An investigation into the degree to which companies listed on the ISEQ comply with the independence requirements of the combined code 2008

Abstract

The study of corporate governance and the most appropriate way to regulate it, first became a mainstream topic post the failure of Enron in 2002. Since then much discussion has taken place on the best way to regulate the governance of companies and to ensure that companies are governed in a manner that reflects the interests of its shareholders. America with the introduction of Sarbanes-Oxley took a legislative backed approach, whilst the UK and Ireland adopted a “comply or explain” approach. This “comply or explain” approach gives companies a choice of whether to apply the Combined Codes guidelines on corporate governance within their company or not. One area given prominence in the Combined Code is the appointment of independent non-executive directors to the board and committees within the company, their main role being to ensure that the directors run the company in the appropriate manner. This research looks at whether Irish listed companies are complying with the various sections of the combined code regarding the appointment of independent non-executive directors to the board and committees.

This study has revealed that Irish listed companies are in most cases fully compliant with the Combined Code provisions and believe that proper corporate governance policies are important to their business. However the study has also revealed that many companies are compliant with the provisions of the combined code but not with its spirit. Although respondent companies have stated that they have appointed the appropriate number of independent non-executive directors, the criteria used for such appointments has being manipulate to such an extent that their appointment has become ineffective in achieving its desired goals.

The study has revealed that the “comply or explain” approach is flawed and has allowed manipulation of the combined codes guidelines which has had a direct influence on some of Irelands recent corporate scandals e.g. Anglo Irish Bank.