By Niamh Brennan
Amid allegations of serious corporate governance issues and data hacks at Independent News and Media (INM), it is an opportune time to look at Irish legislation that dictates governance of companies.
Today, the Director of Corporate Enforcement will apply to the High Court for the appointment of an inspector to the publicly listed company INM.
While the Office of the Director of Corporate Enforcement (ODCE) already has significant powers of inspection, High Court inspectors have much wider powers and can require individuals to co-operate with their inquiries even if that involves self-recrimination.
The background to today’s High Court application is the proposed sale of the radio station, Newstalk to INM.
Newstalk is owned by businessman Denis O’Brien who is the largest shareholder in INM, holding just less than 30% of the shares.
The former chief executive of INM, Robert Pitt obtained a separate valuation of Newstalk. This report allegedly valued Newstalk at a much lower valuation than the price originally proposed.
Mr Pitt’s stance over the possible acquisition of Newstalk contributed to his falling out with the former chairman of the board of directors Leslie Buckley, Mr O’Brien’s nominee on the INM board.
In November 2016, Mr Pitt made a protected disclosure to the Director of Corporate Enforcement which has culminated in today’s High Court application.
Company directors are required by law to act in the best interests of the company.
Many would argue Mr Pitt executed his duties in a textbook fashion by questioning the purchase by INM of a company arguably at what appeared to him to be an inflated valuation and by requiring that a separate issue be disclosed in the financial statements in compliance with accounting rules.
In a further serious twist in the INM saga, it has been alleged that the data of 19 people who worked or were in the past connected with INM was breached.
These 19 people allegedly include lawyers acting for the Moriarty Tribunal, senior INM executives and senior INM journalists.
Boards of directors have ultimate responsibility for the conduct of the affairs of their companies. Non-executive directors carry the risk that information is withheld from them.
It is impossible for non-executive directors to responsibly execute their duties when the board does not possess complete information.
This may be a problem for the INM board. For example, the INM board was not aware of the data security breach until it received correspondence from the ODCE.
Appointment of High Court inspectors is a rare event. There were only 22 such appointments before the ODCE was established in 2001.
Since then, the ODCE has used this mechanism only once — in respect of DCC’s sale of a shareholding in Fyffes. The High Court inspector found that no further action should be taken in respect of allegations in that case.
Today’s application is therefore only the second application for the appointment of a High Court inspector by the ODCE since its establishment.
The inspection might take a long time. For example, the DCC High Court inspection took two-and-a-half years, from July 2008 to January 2010.
The potential consequences for INM and its shareholders are serious. The share price has slid with the drip feed of revelations. The reputational fallout from these issues may reverberate for a long time.
Niamh Brennan is the Michael MacCormac professor of management, University College Dublin and academic director, UCD Centre for Corporate Governance