News

How can a board set the example rather than becoming one? Ros O’Shea gives a five-step approach to creating an ethical board. “Where was the board?!” is the question often asked in the immediate aftermath of corporate misconduct. Stakeholders, quite rightly, expect boards to ensure businesses are run ethically. Yet, sometimes boards (and usually their companies in turn) fail dismally in this crucial aspect of their role. What can a board do to ensure the highest levels of probity in their organisations? This five-step approach can help. Ensure the ethical infrastructure is in place From a code of conduct to ethics training, speak up channels, ethical due diligence procedures and incentives programmes that reward the 'how' and the 'what', directors must ensure the appropriate infrastructure is in place in their organisations to enable and foster a culture of integrity. This is akin to laying down an ethical 'base layer'. Appoint the right CEO In leading that culture, the CEO is key. On appointment, they are bestowed with the organisation’s most precious asset – its reputation – and must be responsible for its safekeeping. It is the most important decision the board makes and demands commensurate investment in a robust process to recruit the right leader. Act ethically It is rare for a board to deliberately endorse an illegal act, but we know there can be a vast difference between decisions that are legal and those that are right. Decisions are usually right when a director is comfortable being personally accountable for their part in it, especially if it would be made known to their family on the front page of the local newspaper. Directors would do well to assess all decisions through that lens and determine whether they want to simply meet a bar, raise the bar or – better – set the bar in terms of moral courage. Lead by example In order to effectively set the tone from the top, the board should be a microcosm of the organisation’s desired culture. Espoused values, such as respect and openness, should underpin board interactions and encourage constructive debate. IQ at this level is a given, but emotional intelligence (EQ) differentiates high-performing directors and their boards and should be a prized quality in director recruitment. Monitor culture Finally, directors must know that only so much governance can be done within the confines of the boardroom; they need to experience first-hand the organisation’s “mood music”. This provides the board with the holistic assurance it needs that the desired culture is truly living and breathing across the organisation. By following these five steps, the board will focus on doing the right things and asking the right questions, which will ultimately lead to the right outcomes. Briefly, that is the board’s role in relation to ethics: to stand squarely behind their chosen CEO and collectively set the tone from the top while providing independent oversight on the organisation’s ethical infrastructure and culture. Ros O’Shea is the founding partner of Acorn Governance Solutions.

Jan 31, 2020
News

With so many disruptive technologies available, is it possible for to directors keep up with the needs of the business? Kieran Moynihan explains how, with the right NEDs, a company can thrive in a constantly evolving digital world. As disruptive technologies such as artificial intelligence, robotic process automation and emerging payment technologies grow in adoption, many boards are struggling to understand how these will impact customers, market segment and the competitive landscape. Crucially, how can they incorporate these technologies into their overall strategy and business models? This relentless wave of new technology disruption is increasingly upsetting the traditional hierarchy of markets by lowering the barrier to entry for new competitors. Companies need to adapt to harness the opportunities and benefits of these disruptive technologies otherwise it risks being left behind irrespective of its traditional market position. Often, the reason behind this struggle to adapt to technological disruptions is that there is a significant lack of technology expertise among non-executive directors (NEDs). This is further compounded by a serious age diversity problem in boards where, across Ireland and the UK, the average age of many boards is late 50s to early 60s. The vast majority of these NEDs indicate that areas such as cyber-security are problematic for them. This, in turn, impacts their ability to provide high-quality, robust challenge, debate and oversight of the CEO and executive team in terms of how a company incorporates these disruptive technologies into its strategy. In marked contrast, younger NEDs in their 30s and 40s tend to be very comfortable in the digital and disruptive technology landscape, have a strong understanding of how customers’ requirements are evolving and can genuinely challenge and support the CEO and executive team in these areas. In most boards, the traditional approach to selecting NEDs has been focused on a majority of generalists with significant executive experience, and a number of sector specialists, which has led to a predominance of financial and general business skills around the board table. However, as both the pace and complexity of emerging disruptive technologies has significantly increased, this traditional model is breaking down and many of the sector-specialist NEDs are finding it challenging to keep up with the pace of change. Many CEOs and executive teams are struggling to make big calls around technology and business model choices. There is a growing trend of board chairs and CEOs who realise that, in order to thrive, the board team needs to be refreshed with the addition of NEDs who have advanced technology expertise. They will be able to provide ample support to both the overall board team and CEO/executive team, thereby strengthening the ability of the company to embrace disruptive technologies, understand the changing needs of their customers and position themselves for sustainable long-term success. Kieran Moynihan is the Managing Partner of Board Excellence.

Jan 31, 2020
Tax

Business Post 26 January 2020 There isn't a politician in the country who isn't afraid of the “grey lobby”.  Successive governments have found to their cost that anything which tampers with the benefits being enjoyed by the retired carries a guarantee of protest. So why all the furore about pensions in the current election campaign?  After all, the grey vote is not bothered because they have their pensions already.  The state retirement age moving to 68 isn’t even a new announcement.   Upping the age at which the state pension kicks in has been known about for a decade.  It wasn’t even the work of the current government but of the previous Fine Gael/Labour coalition government.  It's not the usual grey brigade that's affected – it is the greying brigade. The greying brigade - people born in the 1960s and early 1970s - have not done particularly well from the policies of successive governments.  Many of them first came onto the jobs market during the 1980s when jobs were scarce and inflation was rampant.  In recent years we have almost forgotten what inflation is, but in 1984 for instance, inflation ran at somewhere in the order of 8%.  The State responded to that recession by taxing everyone virtually out of existence.  During the 1980s the corporation tax rate was 50%, the standard rate of VAT hit 35% and the marginal rate of tax and PRSI in 1985 for workers on modest wages was 73%.  If you went to a bank looking for a mortgage, you would be solemnly told (if you were lucky) that the natural cost of money was 10%.  Yet the greying brigade, those late baby boomers and early generation Xers, hung on. Things began to get a little better in the 1990s.  Largesse flowed from Brussels, and the economy entered into a period of recovery.  But property prices began to spiral with house prices in the late 1990s increasing by 25% per annum.  That in turn lead to increases in Stamp Duty.  Just as this generation were having kids of their own, the tax relief for children in the family was abolished.  Still the greying brigade hung on. With increasing prosperity in the 2000s, money was pushed into the National Pension Reserve Fund.  This was the original rainy day fund designed to shelter the Exchequer and citizens alike from the cold winds of an ageing demographic.  That pot of money evaporated in the financial crash and a large chunk of it was used to bail out the banks.  Certainly, the late baby boomers and the early generation Xers didn't see it even though it was their taxes that had largely built it up.  No sooner did this blighted generation get to the stage when their own children might be leaving school and contemplating careers, or perhaps a further term in college, than the great recession hit in 2008.  Taxes and unemployment levels soared again, and many saw their children emigrate and their own jobs disappear. And now, just when they think things might be getting a little better, this same generation is being told that their retirement date will be pushed out time and time again.  Is it any wonder the greying brigade are upset?  The wonder is that they have not begun protesting before. While many people are cynical about elections and election campaigns, they serve to focus the minds of citizens on the way they are being governed.  The hustings prompt an authentic examination of current affairs, where politicians have a real interest in saying and doing not just the right thing but the electable thing.  For a few weeks the court of public opinion is less driven by the usual pundits and keyboard warriors, none of whom foresaw how sensitive the retirement age issue would become.  Delaying the pension age was a money-saving ruse.  It is now becoming clear that it is a ruse which is not going to work.  Transitional payments and interim arrangements will eat into the savings in the state coffers, which the extension of the pension age was designed to achieve in the first place.  Fianna Fail talk of a comprehensive review.  Fine Gael promises transitional payments for retirees at the same effective rate as the state pension.  Sinn Fein wants to reverse current policy entirely and bring back the retirement age of 65.  These all amount to the same thing.  They differ only in the grace of the political U-turn involved. A pension is perhaps one of the most boring topics imaginable, except for those in immediate prospect of receiving one.  People who have had little or no interest in financial affairs all their working careers suddenly become pension gurus when their own retirement is looming.  The private sector seems increasingly conscious of how small the benefits are from their pension savings, as purchasing annuities on retirement simply doesn't cut it anymore because of the low yields on government gilts.  Couple that with the disenchantment of the greying brigade towards government policy generally, after years of being in the wrong place at the wrong time.  A new lobby is emerging, of which our politicians would do well to be fearful.  Beware the greying brigade.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Jan 27, 2020
Taxation

Business Post 19 January 2020 One of the easiest portfolios for a new minister to pick up in the next couple of weeks could be Finance and Public Expenditure and Reform. Compare it to the lot of the next housing minister or the next health minister, who are bound to pick up their portfolios with some trepidation.  True, we have an enormous national debt, but then international interest rates are at historic lows.  We no longer run a budget deficit and the main tax problem in the economy is that we collect too much tax from companies.  Unless the new finance minister goes on a spending splurge, there will be a budget surplus in 2020.  Paschal Donohoe mastered two of the key requirements for the job of finance minister.  He was clever and he was lucky.  His period of tenure as a minister in the 32nd Dáil coincided with the global economic recovery gaining momentum.  In a small open economy such as ours, economic factors will always trump anything an individual finance minister does or doesn't do.  Our unemployment levels are at a record low mainly because of external factors and only partly because the minister did nothing to hamper employment growth. Nor can any finance minister in any small country dictate the international consensus on cross-border taxation.  Ireland has benefited spectacularly from an unforeseen consequence of the changing international approach to corporation tax.  The so-called BEPS consensus led by the OECD drove income generating assets out of tax havens and into genuine low rate (rather than low tax) jurisdictions.  I'm not aware that anyone predicted the extent of this effect on the Irish economy.  When the New York Times Columnist Paul Krugman sneeringly described the consequent boost to Irish GDP as “leprechaun economics”, he failed to realise that the leprechaun’s pot of gold is actually real and is located on these shores with little apparent sign of it moving anytime soon.  Was this just luck? Donohoe and his officials detected very early on what way the international tax policy wind was blowing.  Although the government was criticised for what seemed to some to be a tardy approach, both Donohoe and his predecessor Michael Noonan eliminated some of the more egregious cross border tax planning schemes.  Less prominent but perhaps as important was Ireland’s role in building a coalition of the cute within the EU.  Simon Coveney and Donohoe orchestrated the responses of the dozen or so smaller nations which became known as the New Hanseatic league.  These countries are linked by a shared alarm over some of the EU tax proposals driven by the larger economies.  Between them they managed to make life a bit more difficult for the EU Commission and sucked the life out of EU proposals for digital taxation. This decisiveness was not always matched by measures on the domestic front.  At times it seemed that the finance minister was paralysed by the fear of doing the wrong thing.  His tenure marked a new way of defining “risk averse”.  Business concerns largely went unheard, and there was little or nothing in the way of new business tax incentives.  The “keep on saying nothing” approach taken by government in the face of Brexit uncertainty meant that many businesses simply could not plan coherently.   The Budget for 2020 was prepared on a worst possible case scenario.  Issues raised at the annual National Economic Dialogue, ostensibly an occasion for civil society to present its ideas to government, went unnoticed. The minister will point towards the economic growth which transpired anyway as justification for this laissez faire approach.   That doesn’t answer whether more could have been achieved, nor does it excuse ignoring the tax system as a lever of policy.  How was it justifiable not to use the tax system to encourage housing development and rental supply to help provide accommodation at a time of crisis?  After all, we know that housing tax incentives are effective.  We even know what mistakes to avoid with them. There were other problems too.  The focus remained on the multinational sector, with little tax support for indigenous industry.  The approach to carbon taxes was hesitant.  Local property tax is no longer fit for purpose.  The valuations are out of date and too many properties are exempt; at this stage LPT is borderline unconstitutional.  Inheritance tax is now largely a tax on Dublin households as the exemption thresholds have not reflected property price growth.  The 40% rate of income tax still applies at low income levels. On balance, I think the history books will be kind to Paschal Donohoe.  It is in the nature of the economic cycle that the term of the next government is likely to span some economic slowdown, if not an actual downturn.  Nevertheless, whoever takes the portfolio next time will be taking it at a good time to become the finance minister.  He or she will have both the economic headroom, and plenty of untapped opportunities, to make a difference.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland 

Jan 20, 2020
Tax

Business Post 12 January 2020 It's been a week for job announcements.  Enterprise Ireland and the IDA announced their results for 2019.  It was apparently full steam ahead for the IDA, which supports foreign direct investment into Ireland, but somewhat less so for Enterprise Ireland which supports Irish exporters and whose results were somewhat muted.  Alongside these announcements of what the private sector does best when it's creating jobs, the headline results of the Revenue Commissioners for 2019 also surfaced.  And guess what, they seem to be in the business of job creation as well.  In the past 12 months, the headcount at the office of the Revenue Commissioners has increased from 6,129 full-time equivalent staff in 2018 to 6,621 in 2019.  In parallel, the cost of running the Revenue Commissioners increased by some €25 million year-on-year to a total of €450 million in 2019. A lot of the public service headcount debate in this country tends to focus, rightly, on frontline staff – nurses, teachers and gardai.  If tax receipts are up to the levels achieved prior to the crash in 2008, so now too is the Revenue headcount.  Yet it's not getting any easier for businesses and employers to comply with their tax collection obligations.  So what is the Irish taxpayer seeing for these increases in Revenue staffing and costs? Much of the rationale for this staffing increase was the prospect of Brexit, particularly a hard Brexit.  Additional customs officers were recruited to deal with the additional checking of goods flowing between this country and Britain.  There was also an element of planning involved to secure against staff shortages from pending retirements.  But now that the threat of a hard Brexit has receded, what will all these additional tax officials do? For the 200,000 or so businesses employing people in this country, one of the heaviest tax compliance burdens often has to do with operating PAYE on their employees.  When releasing their 2019 headline results, Revenue made much of the success of their modernisation of the PAYE system during 2019 and portrayed it generally as a boon for all concerned.  The costs to employers to replace or upgrade their software for the change were not in fact seen as a boon by many employers.  There is no doubt that PAYE modernisation has tightened up the PAYE system.  While this can be to the benefit of employees in the long run, the additional cost to employers has gone largely unacknowledged.  There have also been suggestions in the past few months that the vast harvesting of tax data on employees, via their employers, might be further extended to the self-employed.  It's costly enough to do business without having to provide additional statistical data to government. Law abiding taxpayers will by and large be pleased to see that tax audits and enforcement continues, because business tax evaders – businesses not complying with VAT, PAYE or other obligations - are operating illegally but are also effectively stealing an unfair competitive advantage.  Nevertheless, the tax recovered from policing evasion collected from tax enforcement activity declined in 2019 when compared to 2018.  It's probably a little too early to tell whether compliance levels have actually improved by virtue of the additional Revenue staffing and more rigorous PAYE systems.  Or maybe the Irish taxpaying population at large has got that little bit more compliant.  The Revenue results also highlight one of the great unsung costs to Irish business, namely employer PRSI.  Employees fare much better than the self-employed under the social welfare system in terms of contributory non-means tested pension benefits, health and occupational benefits.  These additional social welfare benefits come at a heavy cost to employers, who typically stump up an additional 11% or so onto the cost of payroll to cover employers’ PRSI.  In 2019, Revenue collected over €12 billion in PRSI on behalf of the National Social Insurance Fund.  Those who complain about our welfare state need to remember that over 16% of all revenues collected in Ireland go towards PRSI.  Fully €1 billion more was collected in PRSI in 2019 than in 2018.  Given the scale of the contributions, it's reasonable to ask if PRSI is representing good value for money for the Irish citizen.  For example, how can the health service continue to be in such dire straits given the level of social insurance citizens are paying? The answer to that of course is not in the gift of the Office of the Revenue Commissioners.  Their mission is to collect taxes fairly and efficiently, not to spend them.  While a bumper year for tax receipts is good for the Exchequer, the increasing compliance costs of doing business are worrying. Amounts collected by employers under PAYE amounted to €31.6bn for 2019.  There is a greater obligation than ever on Revenue to provide better support for those who make the headline tax collection figures look so good.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Jan 13, 2020
Thought leadership

Business Post, 8 December 2019 Better to have five good one-year plans than one good five-year plan.  It's almost 30 years ago since I was at the receiving end of this advice, from a person whose business success clearly showed it was the right approach.  While long-term planning has always been a good idea, back then strategy development for the medium term hadn't yet become the self-fulfilling industry it is today. Yet, we all try to look a little further down the road than just the next few months, as indeed the Minister for Finance did this week in a speech to the Institute for International and European Affairs.  He identified policy responses to address some of the economic hazards he and his department officials foresee coming down the tracks.  It must be a frustrating business for any government minister to try to lay down plans which might only crystallise long after he or she has been voted out of office.  If a week is a long time in politics, then five years or more must be measured in terms of aeons. In his analysis, the Minister identified 2012 as a nadir for the Irish economy.  He cited the fact that in 2012, unemployment stood at 16% and the budget deficit was 8.1% of GDP.  Tough times indeed, but how well it illustrates the futility of long-term planning.  Whose medium-term strategy formulated in 2012 would have correctly anticipated that long before the end of the decade, we might be back to full employment?  Or that by the middle of the decade, Britain would have decided to pull out of the EU?  Or that the biggest tax problem in 2019 might be a surfeit of corporation tax receipts? Corporation tax receipts traditionally peak in November.  That's because most large companies must pay tax in two instalments and for various practical reasons, the second instalment typically falls due in November.  Not only that, while smaller companies make most of their tax payment in one instalment, that payment tends to fall due in November as well.  The corporation tax receipts for November were announced last Tuesday and, true to recent form, they are almost embarrassingly large.  To put some context on the vast amounts of corporation tax collected, for every person in the country, companies have paid about €2,000 in tax this year so far. The November corporation tax receipts reflect the dominance of the dozen or so very large companies who make the bulk of the corporation tax payments, and they also reflect the contribution of smaller companies within the economy. There is a very simple way to reduce the dependency of the Irish exchequer on corporation tax receipts.  That would be to cut the rate down from 12.5% and thereby collect less.  However badly this might land in a domestic context, it would be totally unacceptable in the current international debate.  The rationale now seems to be that if you can't regulate the biggest tech giants, then at least tax them.  I'm reliably told that at a recent industry gathering in Paris to discuss the current OECD proposals on cross-border digital taxation, everybody in the room welcomed the proposed new rules.  Provided, that is, there were exclusions for their own particular industry. Despite such cynicism it is impossible to disagree with the thrust of Pascal Donohue’s observations that the times are indeed changing for companies.  They need to.  According to a recent OECD report, tax receipts generally in that particular club of wealthy countries are beginning to plateau, and their growth in recent times reflects little more than the growth in their economies.  The inevitable consequence is that most developed economies are going to have to rethink the way they collect tax, not just from companies but also from their population at large. Every time we undertake that kind of rethink in this country however, it falls flat.  There is compelling evidence that we have an ongoing problem with our water supply system, yet we rejected the introduction of water charges.  The funding problems for our national broadcaster (and more broadly the crisis for journalism in all shapes) are acute, yet we resist any notion of a media levy to replace the increasingly irrelevant TV licence.  Despite the introduction of local property tax in 2013, can it be correct that still only 10% of local government funding, according to Thursday’s Seanad Eireann debate, is provided directly by this tax? These are not medium-term policy ideas.  I have some sympathy for a government which is so hamstrung by domestic political events and the risks from the political events across the Irish Sea that it can’t even change the rules of bingo, let alone signal significant tax reform.  Nevertheless, it is this type of single year issue which might change people's lives for the better far more rapidly than medium-term fiscal aspirations. It is still better to have five good one-year plans than one good five-year plan.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland  

Dec 09, 2019

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