INM €1.87m pay-off to O'Reilly 'excessive but may be justified'

INDEPENDENT NEWS Media’s €1.87 million pay-off of former chief executive Gavin O’Reilly was excessive but may have been justified, according to one shareholder advisory group.

The newspaper group paid Mr O’Reilly €1.87 million compensation when he resigned from its helm in April as tensions increased between the board and the group’s biggest shareholder, Denis O’Brien. The payment has already sparked legal action by one director, Paul Connolly, and is likely to be one of a number of controversial issues raised at INM’s annual general meeting on Friday.

Glass Lewis, a US-based firm that advises investors on corporate governance and proxy voting, describes the payment as excessive, but argues that it may have been justified in the circumstances. The firm is also calling on shareholders to vote against Mr Connolly’s re-election as director, on the grounds that his legal action could affect his ability to work with boardroom colleagues.

The board has recommended that shareholders oppose his re-election at Friday’s meeting. Mr Connolly is one of two representatives of Mr O’Brien on the board. Glass Lewis favours re-electing the other, Lucy Gaffney.

Mr O’Reilly’s pay-off came to 2.5 times his salary. Other proxy advisers, such as Manifest, argue that it could not be justified in light of best practice, which recommends compensation of one year’s pay, and the fact that the former chief’s contractual notice period was 12 months. They argue that shareholders should have been given the opportunity to vote on the payment.

However, Glass Lewis points out that Bank of Ireland, one of the banks INM owes €427 million to, told INM chairman James Osborne that major management changes would be needed before the terms of this debt could be changed.

The firm also notes that company secretary Andrew Donagher told the High Court that the board agreed to make the payment to stall legal action it believed Mr O’Reilly was preparing to prevent his dismissal.

Glass Lewis states that, given the ultimatum from INM’s banks regarding management changes, and the court affidavits suggesting that Mr O’Reilly’s position was terminated, the firm recognises that there were factors requiring the chief executive’s quick departure.

The report says that these could have justified INM’s decision to exceed the one-year limit. However, it adds that it does not condone the payment and advises shareholders to see if the court rules that the payment is legal.

The issue is due to be mentioned before the High Court on Wednesday, but the case itself is not set to go ahead on that day.Mr O’Reilly resigned shortly after Mr O’Brien increased his stake in INM to 29.9 per cent, the maximum he is allowed before having to bid to buy the company.

Mr O’Brien has been building a stake since 2007 and this has led to conflict with Mr O’Reilly and his father, Sir Anthony, whose family is the second largest stakeholder.