Caveat: When will Ireland get serious on corporate governance?

Will organisers also please stop calling every conference a ‘summit’

Corporate governance and corporate Ireland are often uncomfortable bedfellows. Photograph: iStock

Corporate governance and corporate Ireland are often uncomfortable bedfellows. Photograph: iStock

 

The Conor McGregor-Floyd Mayweather fight has finally been set for Saturday, August 26th. Yet three days before this a battle almost as intriguing for corporate watchers will play out at the annual general meeting of Independent News & Media.

The company has delayed its AGM as long as it possibly can under the rules. But this public instalment of the long-running standoff between INM’s chief executive Robert Pitt and its chairman, Leslie Buckley, is now unavoidable. It will bring a renewed focus on to corporate Ireland’s regard or otherwise for governance standards.

Corporate governance and corporate Ireland are often uncomfortable bedfellows. It is easy to single out INM, a luminous fish waiting to be shot in a barrel of lousy governance standards. It is an extreme example where the chief executive has even gone as far as to make protected disclosures to the State’s corporate watchdog covering his interactions with the chairman, who is Denis O’Brien’s representative.

Yet, as we have written on these pages before, a general indifference to basic corporate governance standards is endemic in a litany of Irish-listed companies.

Contrary to good governance, several Iseq companies have appointed chairpersons who are not independent; many directors who are deemed independent by their boards are clearly nothing of the sort; and when it comes to basic issues, including the proper representation of women on boards, corporate Ireland is in the Dark Ages.

But investors, including the most influential institutional investors, never seem to care a jot about any of these issues. They can only ever rouse themselves when excessive executive remuneration rears its head, as it did at various AGMs over the past year.

Irish-listed companies, the Irish Stock Exchange, and the Irish Association of Investment Managers (IAIM) all point to the fact that Iseq-listed companies must adopt the UK Corporate Governance Code (CGC), which gives the basic impression that we have copied the UK’s entire regime on these matters.

Corporate Ireland will even point out that there is a further Irish “annex” on top of the CGC that is adopted by Irish companies, creating the impression that we may be even more assiduous in corporate governance matters than the British.

This impression is total nonsense, of course, because the Irish corporate governance regime totally ignores the most crucial aspects of the UK’s system: stewardship and oversight.

In the UK the corporate governance code for listed companies is only one leg of a three-legged stool in the wider regime of governance.

The biggest institutional investors in the UK also have their own “stewardship code”, which sets out the principles they should follow when ensuring the companies in which they invested their clients’ money are behaving themselves regarding the CGC.

The third leg of the stool of the UK regime is the oversight provided by the Financial Reporting Council (FRC), which names and shames institutional investors who do not adhere to the stewardship code.

In Ireland we have only the CGC. We have not adopted the UK’s stewardship code, nor is there any Irish statutory body that performs the oversight functions of the FRC.

Three legs on a stool guarantee stability. With two legs, you can probably balance if you’re careful enough. But with just one leg on a stool, you’re absolutely certain to fall on your backside at some point.

The IAIM represents 80 per cent of the market here by assets under management, and its membership includes the biggest blue-chip investors. Take a look at its website and the section that refers to corporate governance.

It acknowledges that institutional investors have an obligation on behalf of their clients to keep a watch over company standards. But then it goes on to cite a corporate governance code that is seven years out of date – the UK’s “combined code” cited by the IAIM was replaced by the CGC in May 2010.

The IAIM says Ireland follows “best international practice” on corporate governance. The UK, with its three-legged approach, is clearly “best international practice”, while the US is catching up with a stewardship code due to be introduced in January 2018.

If Ireland follows best practice, why does it not adopt the two legs of the UK regime that we are missing?

Alan McDonnell, a Dublin consultant in this area with Good Governance Solutions, says regulatory oversight of investor stewardship of Irish-listed companies is “non existent”.

He also highlights that, while Ireland is a global hub for the funds industry, a recommendation by academic experts that the Central Bank take on the stewardship function for the sector was ignored.

While stewardship of Irish-listed companies and funds are deficient, McDonnell highlights that the charity sector now has two of the three governance legs in place. It may even get the third if the charities regulator becomes the sector’s version of the FRC.

The Irish charity sector is in a turbulent period following various financial scandals that arose from poor governance. This is the very reason why the sector is now getting its act together.

How many scandals will it take for corporate Ireland to get its act together on corporate governance by adopting the critical parts of the UK’s oversight regime that are blatantly missing here?

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FOOTNOTES

– Is Cristiano Ronaldo being charged with tax evasion this week the end for the use of Ireland as a hub by global sports stars to pay less tax on their image rights?

Spanish prosecutors allege that Ronaldo defrauded the exchequer of €15 million over four years with a complicated structure for his image rights, bouncing cash through Ireland to the haven of the British Virgin Islands. Ronaldo, through his Gestifute agency, strongly denies that he has done anything wrong.

Regardless of whether Ronaldo is found guilty or innocent, such scrutiny of the world’s biggest sporting celebrity has shone an unwelcome light on the work done by Irish law firms to facilitate the practices that are causing him so much grief.

In the corporate world the excesses of the “double Irish” tax avoidance tactic brought unbearable pressure on this country to overhaul our regime.

Similarly, the volume of negative publicity surrounding the alleged antics of the likes of Ronaldo will probably ensure that other stars will run a mile from attempting anything like it in future using an Irish entity. Their sponsors will never wear it, or else the stars will have to wear other sponsors.

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– Will conference and meeting organisers please stop calling every event they run a “summit”

We have had the Web Summit, the Dublin Tech Summit, the Pendulum Summit, the Social Media Summit, the Student Summit, the Talent Summit, the Momentum Summit, the Chief Information Officers Summit... This week the Data Summit kicked off at the Convention Centre in Dublin

In the interests of full disclosure, and because nobody is whiter than white, even The Irish Times has fallen for this trend, with recent “summits” exploring Brexit and economics.

Heads of state have “summits” to tackle the most pressing issues facing humanity, such as climate change, poverty and war. The Geneva Summit during the Cold War in 1955 was worthy of the name. The Camp David Summit of 2000 nearly solved the Israeli-Palestinian conflict.

But data protection officers don’t have “summits”. They have meetings or, when there’s a moxy load of them at a convention centre, they have a “conference”.

There are too many summits. Please, please stop.

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