Draw Breath

There’s a strangely sloppy piece of editing in an article by John Murray Brown and Sophia Grene in today’s FT that begins incorrectly with the claim that “the Irish government has passed legislation to make it easier for hedge funds based in the Cayman Islands and other tax havens to move to Dublin.” Well, as Brown writes in paragraph three, the Irish government certainly will introduce legislation to this effect in the 2010 Finance Bill, but it hasn’t done so yet.

Update: As John points out in the comments, I was wrong about that: easier company migration is provided for in the Companies (Miscellaneous Provisions) Bill 2009, s.3(j) I think from a quick peek. Thanks John!

Still the rest of the piece is quite good, obliquely pointing to the challenge that the Irish face with this sort of initiative. The problem is that the IFSC has traditionally been marketed as a low regulatory price alternative to London, both in terms of taxes and in terms of regulatory costs. The key has been to keep Dublin’s regulatory regime a little lighter in touch than London’s, thus presumably attracting more footloose business to Ireland. It’s sounds good but it’s a risky approach. Make the regime too blasé and you end up tainting everyone who trades in your area with your reputation for being the “Wild West of European capitalism.” Make the regime too tough and you run the risk of international capital heading off to find a more amenable government.

And indeed this is the problem with Ireland’s undoubted success in attracting hedge fund ‘business’ to the country. On the one hand you don’t want to blind yourself so much that you attract too many Madoffs. At the same time you can’t gift yourself the gift of 20:20 regulatory vision if you want to nab business from the Brits. Ireland is attractive because, as an EU member, it doesn’t quite have the sulpheric smell of true a offshore haven. But it has to behave as much like one as it dare in order to compete. And there’s no reason on earth that the other EU members, particularly the UK, would like this.

So let’s just exercise a degree of scepticism about Irish plans in this area. You can be Michael Douglas or you can be Martin Sheen but you’re rarely allowed to be both.

I joined Simon McGarr’s show the Papal Nuncio the door Facebook campaign last night. No matter how Brian Cowen tries to fudge it, the Vatican has been a disgrace on child abuse from beginning to end. I agree that the primary responsibility for abuse lies within Ireland. The abuse took place in an atmosphere where the state had ceded total power over children to an unaccountable group (which, by the way, places Ireland in the sad and grubby tradition of Eastern Bloc countries when it comes to childcare). But that doesn’t mean that responsibility can’t be identified elsewhere too, especially when the Church, from top to bottom, actively pursued a policy of favouring their reputations and incomes over any consideration of child welfare.

Actually, that’s not fair to people who care about reputations. My sense is that the Church didn’t at all feel that its reputation was threatened. In order to fear for your reputation you must first be cogniscent of the shameful nature of your act. I haven’t seen any evidence that the senior figures in the church felt an ounce of guilt when they moved priests on to pastures new (well, until they were caught). So let’s call the Bishops’ cover-up an attempt to maintain a self-regulatory regime in order to maximise the rents accruing from the running of Ireland’s welfare system and in order to maintain a grip on the polity so they could continue to shape the state towards their own benefit. Strange how their ideological ends tended to coincide with their own profits.

Anyway, back to the Nuncio. I think it’s important to recognise that in booting the Papal Nuncio out, as well as expressing displeasure over his attitude towards the investigation into abuse, we would also be rethinking the character of the Church and of religion in Irish law. The Catholic Church, in deed or in claim, is more like a multinational company than a state and – what’s more – it seems to regard the trappings of statehood as little more than a convenient corporate veil, to be trotted out in response to any threat that local liabilities might drag head office into the fray.

As things stand, the Church is an organisation whose members have a primary duty to a sovereign state and who work for that state. But, for what it’s worth, the Vatican state’s territory is quite a bit smaller, if prettier, than the office space occupied by the Microsoft Campus in Redmond. The organisation is run as a global enterprise. The only trappings of statehood that are applied are those relating to diplomacy: as a state the Vatican is essentially a free-standing Foreign Office that only represents itself. Maintaining the fiction that the Irish Church is an arm of a state or is subject to that state’s rule is like saying that a clump of bog oak is a forest. It’s high time we stopped treating the Vatican like a state and started treating it more like we do McDonalds: if they want to operate here then they should be subject both to whatever level of regulation and taxation we deem appropriate. If people want to pursue their religious predilictions through the church that’s fine. But that doesn’t mean that the Irish state has to pretend that the Catholic Church’s executives are really diplomats, heads of state or what have you. If we Irish state inquiries seek information it should be forthcoming through policing channels. If the Vatican doesn’t like that, it can withdraw its representatives and cease trading in Ireland.

Let’s end the fiction and completely withdraw all diplomatic recognition from the Vatican. Or rather, oh to be from a country where that happened.

Update: Via Pete Baker, I see that Fintan O’Toole hits on a similar point. Far better put of course.

I’m always a fan of Chekov’s blog (yes: I’m reading far far more than I’m writing!), but I am at times perplexed by his politics. I’m with him on the scepticism about nationalism in all its hues, but I’m confused about the manner in which he picks fights with his nationalist opponents. There is a huge gap between his more reflective comments on unionism and, in terms of political strategy, his comments on the Union. Compare for instance his considered and interesting post here with this strange, albeit short, post here.¹

I’m in a grouchy mood today, so I’ll focus on the kvetch.

Read more…

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.

We’re twelve hours into the collapse of the viaduct on the Dublin-Belfast line but nobody has yet stated the obvious. Isn’t this obviously a major step in a campaign to keep the Irish people patriotic? Next that damned motorway. It’s what Dev would have wanted.

Maman Poulet quite rightly questions how many goes RTÉ gives Ministers to answer questions after last night’s ‘technological’ debacle involving Minister of State Maire Hoctor on Primetime:

I’ve nothing at all to add to what she says except: wouldn’t it have been so much better if something like this had happened instead?:

Am I dreaming or something: without at all denying that Ireland has a pensions crisis (with about 1/3 to be added to the pensions bill in the next 25 years, as opposed to the UK’s ±10%), why is it that the financial meltdown has focused people’s attention on public sector pensions? More particularly, people are absolutely right that it is unfair that workers in the public sector have good pensions while those in the private sector have ones where the individual takes on all the risk associated with posting their savings in the casino door in the hope that, when they retire, the markets will be on a good run. It is very unfair.

But since when is it a good solution to insist that, if I have a shit pension and you have a good one, we should both have shit pensions?

Surely people would be better served to ask why it is that a return to a decent state pension, paid for out of taxes, is not an option. Why are they forced to bet their savings on the markets? And added to that, why are the people who manage those savings doing such a bad job?

I rather like this comment at the end of Matthew Engels’s article on Ireland in Friday’s FT:

Has Ireland been more corrupt than anywhere else? “I think we’re a bit more obvious and less practised.”

Indeed.

h/t Crooked Timber.

I’m pretty perplexed by Eamon Ryan saying that Anglo debtors will be compelled to pay back their loans and “failing this any assets provided in security for the loans would come under State control.” Isn’t the whole point about the Anglo 10 that they were given win-only bets on their loans? If the share price had staged a miraculous recovery, they would sell the shares they bought, pay the loans back and pay the profits; if the share price fell they could default and – since the shares are the only security – they would default and leave the bank, as Anne Robinson might say, with nothing.

I don’t have my trusty Ronan Keane with me so I can’t verify, but I can’t for the life of me imagine that effectively doing an Enron is legal. So the only reason these people shouldn’t be named, or details shouldn’t emerge, is if it would queer either a criminal prosecution or a suit by the nationalised bank.

There’s an interesting passage at the bottom of this article in the FT (you may have to register to access) on IL&P alleging that (UK) analysts are using inaccurate figures on Irish government exposure to banking liabilities:

Rossa White, economist with Davy stockbrokers, believed the markets were overstating the exposure of the state to the Irish banks.

He said UK analysts were using a “bogus” claim that Irish bank liabilities are close to 900 per cent of gross domestic product. “If we’re looking at this from a sovereign risk point of view, two-thirds of the figure people are using is irrelevant.”

Mr White pointed out total bank liabilities included €849bn on the balance sheets of foreign banks operating in Dublin and that, even if the undated bonds and other debt of Irish lenders were added in, total liabilities stood at €575bn, or 309 per cent of GDP, lower than the Netherlands’ 380 per cent and Belgium’s 365 per cent.

He added that Ireland’s debt interest payments would consume about 17 per cent of tax revenues in 2010. “That’s about half the amount of debt service burden experienced in the 1980s, and we never came close to defaulting then,” he said.