OPINION:In dealing with corporate malaise, we need to go beyond concepts of proper behaviour and think of the common good, writes Ray Kinsella
THE IRISH Association of Investment Managers is a highly credible representative body which carries out an important function. It monitors the behaviour of quoted companies on whose value jobs and living standards are, to a considerable degree, dependent.
Its recent criticism of the board of one of Ireland's largest companies - DCC - has to be taken seriously. At the heart of the criticism is the decision by the board to continue to support its chairman notwithstanding the adverse outcome of a highly complex and protracted civil case. The action of the IAIM is much more than a case of "shareholder activism", it is considered and without precedent.
Corporate governance is a relatively new form of self-regulation of the corporate sector. It deals with high-level controls and with the integrity of procedures, information and values by which a company is managed. The combined code of best practice is the gold standard with which large listed companies are expected to comply.
It is not a prescriptive set of rules. It is much more to do with the ethos of the company - the values by which it operates. These are underpinned by the key concept of "stewardship", namely, that the assets of the company managed by individual directors at the board table should be passed on in as good a shape - hopefully better - as when they themselves were entrusted with the responsibility of managing them.
It is an onerous responsibility: jobs, the economy, the interests of employers, pensioners and other stakeholders and the wider common good all hinge on the quality of this stewardship.
The rush to judgment should be resisted. It is wrong in itself, and particularly where not all of the facts are known. Nor is it conducive to fair outcomes.
In the present instance involving DCC and its now-resigned executive chairman Jim Flavin, there are a number of factors which would appear to be incontrovertible.
The first is the outcome of the civil case, which has been extensively deconstructed.
The second is the fact that the Irish Association of Investment Managers has deemed it necessary to intervene publicly in the matter.
The third is the fact that DCC's directors are experienced and, it must be assumed, ethical individuals. There is no indication whatsoever that they had an interest in supporting the position they had taken unless they were convinced of its rightness.
Finally, the regulatory framework, and particularly the office of the Director of Corporate Enforcement, appears constrained in taking the lead in resolving the matter.
The dispute is damaging to the company and to trust in the corporate sector. It needs to be resolved and lessons need to be learned. It will not be resolved by more legislation, much less by regulation.
It may be the that the Consolidated Companies Act which is scheduled to find its way before the Dáil in 2009 will set out a way of dealing with issues such as this. But I doubt it. On the other hand, the very fact that the issue is being discussed is indicative of a shaking off of the corporate malaise which mirrors the heart of darkness at the centre of the credit crises.
But there is a possible way forward - not necessarily in this case, though it may provide some pointers. In brief, in redrafting Irish company law, as well as in the teaching of corporate governance, we need to consider reaching out beyond the narrow concepts of behaviour and motivation within which our existing mindset is fixed. Three examples will make this clear.
There is a very rich body of literature centred on the common good, which reflects the Christian approach to business, and a very practical one it is. Had the "masters of the universe" who precipitated such carnage on the financial markets even a passing acquaintance with the teachings of the Koran, then the world economy would be in a much more stable position than is currently the case.
For Orthodox Jews, the first question they will be asked when they confront their Creator is: "How did you conduct your business affairs?" The Torah and also the Talmud provides an astonishingly prescriptive and detailed guide to conducting business affairs not alone in terms of the law, but more importantly the principle of the law. Tsedek (fairness and justness) and chessed (goodness) provide the foundation for all business activities within Judaism. They require that one follow not alone the letter of the law, but also its spirit of the law ( Lifnim Mishurat Hadin).
In the UK, the former archbishop of Canterbury was roundly criticised for suggesting that British Law should take account of the moral principles of other cultures. Such criticisms were wholly wide of the mark. We need to give consideration to what can be learned from other faith traditions which seek to grapple with issue such as preserving the good name of the individual, while at the same time preserving the integrity of the corporate world.
In framing the consolidated company law, the parliamentary draftsmen might find it useful to read widely and think bravely.
Dr Ray Kinsella is an economist employed formerly by the Central Bank. He is senior lecturer at the Smurfit School of Business in UCD and editor of Internal Controls in Banking (Wiley International and Oak Tree Press)