The changing regulatory environment for directors in IrelandThe operating environment for boards and directors has undergone significant change in recent years, with complex corporate governance regulation introduced in some sectors, such as financial services, along with voluntary governance codes for others, including, though not limited to, the not-for-profit sector.

These governance codes have been introduced with the aim of improving and regulating governance standards in Ireland and reflect the new environment in which boards and directors now operate and the desire by many directors to ensure the highest standards of probity in their role as directors.

The environment is set to experience further change in the year ahead, with the Companies Bill, the largest piece of legislation in the history of the State, currently progressing through the Oireachtas. In addition, the Central Bank recently published its revised Corporate Governance Code for Credit Institutions and Insurance Undertakings, following a consultation process with interested parties in the autumn of 2013. The provisions outlined in the revised Code will come into effect on 1st January 2015.

There are a number of key changes contained in the revised Corporate Governance Code which regulated financial entities will need to comply with:

  • Institutions will be required to appoint a Chief Risk Officer (CRO)
  • Both the risk and audit committees will be required to have a minimum of three members
  • Institutions will be required to ensure that there is at least one shared member between the risk and audit committees. In addition, institutions deemed ‘High Impact’ will be required to have at least one shared member between the risk and remuneration committees
  • Institutions will be required to introduce a diversity policy for board membership
  • The minimum number of board meetings required for High Impact institutions has been reduced from eleven to six per annum
  • The Chairman can now hold the role of Chairman in other credit institutions and / or (re)insurance undertakings within the group, subject to prior approval by the Central Bank
  • The Chief Executive Officer (CEO) of a Medium-Low or Low Impact institution can now hold up to two additional CEO positions provided they are in Medium-Low or Low Impact institutions, subject to prior approval by the Central Bank.

A firm emphasis on governance and directors’ duties is also a central component of the Companies Bill, which consolidates the existing Companies Acts 1963 – 2012. The Companies Bill will place directors’ fiduciary duties on a statutory footing for the first time and has been described by Minister Richard Bruton as a landmark bill, that will make company law obligations easier to understand and more difficult to deny.

There is a significant amount of information for directors to digest in the Companies Bill to ensure a smooth transition process and that they meet their duties and obligations under the new legislation.

A key outcome of the regulatory and legislative steps taken to improve governance standards in recent years has been a heightened awareness of and appetite for director and board training. Boards are increasingly recognising the value of specific training for directors on their role and responsibilities and, in many cases, training is now a central element of a director’s induction onto a board.

The environment in which boards and directors operate continues to evolve. The focus for the years ahead must be on building better boards – with a transparent appointment process, with directors appointed on the basis of having relevant skills, knowledge and expertise, as well as meeting regulatory requirements, and with the central goal of ensuring that all those who act as directors in Ireland, not only fully understand their legal duties and responsibilities, but also recognise the gravity and importance of the role.

For further information on directors’ duties and responsibilities or to discuss sourcing an independent non-executive director for your board, contact Thora Mackey, Chief Operating Officer, The Institute of Directors in Ireland, in confidence on 01 411 0010 or visit www.iodireland.ie.