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Tue 17th Sep 2013 - Breaking News - JDW's Tim Martin takes swipe at company rules
Tim Martin – corporate governance rules don’t always serve shareholders well; bonuses linked to targets are a bad thing: JD Wetherspoon founder Tim Martin has outlined the dangers of strictly observing corporate governance guidelines. He was particularly critical of rules that prevent chief executives becoming chairman and block long service. He said: “A strange paradox is that companies in the pub business which have complied least with governance guidelines seem to have fared the best. Family brewers like Fuller’s, Young’s and Shepherd Neame, which have often had a chairman who had previously been chief executive, a majority of executives on the board and non-executive directors who are either not ‘independent’ or have been on the board for more than the recommended time, have tended to do well, whereas the compliant boards of the large pub companies have struggled greatly, in many cases, in the last decade. One reason may be that the non-compliant boards have been more resistant to the sometimes foolish ideas which take hold of financial markets. The main misconceived fashion of the last decade and a half has been in relation to so-called ‘efficient balance sheets’. This fashion encouraged excessively high levels of debt and arrangements such as ‘opco/propco’, which also increased financial gearing. A related matter concerns the huge increase in the size and incomprehensibility of annual reports and accounts; this has been exacerbated by corporate governance reports. As has been well documented, remuneration committee reports, for example, are often extremely difficult to understand. Many corporate governance reports are full of business jargon and repetition. The financial reports themselves are often the worst offenders, frequently using obscure language and definitions. The net effect of this is that annual reports, which should be read by shareholders, have become extremely difficult to digest – and many people have given up. Wetherspoon has attempted, no doubt imperfectly, to reduce jargon and repetition in its reports and accounts.” Martin criticised the rule that prevents non-executive directors for staying in place for more than nine years. “It usually means that directors have not seen the effects of a recession. It may be desirable, in principle, for companies to have non-executive directors who have been there longer than nine years, but it is important for the board and the chairman to take a commonsense view, to reduce the dangers of ‘cronyism’ or excessive familiarity which might reduce a director’s good judgement,” he said. He also argued that bonuses linked to targets can be a bad thing. “Setting of targets has been a key factor in the demise of the banks and many other businesses since it has encouraged excessive debt. A considerable percentage of Wetherspoon share awards is not based on targets, other than the requirement of working for the company at the time at which the shares are issued. Naturally, the future value of the shares will depend on the success of the company.”

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