Éire correction

While the UK’s corporate governance bandwidth is almost entirely occupied with the King’s Speech announcement that audit reform had been resurrected, other issues have been developing. So brace yourselves: corporate governance did not come into being in the UK—but in Ireland.

Most corpgov anoraks like to think the birth of contemporary corporate governance was the Cadbury Code of 1992, a moment that is said to have “broken ground’ with its efforts to spell out the responsibilities of boards.

However, Harvard governance boffin Stephen M. Davis says the Irish Association of Investment Managers (IAIM) beat Cadbury by six months.

It was a struggle to prove it though. Davis writes that participants failed to remember and a copy of the Irish code could not be found.

However, an early hard copy was eventually founds in the depths of the library of Trinity College Dublin.

The May 1992 paper said the IAIM was “seeking to give the Directors of Public Companies and their advisers a view on the expectations of institutional shareholders on: the composition of Boards of Public Companies; the appointment of Directors; non-executive Directors; Audit Committees; Remuneration Committees; Boards of subsidiary companies; management buy-outs”.

Davis writes: “It is hard today to appreciate just how ground-breaking this stated purpose was in 1992, when the IAIM’s authors wrote the code. Scandals had erupted—exhibit A was the fraud contrived by media oligarch Robert Maxwell—exposing the feebleness of board governance at public companies.

“In Ireland, there were corporate scandals related to conflicts of interest, involving Greencore and Telecom Eireann. But the IAIM had no models to work from when it developed guidance on best practices. What it recommended from its Dublin headquarters was remarkable both for Ireland and the world at large.”

Well done, Ireland. Sláinte!

Contradictory advice

Over on the Oxford University Corporate Governance blog there is a warning that new EU requirements for companies to undertake human rights and environmental due diligence could clash with other pieces of European law.

The due diligence rules are contained in the Corporate Sustainability Due Diligence Directive (CSDDD) but Portuguese legal eagles Inês F. Neves and Joana Fraga Nunes, say there’s a problem.

“While it may not seem obvious, the CSDDD may confront companies with contradictory duties. On the one hand, there is the need to comply with competition law rules—which could be quite restrictive towards business cooperation, resulting in heavy fines. On the other hand, there are due diligence obligations, which may require such cooperation, deriving from the CSDDD.”

And then there’s a warning that CSDDD may not produce the idealistic results it was intended for.

“The absence of clear guidance regarding the expected enforcement may deter companies from taking action beyond what is strictly necessary.”

Purpose driven home

At the Institute of Business Ethics (IBE), experts are trying to work out why “purpose” and corporate culture are universally recognised as critical, and yet chief executives consistently say they don’t have time for it.

IBE’s Annabel Gillard writes that one of the issues is shareholders being too slow to recognise improved culture can provide improved returns.

“Most have received no education on how to evaluate organisational culture and believe it can’t be done. A focus on financial analysis has driven success the last few decades, leading to confirmation bias and availability bias. An increasing short-termism hasn’t helped either.”

Gillard argues new technology will help with the insights needed by shareholders to assess culture.

“We call on investment analysts and asset owners to take a closer look at the benefits for them and their stakeholders if they bridge the gap.”