INTERVIEW: 'We need rewards for shareholders – not big payoffs for failed bosses'

By Jeff Prestridge

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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

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?

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As the Article states 20% of equity shares in PLCs are held by insurance companies and probably 40% is held by private equity,hedge and sovereign wealth funds. So it is apparent that for there to be true shareholder control of the boardroom of our PLCs then it can not be left to the small ordinary shareholder as the outcome of the Barclays AGM demonstrates! A 27% vote against the Rem Report will not cause too many sleepless nights for its arrogant and condescending board who apologised for lack of clarity in communication! True control will only come when the investment/pension fund industry fees are based on the INCREASE in the value of funds managed not on the absolute value of the funds! Only when the industry is paid for performance will they show true concern with the ratio of bonus/dividends paid by PLCs.This affects the majority of savers/pensioners and should be of concern to every one including the Government if it is serious about controlling excessive bonus culture in the UK

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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.’ This sounds really positive - like the industry is trying to resolve a problem. If only Government could think along similar lines.

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