merrion street

Corporate governance in the public sector has never been as topical or more relevant. We have over the past number of months seen a number of boards being publicly examined as to how they oversaw the management and performance of their agencies.

However, while your conference is devoted to the public sector, you will I hope permit one or two diversions. First, it would be very much a mistake to think that public and political concerns about corporate governance – and misgovernance – are confined to the public sector. After all, it was not the directors of State companies who were at the heart of wrong-headed mismanagement and over-expansion, massive collapse and subsequent high profile trials, civil and criminal.

It has been pointed out before that the bank at the heart of our economic collapse and that criminal trial was in breach of at least three provisions of the relevant corporate governance code which, however, currently operates only on a 'comply or explain' basis.

It has been Labour Party policy since 2009 to give legislative teeth to that code. In that year we published the Corporate Governance (Codes of Practice) Bill, which would have made compliance with good corporate governance a condition for listing on the Irish Stock Exchange.

If the opportunity presents itself at some stage to finesse the current provisions of our Programme for Government, I would certainly be pushing for the inclusion of a measure such as this.

Second, it is I think not possible to separate the idea of public sector corporate governance reform from the need for reform at central government and departmental level. In my own Department, we have 18 commercial and non-commercial State bodies, including Regulators, under our aegis. At least one of them has no income and no staff, while some others are major players in the Irish business world. Many of them dwarf the Department, in terms of financial and staffing resources and specialist expertise. Yet all of them, even the regulators, are part of the Departmental family and we talk with them on a daily and I hope cooperative basis.

One lesson I have learned is that one of our necessary reforms has now gone far enough, if not too far. It is true that, on entering office, this Government faced an existential crisis. There were days when we feared for the financial survival of the State.

The new government was stuck with the inherited economic wreckage and dependent on the kindness of strangers to fund the State. And, inevitably, we had to make a virtue of necessity and make a slogan out of ‘doing more with less’.

One characteristic all Departments including my own have in common is that successive recruitment embargoes since the '70s have resulted in an ageing civil service. And, while their analytical and management skills may be transferable, the experience each one has acquired in his or her own role is a vital departmental resource and cannot easily be replaced.

Across all Departments, decentralisation did untold damage, in terms of dispersal and loss of expertise and waste of time and costs. The current moratorium, necessary and all as it was in order to make ends meet, will also make it increasingly harder to manage to keep doing our job with such diminished resources.

Of course, we all still aspire to doing more with less. But what we need to avoid is doing not just less but worse with less. That would be one of the most damaging and lasting consequences of losing our economic sovereignty.

In the case of my own Department, I now believe that our resources have been cut back as far as can be done without inflicting damage on our ability to do our job. Our output – and the public we serve – would suffer.

That is not to say, however, that we must not continue to make use of this crisis as an opportunity to redesign our public services. The Government’s wide civil and public service reform agenda is aimed at transforming the civil and public service.

We are making far more dramatic changes than simply cutting numbers, pay and allowances. There is an impressive list of projects either delivered or currently being progressed by the Minister for Public Expenditure and Reform:

· the reform and extension of Freedom of Information;

· a review and modernisation of the ethics legislation ;

· the regulation of lobbying;

· a Bill to safeguard confidential information communicated to a public representative;

· new, cross-sectoral whistleblower protection legislation;

· an extension of the Ombudsman's remit;

· the new legal framework for Oireachtas inquiries; and

· a review of the legal framework for civil service accountability.

This is a coordinated attempt to address the serious concerns of our citizens and to restore some level of trust in Ireland's political and administrative structure. Trust is a fragile attribute, easily damaged and extremely hard to repair. It can be damaged, sometimes fatally, by a single catastrophic failure but can also be just as fatally undermined by being constantly eroded by cynicism and a focus on the negative.

In relation to freedom of information, I should mention that we all recognise the need for commercial State-owned companies to operate on a level playing field with their competitors. However, my colleague Brendan Howlin asked me to consider whether the same justification could be applied for the exclusion of the commercial companies, ESB Networks, Ervia and Eirgrid, that operate as monopolies – in other words, without direct commercial competition.

I have given some thought to that issue and I don’t find the argument for not extending the freedom of information legislation to the three State-owned monopoly network companies operating in water, gas and electricity very persuasive. I have said as much to Minister Howlin.

In addition, I have more than once previously highlighted a need to reassess how the Government, civil servants and individual ministers can become accountable to the Oireachtas in a meaningful way for the actions they take.

This raises fundamental questions about the respective roles of ministers and civil servants. At present, if questions are asked as to who actually decided what, when and why, a corporate veil can descend upon an entire Department. Both the minister and officials can engage in a form of collective self-defence, in order to obscure the actual decision-making process and to prevent identification of the individuals involved – at any level.

I have described the position as a Faustian pact, that requires an abnegation of public personality on the part of civil servants and an excessive fascination with the role of the minister. In return for defending his Department as if its actions were all his own, the minister is guaranteed that he will never walk alone and never be short of something to say in his own defence.

Because of this, accountability does not work as it should. When ministers are to blame, the system should identify that, rather than shielding them. But, when civil servants get it wrong, we're entitled to know that too. And what the minister did about it.

As a minister, I value the relationship between the civil service and the minister. This key relationship is built largely on trust but it is also by its nature ambiguous and lacking in clarity as to the specific roles of the players.

So, there are many practical steps we can and should take to transform the civil service accountability landscape. That whole area is currently being examined by an independent panel appointed by Brendan Howlin, which consists of Kevin Rafter, Dorothea Dowling and Michael Howard, and which is due to submit a report and recommendations very shortly.

My own vision of civil service accountability is one which re-defines the relationship between ministers and their Departments, so that it is possible to identify relevant individuals and their roles, to recognise good performance, to encourage civil servants to speak more openly about their roles and then, where necessary, to identify what went wrong.

To return to the boardroom: at least one lesson I hope we have learned is the need to take a more professional approach to appointing board members and to ensuring that boards contain the appropriate mix of skills and competencies required to oversee management and strategy in these agencies. This is not about the simplistic exclusion of people because they have political affiliations, real or imagined; rather it is about the inclusion only of people with real and relevant skills.

For far too long some people seem to have looked at board membership as a reward rather than a challenging role with a real job to deliver on. To put it bluntly, you should not be on a board if you do not realise and accept that you are joining an institution whose key function is to hold others to account for their performance.

The Code of Practice for the Governance of State Agencies is still the defining framework for corporate governance in the public sector. The Code sets out the framework within which commercial and non-commercial State bodies should operate. It states very clearly that –

The Board is collectively responsible for promoting the success of the State body by leading and directing the Body’s activities. It should provide strategic guidance to the State body, and monitor the activities and effectiveness of management. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the State body, subject to the objectives set by Government.

Ensuring that the boards of State bodies have the necessary mix of experience, skills and competencies is therefore central to the overall performance of these bodies. A Minister must ensure that directors have relevant qualifications in areas such as corporate governance, legal expertise, market awareness, or financial expertise, with particular reference to audit capability and/or project assessment.

Anyone being proposed for appointment as chair is now required to make themselves available to the appropriate Oireachtas committee to discuss the approach which they will take to their role and their views about the future contribution of the body in question. Following that presentation, the final decision is taken whether to confirm the nominee as chairperson.

Discussion of appointments to boards and securing good corporate governance raises the issue of directors’ duties and to whom those duties are owed. In the public sector, this question has arisen, sometimes for civil servants expected to serve as the eyes and ears of a Minister in the corporate boardroom. If there is a conflict of interests, about the nature or extent of disclosure of corporate information, for example, which master does the civil servant serve: the Minister or the company?

The question seems to be at least partially answered in the new Companies Bill currently going through the Houses.

As I understand it, s. 229 of that Bill is intended to be pretty much a restatement of existing law on the subject of the directors’ fiduciary duties. The section provides that a director must act in good faith and in what he or she considers to be the interests of the company as a whole.

By way of qualification, sub-ss. (3) and (4) then provide that a director may have regard to the interests of a particular member of the company “where the director has been appointed or nominated for appointment by that member, being a member who has an entitlement to so appoint or nominate under the company’s constitution or a shareholders’ agreement”.

Even though this is I think new in terms of statute law, I would have thought that it reflects the reality of existing commercial practice. For example, an investor who has injected major equity into a company will insist on having a shareholder agreement entitling him to install his own directors, who may be expected to safeguard his interests.

In relation to State companies, many of which are formed and registered under the Companies Acts, this new formula would appear to allow the directors to have regard to the particular interests of the shareholder/appointing Minister, which is a modification to the present rules – at least as generally understood within the civil service.

I note, for example that the current edition of the Code of Practice for the Governance of State Bodies states that directors should, subject to the objectives set by Government, “act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the State body”.

I may not be entirely up to speed on this but it seems that the Code of Practice was supplemented in August 2010 by a protocol (Circular 12/2010) which outlined a procedure for civil servants nominated to the boards of non-commercial State bodies to report to the relevant Minister where a matter of serious concern arises regarding that body.

The perceived need was to ensure that a director’s fiduciary duty was not understood as preventing a Ministerial nominee from reporting to the Minister on key issues. The protocol covers not just issues of regularity, probity, and so on, in the governance of the body but any major issue where there is a significant public policy dimension.

However, that 2010 protocol covers appointments to non-commercial boards only. I am not certain, but it seems the protocol was deliberately not applied to the commercial sector because of concerns about flows of commercially sensitive and confidential information from directors of commercial State companies to a Minister, with potential adverse consequences for the business.

If it is intended that the formula set out in section 229 will now enable the directors of State companies to have regard not just to the company’s interests but also to the interests of their appointing Ministers, then I would welcome the clarification provided.

But I am not sure that the important question of to whom a director owes his or her duties should, in the State sector, depend on a historical inquiry as to whether the corporate body was originally formed under the Companies Acts, like An Post, or is a statutory corporation, such as the ESB.

And I wonder how long it will be before an entitlement to have regard to Ministerial interests will become an obligation to do so.

In conclusion, then, the Programme for Government set out an ambitious programme of reform to deliver fundamental change in democratic and public governance in Ireland. We are delivering on that programme. The funding of politics has been cleaned up; lobbyists will have to come out into the light; whistle-blowing will be encouraged and protected; the most far-reaching anti-corruption Bill in Western Europe is being enacted; and there is more to come in relation to freedom of Information, civil service accountability and the remit of the Ombudsman.

These new approaches, taken together with the Croke Park and Haddington Road reforms, all point to a new way of conducting public business, with far greater openness and accountability. I have no doubt that as they cumulatively start to take effect, they will make a step-change in how we deliver to the public.