INTERVIEW: 'We need rewards for shareholders – not big payoffs for failed bosses'
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Otto Thoresen is impatient to have his say on excessive boardroom pay. And as director general of the powerful Association of British Insurers, his voice is a powerful one.
Before he has even sat down at the ABI’s offices in the City, the 55-year-old is arguing that the disparity between returns for shareholders and senior executives must be corrected and that gold-plated payouts for failed bosses of leading British companies have to end.
‘We want clear evidence that boardrooms are acting effectively and are focused on generating long-term returns for shareholders with a clear link between corporate strategy and executive pay,’ he says.
Target: ABI boss Otto Thoresen is calling for more accountability to stop rewards for failure
‘Investors want simpler executive pay structures, better accountability to prevent rewards for failure and greater transparency on how rewards are calculated, including how boards are using remuneration consultants.
‘It’s essential that we have a realignment in the financial interests of
the boardroom and shareholders, and that means reducing individual
remuneration payouts to highly paid executives.’
By ‘we’ Thoresen means the 300
insurance companies whose interests the ABI represents. These companies
represent some of Britain’s biggest investors – controlling nearly 20
per cent of the London market – and pay out £147million every day in
benefits to pensioners.
Thoresen is now one year into his role at ABI and he is enjoying himself. Given the complexities of the job – controlling a £15million annual budget and keeping rival insurance chief executives from attacking each other whenever they meet – it is a miracle he is still sound of mind, let alone happy.
‘When I was chief executive of insurer Aegon I spent 85 per cent of my time doing things I didn’t really enjoy,’ he says. ‘I would attend board meetings and chair committees and wonder what I was doing there.
‘At the ABI I’m spending 60 per cent of my time tackling things that I
want to tackle. Yes, there’s still administrative stuff I do which bores
me, but I’m smiling and laughing more. Friends and colleagues say they
haven’t seen me looking so relaxed for years.’
Thoresen’s contentment is not because
he has been relaxing since taking up the ABI job, or spending too much
time chipping away at his golf handicap (he and his wife Ros are
fanatical about the game, although he says they rarely play together
because she always wins).
Far from it.
The Scot has not stood still since
stepping into the vacuum left by the sudden departure of his
predecessor, Kerrie Kelly, who returned to her native Australia after
only six months in the job.
Thoresen has also raised the profile of the ABI, giving it a vocal bite on issues such as executive pay that it did not have before. Although he hasn’t hired and fired like he regularly did in his previous job heading Aegon, he has carried out a thorough review of the trade association.
‘It took me two months to get a grip of what was being done here,’ he says. ‘What I found was an organisation with no sense of when and why and never a sense of progress.
‘When I went out to see some of the insurers that fund the ABI, all I
got in terms of briefing notes was what ABI committees their executives
sat on. I was never told about what the company did, its business focus,
its strategy.
‘Nothing about the firm and its position in the market but everything about how the firm interfaced with the ABI. We were too inward looking.’
So everyone at the ABI – it employs 100 – is now aware of what they are
striving to achieve. And rather than the 110 issues that made up the
previous ABI business plan, there are now just 14 ‘areas of focus’.
Each area of focus – whether it is
the issues surrounding flood insurance, the rising cost of fraud, the
lingering cost of asbestos claims, pensions reform, infrastructure
funding or regulatory change – is ‘owned’ by an associate director.
‘Doing it this way means I have an
identifiable go-to person,’ says Thoresen. ‘I can talk to them without
going through some darn committee and I know they are on of top of
everything.’
Refreshingly for its critics, all the areas of focus are looked at with the consumer in mind, something the ABI has not always done. So of the 14 current issues, what are the most pressing, apart from executive remuneration and corporate governance?
Thoresen says Solvency II is top of the agenda. This is EU legislation
that will come into force at the beginning of 2014 and determine the
amount of capital that insurers have to hold.
There are fears that poor annuity
rates will plunge even further when the legislation comes in because of
the requirement of British insurers to hold up to £50billion more of
capital. Prudential has already talked of moving its headquarters out of
Britain.
But Thoresen says: ‘I think the way the elements are coming together we
can negotiate to a conclusion that will work for the industry and the
consumer.’
Then there are two key motor insurance issues he wants to tackle – young drivers and personal injury claims. He says: ‘The statistics are clear. Young drivers cause carnage, they cause suffering. We are nowhere near a solution yet. There are lots of discussions around strengthening the driving test, limiting the type of cars youngsters can drive and when they can drive.
‘We need to think about curfews and limiting the number of people in a
car. It sounds like Big Brother and the Government is sceptical, but we
need to try some of these things.’
On personal injury claims, Thoresen
is pleased that the Government has agreed to ban referral fees that
insurers earn for selling on personal injury details to lawyers.
He is also confident that there will be a cap on the legal fees that can
be generated by work on personal injury claims.
On the controversial issue of spurious whiplash injuries, the basis for
a majority of claims, he says there should be a measure of speed of
impact that defines when a whiplash injury can happen.
Although home is Edinburgh, Thoresen
has no problem with the weekly commute to London.
‘My father, also an Otto, was in the Norwegian merchant navy and he
would often be away for a year and a half at a time,’ he says.‘I suppose
commuting is in my blood.’
It is something Thoresen is prepared to do for the next two to three years. ‘I need a decent run to do the job properly,’ he says. Hopefully, he will continue to keep on smiling.
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Too little, too late. Where have they been for the last 15 years? Time and time again we have seen useless 'executives' destroying companies while walking away with millions (the last example being Cable and Wireless) with no action from the ABI shareholders. Furthermore, the ABI members approved the Lloyds/HBOS fiasco (whereas small shareholders overwhelmingly rejected the takeover of HBOS by Lloyds). Says it all, isn’t it?
- Sans-Culotte, Cardiff, 30/4/2012 10:24
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