Governance news & articles

The Irish Corporate Governance (Gender Balance) Bill 2021 was presented to Dáil Éireann during the week. Proposals in the Bill include a mandatory 33 per cent of a company’s board must be female after the first year of enactment, rising to 40 per cent after three years. The targets reflect the ambitions of many groups seeking to improve gender diversity on boards, including Balance for Better Business who have set targets of 33 per cent for boards of listed companies and 30 per cent for boards of large private companies by end of 2023. The Bill, due to be debated in the Dáil, proposes to apply the requirements to corporate bodies including: limited and unlimited companies, charities, funds (including UCITS), and all state sponsored bodies and their subsidiaries. Exemptions from the requirements will apply to: unincorporated associations, partnerships, limited liability partnerships, single director companies, micro company, or, other corporate body that has an annual turnover of less than €750,000 or that employs fewer than 20 employees, or both. The Bill proposes a statutory declaration to be made by the chairperson of the governing body, e.g., board, in the Annual Return or annual financial statements that the the gender balance requirements have been complied with. If they are unable to comply then they will be required to disclose the reasons why. Níall Fitzgerald FCA Head of Corporate Governance & Ethics at Chartered Accountants Ireland

Owners’ Management Companies: A Concise Guide for Directors, published by Chartered Accountants Ireland and The Housing Agency, identifies 10 considerations for directors of the organisations that manage the shared spaces and services of multi-unit developments such as apartment buildings and housing estates. Increasing numbers of people in Ireland live in apartments and houses that are part of multi-unit developments, relying on common areas, or shared amenities and services. Under Irish law, an owners’ management company (OMC) is required to legally own the common areas and be responsible for their upkeep on behalf of its members, who may be owner-occupiers or landlords. Between 2002 and 2016 the number of apartments in Ireland rose by 85%.  In 2019, planning permissions in Ireland for apartments exceeded those for houses for the first time. This high level of growth is expected to continue for some time to come. OMCs do not act for commercial gain, but are custodians of the physical, built environment in which people live. Most directors of OMCs are volunteers. However, they have clear responsibilities and fiduciary duties and they are responsible for compliance with various legislation and regulation, including company law (if incorporated) and the Multi-Unit Development Act 2011. An OMC director must act in the best interests of the company while having regard to the interests of all its stakeholders. At times, it can be complex work; OMC directors are often required to deal with service providers, and professional advisors such as accountants, auditors, and solicitors. They can also interact with resident associations, regulators and government agencies. Published in May 2021, Owners’ Management Companies: A Concise Guide for Directors identifies good governance practice in 10 key areas for the directors of OMCs: 1.            Directors’ duties 2.            Board effectiveness 3.            Performance versus conformance 4.            The company constitution and register of members 5.            Finances, cash and debtors 6.            Company accounts and statutory audit 7.            The role of the company secretary 8.            Outsourcing 9.            Annual general meetings 10.          Dispute resolution A copy of Owners’ Management Companies: A Concise Guide for Directors is available to download from the Chartered Accountants Ireland Governance Resource Centre. You can watch the webinar launch of the Owners’ Management Companies: A Concise Guide for Directors by clicking here. Niall Fitzgerald Head of Corporate Governance & Ethics at Chartered Accountants Ireland   

Plethora of standards and frameworks results in “wild variation” in consistency and reliability of information  Global standards for sustainability reporting critical for sustainable corporate governance and to avoid “greenwashing”  Institute hosts all-island conference with An Taoiseach and Minister Diane Dodds on how boards can embed sustainability within their organisations 22 April 2021 - Chartered Accountants Ireland has reacted to European Commission proposals to amend the current EU Non-Financial Reporting Requirements Directive (NFRD). The proposals form part of a package of measures announced by the Commission to improve the flow of money towards sustainable activities, with a view to making Europe climate neutral by 2050. They are an important step in the EU’s objectives for sustainable corporate governance. Certain companies are required under current EU Non-Financial Reporting Requirements Directive to report how sustainability issues influence the performance, position and development of the company and certain information about the company’s impact on society and the environment.  Commenting, Níall Fitzgerald, Head of Ethics & Governance in Chartered Accountants Ireland, said “Existing EU guidelines have not led to a fundamental improvement in the quality of disclosures by companies. The desire to act is there among company directors and stakeholders, who are committing investment and resources to embed sustainable practices across their organisations.  “Right now, there is a plethora of standards and frameworks that companies can apply for sustainable reporting. The lack of unified global standards means that the availability, consistency, and reliability of information varies wildly across jurisdictions, some more onerous than others. This leaves organisations open to the charge of ‘greenwashing’.  In 2020, Chartered Accountants Ireland, in response to public consultations on the European Commission’s review of NFRD, and on sustainability reporting from the International Financial Reporting Standards Foundation, noted that a common standard would resolve many of the problems with the comparability, reliability and relevance of information being reported by companies. Fitzgerald continued  “It is encouraging to see steps being taken towards more comparable and consistent global sustainability reporting standards. The Commission have stated that the development of EU sustainability reporting standards will also contribute to the global standards development process. However, we need clarity as to who the Commission will engage to develop these standards, as they have to date only suggested this may be the European Financial Reporting Advisory Group (EFRAG). “We also welcome the proposal to digitally ‘tag’ reported sustainability information. This will ensure information is more readily identifiable, providing greater transparency and confidence. A social contract exists between business and the public, and with more companies making public sustainability pledges, these standards will ensure they are held to account for commitments and that empty promises are exposed.”   ENDS  For more information:  Jill Farrelly  PR & Communications Manager  Chartered Accountants Ireland   jill.farrelly@charteredaccountants.ie     Tel: 087 738 6608 Notes to Editor     About Chartered Accountants Ireland     Chartered Accountants Ireland is Ireland’s leading professional accountancy body, representing 29,500 influential members around the world and educating 7,000 students. The Institute aims to create opportunities for members and students, and ethical, sustainable prosperity for society. An all-island body, Chartered Accountants Ireland was established by Royal Charter in 1888 and now has members in more than 90 countries. It is a founding member of Chartered Accountants Worldwide, the international network of over one million chartered accountants. It also plays key roles in the Global Accounting Alliance, Accountancy Europe and the International Federation of Accountants.          

It is clear why sustainability matters. Added to its obvious importance are the climate action plans rolled out by governments, the global sustainability initiatives lead by agencies such as the UN and NGOs like the World Economic Forum. There is also the increased emphasis on sustainability among deciders of capital allocation, including investors, financiers, grant providers and donors, and the rising environmental awareness in society, which expects higher standards of ethics and governance from institutions. If, as a director, you occasionally feel overwhelmed by the volume of information regarding sustainability, then you are not alone. If you wonder how sustainability is relevant to your role and what difference you can make, take assurance from Socrates that “wonder is the beginning of wisdom”. How Sustainability is Relevant to Your Organisation Whatever an organisation does, regardless of its size, sustainability will impact: its legal and regulatory requirements, how it provides a service or produces a product, whether it retains or attracts talent, whether it is attractive to customers, or whether it is perceived as a viable prospect for banks or investors. The fiduciary duties of directors require them to act in the best interests of the organisation and have regard to other stakeholders. Addressing sustainability issues and looking after the organisation’s business are clearly relevant to these duties. Sustainability may be the ultimate disrupter for businesses. Even if an organisation does nothing to address sustainability issues it will still be impacted by them. For example; What is the risk of a change in regulations challenging current business models? What is the risk of more sustainable technological advancements displacing current products, service offerings or production processes? To what extent can carbon tax increases be passed on to the consumer? What impact will phasing out of oil and gas have on residual values of assets or cost of replacement in the future? Standing still is not an option if an organisation wants to manage the impact of sustainability. Directors, acting as the mind and will of an organisation, have a key role to ensure it is appropriately identifying and responding to relevant sustainability risks. How You Can Make a Difference If you are a director or a member of a board sub-committee wanting to raise the issue of sustainability (even if this is not currently seen as a priority), consider the following approach: Get informed: Find out more about the type of sustainability issues that impact your industry. Sustainability will affect regulatory requirements, consumer demand, availability of resources and all the necessary components of the ability to do business. You do not have to become an expert on sustainability, but a little knowledge or awareness can prompt the right questions. Find Allies: Engage with other board members. Discuss how sustainability impacts the business and how the board might address the issues. You may find that you have more support than you expect. Be Honest: It is important to be pragmatic and constructive as to the reasons why the organisation should address sustainability and how it does so. There may be some immediate measures the organisation can take (‘quick wins’), but more substantive measures may be required to be taken to achieve lasting long-term benefits. Collaborate: Lasting change cannot be achieved alone. If your organisation is not clear on what to do or what direction to take in relation to sustainability, consider collaborating with other organisations on similar journeys. Be curious: Ask questions about sustainability, explore alternatives and respectfully challenge traditional assumptions. Invite others to discuss the issues and embed sustainability objectives in the organisation’s strategy. Questions beginning with ‘What if?’, ‘How?’ or ‘Could we?’ will spark curiosity and give rise to more possibilities and sustainable solutions. Sustainability cannot be achieved alone.  Strategy and know-how shared among organisations and individuals will inform, create awareness and provide confidence for the journey ahead. Directors must be confident to ask advice and seek help from others. If we agree that we all have a stake in sustainability, then we all have a stake in finding solutions to the key risks of our time.   Chartered Accountants Ireland’s Governance Conference 2021 focuses on how boards can embed sustainability in organisations and takes place online on 22 April 2021 from 9:30am. Niall Fitzgerald Head of Corporate Governance & Ethics at Chartered Accountants Ireland 

The fifth annual Good Governance Awards concluded on 19 November 2020 with the announcement of the winners of the annual report awards across six categories. These categories are based on turnover including a new category this year for very small non-profits with an annual turnover of less than €50,000. One of the main aims of the Governance Awards is to improve the overall standard of annual reporting in the charity and non-profit sector and to provide specific feedback to all entrants alongside guidance on how to improve their annual reports, including their financial statements and disclosures.   Each of the annual reports goes through a very rigorous assessment but underpinning the many assessments and checklists there are some key elements or features which are essential in the eyes of the assessors and judges. In the spirit of improving standards, we have compiled a summary of the top ten judges’ recommendations arising from their assessment of this year’s shortlisted annual reports. We have also included the top ten comments from our assessors in relation to annual reports that were not shortlisted. Top ten judges’ recommendations Ensure the annual report tells a story, in a way which is easy to follow and easy to navigate. Make the link between the charity’s purpose, objectives, and expenditure apparent throughout the report. Focus on clarity and conciseness. The length of some annual reports raised questions concerning the additional value being added with very detailed accounts of activity. Use metrics and key performance indicators (KPIs) to describe achievements. Provide context by disclosing the targets against which KPIs are measured and, where applicable, disclose the prior year’s KPIs. Including a trend analysis of KPI performance over, say, a three-to-five-year period, was highlighted by the judges as good practice. Report on the organisation’s governance structures and processes and describe how adherence to good governance is embedded throughout the board and the organisation. This should include disclosing board members tenure and the approach to board succession planning. Avoid generic risk reporting and emphasise the key and specific risks the organisation faces, how these are being managed and expand into detail on what the board consider to be the current fundamental areas of risk. Include a clear explanation of what reserves are held by the organisation, including an indication of whether these are high, low or within expectations of the board. Material movements between reserves should be explained. Provide clear explanation for a deficit, if it arises, including whether this position is likely to persist and what actions or measures are being taken to address the underlying cause(s). For charities and other non-profits organisations that work with vulnerable adults and children, ensure that safeguarding (measures to protect the health, well-being and human rights of individuals, which allow people to live free from abuse, harm and neglect) is addressed in the annual report.There were some excellent disclosures on safeguarding included in some of the shortlisted organisations this year. Disclose how the charity or non-profit organisation is addressing matters relating to sustainability, cyber security, data protection, diversity and inclusion. These matters are of increasing interest to the readers of these reports. Top ten assessor comments on annual reports that were not shortlisted Ensure that there is a link between the non-financial narrative and the financial statements in the annual report. They should not read as two standalone documents. Review the report for consistency. There were notable instances where the financial statements reported a deficit but there is either no mention of this in the narrative of the annual report or a deficit of a different magnitude is referred to in the narrative. Some reports included a very upbeat and positive narrative describing the organisation’s many achievements, with little or no mention of the challenges, but the financial statements presented a different story. Ensure basic governance disclosures are included, such as providing an explanation of the operation of committees and the recruitment, induction and qualifications of board members and their tenure on the board. In addition to describing the organisation’s activities, describe the key risks and challenges faced by the organisation during the financial period. Disclose the organisation’s mission, vision and values and link these with disclosure of the organisations objectives for the financial period, key performance indicators, etc. Ensure the annual report includes transparency in relation to the various sources of funding accessed by the organisation during the financial period. Ensure the income and expenditure account, or statement of financial activities (for those apply the Charities SORP (FRS 102)) is presented showing restricted and unrestricted funds separately. Review, before submission, the financial statement disclosures to ensure they are complete (required disclosures are included), consistent with the information presented in the financial statements and elsewhere in the annual report and provide any additional information necessary to assist the readers understanding of the organisations successes and challenges faced during the financial period. Prepare an annual report that includes both the non-financial narrative and the financial statements to facilitate readers getting a better understanding of the financial position and key drivers for financial performance. Opt-out of the right to prepare financial statements in accordance with Section 1A of FRS 102 or to file abridged or abbreviated financial statements. This is sub-standard to good governance practice for charities and non-profit organisations reliant on government grants, fundraising from the public or other sources of charitable or voluntary donations (e.g. philanthropy or people volunteering their time to help others). We hope that the above observations and feedback comments will help in improving the standard of annual reports, including financial statements next year. Diarmaid Ó Corrbuí, CEO Carmichael. Email diarmaid@carmichaelireland.ie    

Chartered Accountants Ireland congratulate the winners of 2020 Good Governance Awards, which took place last night, 19th November 2020, with over 220 online attendees. Chartered Accountants Ireland were delighted to partner with The Carmichael Centre and support this annual highlight for the Charity and non-profit sector in Ireland. 2020 winners are: Category 1 (volunteer only organisations with an annual turnover <€50k): Serve the City Category 2 (volunteer only organisations with an annual turnover between €50k and €250k): Sharing Point Category 3 (organisations with an annual turnover between €250k and €1m): Children’s Rights Alliance Category 4 (organisations with an annual turnover between €1m and €5m): BeLonG to Youth Services Category 5(organisations with an annual turnover between €5m and €15m): LauraLynn Ireland’s Children’s Hospice Category 6 (organisations with an annual turnover >€15m): Concern Worldwide Governance Improvement Initiative Award: NiteLine Dublin, Proudly Made in Africa, Canoeing Ireland, The Jack and Jill Childrens’ Foundation, and Royal College of Physicians of Ireland. Congratulations to all organisations that were shortlisted. As part of the mission to encourage and promote good practice in the area of annual reports and others areas of governance feedback is provided to all entrants. In addition, overall observations of what organisations did very well and areas for improvement is shared.