Investor advisory groups raise concerns about practices at IAG

At least two investor advisory groups have raised concerns about certain practices at International Airlines Group (IAG), a company formed after the merger of British Airways and Iberia.

PIRC, the UK's leading independent research and advisory consultancy providing services to institutional investors on corporate governance and corporate social responsibility, has told investors in IAG to oppose the company's move not to put up any directors for election at its annual general meeting on 20 June.

''The company states that it has decided not to apply the principle of UK Corporate Governance Code, which recommends the annual election of FTSE 350 directors,'' said PIRC. ''It states that this decision was taken by the two predecessor companies. Instead, shareholders are given a vote to discharge the board.''

Given that the board is not putting any directors up for re-election, contravening the UK's combined code of corporate governance conduct, PRIC has recommended a vote against it.

But IAG claims that the decision was taken to provide the board stability and continuity in the group's early years and an explanation was set out in the merger prospectus and the latest annual report. It had been agreed at the time of the merger that directors would present themselves for re-election from 2013, it claimed.

The Association of British Insurers (ABI) has also alerted shareholders to possible departures from best corporate governance practice at IAG. The ABI has issued an 'amber top' alert on the IAG's remuneration report, especially a lump-sum retirement benefit of about €2.8 million to be paid to its chairman when he leaves the company.

Similarly, the CEO is also entitled to retirement benefits worth €1.2 million under the service contract with the company, which is contrary to the practice in the UK.

The company, however, argues that the retirement benefits for the two executives is party of a legacy contractual arrangement relating to their contracts prior to the merger and does not form part of IAG's policy for new service contracts.

The parent company for the two carriers has reported a 6.6 per cent rise in overall traffic in May. Premium traffic was up 1.7 per cent, while economy passengers expanded by 7.5 per cent. The total number of passengers carried was up 9.3 per cent to 4.8 million in May.

''Underlying market conditions at our London Heathrow hub continue to be firm, particularly in long-haul premium,'' said IAG. ''However, commercial performance at our Madrid hub has deteriorated further due to the ongoing effects of the Spanish and wider euro zone macroeconomic conditions and, the after-effects of prolonged industrial action.''