ACOI In The News
Coverage in yesterday’s Sunday Business Post – commentary from ACOI CEO on the current and future corporate governance challenges facing organisations.
Good governance saves companies from future conflict
Conflicts of interest and non-compliance can come with a high cost for organisations in any industry
The future is digital and that will bring its own corporate governance challenges, Michael Kavanagh, chief executive, Association of Compliance Officers in Ireland, said.
“New technologies have the potential to create significant change and corporate governance oversight will need future proofing. New governance models will be fully blockchain-based and will require a new mindset for governing organisations.”
Recent events have demonstrated the importance of compliance with the principles of good governance. “The news that the Central Bank of Ireland has fined J&E Davy €4.1million clearly demonstrates the importance of the compliance function within an organisation and also the massive reputational consequences that result from circumventing or disregarding that compliance function, as appears to have been the case with Davy,” Kavanagh said.
“Situations such as this reinforce the absolute necessity to involve qualified compliance professionals in any decision-making process such as arose in this instance and at an early stage in any scenarios where a conflict of interest may occur.”
A company’s compliance function is there to help to safeguard consumers, clients, employees and the organisation itself. “However, it can only discharge its role effectively when it is fully informed and has access to all relevant information,” said Kavanagh. “The resignations that have happened so far, the €4.1 million CBI fine, the adverse publicity and massive reputational damage to the organisation serve to illustrate the true cost of non-compliance.”
The Association of Compliance Officers in Ireland (ACOI) is the professional body for compliance professionals. With over 3,250 members, it is the premier provider of education and professional development in compliance, providing a balanced and authoritative voice on matters relating to regulatory compliance and business ethics in industry in Ireland.
“For those businesses which are regulated by the Central Bank of Ireland, one of the most important regulatory obligations this year would be the Senior Executive Accountability Regime,” said Jamie Cooke, managing director, FSCOM and Compliance Ireland.
“Mirroring several other prominent financial services centres, the CBI is looking to adopt SEAR (Senior Executive Accountability Regime), which will place more focus on individual responsibility for managing and directing regulated institutions.”
“Although the regime is to go through pre-legislative scrutiny in April and needs to be finalised, it is likely that when formally adopted, SEAR will give the CBI legal power to take action against individuals as well as corporate bodies.”
“I am also a board member of Carmichael – a charity that is the leading provider of quality services and training supports to organisations with a social purpose to help maximise their impact,” said Kavanagh. “It is home to 48 charities and provides them with shared services and targeted supports.”
“In that context, the important governance obligation to be mindful of this year is the new Charities Governance Code issued by the Charities Regulator. This code sets out a mandatory standard for governance in Irish charities. All charities in Ireland must implement the code from 2020 onwards and the requirements are quite onerous for those that have not implemented such requirements heretofore.”
Governance obligations every business leader should know
Incorporation as a limited company has brought a slew of statutory duties for Irish business, said Salvador Nash, president of the Chartered Governance Institute, Ireland.
Since the 2014 Companies Act came into force, the benefits of incorporation as a limited company have gone hand in hand with an increase in statutory duties that companies and the directors who control them need to hold at the forefront of their minds.
“The benefits of incorporation as a limited company include a separate management structure to that of the owners of the business, the legal capacity of a company to be sued or to sue and all importantly, the owner benefiting from limited liability,” said Nash.
The cost of those benefits for directors and companies is strict compliance with statutory duties imposed by the Companies Act and related statutory instruments. “Both wide ranging and specific, directors can be left in little doubt as to the intention of the legislature,” said Nash.
“In that regard, in addition to eight specific fiduciary duties set out in the Companies Act it also imposes a duty on each director of the company ‘to ensure that this act is complied with by the company’. So important is this duty that an owner of the business can seek a court order seeking that the company or its directors comply with the provisions of the act.”
A possible further acknowledgement of the importance of compliance with statutory duties, the directors are under a further statutory obligation to ensure that the person who is appointed company secretary has the necessary skills or resources to discharge their statutory or other duties, said Nash.
Apart from these specific duties, there are a range of other duties including the preparation of a statutory financial statement, keeping adequate accounting records, avoiding conflicts of interests, convening general meetings and, for larger companies, the obligation to have an audit committee and a directors’ compliance statement.
“Of course, there are other areas of law apart from company law that directors and companies have to be compliant with including tax law, employment law, disclosure of beneficial ownership regulations, applicable Central Bank regulations and GDPR,” he said.
The consequence of breach of duties can result in personal liability for directors, liability for the companies and fines and imprisonment. “A failure to making a statutory filing or a failure to file on time can result in the company appearing in the District Court and ultimately being struck off and dissolved.
Directors can also be held accountable in the District Court for the foregoing resulting in personal fines and for persistent breaches a restriction or disqualification being made against them,” said Nash.
A constantly evolving business environment, never more evident than in the last 12 months, and IT development requires ongoing review and updating of the company law code, something that is part of the company law review group’s remit and of all practitioners of company law.