Ruling will cut director numbers

THE Association of Chartered Certified Accountants (ACCA) fears a recent court ruling exposing directors to claims will lead to a shortage of non-executive directors.

The ACCA says Irish companies may find it harder to attract quality non-executive directors (NEDs), ollowing the English High Court decision to give Equitable Life the right to sue former non-executive directors as well as directors.

ACCA Ireland's Roger Acton said the decision could possibly encourage aggrieved companies to pursue similar actions through Irish law.

"The decision has implications for Irish companies as it throws doubt upon the feasibility of ambitions to increase substantially the number of independent NEDs and to broaden the range of backgrounds from which they are chosen.

"It now seems that, alongside the auditors, NEDs may also become a target for aggrieved companies and shareholders. The difference is that the auditors have deeper pockets," he said.

ACCA is also concerned that the decision comes when the Companies Bill, currently before the Dáil, proposes new demands on company directors.

They will in future be required to sign a compliance statement concerning a company's obligations under company law, tax law and any other statutory law which could impact on a company's financial statement.

"There must be a balance between good corporate governance and excessive or inappropriate regulation. Good governance requires rigorous oversight of a company's affairs. However, this must be tempered with the overall requirement for an increased number of non-executive directors from a diverse range of backgrounds.

"Over-regulation could impact negatively on the willingness of suitably qualified people to act as NEDs in the future which is not in the interests of the Irish economy.

"Current trends also highlight the need both for NEDs as individuals and for corporate audit committees to have a superior level of financial literacy," Mr Acton said.