Corporate governance a cornerstone of prudent management
Spectacular collapse of British construction giant Carillion underscores need for oversight
Prof Niamh Brennan says the Carillion report “was very critical of the board . . . members were speaking in very optimistic terms even as the company was going over the cliff. File photograph: Getty Images
The role of corporate governance, or more accurately the lack of it, in numerous business failures and scandals in recent years has brought this seemingly dry subject into the public spotlight like never before.
The recent report by the Charities Regulator on the high-profile closure of the GLEN charity last year as a result of corporate governance failings was a case in point.
Slightly further from home, the spectacular collapse of British construction giant Carillion has been linked directly to corporate governance issues by a UK parliamentary inquiry. “The inquiry placed responsibility for the collapse firmly at the board’s feet,” says Prof Niamh Brennan, programme director of the Diploma in Corporate Governance at the UCD Michael Smurfit Graduate Business School. “The report was very critical of the board, saying it seemed to be blind to the company’s problems. Board members were speaking in very optimistic terms even as the company was going over the cliff.”
Indeed, in damning evidence to the inquiry Sarah Albon, chief executive of the UK Insolvency Service, said that the company’s “incredibly poor standards” made it difficult to identify information that should have been “absolutely, straightforwardly available”.
These poor standards were reflected in board strategy. “They continued paying out dividends to shareholders when, with the benefit of hindsight, it was extremely unwise to do so,” says Prof Brennan. “It seemed that they were doing this to please the market, but the board’s duty is not to the market or to shareholders, it is to the company. Shareholders might have grumbled at the time about not receiving a dividend but now they have lost everything as a result of the company’s closure.”
She also points to the current case between the Office of the Director of Corporate Enforcement and Independent News & Media. “This touches on multiple aspects of corporate governance and that makes it very interesting”, she notes.
She is quick to explain that corporate governance is not some kind of universal vaccine that protects businesses from failure in all circumstances. “The reasons why people run businesses as limited liability companies is because there is always the risk that something bad will happen. If a big competitor comes in with a product that’s cheaper and better than yours, trouble will follow. Most business failures are due to competitive issues in the market and we should remember that.”
That is not to downplay the importance of corporate governance, however. “The thinking has evolved over the decades,” she says. “There is now a belief that people on boards should know what they were doing. When I set up the UCD Centre for Corporate Governance it was offered the first formal training for people on boards in Ireland. Lots of people piled into the space after that. We pride ourselves on offering best-in-class training for directors.”
The Smurfit Executive Development Diploma in Corporate Governance is aimed at directors, potential directors, executives who report to boards and those interested in governance. It provides participants with the knowledge and skills necessary to carry out the increasingly onerous duties and responsibilities of company directors.
“It is not confined to businesspeople,” Brennan adds. “Last year we had a surgeon on the course and he brought some very interesting perspectives and insights when it came to risk. He told us that when the heart cavity is open and the blood is pumping out your instinct is to think fast, but to do the job properly you’ve got to think slow.”
The programme structure covers the basic building blocks for corporate governance in terms of regulation including the Companies Acts and various codes. “About a quarter of the course is devoted to the regulatory framework. We then move on to looking at how boards work in practice, including behavioural and inter-personal issues. We look at sub-committees including the nominations, remuneration and audit committees. Other aspects covered are risk management, strategy setting, and monitoring company performance.”
A key strength of the programme is its peer-to-peer learning dimension. “The people in the class have extensive experience of governance and they share this with one another. This is a sine qua non of executive education. Learning from others in the room differentiates it from undergraduate and post-graduate education.”
The overall objective of the programme and the UCD Centre for Corporate Governance is go continue raising standards. “Governance doesn’t always stop bad things from happening but we need fewer people who merely pay lip service to it and more who believe in substantively engaging with it. That’s our aim.”
- To apply for this year’s Diploma in Corporate Governance which starts in September go to smurfitschool.ie