Ireland has a modern economy and is in the top 20 nations globally for its low level of corruption (it is just below the United States and above Japan), as assessed by Transparency International’s Corruption Perception Index. Yet some of Ireland’s largest companies breach corporate governance codes.
Ryanair is the largest Irish company in the crosshairs for angry investors. Company chairman David Bonderman has held the position for 20 years, compared with the maximum of nine years under the corporate governance codes from the Financial Reporting Council and the Irish Stock Exchange. In addition, Bonderman – who recently resigned from the board of Uber over claims of sexism – owns 7.5 million Ryanair shares, with a value of about €125m, further undermining his proclaimed independence. Nor is he alone.
Other supposedly ‘independent’ Ryanair non-executives include Michael Cawley and Howard Millar, who both took on their roles after stepping down from senior executive positions – in clear breach of the codes. Some other non-executives, including former finance minister Charlie McCreevy, had their independence questioned over their share options.
These concerns led to three investor advisory groups – PIRC, ISS and Glass Lewis – recommending shareholders to vote down some motions at Ryanair’s most recent AGM. In the event, investors heavily backed the company and its directors.
ISS complained that by its calculation only 18% of Ryanair’s directors were truly independent. In addition, ISS was concerned that the directors were spreading themselves too thinly – it believes directors should sit on more than five boards. Bonderman is chairman and CEO of the TPG Capital private equity fund and sits on several TPG subsidiary boards, as well as being a non-executive of China International Capital Corporation, Caesars Entertainment Corporation and several other companies.
PIRC advised investors to vote against all but one of the nominations for ‘independent’ directors. In addition, PIRC described the overlapping of board membership of the separate holding and operational Ryanair companies as “an unhealthy corporate governance practice”. It also expressed “serious concerns” about Ryanair’s long term incentive plans, which are based on what PIRC calls “undisclosed performance criteria”.
Glass Lewis was also unhappy about the incentive plan and its lack of transparency. But its advice to shareholders was to vote down just one of the non-executives, while also recommending voting against the authority to set auditors’ fees on the grounds that auditor KPMG received “excessive non-audit fees”.
Ryanair failed to respond to repeated requests for a comment. Michael O’Leary was quoted across much of the media as saying in advance of the AGM: “My view of shareholders voting against my pay package is: if you don’t like it, don’t vote against it — sell your shares and f**k off.”
Another of Ireland’s corporate giants has also been criticised. Independent News & Media (INM) recently reclassified two of its ‘independent’ directors as ‘non-independent’, after accepting that they had close links with the largest shareholder, Denis O’Brien. The issue escalated because the now departed chief executive Robert Pitt opposed moves backed by company chairman Leslie Buckley to acquire the Newstalk radio station from O’Brien’s Communicorp company at a price above what Pitt regarded to be the market value.
Buckley is a representative of O’Brien and therefore, says Glass Lewis, is not independent. INM has now embarked on a search for new truly independent non-executive directors. In a statement, INM said it “is committed to maintaining the highest standards of corporate governance” and that it applies the corporate governance codes.
Other Irish companies have also been criticised. Tullow Oil’s retiring CEO Aidan Heavey moved straight over to the role of chair – saying that investors demanded this for the sake of continuity. Eugene Murtagh has been chairman of Kingspan since 2005 after stepping down as CEO: his son Gene is now the CEO.
But while a breach of the corporate governance code is bad practice, it is not illegal. A spokesman for the Office of the Director of Corporate Enforcement said that as the corporate governance codes are not based in statute law, “the ODCE does not have an enforcement remit in respect of non-compliance with such requirements”. But, he added, the ODCE is supportive of the codes and the objectives of promoting good governance and preventing “some of the more significant governance failures that have occurred in the past”.
There is also limited action that an auditor can take. “All an auditor can do is make sure that the financial statements fully disclose the issue and if the financial statements do not disclose the issue, to describe the non-compliance in their audit report,” explains ACCA Ireland’s advisory services manager, Aidan Clifford. “Where there is a Companies Act or stock exchange rule requirement for independent non-executive directors then this can be enforced by the state or by the stock exchange; but while these requirements are ‘comply or explain why you have not complied’, only the shareholders can force compliance.
“Being in a position to direct the affairs of a company and force them to comply with a particular code, makes that person a shadow director. There is a legal bar on a person holding the position of both auditor and director or shadow director. An auditor can’t run the company: all they can do is ensure that the management of the company describe how they are running the company and report to shareholders when that description is not a fair reflection of the performance.”
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Independent directors
The UK Financial Reporting Council’s corporate governance code is endorsed by the Irish Stock Exchange and applies to companies listed in the UK or Ireland. At least half the board (plus chairman) should be independent non-executives at larger companies. Smaller companies should have at least two independent non-executives. Independence is determined by character and judgement, as well as relationships. A director would not normally be regarded as independent if they have been an employee within the last five years; have a material business relationship with the company; receives additional remuneration from the company apart from a director’s fee; has close family or commercial ties with a senior person in the company; has significant links with other directors; represents a significant shareholder; or has served on the board for more than nine years. Listed companies are required to either comply or explain.