UK - PIRC, the Pensions Investment Research Consultants, has issued its new institutional shareholder voting guidelines for 2004.

The new guidelines highlight key areas for concern for 2004 as the continuing debate on company board structures, pay for directors and the controversial role of auditors in terms of audit and non-audit work within corporations.

PIRC says its annual voting review looked closely at recent market developments, particularly the revised UK corporate governance Combined Code that took effect on November 1 last year.

The new code emphasised company board independence, separation of the roles of chairman and chief executive, and the role of non-executive directors; measures that were proposed by Derek Higgs in his government-commissioned report, “Review of the Role and Effectiveness of Non-Executive Directors.”

Following the Higgs report, PIRC says the Combined Code is now significantly closer to its own position on many issues.
Alan MacDougall, PIRC’s Managing Director, notes:
“PIRC’s guidelines have traditionally anticipated market developments and many aspects of the new Combined Code reflect our longstanding views.”

In terms of board issues, PIRC says it continues to recommend corporate separation of the powers of chairman and chief executive, arguing that the concentration of power in one individual is detrimental to board balance.

The consultant also says that while it does not expect companies to comply immediately with the requirement for half the board to be independent, company governance statements should set out how they intend to meet this provision.

On directors’ pay, PIRC says company statements have been less than ‘clear, transparent and understandable’, noting additionally that too many incentive schemes for directors offer excessive multiples of annual salary for less than superior performance.

Furthermore, discretionary payments to directors such as compensation terms and pension contributions remain “particularly problematic”, PIRC notes.

Regarding the issue of audit work, PIRC believes the proportion of fees earned by auditors for other work from audit clients remains
too high. It notes that in 2003, the average FTSE100 company paid its auditor 2.2 times as much for other work as for the audit itself.


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