs almost 50 people and is managed jointly by Jason Atkinson and Ian Joseph. Russam’s vision is to be a world-leading human capital business, relentless in innovating and the chosen partner to their clients.

Russam’s mission is to be the UK’s premier executive human capital firm and to work closely with their partners to provide talent solutions that will help transform their organisations. The company’s strapline is Experienced People > Delivering Results, as it represents both their employees and the executives they work with.

Along with NEDgroup, Russam GMS is proud to offer the following services:

Interim Management The longest established mainstream Interim Management provider in the UK, Russam GMS is credited by many informed observers with having “invented” the Interim Management market in the UK and are recognised for their continuously innovative and thought-leadership approach – such as the establishment of NEDgroup in 2005.

Executive Search Our Executive Search team helps our clients secure the highest calibre of leadership talent for critical executive level appointments, who go on to shape the vision and strategic direction of these organisations. With almost 35 years of experience, they’re the trusted partner to many of the UK’s most respected organisations.

WIL Group Russam GMS is a founding member of the Worldwide Interim Leadership (WIL) Group; an international network of 17 premium Interim Management firms with offices in almost 40 countries across all continents. WIL Group offers a single destination for global clients who require interim and transformation executives from every sector and of every discipline, anywhere in the world.

Trustees Unlimited Established in 2009, Trustees Unlimited is the UK’s premier provider of Trustee and Non Executive recruitment. Whether a Trustee for a charity, director for a social enterprise or volunteer to sit on an audit committee, Trustees Unlimited has unprecedented access to a large group of high calibre professionals who are actively looking for such roles.

Step on Board Step on Board is a full service board-level volunteering programme, offering an unparalleled opportunity for senior executives to join the board of a charity of their choice, helping them develop skills such as negotiation, strategic development, leadership, teamwork, patience and vision.

For further information, please contact either Jason Atkinson or Ian Joseph: 020 7099 2222 www.russam-gms.co.uk hq@russam-gms.co.uk

114 High Street Southampton

SO14 2AAT (023) 8033 0116

“I found the discussion stimulating. One thing I have noticed in the business world is that there is very little debate nobody challenges the accepted

orthodoxies. The debate and subsequent discussion went some way to rectify the situation!”

Jonathan Bloch CEO

Exchange Data International

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How to secure that elusive first NED positionIf you’re an interim executive looking for your first Non Executive Director role, one potential avenue is to become a retained board advisor or coach.

In the guise of a coach or retained advisor, you can offer valuable help with the strategic development of an organisation - an ideal stepping stone towards a formal NED appointment. This can be especially true if the organisation itself is not yet ready for such a role.

These organisations are often small SMEs, medium-sized private companies, AIM and quoted companies just outside the FTSE 350, which often find it difficult to adhere to the rigorous formal process of NED.

This less formal advisory role is perfect for organisations and individuals going through various stages of development - yet recognises the continuum required by both sides and the need to ensure the right fit.

Once appointed, there is also often a need to change the atmosphere and language in the boardroom of these organisations. As such, you should seek to bring energy, help with developing a focus on the big picture, be welcoming of change and seek to inspire and motivate.

You should also develop your interpersonal skills so as to “stand back”, know your impact power and think about the language you use. The days of taking on a NED role for the fee and operating in an aloof manner to check the executive with governance rule books - whatever the size of business - are surely numbered.

In turn, organisations should seek to appoint practical, authentic and entrepreneurial NEDs to these roles and encourage them only to take on those positions where they feel they can add value.

Whatever the role, in any particular situation, there is a really important place for these “critical friends”.

Melissa Baxter, Director of Executive Search.

NEDsearchOur HistoryFor over 30 years Russam GMS has been working with boards; advising and helping them think through their resourcing requirements. Today’s board directors are expected to display the highest standards of ethical corporate governance and are often working in a more regulated, complex and scrutinised environment than their predecessors.

A high performing board is the bedrock of any organisation and is critical to an organisation’s long-term sustainability. Many of our consultants are themselves experienced board members and know first-hand the importance of building breadth in a board with respect to skills and depth, viz-à-viz building succession planning into the board profile.

As a medium sized firm Russam GMS is able to offer clients a bespoke and personal service whilst ensuring the rigour of a robust search and vetting process. NEDsearch is able to find and introduce Non Executive Directors across a broad spectrum of organisations throughout the UK and globally.

Melissa Baxter, Director of Executive SearchMelissa Baxter is the Director of Executive Search for Russam GMS. Melissa has over 15 years of wide-ranging, senior level recruitment and consultancy experience, advising boards across all sectors.

Melissa has led searches which have resulted in the successful appointments of Chairs, Chief Executives and Directors within the not for profit and private sector.

Melissa is also a qualified and accredited Executive Coach who creates robust, strong and confidence-building working partnerships to fulfil career potential, ensuring maximum return on investment.

Before joining Russam GMS, Melissa was an Associate Director within a private sector recruitment business handling permanent and interim positions.

Prior to this, she was a Founding Director of an executive search firm working on high profile executive and Non Executive Director roles in the not for profit and public sector.

Melissa’s early career was within the private sector at KLM Royal Dutch Airlines, where she operated at a senior management level in the UK and internationally.

“The cultural tone – as well as the strategic direction – is set at board level. How the board behaves together, how it interacts with the rest of the

organisation and its values set, is played out by each member as they pass through the organisation.”

Janice CaplanFounder

The Scala Group

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Recent EventsMarcus Stuttard, Head of AIM at the London Stock Exchange: The Evolution of AIM

Marcus Stuttard, Head of AIM at the London Stock Exchange, was the guest speaker at NEDgroup’s event at the East India Club in Winter 2014.

Following an introduction from NEDgroup’s Chairman Barry Gamble, Marcus shared some market insights and reported that the first half of the year had gone incredibly well. He said there were six or seven AIM IPOs and nearly 90 companies joining the market, raising £2.4bn.

However, he added that the more important part of the story was the £2.2bn raised by companies on the market by further issues. Pointing out that AIM continued to support businesses through the financial crisis and that every year £4-5bn was raised, Marcus said that institutional investors had shown their confidence in AIM and its regulatory framework.

Marcus also said that several practical changes have been introduced to AIM over the years, with many measures aimed at improving corporate governance.

Marcus stressed that the importance of smaller companies and high growth businesses not regarding governance as a cost and a ‘side effect’ of becoming a public company, but instead as part and parcel of having a sustainable business.

AIM is also supporting smaller high growth private companies. It has launched a new programme called ‘Elite’ in conjunction with Imperial College London business school to support private high growth businesses that at some point might fundraise or IPO.

This 18 month programme will help such companies put sustainable boards in place, canvas the views of investors at a much earlier stage and provide the companies with the support they need. The aim is to create the next generation of FTSE 250 companies.

Finally, Marcus discussed the role of the NED, which he said has become increasingly important in recent years. He said that companies need to find people who not only have the right skills, but who are also the right ‘fit’, and identify and address skills gaps on the board.

Said Barry Gamble, Chairman of NEDgroup:

“Marcus provided a fascinating insight into the changes taking place in the AIM market and the focus on driving corporate governance. We were particularly interested to hear about AIM’s support for private high growth companies through its Elite Programme – a very worthwhile initiative that we hope will help many smaller companies flourish.”

Giles Derry, Partner, Dunedin Private Equity: What not to do as a Chairman or NED of a Private Equity (PE) Backed BusinessGiles Derry is a Partner in Dunedin LLP, the leading UK mid-market private equity provider, where he has overall responsibility for Deal Origination.

Rather than talk about how to be a good NED or Chairman, Giles approached the subject from a different perspective – listing the key “don’ts” from his own experience.

Don’t be a biscuit eater A biscuit eater turns up to the board meeting and makes little contribution to the meeting other than depleting the biscuit supply. What’s needed is a Chairman who turns up to the meeting having read the board papers, chairs the meeting well and that all parties are clear about the key issues.

Don’t be a Chief Executive It can be very difficult to take a back seat and allow others to make the day-to-day decisions with you acting as a sounding board. Allowing people to make a few mistakes or do things differently can be hard to watch but getting this right is essential to building a good relationship with the CEO.

Don’t fall asleep at the wheel Whilst it is essential that the Chairman does not run the business, he or she must ensure that they are constantly reviewing the position, performance and members of the board. The best Chairmen do this by walking the floor, spending time in the business with the people in the business.

Don’t be a gooseberry There are at least three parties in the relationship here – the management team, the PE house and the Chairman. The Chairman must not get in the way of the relationship between management and PE house. If there is a strong relationship between the PE house and the team then it is far less likely that the Chairman’s diplomacy skills will be called in to question in the first place.

Don’t be duplicitous Any loss of integrity will lead to the Chairman no longer being able to do the job and ultimately be removed. It doesn’t matter whether the loss of trust is with the management team or with the PE house, the chairman MUST be trusted by both. If not, they are simply not able to operate effectively.

Don’t be over ambitious Don’t take on too much or too many appointments. Things have a habit of going wrong at the same time and when there is a “s*** / fan” interface at a business then the role of a Chairman ramps up substantially. Your time commitment may double or treble for a short period and you need to have the capacity to deliver on this.

Don’t forget – this is not a job for life In a PE backed business, the Chairman should be focused on working themselves out of job. PE funds and management are looking to exit in order to realise the value that has been created by all the board decisions. It is essential that the Chairman does not lose sight of this.

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The Annual Debate“This house believes that Non Executive Directors

have abrogated their responsibility to align executive pay with performance.”

Rarely out of the headlines executive pay and company performance was the perfect theme for the fourth annual debate in our NEDgroup initiative.

Now in its tenth year, NEDgroup has a long tradition of choosing controversial and topical subjects for our events and debates.

Yet again, we attracted talented and knowledgeable thinkers to stimulate different ways of thinking. These speakers enabled us to contribute thought leadership on what we expect to be a topic of debate for years to come.

Over the course of the debate, the house was asked to examine if there is an alignment between the value created for shareholders and executive pay. It not, then what is going wrong?

The house was invited to vote before and after the debate. The motion was opposed marginally at the outset. After the arguments had been put forward by the debating teams, would opposition to the motion increase or decrease?

Some key questions were central to the debate:

• Are CEOs today worth their money or is their pay simply excessive?

• What is the responsibility of NEDs in ensuring pay for performance?

• How should performance be measured?

• Are NEDs doing what is required of them in terms of pay and performance or have they abrogated their responsibility?

We wondered how the debaters would tackle these issues.

Would Leon Kamhi, Executive Director at Hermes Investment Management, proposing the motion, convince us that there is no link between directors’ performance and pay levels in public companies today; that NEDs are responsible for managing this so they aren’t performing their duties?

Would his seconder David Henderson, a Specialist Advisor to Kleinwort Benson and NED on a number of Boards, agree with him and to what extent?

Or would Neil Mahapatra, CEO of Private Equity firm Kingsley Capital Partners and a former President of the Oxford Union, successfully refute the motion?

What would his seconder, Ruth Bender, an accomplished academic and remuneration expert, contribute to this important subject?

Jason Atkinson Managing Director of Russam GMS

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The Build Up

The Indicative VoteThe House participated in a straw poll before the debate. The results were as follows:

Proposing the Motion Leon Kamhi, Director, Head of Engagement, Hermes EOS Leon joined Hermes Equity Ownership Services (EOS) in 2009, and then became a director of the EOS board. He is responsible for directing and overseeing the EOS public policy and corporate engagement programme globally. Since 2014, Leon has taken the role of Head of Responsibility for the Hermes group.

Rules of the House• The time allotted to each speaker will be strictly observed.

• The Chairman will signal the end of the allotted time for each speaker and if delinquent in these duties, will be overridden by the touchline timekeeper.

• No points of information or order from the floor will be taken during a speaker’s time.

• Contributors from the floor will have a maximum of two minutes to make their point and are invited not to “advertise”.

• The Chairman will decide who to call from the floor.

• All electronic devices to be switched off during the debate.

• The Chairman’s word is final.

Ruth Bender, Cranfield School of Management Ruth is a Reader in Corporate Financial Strategy at Cranfield School of Management. Her main research interest is the practical implications of corporate governance in large companies. Ruth’s PhD investigated how executive remuneration is determined in FTSE 350 companies, and her current research looks at the work of compensation consultants.

Neil Mahapatra, CEO, Kingsley Capital Partners Neil began his career at Morgan Stanley and joined J. Rothschild Capital Management as the right hand man to Lord Rothschild. He later became a private equity executive for RIT Capital Partners plc and the Rothschild Family Office. In 2012, Neil established the UK private equity firm Kingsley Capital Partners, which focuses on providing growth capital to UK businesses.

Opposing the Motion

Seconded by

David Henderson, Special Advisor, Kleinwort Benson David joined the Board of Kleinwort Benson Group PLC in 1995. He was appointed as Chief Executive of Kleinwort Benson Private Bank Ltd in 1997. He was Chairman of Kleinwort Benson from 2004 to 2008 and is now a Special Advisor to the Bank. He holds several external Non Executive Directorships.

Seconded by

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The Players

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Jason Atkinson Managing Director

Russam GMS

Ruth Bender Cranfield School of

Management

Neil Mahapatra CEO

Kingsley Capital Partners

Barry Gamble Chairman NEDgroup

David Henderson Special Advisor

Kleinwort Benson

Leon Kamhi Director

Hermes EOS

Duncan Swift Partner

Moore Stephens

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The Arguments

Why have there been such substantial payments when, from the shareholders’ perspective, there doesn’t seem to have been substantial returns?

The board has only one sovereign; the source of capital – this is quite clear in the FRC’s Code of Governance. The board is accountable for only one thing and that is adherence to the Companies Act of 2006, which does not define how they should address pay levels.

Boards know full well they are responsible to the providers of capital, and know full well those providers want a return on investment. How they choose to do that is the responsibility of the board.

Adrian Cadbury produced a marvellous report in 1992, followed by Greenbury, and then the FRC produced its Combined Code, which everyone has tried to follow. Perhaps people have been hiding behind the skirts of the Corporate Governance Code rather than linking pay and performance.

Do Non Executive Directors have the power to ensure there is a link between pay and performance?

Is it the role of Non Executive Directors to ensure pay for performance?

Are Remuneration Consultants too close to the executive management team?

Often the relationships between the CEO, Executives and Non Executives are especially close.

RemCo members don’t ask the basic questions. Whether it is self-interest or inertia, they tend to just accept fixed assumptions about issues of executive impact and irreplaceability, particularly the argument that a Chief Executive or Finance Director is not replaceable.

It’s probably good practice on a fairly regular basis to have a look at the performance of a RemCo.

There is an inherent conflict of interest when you have NEDs who are Executives of other companies.

I think one of the points missing here is the reverse engineering that goes on within remuneration committees.

It shouldn’t be about compliance with the regulator. It should be about doing the right thing for the organisation.

Are company accounts and RemCo reports too complicated?

We have a problem. In the final analysis Remcos and NEDs set the pay.

The Corporate Framework RemCos

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Non Executive Directors can set the link between pay and performance.

There is no such thing as a Non Executive Director. The law states there are only Directors. We may choose to call ourselves Non Executive or part-time, but the board wholly and solely is totally accountable for the leadership and management of the company.

The board’s role is not just to align compensation with performance, but make sure the right candidate is attracted to the job in the first place.

So we’ve got lots more performance- related pay, Non Executives have done that. What they haven’t done is look at performance measures.

There is too much following and too little leading going on. Directors are being advised to use evermore complex measures and to focus on spuriously precise measures.

NEDs who have the power to change this have abrogated their responsibility.

“NEDs who have the power to change this have abrogated their responsibility.”

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“It shouldn’t be about compliance with the regulator. It should be about doing the

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Risks & RewardsPerformance seemed to be wonderful and

things crashed. In my sector, there was a succession of companies and Chief Executives who were lauded and then suddenly the books were opened up.

Events happened or risks were taken that have come home to roost. That’s got to be difficult for Non Executives to deal with.

The link between risk and reward isn’t happening and it’s in the power of the NEDs to sort it out.

Is there an alignment of risk? Well no there isn’t really.

It’s about risk, reviewing the risks, making sure there is action to mitigate those risks. It is also about making sure that Executive compensation is encouraging the right behaviours.

Are the risks that Executives are taking aligned with the risks shareholders are taking?

What measures are being taken to assess the risk profiles of the actions of the Executive Directors? I am thinking of the Royal Bank of Scotland, where the risk profile of the company was changed because of Directors chasing bonuses and total shareholder return. In the end it led to the failure of the company.

In many corporate failings - Tesco and the banks are the most obvious examples - we’ve talked about the importance of the Executive team in terms of building a long-term sustainable, responsible culture. We might mean different things by that, but clearly that doesn’t align very easily with the way in which the current incentive systems are structured.

I agree you don’t incentivise people by paying them more. I think it is meant to be more of a reward than an incentive. All this is far too short-term. What do shareholders want? They aren’t really getting anything that links with long-term success.

Pay packages are very difficult to construct and boards have generally done an excellent job with them to date.

The definition of performance is difficult and can only captured by total shareholder return.

Total shareholder return is a notoriously difficult metric to link to pay, but it is the best we have.

There is no way TSR can motivate you because you’re not going to understand it.

TSR means we’re asking Executives to focus on share prices, rather than focus on running the business. So we’re asking Executives to do the wrong thing, and then wondering why we don’t get performance.

Return on capital is a good measure, but of course, if you insert quite a lot of debt there, you can increase your return on capital, but at the same time, you raise the risk.

Nobody has talked about the very reasonable notion of putting pay ratios in place, and with the FTSE 100, I think it is 130 to 1 in terms of Chief Executive pay to average pay. With big charities, it’s 11 to 1.

In 2008, the average US CEO’s life span was 1.9 years. In the UK in 2008, it was 3.2 years. The figures fell because of the crash. In a falling tide everyone gets fired. The boards are removing CEOs with good speed and they are taking responsibility for it.

Metrics

The Arguments

I think the average life span of a CEO is five years, and a quarter of them do eight years or more. If they’re doing eight years or more they are long term.

Since the late 90s until today, packages for FTSE CEOs rose from £1million to £5million on average, despite employee salaries remaining very stable. The High Pay Centre has found that Executive pay increases between 2000 and 2013 were far greater than the increase in company profits or market value over the same period.

In defence of the very small, ultra-thin, handful of CEOs at the very top of our global companies, the FTSE 100; the average shelf life of a CEO before they get removed or fired is just over two years. If a CEO is hired from outside, their tenure is even shorter. They are removed by boards who know they are accountable for the business performance who decide the incumbent isn’t right.

There was a scatter diagram to beat all scatter diagrams. For everyone who was paid well for good performance, someone was paid well for bad performance. There was absolutely no link between pay and performance.

“There is no way TSR can motivate you because you’re not going to understand it. ”

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“It was both fascinating and instructive to meet and listen to this eclectic audience of experienced

Executives – either current Non Executive Directors or those seeking their first NED appointment – all with backgrounds in a range of organisations from

the very large to the very small.”

Ian JosephManaging Director

Russam GMS

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Simple SolutionsI met with the Chairman of a major PLC this

morning – it was very interesting in terms of the way they pay – they just have salaries and shares. It is nice and simple. The shares align over the long-term with the business.

If CEOs are spending a lot of time negotiating their pay packages rather than building the business, show them the door. I believe those CEOs do not perform.

Research shows that pay does not motivate good performance in complex cognitive tasks.

In my eutopia, I would like to see long-term Executive positions; five-year plans and targets – something a bit more credible for the growth of a complex business, rather than the short-term ones we currently see.

The overwhelming majority of businesses in the UK are small and medium sized. The boards running these good SMEs know what they’re about. When they set strategies to maximise the success of their businesses, pay is merely one facet.

The Atmosphere of DebateHow ridiculous to talk about a market for -

what you’re really saying are - similar people; you don’t want similar people.

Just because something’s difficult, doesn’t mean you stop trying.

Thank you very much indeed for the energy in the room.

Unfortunately, I think there are some comments that fundamentally forget how human nature works.

I deliberately put in the word abrogated in the past tense. That means completely given up.

There was a sense of just being there and the money was for the taking and that comes from the individuals themselves. The role of the CEO is overstated. Many CEOs are in charge of operations which have run quite smoothly without their daily input.

I think 95% of statistics were invented in the spur of the moment, including probably this one.

At the end of the day, the man in the street doesn’t quite get this.

Most speakers have three points. I have forty three points.

For a bonus to be effective there has to be clear line of sight between pay and performance.

If you get a jockey (CEO) on a really good horse he’s probably going to do really well. I think he might fall off.

People want instant gratification.

The Arguments

“If you want to be in the Premiership or win the Champions’ League, you’ve got to pay Premiership wages otherwise you’ll be

languishing in the second division.”

Tim Cook has $300m coming to him over the next few years, but his pay is almost perfectly correlated to total shareholder return. Do we want him to stop creating value for shareholders? Do we want him to stop innovating?

Boards need to offer a market rate to secure the candidates they want. The quantum of that package is set by the market, not them.

Most CEOs are worth their money. I would urge you to ignore what you read in the press.It’s the press, so it’s probably wrong.

Whether we like it or not, there is a market rate for Executive hires.

My heart is with those opposing the motion, but I would like to throw them a challenge. Isn’t there a public perception that says the link isn’t there?

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““In many, if not most cases, the usual judges and juries of performance in public companies – the media, fund managers and governance officers –

have very little board experience or training beyond governance requirements. I think there is a

collective responsibility to change this!”

Patrick DunneChair

EY Foundation

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Summing Up from Barry GambleJust as for our previous debate topics the wider discussion on the motion continues.

The range of articles in the financial and general media reflects this as much as ever.

Recent headlines in the press include:

• “Board members admit pay model is broken.”

• “Board bonus levels cast doubt on variable pay.”

• “Complex executive pay schemes under fire.”

• “Executive pay - the battle to align risks and rewards.”

This is not an easy topic and has the capacity to raise emotions and strong reactions.

Achieving the right compensation arrangements for executives is immensely difficult but is perhaps just a sub set of wider Corporate Governance concerns, which at their very core are about behaviour and values.

Still we see far too many examples of best practice corporate governance going off track. Where this happens it is difficult to believe that pay and rations have not been implicated in some way.

There was a sense during the debate that however imperfect existing processes, there is no lack of commitment to the cause.

As such, Non Executive Directors were judged by the house to have done a tolerably good job and certainly not to have abrogated their responsibility to align executive pay with performance.

In practice this will remain a work in progress requiring continued vigilance.

The Result

The Exit Poll

Indicative Vote Final Vote

Supported 45% 40%

Opposed 53% 60%

Abstained 2% 0%

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Recent EventsSheryl Cuisia, Managing Director & Founder, Boudicca Proxy Consultants: Why Shareholder Activism is Here to Stay

“Shareholder activism is here to stay,” said Sheryl Cuisia, Managing Director of Boudicca Proxy, the guest speaker at NEDgroup’s event at the Royal Thames Yacht Club in Autumn 2015.

Considered the ‘go to’ person on shareholder activism issues in the UK, she has worked on several high profile cases including Alliance Trust, where she acted on behalf of Elliott Advisors in its successful mission to appoint additional Non Executives to the board of Alliance Trust.

Sheryl stressed that NEDs should be alert to shareholder activism; it is rising fast and whilst traditionally activity mainly targeted companies in North America, activists are paying more attention to companies in Europe and the UK, which has the potential to become a ‘hot bed’ of activism.

A recent report from PwC entitled, ‘Shareholder Activism, Who, When, What, How?’ confirms this trend. It highlighted that in the past decade, the number of activist hedge funds across the globe has dramatically increased, with total assets under management now exceeding $100 billion. Since 2003, 275 new activist hedge funds were launched.

We learned that shareholder activism has undergone a rebrand in recent years. It is no longer seen as a ‘dirty word’. Increasingly, activists are being viewed as stewards of responsibility and catalysts for change.

Their mandate is to unlock shareholder value and challenge the status quo, calling into question unethical behaviour and making management boards more accountable.

NEDS were warned that their company is likely to be targeted if there are corporate governance issues, underperformance or unethical behaviour at board level. 36% of activists respond to poor stock performance, 26% to ineffective capital development and other drivers including poor governance, remuneration packages that are deemed too high or incidences of reward for failure.

So what can NEDs do to get on the front foot and prevent shareholder activism?

• Directors need to be alert to the potential of being targeted, understand who their shareholders are and check the register to see if anyone has been involved in activism.

• They must hold management to account.

• They must also be prepared for a proxy fight – whilst it is a last resort situation, boards should have a one page plan of action in reserve.

• To do this, they should seek out people who have experienced shareholder activism so they can provide advice and counsel.

• NEDs must better engage shareholders and understand how they are feeling.

Said Barry Gamble, Chairman of NEDgroup:

“This was a fascinating insight from someone who has been involved in some of the most high profile cases of shareholder activism. One of the key take-home points was that there is no immunity or vaccine from activism and everyone can be affected. It was a reminder of the importance of good governance. Perhaps we need to check our shareholder registers and make sure we are engaging and communicating with our shareholders effectively.”

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Mark Boleat Chairman, City of London Policy and Resources Committee.

Gavin Casey Non Executive Chairman, VSA Capital. Former CEO, London Stock Exchange.

Professor Andrew Chambers Author, Chambers Corporate Governance Handbook. Chairman, Corporate Governance and Risk Management Committee, ACCA.

Louis Cooper Chief Executive, Non Executive Directors Association.

Stephen Cork Managing Partner, Cork Gully Corporate Restructuring.

Patrick Dunne Chairman, D3O. Member, Advisory Board to the Entrepreneurs Fund, EY Foundation.

Tim Foster Group Legal Advisor, John Laing PLC.

Professor Russel Griggs OBE Serial NED, Director, Chair and Board Member. Former Chairman, CBI UK SME National Council.

Tony Hales NED, HSBC Bank, Welsh Water, Aston Villa FC. Former CEO, Allied Domecq. Former Chairman, British Waterways, Workspace Group PLC, NAAFI Limited.

Jeremy Hanley Former member of Parliament, Richmond & Barnes, 1983-97. Former Government Minister and Chairman, Conservative Party.

Linda Holbeche Visiting Professor, Organisation Development, Cass Business School. Former Policy Director, CIPD.

Nicola Horlick CEO, Money&Co. Former CEO, SG Asset Management, Bramdean Asset Management.

Selected SpeakersClive Parritt Chair, ICAEW Commercial Board. Former Chairman / Managing Partner, Baker Tilly.

Ric Piper Serial Chairman and NED. Former Group Finance Director, WS Atkins.

Andy Raynor CEO, Shakespeare Martineau Lawyers.

Gerald Russell Former EY Senior Partner. Chairman, NED Programme.

Keith Smith NED, Institute of Risk Management.

Murray Steele Chairman, London Internet Exchange. Serial Chairman, NED and Trustee.

Christine Tacon CBE UK Government Groceries Code Adjudicator. NED, Met Office, Anglia Farmers.

Professor Colin Coulson-Thomas Director General, IOD India. Serial Chairman.

Paul Williams Serial NED. Former Group HR Director, Smith & Nephew.

Gillian Wilmot Founder / CEO, Board Mentoring. Serial NED.

Richard Wilson Senior Partner, EY. Chairman, EY Independent Director Programme.

Peter Wray Founder / Chairman, Loyalty Matters.

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About NEDgroup

NEDgroup is designed for senior independent executives who either are NEDs or want to be and have the personal and professional attributes to do so.

NEDgroup is proving invaluable to a growing number of business Chairmen and CEOs looking to recruit one or more NEDs and seeking a broader and more precise understanding of ways of making this process more effective.

NEDgroup’s focus and also the target market of NEDsearch is on the 2,000 mid and small cap companies outside the FTSE 250.

This includes the AIM and also many private companies of a size that would value an NED being on the Board (reflecting a key part of our history as we also have a sub-focus on businesses in the £10m to £40m range).

Our regular meetings explore current issues in the NED market and provide an opportunity to exchange information and ideas with other members.

If you would like to join our events or for more information about NEDsearch please contact:

Jason Atkinson Managing Director Russam GMS 020 7099 2222 hq@russam-gms.co.uk www.russam-gms.co.uk

Designed and produced by Russam GMS

Russam GMS, The Gridiron Building, One Pancras Square, Kings Cross, London, N1C 4AG