City in uproar as Schroders tycoons flout the rules on good governance

Fund management giant Schroders is facing widespread protests in the City after it flouted corporate governance rules by moving its longstanding, £8m-a-year chief executive into the supposedly-independent role of chairman.

Michael Dobson, who has been chief executive for nearly 15 years, is to take the chair and be replaced as chief executive by the head of investment Peter Harrison, who made £4.2m last year.

Anointing chief executives as chairmen is frowned upon by shareholders who prefer to see independent chairs represent their interests and give a dispassionate oversight of the company’s behaviour.

They also prefer chief executives to be able to rule without their predecessor in the chairman’s seat breathing down their neck.

Successive governments have called on big shareholders like Schroders to push the major businesses in which they invest to follow best practice guidelines on pay and governance. Schroders’ behaviour is likely to hinder the fund management industry’s claims they are doing so.

The Independent disclosed in 2014 that chief executive Michael Dobson was mulling a move up to the chairmanship although the company at the denied any such idea.

The Institute of Directors acknowledged Mr Dobson’s successes as chief executive but warned “strong performance is no excuse for ignoring the corporate governance rules without a very convincing explanation.”

Mr Dobson said the decision had been taken because fund managers need continuity and stability. However, the IoD said: “The chair’s role is to lead the board in holding the executive team to account, without interfering in the day-to-day operational management.

“Schroders say that Dobson will still be involved in dealing with ‘major clients, commercial partners and regulators’, which does seem to blur the boundaries between executive and non-executive responsibilities.”

It is also part of the chairman’s job to govern the board, which, in Schroders’ case, has not been without controversy. The Independent previously revealed how its £4.8m-a-year director, Massimo Tosato, was working under two separate employment contracts in a controversial structure which could be used to avoid UK tax. Having been operating for 12 years, the dual contract was quietly scrapped soon afterwards. Schroders announced that Mr Tosato would now retire.

Major shareholders complained off-the-record about Mr Dobson’s elevation, and Alan MacDougall of advisers Pirc called it “unacceptable”, saying it would be difficult for the chief executive to carve out an independent strategy with Mr Dobson present.

The Schroder family own 47% of the company, and Bruno Schroder, 82, is a non-executive director. His nephew Philip Mallinckrodt is a director, in charge of wealth management. He earned £2.6m last year.