Address by the Minister for Enterprise, Trade & Employment, Mr. Micheál Martin, T.D. to the Institute of Directors in Ireland

Corporate Governance

It is only in the past 15 years that the issue of corporate governance has become a focus of major interest to shareholders, financial analysts and stakeholders. This focus has intensified over the last few years in the wake of a number of high-impact corporate financial scandals, which have brought the issue of corporate governance to Global prominence.

Good corporate governance is an essential part of modern business life. Shareholders and stakeholders are focusing increasingly on the governance of companies as well as on their financial performance, on the basis that good governance leads to good performance.

An important influence in the governance of business is the regulatory environment within which business activity takes place. But regulation is not an end in itself. It only has value if it serves useful purposes.

Business regulation in the field of company law feeds into improvements to our national competitiveness, through high standards of corporate governance and brings about a stable and predictable environment in which entrepreneurs can establish businesses, investors can invest, creditors can lend and the interests of the employees, consumers and other stakeholders are protected. Low standards of corporate governance cause serious damage, not just to the immediate victims of the misconduct - the investors, creditors, employees and pensioners of a scandal hit companies, but to confidence in the operation of markets and with follow-on damage to whole economies.

Lord Levene, the guest speaker, may be speaking on liability issues and would be familiar with the kind of “Fine Mess” to use the famous Laurel & Hardy Term, following on from such collapses.

Ireland’s economic future is inextricably bound up with the global economy through investment, trade, people and business generally. We have to be at the top of the game in every aspect that affects competitiveness. Aspiring to having the highest standards of corporate governance, to be measured by meaningful and credible indicators, in the world, is a laudable objective and one, which we are pursuing. I am not, of course, in any sense talking about regulation for its own sake, which we all know is self-defeating.

Regulatory initiatives

Governments have to step in to develop effective regulatory structures and practices in areas of regulatory failure. In the Company Law Area the government has taken several initiatives to improve the regulatory infrastructure, by, for example, setting up the Office of the Director of Corporate Enforcement and the Irish Auditing and Accounting Supervisory Authority. In both cases, existing regulatory structures were not working or not working well enough. Reform was necessary. And reform has been accomplished.

Directors Compliance Statement

One of the specific initiatives of recent times in the Company Law Area was the Directors Compliance Statement, which formed part of the Companies (Auditing and Accounting) Act, 2003. This requires Directors of certain companies to prepare a compliance statement containing information on the company’s policies in relation to compliance with its relevant obligations, the procedures which it has put in place within the company in order to ensure compliance with these obligations and the arrangements for implementing and reviewing the effectiveness of these policies and procedures.

At the request of the Minister for Trade and Commerce, Michael Ahern, to fine-tune this measure, the Company Law Review Group (CLRG) undertook a detailed review of the provisions on the Directors’ Compliance Statement during 2005. This involved extensive consultation with members and other interested parties, the undertaking of a screening regulatory impact analysis and ultimately led to the production of a Report, which contained a recommendation for a mitigated form of Directors’ Compliance Statement. The CLRG’s recommendation in this regard was approved by the Government last November, and will be taken forward in the context of the new Companies Consolidation and Reform Bill.

International Financial Services Centre

Of course legislation does not always have to be regulatory and intrusive. The International Financial Services Centre in Ireland set up by the Government in 1987, is globally recognised as a leading location for a range of internationally traded financial services and employs just under 11,000 people and thrives on the flexible legislative framework which my Department provides for it, and which enhanced Ireland’s position as an attractive international location in which to establish. During last year significant changes were made to company law with the Investment Funds, Companies and Miscellaneous Provisions Act 2005. Directors of Investment Funds in particular will be aware of the new opportunities brought with the introduction of the non-UCITS Common Contractual Fund Structure. Other changes made for this industry included the introduction of cross investment and segregated liability for investment funds. The Attractive Face of Legislation!

Consolidated Companies Bill

As most of you here this evening will be aware, my Department is in the midst of one of probably the biggest regulatory reform initiatives being undertaken in Ireland – the simplification and modernisation of the company law code into a single document. The drafting of the General Scheme of the Bill is well underway and I hope to bring the Bill to Government for agreement in the latter half of 2006.

Conclusion

This brings me to the end of my short discourse. It has been a pleasure to address the gathering and I look forward to the festive side of our evening.

In conclusion, I wish to acknowledge the vital role the Institute of Directors plays in the Irish economy and its major contribution to the industrial and commercial life of the country. And finally, I wish to thank Robert Grier, President of your Institute for inviting me here tonight and I wish the Institute and all its members every success in the future.