Ireland and its approach to governance of financial institutions
‘Poor governance is an undiversifiable risk – one that investors don’t get paid for. We don’t expect our managers to accept risks they can’t possibly get paid for – Why should we?’
The financial crisis of 2008 left most ‘developed’ economies in a fragile state, with the US and many countries in Europe suffering a prolonged economic decline. Ireland was severely affected and fell into a recession from which it has only recently signs of recovery. Investors, customers, politicians’, and the general public expressed unequivocal outrage towards many ‘reputable’ financial institutions for a vast number of irregularities which occurred within the system. Instability and uncertainty caused investors to lose confidence in the financial market, forcing many to withdraw their investments. Subsequent to this, and in an effort to improve investor confidence in the Irish economy, authorities sought to put in place strong regulatory and governance responses.
Thus it can be said that the financial crisis brought with it a valuable lesson for the corporate world, namely that ignoring crucial aspects of corporate governance will lead to financial ruin, not just for individual institutions but for entire economies. Ireland, a country roundly accused of light touch regulation,implemented vast changes during the financial crisis by examining its international counterparts for guidance. This paper focuses on the approach Ireland has taken to governance in the financial sector and highlights the striking similarities and differences of the approaches adopted by the UK and various international bodies and states.
The UK Combined Corporate Code established in 2010, was received favourably among investors and institutions.The 2010 code encompasses many of the findings of the Walker review.The review group was set up as a result of the financial crisis and addressed the concerns raised in the corporate governance failures of banks and financial institutions. The 2010 report consist of 18 main principals, 28 supporting principles and 52 provisions. Schedule C which had the “engagement principles for institutional investors”, has receded since the implementation of the Stewardship Code 2010.The Financial Reporting Council (FRC) issued the Stewardship Code in order to ‘…to enhance the quality of engagement…”
This Article is available within the Irish Law Times Journal which can be found within the following website: http://www.westlaw.ie/content-higlights-journals.htm