Some responses to the Consultation Paper on Corporate Governance Requirements for credit institutions and insurance undertakings have now been published on the website of the Irish Financial Regulator. The Consultation Paper proposed a regulatory framework for corporate governance for credit institutions and insurance undertakings, setting out minimum standards to be met.

In a constructive response, Prof Niamh Brennan, of the Centre for Corporate Governance at University College Dublin advocates a culture of corporate governance that is more than mere "light touch". She points out that nearly all of the proposed requirements are existing features of the 2008 UK Financial Reporting Council’s Combined Code of Corporate Governance, which applied to four of the the seven financial institutions under the Credit Institutions (Financial Support) Scheme 2008.

'With the notable exception of Anglo Irish Bank Corporation plc, these institutions adopted the governance standards being proposed in the Consultation Paper and yet got into financial difficulties. This would suggest that something beyond the standard corporate governance mechanisms is required for good governance to prevail'.

'Compliance with governance standards can easily be achieved by empty rhetoric and through corporate ritual rather than through meaningful observance of the spirit of the requirements.'

She believes that the comply-or-explain regime of the Stock Exchange on corporate governance is 'clearly not working', and suggests that 'Companies that provide trite, meaningless, ritualistic explanations under a comply-or-explain regime should be subject to challenge and even admonition/sanction if their explanations do not meet proper standards'.

The response from Financial Services Ireland, the principal trade association for financial services in Ireland, notes that 'events of the last two years have shown that some individuals in positions of responsibility did not discharge their functions in an appropriate manner. In some cases they appear to have placed their own short-term interests ahead of their firms. In other cases they did not fully understand and control the risks that their firms assumed, or had an unquestioning belief in the strength of the market and their businessmodels. As a result, an enormous financial and economic burden has been placed on the Irish people, shareholder value has been destroyed, and Ireland s international reputation has been damaged'.

While recognising that measures that improve the standard of corporate governance in Irish financial institutions are essential to rebuilding Ireland's international reputation, its response suggests that the proposed rules need to be tailored to the specific characteristics of the Irish financial services sector, and must be set at a level that makes sense to those who are expected to follow them (essentially arguing that smaller institutions should have a level of opt-out).

The Consultation Paper proposes to:

• Impose requirements in terms of the minimum number of directors on the Board;
• Limit the number of directorships which directors may hold so as to ensure they can comply with the expected demands of Board membership of an institution;
• Require that Board membership is reviewed at a minimum every 3 years;
• Require clear separation of the roles of Chairman and CEO and preclude an individual who has been CEO, director or senior manager during the previous five years from becoming Chairman of that institution;
• Set out clearly the role of the independent non-executive directors;
• Require the Board to set the risk appetite for the institution and to monitor adherence to this on an ongoing basis;
• Set out the minimum requirements for Board committees; and
• Require annual confirmation of compliance to the Financial Regulator.

Further Reading

Consultation Paper - Corporate Governance Requirements

Consultation Response - Prof. Niamh Brennan, Centre for Corporate Governance at UCD

Consultation Response - Financial Services Ireland