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Quindell PLC’s Corporate Governance Under Fire Again, As Shares Fall 20%

It’s been quite a ride for Quindell (LSE: QPP) shareholders, after the insurance outsourcer’s shares plummeted as low as 24p after the ousting of founder Rob Terry who was already in hot water for selling off all his shares.

But with the search for a new chairman and an investigation into the company’s accounting policies by PwC underway, there’s been a rebound that took the bears by surprise. Helped by Toscafund Asset Management taking a 5% stake, the price spiked back to 107p by the close of play on Monday.

New chairman

We’d also heard that Richard Rose is to be the new non-executive Chairman with Jim Sutcliffe joining as Strategy Director and Deputy Chairman — but the share price dropped back 20% during Tuesday morning trading! So what’s wrong now?

Well, the packages awarded to the new recruits have raised a few eyebrows and Quindell’s corporate governance is once again under scrutiny.

Between them, our two new heroes will be awarded nearly 20 million share options with exercise prices starting at 68.65p. What’s more, there’s no long lock-in period — 60% will vest as early as July 2015 with the rest vested before 12 months are up.

What governance code?

That flies in the face of the UK’s Corporate Governance Code, which recommends that non-executive directors should not receive “share options or other performance-related elements“, and that any that are awarded should not be exercisable before three years.

The reasons are obvious — it presents a potential conflict of interest between short-term gains for the directors and the long-term interests of shareholders, with clear implications for any board remuneration issues that might arise.

Still, the Code is only a guide to best practice, leaving Quindell free to raise a finger to it and do as it pleases — even though Mr Sutcliffe sits on the committee overlooking the standards.

Oh, and Quindell will employ BaxterBruce Limited to provide consultancy services — a company which counts none other than Jim Sutcliffe amongst its directors.

Exceptional circumstances

Some will say that Quindell is facing exceptional circumstances, and that’s certainly true. But Mr Rose and Mr Sutcliffe really have nothing to lose. If they’re successful they’ll trouser a fortune, and if not then the blame will most likely fall back on Rob Terry and the previous management.

Are you considering a punt on Quindell? I think you’d be taking too big a risk buying ahead of the PwC report, which is now expected by the end of February. It might give the company a clean bill of health — but I can’t see Quindell surviving for long without a new rights issue myself.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.