Regulating boardrooms


WOULD A higher standard of corporate governance in Irish public companies and in some State agencies have left them better prepared to tackle the financial crisis as it unfolded? Undoubtedly, it would. Spurred by failures across the EU – which had less onerous consequences than for Irish taxpayers – the European Commission is now responding to the shortcomings apparent in the boardrooms of public companies by proposing new corporate governance plans; first for discussion and later for adoption by member states.

EU internal market commissioner Michel Barnier, who used a green paper last week to present his proposals for tougher corporate governance rules, is attempting to ensure that company boards are more effective and that shareholders are more vigilant in exercising their roles and responsibilities. Among his many ideas in a 24-page document are quotas for female directors and votes by shareholders on bonus packages for managers. But the obstacles to EU-wide acceptance of the necessary reforms remain considerable. It has been estimated that less than 3 per cent of directors on the supervisory boards of the largest EU listed companies are women. Within member states business opinion remains sharply divided about the need for major change: a recent survey found that 49 per cent of executives opposed the introduction of pan-European guidelines, with British executives strongly opposed.

In the US, under the Sarbanes-Oxley legislation that followed the debacles at Enron and WorldCom, major corporate governance reforms were introduced. In 2009, both the New York Stock Exchange and the NASDAQ demanded that companies should have a majority of independent directors on their boards. Company directors are now personally liable for the accounts they sign. Better corporate governance procedures, by improving the checks and balances within a company structure, can also ensure management is made more accountable.

The European Commission’s belief is that directors failed in their supervisory functions by not adequately challenging management and that that failure is explained by “group think” where a concern to achieve consensus over-rides more independent thinking. Uniformity in corporate governance rules in the EU is clearly desirable. But securing acceptance of that among 27 member states which are accustomed to local regulation will prove difficult to achieve and take much longer than anticipated.