Anglo verdict will ‘reverberate’ in legal circles - expert
Prof Niamh Brennan says judges will question responsibilities of all directors
Prof Niamh Brennan of UCD: “People need to think very carefully when approached to serve on a board. They need to consider the type of company involved and the type of person they will be working with.”
The decision in the Anglo trial will lead judges to question whether non-executive directors should bear the same responsibility as their executive colleagues, according to a leading corporate governance expert.
Although the traditional legal approach was that all directors are jointly and collectively responsible, the jury’s decision is likely to “reverberate” in legal circles, according to UCD professor of management Niamh Brennan.
Aside from statutory duties such as calling agms and filing accounts, the duties attaching to company directors are largely enshrined in common law judgments of the courts, she said. There are two main duties: a fiduciary duty to act in the best interests of a company; and a duty of due care and skill to carry out directorial duties in a responsible manner.
“It would be difficult to spell out in detail in parliamentary Acts what these duties involve. Up to now, they have been interpreted by the courts,” she said.
Up to now, the courts have generally held all directors – whether they are executive (working in the business) or non-executive – are “equally responsible” for the proper running of a company.
Prof Brennan said a recent Supreme Court judgment from Mr Justice Adrian Hardiman on Tralee Beef and Lamb Ltd had raised a question mark about this approach. “That question mark has got even bigger now as a result of the Anglo case, where the jury found a non-executive chairman not guilty and two executive directors guilty.”
The courts have also increasingly linked the expertise expected of a director to specific qualifications the person holds, she said. “Can we really say in this day that a non-executive director, who is part time and rarely in the office, is equally responsible as an executive director?”
Prof Brennan pointed out that the Anglo case involved the criminal trial of directors by a jury. “It’s not the same as a judge interpreting the law. There’s no case law here.”
However, it was likely the outcome of the case would lead to “reverberations” into judge-made law.
She described the case as “unusual”. “How often do you see directors of companies being brought into court in these circumstances?”
The case showed how risky serving on a board could be. “People need to think very carefully when approached to serve on a board. They need to consider the type of company involved and the type of person they will be working with. You have to hope that people will act with integrity. It’s an act of trust.”
Corporate governance rules required directors to know “everything” about their companies, she said. The UK corporate governance code, which is adhered to by Irish-listed companies and regarded as a template for others, says the chairperson is responsible for the board getting information.
“That’s very draconian. It puts a huge burden on the shoulders of a chairman,” said Prof Brennan.
A “comply or explain” rule applies to companies under the code, she explained, meaning that a company did not have to comply so long as it explained to shareholders why it had not done so.
The code precludes former chief executives becoming the chairman of a company, and while Anglo Irish Bank did not comply with this rule, it did not fall foul of the code because it provided an explanation, according to Prof Brennan.
The main risk for people serving on State boards is to their reputation, she added, as the recent history of the Dáil Public Accounts Committee had shown. “People have taken on these posts because they want to serve their country, but they may be wiser about that now.”