Irish Officials Urge Systemic Approach to Corporate Governance while Retaining Comply or Explain Code

Senior officials of the Irish Stock Exchange recently emphasized that it is critical that Ireland look at corporate governance in a more systemic and holistic way and not merely as a check-box-exercise. At the same time, an Irish Minister said that the comply-or-explain principle of the present corporate governance code would be retained. In December 1999, the UK Combined Code was adopted by the Irish Stock Exchange, which annexed the Code to its Listing Requirements. As a result Irish listed companies are required to report on how they have applied the principles of the Code or, where they have not applied the principles, to justify any instances of non-compliance in their annual reports

According to ISE Chief Executive Deidre Somers, corporate governance, in the broadest meaning of the word, will never change in Ireland unless and until there is clear Government leadership and consistency of approach and expectation across the business community. Badly considered rules can actually take away responsibility by giving too many “boxes to tick”, she noted, and give a false impression of change, deliver a political or regulatory ``sticking plaster’’ to a bigger issue and leave an incorrect public expectation of change. Political and opaque appointment processes to boards are no longer acceptable, she said, and companies must no longer be run like personal fiefdoms.

Corporate governance is more then a set of rules or a Code, however laudable, she added. Rather, it is a state of mind and a culture that needs to be clearly embedded from the top of the organization, and also in the national mindset. Culture, politics and economic norms have a direct influence on the way a society approaches corporate governance, reasoned the CEO, and directly impact on board leadership, management oversight and accountability. She urged investors to demand better standards and better disclosure; and differentiate and penalize those companies that do not provide them.

ISE Chair Padraic O’Connor said that there are constraints on the Code. For one thing, it is not a public policy instrument, it is a market instrument; and is therefore not a substitute for company law or regulation. Since the Code is a market instrument, he continued, the ISE, investors and representative bodies have a duty to ensure that the spirit and intent of the Code are upheld.

In support of the Code, he said, a culture of transparency, adequate disclosure and accountability in all areas of corporate life must be developed. The corporate governance failures evidenced during the crisis cannot be dealt with simply by re‐drafting codes or new rules. Good governance and ethical behavior must become instinctive and intuitive. For example, he noted that we should not need a list of criteria to determine whether or not a director is independent. We instinctively know that a small circle of individuals sitting on the same boards is unhealthy and serves to reinforce the worst perceptions of the corporate culture.

Mary Coughlan, the Irish Minister for Enterprise, said that Ireland would retain the “comply or explain” approach to corporate governance, rather than putting in place a “comply or else” regime. That is because compliance with the Code demands the exercise of judgment, she observed, there is no single right way to comply. It all depends on the circumstances of each individual company and the particular issues to be addressed. What might be right for one company in specific circumstances could be entirely wrong for another company faced with those very same circumstances. Further, she noted that the comply or explain procedures underlying the Code have already achieved a 97% compliance rate.

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