We need directors who'll lift their snouts and squeal

Brian Lenihan can redecorate the board room with new faces but until he gets rid of the old ones, the place will stink, writes…

Brian Lenihan can redecorate the board room with new faces but until he gets rid of the old ones, the place will stink, writes Sarah Carey.

NON-EXECUTIVE directors are like bidets - they're in all the best places, but no one's quite sure what they're for. It's an old joke but let's face it, bidets are still unused porcelain - shiny, pristine and pretentious. They do have one use, though. They give the impression to guests that the owners have aspirations to cleanliness.

What a pity for the likes of Fás that Senator Shane Ross is the Helen Lucy Burke of corporate inspection. As she used to whip off pillowcases and sheets to check for soiled underlinen, so Ross has exposed the skid marks of poor corporate hygiene.

From the collapse of the banks to the revelations at Fás, the redundancy of the non-executive director has been revealed. They asked no awkward questions, they told no tales out of school and now they've switched off their phones.

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When we ask why a long list of establishment figures, including the token women and the trade unionists, sat back and ignored corporate misgovernance, the occasional apologist appears to inform us in patronising tones of the proper functions of a board.

When we suggest that the directors of Fás should have taken their noses out of the trough long enough to ask who was paying for the party, we're told that they have no business asking questions about the €50 million in petty cash. Instead, their function is merely to give "strategic guidance" - presumably from the back of the Government jet.

When we demand that the State appoint directors to the banks to protect the public interest, we're fed cant about how that would conflict with a director's duty to serve the company's interest. Non-executive directors appear to be defined more by what they shouldn't do rather than what they should.

In the next few weeks it is likely that Minister for Finance Brian Lenihan will produce a recapitalisation plan for the banks that will include State appointments to their boards. Some names have been floated already: Dick Spring, Ray MacSharry and Alan Dukes. All fine men and I'm sure they'd do a good job - if only one knew what the job was.

So rather than discover in a few years that they have become superfluous plumbing, why don't we agree on a job description now?

To date, the main function of a State appointee to a board is to act as a grateful recipient of political patronage. It's a self-reinforcing system of winning and keeping power. Fianna Fáil, you might have noticed, is pretty good at it. It keeps everyone on board by putting them on boards.

As it's such a fun job, the directors will never squeal about the shameful waste of taxpayers' money on junkets and entertainment. The silence is what some people call loyalty and others, treason.

Let's assume that, with regard to these bank directorships, everyone is acting in good faith. Lenihan wants his man on the board to safeguard the public interest. How will he resolve this apparent conflict between the nation and the bank? If the other directors think that Smokey Dukes or Mac the Knife is going to rush back to Merrion Street to tell tales, will the appointees find themselves isolated and impotent?

Thinking about this, I'm reminded of remarks made by Alan Greenspan to the US Congress just a month ago. The once mighty chairman of the Federal Reserve, Greenspan is now hopelessly discredited, but he had the grace to confess to one mistake - albeit in a shamelessly self-serving way.

As he presided over an increasingly deregulated financial market, he believed that banks didn't need rules because he assumed that they would always act in the interests of shareholders. Once financial institutions sought to protect their profits, investors and shareholders, then the national interest would be protected too. He saw no conflict between the national interest and shareholder interest.

On the face of it, he was right. There is no conflict. We are where we are not because the banks disregarded the public interest but because they acted against their best interests.

Their reckless behaviour resulted in the complete destruction of shareholder value and in the process, the nation's financial stability.

Irish banks behaved just like the Americans.

The chief executives signed off on the loans to Seán Dunne, Bernard McNamara and the rest of them. Their lending was lunacy and the valuations were fairy tales. An effective board compiled of non-executive directors, who are supposed to be independent and far-seeing, should have "strategically guided" the executives away from disaster and thus spared the exchequer a lot of bother. They didn't and now we're all paying.

The Greenspan Assumption, though flawed, is not wholly without merit. It solves one problem for Lenihan. He can tell his State appointees that they need not concern themselves with any conflict of interest. Their job is to help get the banks back to stability and profitability. Since the State itself will be a shareholder, all interests will be aligned.

Unfortunately we are still left with the huge flaw in Greenspan's theory. Presumably there was no point at which the boards of the banks decided to stop acting in the shareholders' interests. The non-execs strategically guided their institutions to where they are today, not out of wilful negligence, but out of stupidity and arrogance. Unfortunately, there's no cure for that. Lenihan can redecorate the board room with new faces but until he gets rid of the old ones, the place will stink. Let's hope our Minister can flush them out.

I'll hold his nose. You get the rubber gloves.