Why do so many directors own so few shares in the companies they steward? Investor John Wylie says it means there is a poor alignment between boards and shareholders.
When a non-executive director on three ASX boards heard about Tanarra Group’s idea that each board member should own shares equivalent to two years of director fees, the response was: “It should be shares worth three years of fees.”
JJohn Wylie’s Tanarra Group wants directors to own a minimum of two years’ worth of director fees in shares.This is a minimal financial commitment that shows poor alignment between those in the boardroom and shareholders, according toIn a letter released this week, Wylie and Rangaswamy have urged companies in the SP ASX 300 index to adopt a “2 in 2” principle, which means a non-executive director should own shares worth a minimum of two years’ fees, no less than two years after joining a board.
Tanarra says this is appropriate and important at the small-cap and entrepreneurial end of the market, where independence in the boardroom is a particularly valuable commodity. Research undertaken last year by governance advisers Ownership Matters found that 25 per cent of ASX 300 boards have less than one year of board fees invested in the companies they steward.
Philip Foo, vice-president of APAC research and engagement at CGI Glass Lewis, supports the “2 in 2” principle because it means directors would be encouraged to think like equity owners.
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