Regulator to target directors

THE Financial Regulator has his sights set on reviewing the process by which directors are elected to company boards.

Mathew Elderfield said there have been “serious failures” of corporate governance at a number of Irish financial institutions in recent years. He said over-dominant CEOs have gone unchecked, resulting in “unacceptable costs to shareholders and the taxpayer”.

“Risk management standards and controls have eroded on the watch of less than vigilant boards. It is clear that regulatory standards in this area must therefore be reassessed,” he said.

The Regulator said “food for thought” would include introducing standards with regard to attendance at board meetings or a requirement that boards would have to declare in their annual accounts the meetings held and those who attended them.

He also said other points to consider could include boards having more directors with investment management experience and “know-how” so that they can challenge the investment manager’s views and standards on the documentation that should be presented and considered at board meetings to ensure best practice.

The Regulator recently published a consultation paper on new corporate governance standards for the banking and insurance sectors. These propose clear separation of the roles of chairman and CEO, and, a prohibition on an individual who has been CEO, director or senior manager during the previous five years from becoming chairman, according to Mr Elderfield.

“Criteria are proposed to ensure the independence of directors, to deal with conflicts of interest, to ensure directors set and monitor the risk appetite for their institution, and to ensure the effectiveness of board committees, including the remuneration committee.

“When agreed, these will be statutory requirements and will be an important safeguard to ensuring the appropriate governance of financial institutions,” he said.

In an address to the IFIA/NICSA Global Funds Conference Mr Elderfield also said change in the way the financial services industry is regulated is inevitable, given the “significant and continuing social and economic costs of the global financial crisis”.

He said change has started and will be “significant”.