The late Brian Lenihan will be judged in time as one of the most honourable public servants in the history of the State. But it was inevitable that he would make mistakes. The wisdom of the bank guarantee will continue to be debated for many years to come.
Mr Lenihan spent the initial stages of the banking implosion on the back foot. The quality of information flowing through the Department of Finance was woefully inadequate. The scale and pace of the banking meltdown forced rushed decisions.
Nationalisation became inevitable in early 2009. Public antipathy to the banks ballooned over that year. Appointing public interest directors did have a compelling rationale, although it was probably as much for the optics as anything else.
What is inexcusable is that since their appointment in 2009, scrutiny of the roles of public interest directors would have to wait until Dec 2012. In the meantime, these non-executive directors of AIB, Bank of Ireland, IBRC, and Permanent TSB have collected over €2m in fees.
There were serious shortcomings in the legislation and purpose of these roles.
Former tánaiste Dick Spring, through his own initiative rather than any formal request, contacted the then taoiseach Brian Cowen about his thoughts on AIB three months after his appointment.
But there are no formal lines of reporting between the public interest directors and either the Central Bank or the Department of Finance. If these roles are to have any validity or purpose in the future then this must change immediately.
Independent TD Stephen Donnelly highlighted the conflict between being a non-executive director serving the interests of the bank and a public interest director serving the interests of the public.
Mr Donnelly questioned all of the public interest directors about which one takes precedence. Former European commissioner Ray MacSharry said that even though legislation introduced in 2010 meant that all bank directors were public interest directors, they were still bound by company law. In other words, public interest directors were legally obliged to report to the bank’s shareholders.
The banks have to return to profitability.
This involves making unpopular moves such as increasing interest rates on loans and mortgages, and squeezing as much out of distressed mortgage holders as possible. This does not necessarily mean these decisions are in the best interests of the wider economy or the citizens of this State.
What are public interest directors to do when faced with these dilemmas?
This needs to be addressed as soon as possible. It is no wonder that most of the public interest directors who appeared before the committee last week were accused of “going native”.
There seems to be a paucity of genuinely independent and suitably qualified people to sit on company boards. That may have improved over the past few years but nowhere near the level needed.