2 March 2010
PRESS RELEASE
Irish listed companies are being more transparent about their Corporate Governance performance according to a major new report released today (TUESDAY).
While the level of full compliance remains low at 36 per cent (2009: 51 per cent) and needs to improve, the real issue is not whether a company can claim full compliance on a strict technical basis, but rather the clarity and transparency with which they disclose relevant information to shareholders.
This year’s
Grant Thornton Corporate Governance Review of Irish listed companies’ compliance with the Combined Code comes at a time when the Government is attempting to rebuild credibility in the Irish financial system after the banking crises of 2009.
Complying with the Combined Code, or disclosing and explaining non-compliance, is a condition of listing on the Irish Stock Exchange.
The Corporate Governance Review 2010 reveals that:
- The number of companies claiming full compliance with the Code has dropped from 51 per cent to 36 per cent. Grant Thornton’s review reveals, however, that companies are being more transparent in disclosing and explaining the areas in which they are not applying the provisions of the Code.
- More guidance is needed to assist companies in transposing the Code’s detailed requirements into meaningful disclosures in financial statements, so that users can readily ascertain where companies are not complying with the Code, and the potential impact of this.
- A third of companies fail to disclose if they have reviewed the chairman’s performance, and 28 per cent of companies do not properly explain how the roles of chairman and chief executive are divided.
- There has been a notable decrease in the number of companies reporting that the board is comprised of a majority of independent non-executive directors (down 10 per cent to 77 per cent), and over a third of companies are not properly disclosing the terms of appointment for their non-executives.
- The regulatory system governing Irish listed companies is inappropriate to their needs and the needs of shareholders. There are currently several bodies involved in regulating listed entities and the country lacks a single, strong regulator. The regulatory system gives rise to overlapping and confusing rules, late and poorly planned transposition of EU directives and a lack of enforcement of existing regulations.
- Reported levels of compliance with internal control and risk management guidelines are high, with most companies claiming to have the necessary structures in place. However, despite the questions being raised about the effectiveness of risk management and control in light of the financial crisis, explanations of compliance in this area continue to be brief, with companies providing shareholders with little detail on the specifics of how their risk and control functions operate.
Managing Partner with Grant Thornton, Paul Raleigh, said: “The most significant theme in this year’s report is that companies are being more transparent and are giving better information.
“Overall, the greater transparency is, in itself, an improvement, but our work shows that more needs to be done to provide a unified framework for companies to follow with proper enforcement for non-compliance.”
Mr Raleigh also called on listed companies to look at how they assess the quality and competence of their Boards.
“Whether it’s a legislative solution or the “comply or explain” approach advocated by the Combined Code, it is clear that it is the behaviour of boards, and in particular of their leaders, that ultimately determines the corporate governance culture of a company,” added Mr Raleigh.
“It is worth highlighting the critical role a chairman should play in the leadership, management and development of a board which is why there needs to be a clear distinction between the role of the chair and the chief executive.
“The focus of the debate should now be on how boards can be strengthened, and what structures and processes at board level are likely to produce the optimal corporate governance practices.”
Raleigh also urged Boards to provide further detail about how their risk management processes operate.
Commenting on the absence of a single effective regulator solely dedicated to the oversight of listed companies, Raleigh added:
“The government should examine the models used in other jurisdictions—such as the UK and US where the Financial Services Authority (FSA) and Securities and Exchange Commission (SEC) are responsible for regulating listed entities in their respective countries—and adopt an approach that leads to genuine compliance without an unreasonable burden on companies.”
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For further information:
Karl Brophy 01 662 4712 or 086 044 0253
Kevin Sammon 01 662 4712 or 086 045 3951
Notes to editors:
Grant Thornton in Ireland comprises over 400 partners and staff operating from offices in Dublin, Limerick and Kildare. The firm provides a comprehensive range of services including audit, financial planning and advisory services to public interest entities, privately held businesses and the financial services sectors.
The Grant Thornton Corporate Governance Review 2010 was compiled in the last quarter of 2009, based on publicly available data for 36 listed Irish companies. Last year’s report was based on 39 companies. The purpose of this review is to gain an insight into the level of compliance with the Combined Code by Irish companies. The approach was to examine two main areas of corporate governance; the first being the level of full compliance with the Combined Code, the second being an examination of compliance with the principles and provisions of the Combined Code.