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Creating Ireland's own corporate governance framework

Jul 05, 2019

With Brexit on the horizon, should Ireland rely on the UK for corporate governance guidance, or should we take responsibility for our own framework?

Now that the Brexit train wreck is well under way with no end in sight, it poses the question from a corporate governance point of view: should Ireland still rely on the UK for future corporate governance guidance, or should work with the other 27 EU member states to take responsibility for charting our own corporate governance?

Ireland’s current approach to corporate governance could be described as a patchwork quilt of codes made up of:

  • Financial Reporting Council – The UK Corporate Governance Code April 2016 as modified for Ireland by the Irish Corporate Governance Annex;
  • Corporate Governance Code for Credit Institutions and Insurance Undertakings;
  • Governance Code for Community, Voluntary and Charitable Organisations
  • Charities Governance Code; and
  • Code of Practice for the Governance of State Bodies 2016.

All the above emerged from different but well-intentioned sources, which have helped raise the awareness of corporate governance in Ireland. However, the UK Corporate Governance Code only applies to a relatively modest number of plcs on the Irish Stock Exchange. Ireland has no codes for SMEs or, indeed, FDI organisations who may have to adhere to their own corporate governance codes or rules from their country of origin. 

Framework for Ireland’s economy

We need to stand back and take a good hard look at what type of corporate governance framework and codes are appropriate for an economy that relies on SMEs, FDI, a small number of plcs, a large number of micro-businesses, voluntary organisations and, of course, the State. Our ambition should be to have a corporate governance framework that is pro-business but also strikes the right balance between holding directors and companies accountable and an overly burdensome compliance regime.

Europe does not have an EU Federal Governance code as of yet. It has relied on the UK’s ‘comply or explain’ soft-law approach. Whether this will stand the test of time remains to be seen. EU regulators may question the voluntary nature of the ‘comply or explain’ approach and seek to move to a more rules-based system as they use in the US. (It should be noted, though, that the US’s rules-based approach did not prevent the Enron scandal.)

Ireland must take the lead

Above all, Ireland should not stand around and wait to see what happens. We should take the lead on this and work with the EU to ensure that we create a fit-for-purpose corporate governance framework supported by the appropriate codes and rules that work for Ireland Inc.

A government-led initiative will send a very powerful message to organisations in Ireland, Europe and the world of inward investment that we are seeking to create a corporate governance framework that is cohesive, structured, coherent, consistent and strikes the right balance to support the economy.

David W. Duffy is founder of The Governance Company and author of A Practical Guide for Company Directors and A Practical Guide to Corporate Governance.