Draw Breath

Thanks to Robert Goddard I just noticed that the Programme for Government contains a commitment to “put the principles of the Combined Code of Corporate Governance (see also trusty old Wikipedia) on a legislative footing for all banks, public companies and state-sponsored bodies,” specifically with regard to the following:

• Board composition and independence
• Segregation of CEO and Chair
• Clear definition of executive and non-executive responsibilities
• Audit committee composition, independence, role and function
• Responsibilities and composition of board committees
• Segregation of committee chairs
• Risk management
• Selection of non-executive directors
• Sanctions for non-compliance

The combined code is the listing code for the London Stock exchange and has, for better or worse become a de facto best practice manual for business governance in the private, voluntary and public sectors. Based on a series of reports, themselves largely responses to problems identified during crises and scandals, the code is designed to prevent tyrannical bosses from running companies as their personal fiefdoms. So it sets up boards to be tough in their scrutiny and institutional investors to be active in their oversight. Companies don’t have to comply with its stipulations, but if they don’t they have to explain why they don’t (and explaining rather than complying is not necessarily consequence-free, as Stuart Rose of M&S has discovered).

But this is interesting in itself: how precisely will the code be introduced into statute? Presumably the ‘or explain’ bit will disappear and companies will simply have to comply. Also, this will lead, that I can see, to a far greater shakeup of Irish company law than the current bill envisages. Whereas the current bill doesn’t go as far as the British 2006 Companies Act in bringing directors’ duties into statute (see the British section on duties here and the proposed Irish section here), the Programme for Government proposals will go much much further, including stipulating that non-executive directors will have difference duties (in addition?) to those of executive directors.

So what to make of this? Well, I’m in a cynical mood so I’ll call this a political gesture that’ll never see the light of day.

I don’t for a minute expect that we’ll see legislation enacted along these lines: Ireland seems repeatedly to push itself to the edge of even slightly diverging from having a cut-price British corporate governance system and then draws back. This is what happened with the ill-fated Directors’ Compliance Statement,  which started life, in the Companies (Auditing and Accounting) Act 2003 as a version of the American SOX section 404. It never happened: having been introduced into law, the Compliance Statement was subject to a lobbying campaign from the Institute of Chartered Accountants in Ireland and others on the grounds that it would make doing business in Ireland too expensive, was bounced to the Company Law Review group by the minister, the CLRG asked – get this – IBEC and the ICAI how much they thought it would cost businesses and they said ‘ooh, loads,’ so it got watered down into essentially a statement of whether directors think they are doing enough to keep an eye on the company’s liabilities rather than a test of whether or not they are. When you hear anyone suggesting ramping up oversight vis-a-vis Irish businesses, this is the context you should place it in: well-organised and, er, well-connected business lobbies plus terror at the highly plausible idea that businesses might just pack up and go somewhere where regulatory costs are lower and political compliance is higher.

P.S. Alan McDonnell in the Sunday Business Post has an interesting piece on the combined code section in the Programme for Government but I get the feeling that, while he’s right (there’s no point in expecting enforcement of corporate governance along the combined codes lines without active institutional investors) I’m not sure that he’s hit on the most pertinent point.