The Code provides framework for the application of best practice in corporate governance by both commercial and non-commercial State bodies. The first code of practice for corporate governance and State bodies was published in March 1992, and this, its fourth edition, has greatly expanded the rules for governance of State bodies. The Code say that:
high standards of corporate governance in State bodies, whether in the commercial or the non-commercial sphere, are critical to ensuring a positive contribution to the State’s overall economic efficiency, competitiveness, social cohesion and regional development.
Here we give a broad outline of some of the provisions of the new Code.
As with the previous code (2009), each State body is required to prepare a statement of strategy, which under the Code is the primary responsibility of the Board of a State body. For non-commercial State bodies this should be prepared on a 3-5 year basis (unless otherwise mandated by their governing legislation) For commercial State bodies the strategic plan should be prepared each year on a rolling five year basis. Each strategic plan must be delivered to the relevant Minister for comment.
The Code places an emphasis on oversight and includes many provisions to deal with this. Each State body is required to have an oversight agreement with its relevant minister or department. For non-commercial State bodies the oversight agreement is a written statement between the relevant minister/department and the State body. In addition the Code provides that non-commercial State bodies agree Performance Delivery Agreements with the relevant minister or department and report to the minister on progress against targets. The board of the State body should ensure that the Performance Delivery Agreement and the strategic plan are communicated to all employees and that they have a clear understanding of their role in achieving these objectives. Non-commercial State bodies will be subject to critical reviews no later than every five years by a working group established by the relevant government department. The working group will report their findings to the relevant minister. For commercial State bodies, the shareholder expectation letter covers the provisions of the performance delivery agreement and the oversight agreement.
The Code also expands the provisions dealing with the boards of State bodies. Members of the boards of State bodies (whether commercial or non-commercial) have fiduciary duties to the State which are identical to the directors’ fiduciary duties as set out in the Companies Act 2014. In addition, directors of State bodies which are companies, have the same duties as any other director under the Companies Act 2014.
Board appointments must be made in compliance with the Guidelines on Appointments to State Boards published by the Department of Public Expenditure & Reform, unless otherwise provided for in the relevant legislation. All board members should have the appropriate skills and knowledge relevant to the State body to discharge their respective duties and responsibilities. Gaps in competencies should be identified and addressed in future appointments.
No member of a State board should serve more than two full terms of appointment or nor hold appointments on more than two State boards at the same time. A full term is regarded as five years. Board meetings should be held at least twice a year and members are required to attend all meetings.
Each board is required to carry out an annual self assessment of its own performance and that of its committees and the Code provides a model questionnaire for this purpose. In addition, an external review or evaluation proportionate to the size of the State body should be carried out on the performance of the board at least every three years. The annual report of the board should include a statement of how the board operates including highlighting a statement of what types of decisions are to be taken by the board and which are to be delegated to management. All State bodies will be required to publish codes of conduct for the board and employees and board members must ensure compliance with the relevant provisions of the Ethics in Public Office legislation.
Audit and risk management
State bodies are required to have combined audit and risk committees to give an independent view in relation to risks and risk management systems. Where possible, the Audit and Risk Committee should contain at least three independent non-executive board members. The Code also recommends the appointment of external persons to the audit committee and provides for departmental oversight. The Audit and Risk committee is also required to carry out an annual review of the effectiveness of internal controls.
Comply or explain
State bodies (and their subsidiaries) are required to confirm to the relevant minister/department their compliance with the Code or explain why not. Any derogation from the Code should be outlined in the oversight agreement and also set out in the State body’s annual report which should also explain whether the requirements of the Code are to be phased in over a period of time or otherwise varied in some way.
Whilst the transparency and oversight provided by the Code may be welcome, implementing all of the Code’s provisions will certainly present challenges to commercial and non-commercial State bodies alike.