Common concerns about public bodies

Platform: There is nothing obviously in common between Enterprise Ireland (EI) and the Competition Authority, except they are…

Platform:There is nothing obviously in common between Enterprise Ireland (EI) and the Competition Authority, except they are both grant-aided by the State. However, they do have a commonality in recent issues of potential public concern, writes  Bill Murdoch.

In EI's case, it concerns the revelation that eight of its directors had interests in funded firms. That is disconcerting.

For the Competition Authority it was the stinging comment by the Supreme Court that the authority should produce "cogent factual evidence" to support any case it brings to court.

These words were used in a case involving a savings protection scheme it lost against the Irish League of Credit Unions (ILCU) which will cost it between €1 million and €3 million, or up to one half of its allotted budget for 2008 when it is likely to be payable.

READ MORE

Enterprise Ireland, the provider of aid to domestic industry, provided €20.1 million to the companies associated with the directors. And its annual report explained that these unnamed directors did not participate in discussions on transactions where a potential conflict of interest arose.

Fair enough on the conflict of interest bit, and that is the way it should be. Indeed, the high calibre and reputation of these directors would indicate that they undoubtedly did not influence any of the lending decisions And guidelines and procedures issued by the Department of Finance have been adhered to.

However, if transparency means anything shouldn't they have been named in the annual report? But more importantly, should they have been placed in a position where a potential conflict of interest could be perceived to arise? The answer has to be a resounding no.

A schedule of board members' interests, revealed in Business This Week, showed that chairman Pat Molloy, a former chief executive of Bank of Ireland, had an interest in five groups that received more than €9 million - or almost half of the total - in financial aid during 2006. The companies involved included Bank of Ireland Kernal Capital Partners, Delta Equity Fund 11 Ltd Partnership, Irish Management Institute, Trinity Venture Capital Fund 2B and Trinity College.

Margaret Daly had an interest in Limerick University (Biomass Collaborative Research Group) which received funds of more than €6 million.

Aran Technologies, in which Kieran McGowan and Pat Molloy both had an interest, received funding of some €405,000. Some of the others included SWS Management, a company in which John Connolly, marketing manager at SWS Group, had an interest.

And Richard Keenan who retired as a board member of EI in July 2006 had an interest in Richard Keenan & Co, which also received financial aid.

It could accurately be argued that the €20.7 million represents less than 10 per cent of the Oireachtas grants of €246 million to Enterprise Ireland last year, that directors involved did not participate in the related discussions, that the total amount was disclosed in a note in the annual report (but not the named directors) and that a subsequent schedule revealed the details.

However, the culture at EI is wrong to allow such potential conflicts of interest to arise, particularly as State funds are involved.

This is in contrast to the practice adopted at the Industrial Development Authority, the provider of aid to foreign enterprises, which does not allow its directors to have an interest in the companies it funds.

The practice at EI not only leaves the participating directors vulnerable to accusations of cronyism but places EI's funding managers in the unacceptable position of deciding on projects in which some of their directors have an interest. Clearly, the dual roles of directors and beneficiaries of support are not compatible. This practice needs to be eliminated.

The Competition Authority, also funded by the State, must be smarting from the rebuke on such a basic matter from the Supreme Court. This is probably all the more relevant following the authority's internal error which led to inadvertent clearance for the sale of Statoil's Irish unit to Topaz last year, for which it was widely criticised.

The ILCU described the action against it as "wholly unsatisfactory" - to allege anti-competitive behaviour without factual evidence. That, when taken in conjunction with the Topaz affair, could erode the credibility of the Competition Authority. However, it is worth noting that the High Court had ruled in favour of the authority before the credit unions made the Supreme Court appeal.

Also, as litigants well know, there is no absolute certitude in court proceedings. In the future expect to see more final determinations from the Supreme Court, or indeed from the European Court of Justice (ECJ).

The Competition Authority, for example, lost an action against the Beef Industry Society alleging that an agreement to rationalise the beef industry would result in anti-competitive effects, including influencing beef prices for consumers.

This was appealed by the authority to the Supreme Court which in turn has referred it to the ECJ to see if it is in breach of EU competition law.

The Competition Authority - like Enterprise Ireland - performs essential duties and has been very successful. As a protector of consumer interests it is probably pushing out the boundaries to ensure that producers of services, and products, are not abusing their positions. An admirable pursuit.

But there has to be a balance between healthy enthusiasm and over-zealousness which can cloud reality. While the Supreme Court's utterances, as the final (normally) arbiter should be taken very seriously, they shouldn't inhibit well-prepared actions, or dampen the authority's ardour, a good dose of which is needed to protect consumers.