The Consultative Committee of Accountancy Bodies (CCAB), which Chartered Accountants Ireland is a member of, have published the results of an ethics survey conducted in July and August 2021. This informal survey was designed to take the ethical temperature of the accountancy profession in the UK and Ireland over the last 3 years and as we emerge from the COVID-19 pandemic. Survey respondents included members of Chartered Accountants Ireland, Institute of Chartered Accountants in England and Wales, Institute of Chartered Accountants in Scotland, Association of Chartered Certified Accountants in Ireland and UK and the Chartered Institute of Public Finance and Accountancy. There was a spread of responses across four sectors including members who work in audit or accountancy firms, public sector, commercial sector and charity/non-profit sector. Details of the results are available on the CCAB website and a summary of the key highlights include: 27 per cent of respondents indicated that in the last three years they had been put under pressure or felt under pressure to act in a professionally unethical way. Some respondents indicated the pressure to act in a professionally unethical way was applied by directors, managers, clients or members of a board or council. 28 per cent of respondents identified the “CFO/FD/CEO/or any other director”, and 27 per cent identified “My line manager or their line manager” as the person who applied the pressure. 18 per cent said it was a “client”, 10 per cent cited “the Board/Cabinet/Council”. 54 per cent of respondents felt under threat in some way with some indicating that the pressure had taken a toll on mental health and economic well-being, including feeling isolated, being dismissed, being briefed against, facing false allegations, loss of client, poor performance reviews and future prospects threatened. 80 per cent spoke up to prevent being put under the pressure. 65 per cent did not carry out the unethical task that they were pressured to do. However, 10 per cent did carry out the task fully and 25 per cent did so partially. Commenting on the results, Níall Fitzgerald, Head of Ethics and Governance for Chartered Accountants Ireland and member of the CCAB Ethics Group who co-ordinated the survey, said: “The results highlight the importance of being aware of likely threats to professional ethics and where they can come from. Unless they are appropriately addressed, the unethical pressures can have a negative impact on the professional’s responsibility to act in the public interest and they can have a very real impact on personal wellbeing of the professional accountant.” “The Chartered Accountants Ireland Ethics Resource Centre contains some useful resources that provide insights on ethical issues that can arise in the role of a professional accountant and guides to assist members in addressing ethical dilemmas.” In the CCAB Press release, Iain Lowson, chair of the CCAB Ethics Group, said: “Ethics is at the heart of being a professional accountant and it’s important to regularly take the ethical temperature of the profession. This informal survey provides a useful snapshot of the current context.” “It’s clear ethical pressures are a real problem for a significant number of accountants and it’s concerning to see so many reports of a negative impact on mental health.” “On the other hand, it is encouraging that so many accountants feel empowered to speak out against unethical pressures and practices and that so many respondents say they promote an ethics-based culture in their organisations.” “Accountants’ professional membership bodies are useful sources of training, advice and support and each will have their own Code of Ethics based on the International Ethics Standards Board for Accountants (IESBA). We would urge any accountants who feel exposed to ethical pressures to approach their professional body for support and to refresh their knowledge of the relevant code.”

Barry McCall speaks to Níall Fitzgerald, Head of Ethics and Governance at Chartered Accountants Ireland, about the findings of recent trust and ethics surveys commissioned by Chartered Accountants Worldwide and the Consultative Committee of Accountancy Bodies. New research carried out by Chartered Accountants Worldwide and Edelman Data and Intelligence (DXI) has found that trust in the accountancy profession remains strong after the turmoil of the COVID-19 pandemic. The study found that business decision-makers around the world consider Chartered Accountants among the most trusted professionals, catching up to doctors, engineers, nurses and teachers, and ahead of other prominent groups in society such as legal professionals and politicians. Furthermore, Chartered Accountants are the most trusted finance professionals ahead of bankers, financial advisors, economists, and insurance brokers. Edelman DXI began working with Chartered Accountants Worldwide in 2018 to track the attitudes of senior decision-makers (e.g. CEOs, directors, heads of function, etc.), but this marks the first time the results have been made publicly available. The 2021 study surveyed 1,450 business leaders across the Republic of Ireland, Northern Ireland, England, Scotland, Wales, South Africa, Australia, and New Zealand. “There is a lot to be proud of in these findings for the Chartered Accountancy profession in Ireland,” says Níall Fitzgerald, Head of Ethics and Governance at Chartered Accountants Ireland. “The results point to an opportunity for Chartered Accountants to use their position of trust to tackle the challenges of the recovery after COVID-19 and build towards a sustainable future.” Among the key results of the research was the finding that performance on integrity has improved since 2019. However, scrutiny has also increased, with transparency more important in driving trust in Chartered Accountants. Chartered Accountants are also rated highly as business professionals. Most business decision-makers (84%) believe that Chartered Accountants have the skills and expertise to make businesses thrive today. Meanwhile, 81% are confident in Chartered Accountants’ ability to navigate a new operating environment in the future. At the same time, there is a growing expectation that they must also follow up with action. Overall, 85% of business decision-makers say it is important that Chartered Accountants demonstrate a track record of helping businesses thrive. Most respondents (70%) see Chartered Accountants as credible spokespeople on societal issues such as sustainability, diversity, equity and inclusion. But they also expect Chartered Accountants to follow through by driving sustainable environmental practices within businesses and doing more to foster diversity, equity and inclusion practices. Speaking at the global launch of the study in November, Chartered Accountants Worldwide chairman Michael Izza said: “Chartered Accountants are the first port of call for many businesses and saved many livelihoods during the pandemic. Over the next ten years, Chartered Accountants will play a leading role in tackling critical problems, including climate change, which is one of the biggest challenges humanity has faced. As problem solvers, Chartered Accountants can be counted on to find solutions to the world’s most complex economic and moral issues, including global warming and net-zero.” But the profession still has some work to do if it is to play that leading role on those critically important issues, according to Fitzgerald. “We can, of course, be proud of the results, but we have to be realistic as well,” he says. “When you drill down into the detail of the findings, you find that the most strongly positive results were about the ‘bread and butter’ activities, the things accountants are meant to be good at anyway.” He adds that being great at everyday things will not be enough in the new post-COVID decarbonising world. “Chartered Accountants are rated very highly for activities like accounts preparation, tax returns, data analysis, and general business advice, which we are trained for. Those are all things we are supposed to do, and while it is good to be held in high regard for them, we must ask ourselves why our core skills are not seen to be transversal into other important areas for business.” Those areas include adopting transformative new technologies like artificial intelligence and all aspects of the environmental, social and governance (ESG) agenda. “We need to up our game when it comes to those areas,” Fitzgerald continues. “At the moment, Chartered Accountants are not seen as the go-to people for ESG issues, diversity and inclusion, or becoming purpose-led as an organisation. While 60% of respondents said accountants had some part to play, no one said we were integral to the process. We might think we are, but others don’t. We need to work on that.” He doesn’t believe that should be viewed entirely negatively, however. “There are some very real opportunities opening up with the advent of new sustainability reporting standards and other regulations,” he notes. “These things are all about data and measurement, and those are things accountants are very good at. They are also very good at technical standards and translating them into processes and so on.” Fitzgerald also believes that the profession needs to reposition itself to capitalise on those opportunities. “Finance professionals in future will have to be seen as solutions providers in a wide range of areas. Large organisations seeking advice on their sustainability journeys can get it externally, but SMEs don’t have the money for that. So they have to look internally, and who better than their head of finance or external accountant to guide them on where they need to go? Sustainability has a direct bearing on finance, after all. For example, in the future, companies will find it very difficult to get bank loans or access investment capital if they are not on a verifiable sustainability journey. Accountants have the skills to do that. We are very good at taking standards, putting them into practice, and giving investors and lenders the assurances they need in many areas. In future, that will apply to sustainability as well.” Fitzgerald also points to another recent report from the Consultative Committee of Accountancy Bodies (CCAB), which surveyed accounting professionals in Ireland and the UK. It found that 27% had been put under pressure, or felt under pressure, to act in an unethical way in the last three years. The most common instances related to over-optimism concerning budgets and business cases, unreasonably downplaying risks in budgets, and categorising personal expenses as business expenses. In most cases (78%), the accountants concerned spoke up to prevent pressure to break the ethical code. Just 10% of those under pressure carried out the unethical task, while 25% did so but only partially. Interestingly, those figures correlate strongly with the 35% who said they didn’t turn to anyone for support or guidance. Fitzgerald advises any Chartered Accountant who feels under pressure to act unethically to reach out for help. “Chartered Accountants in Ireland have a fantastic network of 30,000 fellow members to call upon for assistance in cases like this,” he says. “Many will have encountered similar situations themselves and will be able to offer very practical advice. We also have resources on the Institute’s website, which provide guidance on reaching an ethical decision. “Generally speaking, the advice is to look after the small things before they grow. For example, don’t overlook things like overstating mileage. A disciplined approach to such things will help create a culture where the pressure to act unethically doesn’t arise.” Níall Fitzgerald is Head of Ethics and Governance at Chartered Accountants Ireland.

Resonant with the Institute’s position paper, The Next Financial Year, Michael Diviney surveys some of the issues and changes expected in 2022 and beyond. Changes at the core After years of relative stability, disciplines associated with Chartered Accountancy are about to undergo significant change, a key source of which will be legal and regulatory initiatives from the European Union. In 2022, the focus and effects of this change will be seen in: Environmental, social and governance (ESG) reporting: A new Corporate Sustainability Reporting Directive (CSRD) is due. In tandem with this, the European Financial Regulatory Advisory Group has been asked to develop ESG reporting standards by mid-2022 to be applied in EU member states. Reform of the audit market: An EU Commission consultation on the ‘three pillars’ of corporate reporting, corporate governance, and audit and supervision with a response deadline of 4 February 2022 will undoubtedly lead to attempts to revise EU legislation and regulation next year. International tax reform: At least three draft EU tax directives are due to be published. The first will give legal expression to the 15% minimum effective corporation tax rate for larger multinationals. The second will concern public disclosure of minimum effective tax rates in the EU by companies that fall under the OECD agreement’s scope. The third concerns allocating limited taxing rights to the countries where a corporate entity’s market is located. Anti-money laundering legislation: As part of its action plan to prevent money laundering and terrorism financing, the European Commission has published a set of legislative proposals. These include a sixth Anti-Money Laundering Directive and the establishment of a pan-European monitoring authority to coordinate anti-money laundering activities. What is driving this change? The impact of the pandemic: Many businesses in developed economies are receiving government supports to assist them through the COVID-19 pandemic, which has created a need for additional accountability and reporting. In 2022, government will be bigger. Climate change: There is an emerging consensus on the need for robust sustainability reporting standards to be more widely applied in geography and business scope. High-profile audit failure: Recent business failures have brought the audit market, conduct, and regulation into sharp political focus. International crime: There is increasing recognition that organised crime across national boundaries needs to be tackled with anti-money laundering techniques and more traditional policing and enforcement. Tax: There is now a global consensus that large multinationals should be taxed at an effective minimum rate of 15%. The largest corporate entities should also make corporation tax contributions by reference to the location of their markets and where they are established. Governance Increasing focus on sustainability, corporate failures, and technological advances impacting business are driving corporate governance reforms. For example, the European Commission’s sustainable corporate governance initiative will enhance the EU regulatory framework on company law and corporate governance. As a result, we are likely to see increased responsibilities for directors and more requirements for internal controls and supply-chain management in organisations of a certain size. In the UK, we await the Government’s next steps following consultation on restoring trust in audit and corporate governance. In Ireland, the Government is progressing legislation on individual accountability for certain senior management positions in financial institutions. Gender balance on boards The Irish Corporate Governance (Gender Balance) Bill 2021 proposes that 33% of a company’s board must be female after the first year of its enactment, rising to 40% after three years. If enacted, it would apply to limited and unlimited companies, charities, and all state-sponsored bodies. There would be a few exceptions, such as partnerships and companies with fewer than 20 employees. Gender pay gap reporting New to Ireland in 2022 will be the mandatory reporting of gender pay gap (GPG) information, initially for organisations with 250 employees or more. GPG is the difference between the total average hourly wages of men and women in an organisation regardless of their roles or seniority. It is different from equal pay, which measures if men and women are paid the same for performing work of equal value. GPG is an indicator of whether men and women are represented evenly in an organisation. Regulations will set out details of the reporting and publication processes. Leading on purpose November saw the launch of Evaluating Trust in the Accountancy Profession, a report by Edelman for Chartered Accountants Worldwide, of which the Institute is a member. Based on a survey of 1,450 financial decision-makers, 80% of whom are non-accountants, the report reveals an opportunity, if not an expectation, that Chartered Accountants take the lead on purpose-led initiatives such as driving action on sustainability and diversity, equity and inclusion. Commenting on the report, Ronan Dunne FCA described it as a call to action for Chartered Accountants “to broaden the base of trust”, building on their ethical reputation and professional standards. CEOs are now expected to have opinions on societal issues. This is an opportunity for Chartered Accountants to be influential in establishing the ‘citizenship’ of corporates, advising industry leaders on the integration of purpose with strategy and planning. Technology and the accountant Societal issues are not the only fundamental factors broadening the role and value-add of the accountant. Technology is also a driver of change. Writing in this magazine, Aoife Donnelly FCA and Thady Duggan FCA have argued that, accelerated by the pandemic, and as more traditional finance tasks are automated, the emphasis will be on maximising the impact of digital technology, enabling a shift from a past focus to a future focus. A future focus involves changes in the accountant’s skillset to include: data analysis (at least an understanding of the fundamentals of data analytics to be able to challenge specialists); communicating insights from the data; data governance and assurance; horizon-scanning and innovation; collaboration across the organisation, as well as working with multidisciplinary teams on defined fixed-term projects; and applying technology to support these contributions. The rise of the social enterprise Reflecting the emphasis on purpose and linked to sustainability, 2022 will see the resurgence of the social economy. COVID-19 caused people to pause and reassess their priorities and values, and some entrepreneurs are recycling into social enterprises. Social entrepreneurs bring momentum to the emerging circular economy. They reflect new ways of thinking about business, focusing on digital innovation, diversity and inclusion, and transparency – a magnet for Gen Y and Gen Z. They also influence the future development of mainstream corporations. Social enterprises like Food Cloud, connecting retailers with charities to donate food, need appropriate advice and sources of finance that match their broader societal objectives. Working 3:2 Assuming it is safe to return to the office, ratios like ‘3:2’ will feature as hybrid (or blended) working becomes a reality, at least for those who can work from home. The remote working forced by the pandemic has been a positive experiment in trust. In many sectors, productivity was maintained, even improved. So it makes sense to retain the discovered benefits, including flexibility, which employees now expect to be ‘baked in’. However, the start-up challenges for hybrid working should not be underestimated. There is little precedent, though we can learn from sectors where staff have not been able to work from home during the pandemic. An experimental, patient approach is required from all. New ways of working will be designed. They will distinguish between what we need to do in person, where the focus will be on high-impact interaction (innovation, performance conversations, organisational change), and what can be done remotely. The workplace will be physical and digital in equal measure. The purpose of the office will be redefined, reflected in its layout. New risks include the potential inequalities of a two-tier system of those present in person and those not. Training will be needed for the management of blended teams. Digitalisation Not all work can be done remotely, and not all employers can afford the IT for staff to work from home. There is an opportunity for Government to support the digitalisation of businesses to make the hybrid transition and continue the roll-out of work hubs. Tax and remote working To adapt to this new reality, tax rules must align with remote working practices and fairly reflect the costs of working from home, allowing a tax deduction for expenditure on equipment used for remote work purposes. In addition, an employee’s ‘normal place of work’ should be based on where they carry out most of their work. Childcare The lack of affordable childcare for working parents came to the fore during the pandemic, particularly when schools closed. In an economy crying out for talent, working parents should be encouraged to engage fully in the workforce, or at least have the choice. From September 2022, new funding of €69 million will be available for childcare providers to ensure the sustainability of services. However, it remains to be seen if this first step will have the desired effect of controlling fees. Talent and the ‘perfect storm’ ‘The Great Resignation’ may encompass employees who are resigned to stay in their current roles as well as the millions of people worldwide reported to be changing jobs or who plan to. In any case, for 2022, a ‘perfect storm’ is predicted when increased demand for talent meets the post-COVID phenomenon of career change. There are tools employers can use in recruiting and retaining talented people: offering remote/hybrid working and flexibility; budgeting time for regular conversations with individuals about how they feel about their work; delivering on the ‘employability contract’ – the expectation to learn new, marketable skills; and a strong and empathetic employer brand. Arguably the best way to recruit and retain the best people is to show leadership with values and purpose. Michael Diviney is Executive Head of Thought Leadership at Chartered Accountants Ireland.

Originally posted on Business Post 08 November 2021. Excessively taxing one particular cohort in society may be politically expedient, but it’s not a realistic long-term strategy. Mary Lou McDonald and Joe Biden make strange bedfellows, but they share similar aspirations. The US president’s investment plans aspire to provide enhanced social supports for his country. So too does the alternative budget of McDonald’s party. The Sinn Féin plan majors on affordable housing; so does Biden’s. Both feature enhanced childcare policies and proposals on climate change, and while these differ in detail the direction of travel is similar. In each case initiatives are to be paid for by increasing the burden of tax. Every fair-minded person wants improvements to the social fabric, be it in housing or environment or infrastructure. Yet both leaders seem to assume that few enough fair-minded people might be willing to pay for those improvements. For the Democrats, reforms are to be paid for by those earning more than $400,000 a year. The Sinn Féin threshold is considerably lower, with €100,000 of earnings apparently being the sweet spot over which citizens cease to be citizens and become mere taxpayers. Both parties are also comfortable with the notion that industry should contribute more to cover the funding gap for their spending aspirations. This progressive taxation policy approach is acceptable and works up to a point, but when it passes an excessive burden onto any one cohort, no matter who is in that cohort, government finances are left in a vulnerable position. That was the lesson in Ireland in 2008 with the property crash, when tax receipts had become too reliant on the cohorts making their living from the property sector. This is not a hazard peculiar to left-wing ideology, it is simply the way the world works. Even the most fashionable tax policy can go astray. In a week where the news in the developed world is dominated by COP26, only brave souls will argue against carbon taxation. Yet the lack of choice in our fuel and transport infrastructure renders carbon taxes useless at influencing behavioural change. It makes no sense to increase social welfare fuel allowances and increase the standard income tax bands and allowances so that people could afford to pay carbon tax, but that was the key feature in last month’s budget. Not only are carbon taxes not delivering change; they have a negative exchequer impact. There is an argument that the most successful tax policies are the ones which are the least specific to a particular cross-section of the population. A change up or down should apply to the general body of taxpayers. Not everyone pays income tax but everyone pays Vat on many foods and most services. A Vat increase may well be the most equitable way of raising additional revenue. It is certainly the least divisive. The Sinn Féin alternative budget makes no reference at all to Vat, which is the second largest source of money to the Irish exchequer. Instead, their alternative budget depends on more payments from fewer people, topped up with borrowing. That looks even more risky because it assumes their new policies will cause no disruption to the existing level and source of tax receipts. The only way the reforms that the US Democrats and Sinn Féin alike are proposing can be paid for, on a sustainable basis, is if the cost is shared. It may be politically expedient to promise largesse to be funded by a small group who mightn't vote for you anyway. Yet the big risk is that those promises can only be delivered for a short period of time before the small group either ups sticks or simply runs into financial difficulties. It’s hard to collect tax when the small group being relied upon to pay it is not earning much. It gets even harder when short-term tax receipts fail in the face of long-term spending programmes. The Irish tax system is not perfect, but it is relatively broad-based; higher earners pay proportionately more, and any allowances and reliefs are generally available to most taxpayers. The extent of the US political divisions along party lines limits such policy choice and nuance. That is not the case here yet. The Sinn Féin proposals risk a polarising effect on the policy debate because they narrow the tax base. Joe Biden and his Democrats may be in power but his party is not fully behind him, his economic and tax plans have made it through the House, but have yet to make it through the Senate. McDonald’s Sinn Féin party seems to be fully behind her, but were they to be in power, would their tax plans survive the rigour of the Irish parliamentary process? A narrative is emerging that, following its Ard Fheis, the party is in some way moving towards the centre ground. That might be so, but it still has some distance to go with its fiscal policies. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 10 October 2021.   Our circumstances today share numerous parallels with 1991, when Albert Reynolds delivered the first ever televised budget speech Corporation tax receipts up by an unexpected 40 per cent, inflationary pressures driving a bigger social welfare package, a two-tier corporation tax system, and disputes over pension payments. No, not 2021, but 1991, when the late Albert Reynolds delivered his budget speech, televised for the first time. This Tuesday will be the same. There will be an economic update and forecast along the lines of “not too bad, but could be better”, a helpful reminder of the wonders achieved by the government in the previous 12 months, and some tinkering with tax bands and reliefs along with some social welfare enhancements and spending commitments. Is the budget day equilibrium established by Reynolds 30 years ago still appropriate for a nation which has more than twice as many people employed as in 1991, more than two million extra citizens, and eight times the tax receipts? When it comes to tax policy, neither the Irish economy nor the Irish voter is particularly amenable to any type of radical change. Big initiatives fail. The universal social charge, for example, is little more than a way of squeezing more income tax from a system constrained by having only two tax rates, 20 per cent and 40 per cent. The guiding principle behind local property tax, meanwhile, seems to be that it should not raise too much money. Water charges, a tax in every respect other than their name, failed to get off the ground at all, while we still tinker with stamp duty rates in the hope they might have some impact on the behaviour of our property market. This is a triumph of optimism over experience. Since the Reynolds era, however, our control over interest rates and exchange rates has been surrendered to the EU. Last week, we conceded partial control over a third lever of economic policy, the setting of tax rates. To its credit, the government seems to have ensured that this concession on corporation tax was not made lightly. It would have been simpler for Paschal Donohoe to go along with the 130 or so countries which had already signed up to the OECD twin track proposals to tax the very biggest companies where they make their sales, and to tax the top tier of industry at a rate of at least 15 per cent. The 12.5 per cent rate had acquired totemic status here as an element of economic policy, but Ireland is not alone in having to abandon its totems. The European Commission surely had to take a deep breath when it signalled it would permit our application for a lower rate for smaller companies under the new plan. A twin-track tax system runs counter to EU states aid principles – favouring companies falling within a particular category over others was the reason we had to abandon the old, reduced rates of corporation tax in the 1990s. The allegation that Ireland offered preferential treatments is the rationale behind Margarethe Vestager’s pursuit of the Apple “tax as state aid” case. The commission should now do the decent thing and drop the appeal. The acceptance of the headline points in the OECD plan is one matter; how they are to be implemented is quite another. The European Commission will transpose key elements of the agreed position at OECD level into a directive for adoption by the EU member countries. Other aspects will be achieved through international treaties. That is a lot of ground to cover. Ireland’s active participation in these negotiations will be crucial, but Ireland will not be the only country with concerns. Estonia, another EU member, only signed up this week too. None of the changes announced on Thursday will have an impact on exchequer receipts any time soon. By pushing the corporation tax crisis out of the way for now, Tuesday’s budget can be formulated along more traditional lines. Though the shadow of the pandemic still looms across society and the economy, don't expect too much radical thinking. Rather than addressing the fundamental question of whether people are paid enough in this country, expect to see some tinkering with the tax bands. Rather than seeing pension funding being put on a model which reflects the nation's demographics, expect to see further tinkering with retirement ages and the benefits package. Ireland doesn't do alarms or surprises on Budget Day. With the prospect of a two-tier tax system for companies, the Reynolds equilibrium is being fully restored. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Dr Margaret Cullen explains the characteristics of good directors, which in turn contribute to board effectiveness and sustainable companies. Although there is no comprehensive definition, the Companies Act 2014 describes a director as “any person who occupies the position of director by whatever name called”. While under previous company legislation, courts recognised some practical differences in capacity, role, duties and responsibilities, the distinction between categories of directors is not widely recognised in the Act. It is within governance codes and guidelines such as the UK Corporate Governance Code, the Code of Practice for the Governance of State Bodies, and the Central Bank of Ireland Corporate Governance Requirements for Credit Institutions that this distinction is made. Executive directors are those involved in the day-to-day running of the company. Non-executive directors, on the other hand, are not actively involved in the day-to-day running of the company. They are typically appointed because they bring particular expertise that can contribute to the company’s success and sustainability. Within the non-executive director element of the board, there are non-executive directors (NEDs) classified as non-independent directors and those classified as independent non-executive directors (INEDs) because they meet the independence criteria specified within the applicable code. NEDs can be further delineated into directors employed within the group to which the company belongs and those who do not work for the group but do not meet the criteria necessary to be deemed independent. A principle enshrined in many corporate governance codes is that at least half the board should comprise NEDs whom the board considers independent. Adam Smith wrote in 1776 that executive directors or managers of companies, “being managers of other people’s money, cannot be expected to watch over it with the same vigilance with which they watch over their own”, thereby articulating the classic agency problem. This agency problem and its solutions constitute the crux of the most articulated corporate governance theory: agency theory. At the heart of agency theory is the assumption of managerial opportunism: that managers are motivated solely by self-interest, not by moral obligation. Thus, agency theorists advocate for monitoring devices, incentive mechanisms, and checks and balances to ensure managers do not abuse power to the detriment of shareholders. INEDs are one such mechanism. The conceptual underpinning of corporate governance codes around the world is the need to respond to this agency problem. Therefore, it is not surprising that principles related to INED representation on boards and INEDs chairing board committees are typically front and centre in these codes. Interestingly, agency theorists assert that the sole objective of a company (de facto the board) is to maximise returns for the shareholders. However, this assertion is inconsistent with directors’ duties under common law. There are, of course, alternative theoretical perspectives that articulate more positive assumptions on the character of managers – stewardship theory, for example. Although they advocate for INED representation on corporate boards, stewardship theorists’ advocacy relates to the advisory and guidance dimension that INEDs bring to the board rather than the need to protect the company from managerial misconduct. Anyone who has sat in my corporate governance class will know that I sit in this camp. I say this not because I am naive as to the propensity for poor behaviour within organisations. On the contrary – we have seen enough corporate governance scandals over the years to know that unscrupulous and greedy people can do bad things. However, for every scandal, thousands of companies survive, prosper, and make significant contributions to society and the economy. I hope that the current gusto in relation to company purpose and environmental, social and governance (ESG) criteria will further influence companies’ societal and environmental footprint to the benefit of all. Sometimes, companies make headlines for a breakdown in controls or sub-optimal risk management rather than any deliberate attempt to defraud the company or customers. Unfortunately, the distinction between the former and the latter is not often made clear by – or to – stakeholders. NEDs are not involved in the day-to-day operations of the company. The entire board should work hard to create a governance framework (across the company and in the boardroom) bespoke to company context, where accountability is created and the board receives the information necessary to do its job. The board is entitled to rely on the integrity of information emanating from within this framework once it has no reason to suspect that the people providing this information are not fit and proper. Wilful blindness to inappropriate behaviour is, of course, not acceptable. If I start as an INED from a position of professional mistrust, however, I am starting from an impossible position. Trust must be at the heart of the board/management relationship. Therefore, the leadership qualities of the CEO/executive directors and the company’s culture are hugely influential on the standards of corporate governance within. INEDs must bring an appropriate balance of trust and professional scepticism to the boardroom. By taking on a pseudo devil’s advocate role, INEDs add an extra governance dimension, enabling the board to make effective collective decisions and/or determinations based on the information to hand that is considered in an honest and responsible way. Getting this balance right is the hallmark of a good director and requires INEDs to understand what being non-executive truly means. Stakeholders must also understand this. Readers of this article will be familiar with the long-standing debate on whether auditors should be viewed as watchdogs (who bark if they see something suspicious) or bloodhounds (who search for something suspicious). Confusion about this distinction serves to undermine the audit process. Equally, considering the collective responsibility of a board, the non-executive nature of INED roles needs to be understood for what it can – and should – entail. To quote my mentor and colleague, Professor Niamh Brennan, it’s “nose in, finger out”. Agency theorists look at corporate governance practices and behaviours through the lens of the agency dilemma. This is an abstraction at the level of the company and its governance structures rather than board behaviour. While recognising the different lenses that categories of directors bring to the boardroom (for example, the knowledge that comes with day-to-day executive involvement versus the information asymmetry attached to being non-executive), the most effective directors demonstrate objectivity and independence of mind. As so much governance is done outside the boardroom, this objectivity across executive directors and executive committee members sets companies up for long-term success. It manifests itself in executive meetings and discussion forums where challenge and debate are encouraged, management information is scrutinised, tactical and strategic opportunities and threats are acknowledged, alternatives are considered, and decisions requiring board approval and areas that would benefit from board-wide input are identified. In short, the executive directors and executive committee can go a long way towards setting the board and the company up for success. Apart from their specific domain of experience, INEDs bring an extra layer of objectivity (with the balance of trust and professional scepticism referred to earlier) to the board to contribute to collective board effectiveness. Group NEDs bring the group perspective (on strategy and risk appetite) and related challenge, requiring equivalent objective mindsets of other board colleagues. This is particularly important, as group NEDs must always act in the interest of the local company. While much is made of the concept of non-executive director independence related to a schedule of criteria, I have always argued that independence of mind across all aspects of governance and all categories of directors is critical to board effectiveness and sustainable companies. There are, however, other behavioural characteristics critical to board success. Several years ago, in the process of designing a governance programme, I had a brilliant discussion with another colleague of mine, Frank Ennis – an experienced independent non-executive director – on what makes a good director. We had previously agreed on the importance of independence of mind (the first ‘I’) for all directors. We explored the importance of technical skill, experience and knowledge to contribute to collective board strength, but determined that it is how these skills are harnessed rather than the skills themselves that are key. We landed on the second ‘I’, intelligence, referring to the capacity of each director not to allow anyone to insult theirs. This second ‘I’ reflects and extends beyond the professional scepticism discussed. Finally, we reflected on corporate governance failures related to fraud and deliberate, inappropriate actions by those in charge and questioned the lack of integrity. We also remembered a keynote speech made by Warren Buffet at Columbia Business School in 2009 when he observed: “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without the first, you really want them to be dumb and lazy.” Thus, the third ‘I’ became integrity – never, ever compromise yours. We were mindful, of course, that living by the three ‘I’s can sometimes lead to a fourth ‘I’ in the form of isolation, but we agreed that this is a price worth paying. Dr Margaret Cullen is Founder and Principal of Think Governance Ltd. This article was written in collaboration with Frank Ennis FCA, independent non-executive director.