boards / corporate governance / director / independent

The Importance of good governance: the case of INM

Independent News and Media confirmed that it is conducting a formal, independent review to examine and inquire into matters concerning its possible acquisition of the Irish national radio station Newstalk, which is owned by, the Denis O’Brien controlled, Communicorp(RTE 2017) . This follows reports that the INM CEO, Robert Pitt, had a conflict with the board chairperson, Leslie Buckley, over the price tag for Newstalk, with reports suggesting that Mr Pitt wanted to offer a lower price for Newstalk, than a valuation obtained by Communicorp (RTE 2016).

The recent media coverage of INM and a possible board conflict is an opportunity to reflect on the importance of good governance, and the potential negative impact of failing to follow best practice.

The media reporting on INM appears to involve a board conflict. A conflict can arise for many business reasons, and the parties can disagree but they both should be arguing that their position is in the company’s best interests. This is well established under company law where a director’s duty is to the company, and not to an individual shareholder or body of shareholders (1). In addition, good governance highlights the importance of independent directors who can provide objective and unbiased leadership and guidance, due to their independence from the company, shareholders and other stakeholders and their importance is emphasised in governance codes (Mulgrew & Forker 2006; FRC 2014, sec.B1.2).

All directors must also avoid conflicts of interest, which may arise in the course of their duties, as provided under common and statute law (2) A director can be released from his duty as a director by the company constitution or by resolution in general meeting, however, they must avoid conflicts of interest between their duty to the company and any other duties or interests (3). Acting as a director for more than one company is not in itself a breach of duty to avoid a conflict, but the individual should be aware that a conflict could arise, and get approval at general meeting prior to engaging in actions that could be a breach of duty, even if not specifically required by the Companies Act.
The UK Corporate Governance Code requires that the majority of the board are independent, and also requires that two key members are independent, the Chairperson and the Senior Independent Director (FRC 2014). The Chairperson provides leadership to the board, ensures induction training and evaluation of the board, ensures the board receives accurate, timely and clear information, ensures communication with shareholders and communication of shareholders concerns to the board (FRC 2014). This is a list of clear responsibilities, and the Chairs role in suppling relevant information to the wider board highlights the importance of an independent chairperson who is not facing potential conflicts that may impede her ability to deliver on this and other responsibilities. Under law the chairperson is appointed by the board, but she may be directly elected, depending on the company constitution. The INM Annual Report is transparent about the non-independence of its chairperson, Mr Buckley, and other board members: “Mr. Leslie Buckley and Mr. Paul Connolly were not considered to be independent non-executive directors, as they have material business interests/relationships with a major shareholder, Mr. Denis O’Brien” (Independent News & Media Plc 2015, p.43).
The reports on INM proposed acquisition and the associated board conflicts could be due to other factors, such as relationships, trust building, communication issues or numerous other unreported reasons. However, governance concerns appear to be involved as INM report that a “confidential, independent review is being carried out on behalf of the board by senior counsel and a senior independent governance expert who have been mandated to report to the board”  (RTE 2017).
Good governance is as much about perceptions as reality or what can be proven, as business, investments, and relationships are built on trust. INM is to be applauded for its transparency about its board members conflicts and independence, but that does not negate the responsibility of the board to act in INMs best interests. This requires all the directors to act and be seen to act with independence, avoid conflicts, be diligent and make decisions that are in the best interests of INM and it is their duty to ensure they have the procedures in place to deliver against these responsibilities.

FRC, 2014. The UK Corporate Governance Code Financial Reporting Council, London.
Independent News & Media Plc, 2015. Annual Report & Accounts 2015

Mulgrew, M. & Forker, J., 2006. Independent non-executive directors and earnings management in the UK. Irish Accounting Review, 13(2), pp.35–64.

RTE (2016, November 29) INM CEO and Chairman clash over ‘possible acquisition’. Retrieved March 22, 2017 from https://www.rte.ie/news/business/2016/1129/835159-inm-ceo-and-chairman-clash-over-possible-acquisit/

RTE (2017, March 21) INM CEO Robert Pitt declines to comment on ODCE disclosure reports. Retrieved March 22, 2017 from https://www.rte.ie/news/business/2017/0321/861299-independent-news-and-media/

(1) Companies Act 2014, sec.228 and Dawson International plc v. Coats Paton plc[1989] BCLC233

(2) Companies Act 2014, sec. 228

(3) Regal (Hastings)Ltd V Gulliver [1967] 2 AC 134 is the leading case where despite no male fides on the part of the directors they were still obliged to account to the company for the profit made due to their position.

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