Office of the Director of Corporate Enforcement requires more staff to fulfil its dual role of enforcing rules and raising standards, writes Ray Kinsella.
The Office of the Director of Corporate Enforcement (ODCE) plays a key role in overseeing, and enforcing, compliance with company law in Ireland. It is, in effect, both the policeman of Ireland Inc, while also playing a central role in educating company directors, accountants and auditors in the increasingly complex field of corporate compliance.
For the past two years, the ODCE, which has a staff of some 40 officials, has been making the point that its existing staffing levels are "wholly inadequate" in the light of current activities and prospective challenges. Information obtained by RTÉ under a Freedom of Information Act disclosure shows it has had very limited success from its parent Department of Enterprise and, ultimately, of course, Merrion Street.
The numbers are not large. Paul Appleby, the director of the ODCE, has sought an additional 20 staff, over two years. He has been offered eight.
The correspondence released under the FoI is, it should be said, courteous, professional and clearly driven by the current embargo on public-sector employment. However, what appears at first sight to be merely a fairly routine negotiation on staffing levels is, in reality, of very great significance to Ireland's international reputation as a location for inward investment, and to the competitiveness of our indigenous companies.
The real significance of the material obtained is that it demonstrates a lack of insight into just how much the corporate world has changed post-Enron, and the priority which reputable - and therefore robust - businesses attach to compliance. It also demonstrates how the public interest in compliance, corporate regulation and standard-setting can be held hostage to an implacably blunt policy instrument - in this case, an embargo.
It is true that the future fiscal burden associated with an increase of over 100,000 in the public sector between 2000-2005 is an important factor in achieving sustainable high levels of employment and growth. But leadership is not always best demonstrated in "holding the line". Occasional flexibility, in response to compelling evidence-based arguments, is the better option.
The ODCE was established in 2001 against the backdrop of a perceived culture of "non-compliance" within parts of Ireland Inc. Together with the Auditing and Accounting Standards Boards, and underpinned by the Company Law Reform Group, it was a commendable response to the fallout from the Enron, WorldCom and other corporate scandals of the late 1990s.
Its mandate is to ensure compliance with the provisions of company law and, where necessary, to enforce these standards through prosecution and other sanctions. It monitors the role of auditors, liquidators and receivers in company insolvencies. More generally, it ensures both timely information, through disclosures and, in doing so, enhances the efficiency of our market-based economic model.
Arguably one of its most important functions, in terms of managing the change in Ireland's corporate mindset, is its educational role. In a letter to the former minister for enterprise in 2005, Mr Appleby makes the compelling point that "we want to help the vast majority of company directors, and others, comply voluntarily with their legal obligations. But we also need to ensure that the minority that seek to evade their responsibilities are brought to account so that the market is aware that non-compliance carries significant risks." Its most recent annual report demonstrates both its success in prosecuting its case as well as in raising the awareness of all of its key stakeholders in the importance of compliance.
There is another vitally important point which has been overlooked and merits highlighting. The ODCE is a crucial component in an entirely transformed regulatory landscape in Ireland.
The Financial Regulator, whose principles-based model is in sharp contrast to the over-prescriptive and fragmented US system, and its top-heavy UK counterpart, played an indispensable role in even-handedly steering the Irish banking system through the catharsis of 2004.
Equally, the Criminal Assets Bureau broke new ground internationally in terms of its focus, its extraordinary flexibility, and its effectiveness in combating criminal activity.
The Competition Authority has been vigorous in addressing anti-trust activities that subvert the efficient and transparent operation of open and competitive markets.
The important point is that, compared with, say, five years ago, Ireland now has a "joined-up and innovative regulatory system".
It needs to be acknowledged that compliance does not come cheap. It represents a burden on business and one which, ultimately, impacts on the consumer. It would be facile to argue that we have achieved the right balance between, on the one hand, the highest levels of compliance, and, on the other, the imperative of minimising the already considerable burden this represents.
What we do have, however, is an integrated system that has changed our corporate culture and has proved highly cost effective. This demonstrably applies to the ODCE, which currently manages on a budget of €5 million. This system makes a statement about our corporate values. It constitutes the platform upon which Ireland, as a highly trade-dependent economy, can engage internationally on the basis of a strong reputation. Its effective operation is central to national competitiveness.
For all of these reasons, and because it would be entirely consistent with the spirit which is evident in the FoI correspondence, it is essential that Appleby will, very soon, obtain the additional staff resources he requires.
However, all the regulation in the world will never guarantee the kind of ethical behaviour, be it in the personal, the public or the corporate sectors, to which we aspire. Progress towards this objective requires that we dig deeper still. The roots of the implosion of corporate standards in the United States - and elsewhere - in the 1990s and early 2000s are to be found in a wholly flawed short-term shareholder value-driven business model. For all its ostentatious greed, it was always a dead man walking, and so it proved to be.
In the "new Ireland", where money is increasingly the measure of "success" and, for some, the value of the human person, all the regulation and compliance in the world will not safeguard us from the collateral impact of this mindset on business. There is little point to looking to Appleby and his counterparts to solve this problem.
But we could do a lot worse than reflect on the fact that ethical business values are at the heart of not alone the Koran - and the new wave of Islamic finance that is now a major force in global capital markets - but also that the first question that is asked of every Jewish business person when they die is 'Did you conduct your business affairs honestly?'. That's tougher than, but actually the basis of, all systems of regulation and compliance.
Prof Ray Kinsella is on the faculty of the Smurfit Graduate School of Business and is author of the forthcoming study "Regulation, Corporate Governance and Ethics"