Corporate governance has probably never been in the headlines quite as much. Failings in corporate governance have been highlighted in recent events in Davy stockbrokers and last year in the quite spectacular collapse of German payment processor Wirecard. And back at home we had the near collapse of the Football Association of Ireland to offer a salutary lesson in what can happen when corporate governance breaks down.
Prof Niamh Brennan set up the UCD Centre for Corporate Governance in 2002 with the aim of improving standards and helping to prevent such failings. She was also motivated by her experience of having become a non-executive director of a financial institution at what she describes as “an embarrassingly young age”.
And she found there was no education and training available to support her in the role.
“I wasn’t the only person in that position. That’s why I set up the Centre for Corporate Governance. It was the only place offering training in Ireland at the time. There would be a cohort of people who think they don’t need training but what makes me happiest is when students say they learned a lot more than they had expected on our programmes. They start by wanting to add to their CV but at least of 50 per cent of what people learn on the programme is from each other and there are a lot of experienced people who have been around the block a few times on the courses.”
The centre began by offering short courses for directors and then moved on to customised courses for the boards of organisation. "After that I developed the postgraduate diploma in corporate governance. I had to crawl, walk and then run. I think doing it that way over three years contributed to getting it off the ground successfully. I built up the profile of the centre as I went along and got it on to people's radar."
Students on the one-year part-time programme attend lectures two evenings a week, on Mondays and Tuesdays. “They learn what corporate governance is,” Brennan explains. “They learn about the regulatory side of it. But almost always when things go awry it comes down to behavioural issues and social psychology. We do a good bit on the soft side of governance to cover that. We also cover the board and its purpose, the board committees – audit, nominations, remuneration. And we have modules on risk management and other areas.”
She has more than a little sympathy for non-executive directors who find themselves in a situation where wrongdoing has been uncovered within the organisation. “Davy had a number of independent non-executive directors and I doubt if any of them expected to be faced with a situation like this. They are now in charge of a sales transaction.”
Internal controls
She points out that no internal control system will stop compliance functions being bypassed because the people at the top have the power to do it.
In the case of Wirecard the company had €1.9 billion on its balance sheet that didn’t actually exist. “The Wirecard CEO had described himself as a pathological optimist, that goes a long way to explaining what happened,” she notes. “The human side of corporate governance is so important.”
“They say the board sets the tone at the top, but I would put a qualifying statement to that, the CEO sets the tone,” she adds. “The board chooses the CEO and has some influence over them. But I do think the tone is set by the senior people. There has been a lot of discussion about the senior executive accountability regime. It’s already in the UK and it’s coming in Ireland.”
Non-executive directors will also be covered by the quite onerous requirements of the new regime. “An increasing number of people are saying they are not going to go near a non-executive director role with a firm covered by it.”
High standards of corporate governance will not necessarily prevent such scandals. “Corporate governance won’t stop that from happening. You want honest people with integrity running organisations. There is research that shows organisations with good corporate governance standards do well. Unfortunately, it’s the failures that get the headlines. That may give the impression that corporate governance standards are worse than they are.”
But its stock is rising. “There is increasing recognition of the value of good corporate governance in organisations and having a qualification in corporate governance on a CV is very worthwhile. People who have the diploma in corporate governance find themselves sought after as executives and non-executive directors. The next programme begins in early September and applications are open for that at the moment.”