Will our “Comply or Explain” approach survive Brexit?
Now that the Brexit train wreck is in full flight with no end in sight, it poses the question from a corporate governance point of view, should we still rely on the UK for future corporate governance guidance or should we take responsibility for charting our own corporate governance working with the EU 27.
One could describe our approach to corporate governance as a patch work quilt of codes made up of:
- Financial Reporting Council – The UK Corporate Governance Code April 2016 as modified for Ireland by the Irish Corporate Governance Annex
- Corporate Governance Code for Credit Institutions and Insurance Undertakings
- Governance Code for Community, Voluntary and Charitable Organisations
- Charities Governance Code
- Code of Practice for the Governance of State Bodies
All the above emerged from different but well intentioned sources which have helped to raise the awareness of corporate governance in Ireland.
But, the UK Corporate Governance Code only applies to a relatively modest number of plcs on the Irish Stock Exchange. We have no codes for SMEs or indeed FDI organisations who may have to adhere to their own corporate governance codes or indeed rules from their country of origin.
We need to stand back and take a good hard look at what type of corporate governance framework and codes we need in Ireland appropriate to an economy which relies on SMEs mainly, FDI, a small number of plcs, a large number of micro businesses, voluntary organisations and of course the State.
Our ambition should be to have a corporate governance framework that is pro- business but does strikes the right balance between holding directors and companies to account on a timely basis without having an overly burdensome compliance regime.
Europe does not have as yet an EU Federal Governance code. It has relied on the UK soft-law approach which is “comply or explain”. Whether this will stand the test of time remains to be seen as EU Regulators may question the voluntary nature of the “comply or explain” approach and seek to move to a more rules based system which is the case in the USA. However, the rules based approach did not prevent Enron!
But we should not stand around and wait to see what happens. We should take the lead on this and work with the EU to ensure that we work towards a fit for purpose corporate governance framework supported by the appropriate codes or rules that work for Ireland Inc.
A Government led initiative will send a very powerful message to organsations in Ireland, Europe ….and the world of inward investment that we are seeking to create a corporate governance framework that is cohesive, structured, coherent, consistent and strikes the right balance to support the economy.