Any fair and balanced examination of the appointments which have been made to the various bodies within the semi-State sector over recent years will bear out what I say. In terms of quality and suitability, the board membership of the State-sponsored sector will stand comparison with its private sector counterpart any day.
Board members receive a fair and reasonable fee for their work. Consideration of financial gain is not a motivation for the people who allow their names to go forward for nomination. While cynics may seek out other agendas, I am satisfied that participation on the boards of our State bodies is generally actuated by a significant public service ethic. Generally speaking, those who become members of State boards wish to put their talents and experience at the disposal of their community.
Corporate governance comprises the systems and procedures by which enterprises are directed and controlled. The issue of corporate governance internationally, and here in Ireland, is something which has dominated the business pages for a number of years and has occasionally spilled over onto the front pages, generally for all the wrong reasons. The strong and effective corporate governance of our State-sponsored bodies is something to which this Government is fully committed. Our State bodies are very important and immensely valuable national assets. As proxy for the taxpayer, the Government has a duty to ensure that the very highest standards prevail in the management and development of these assets.
The overall context for the Government's policy in the issue of corporate governance in State bodies should be formally put on the record. While such bodies are very much part of the public sector and are publicly accountable, they have been established at one remove from Government control so that they may have the freedom and the room to manoeuvre that is necessary to carry out their functions effectively. The Government's approach to the issue of corporate governance strikes the right balance between the public accountability inherent in the public ownership of State bodies and the need to allow them the appropriate level of freedom, commercial and otherwise, to realise their full potential.
Looking first at commercial State-sponsored bodies, we expect such entities to contribute meaningfully to the broad national strategy in the sectors within which they operate. While so doing, the Government also expects them to add shareholder value. The environment within which commercial State bodies operate has seen some very significant developments in recent years. It is not so long ago that these bodies operated in relatively comfortable, protected environments where domestic competition simply was not an issue. Thankfully, those days are fast disappearing. Among the factors driving change have been the following.
First, the national and European competition policy which has resulted in market liberalisation. In this area, Ireland has been at the vanguard of change, as witnessed by our decision to move ahead of the posse on the opening up of the electricity and gas markets.
Second, market liberalisation which has resulted in the need for new independent regulatory regimes in the main business sectors involved. Regulators play a crucial role in levelling the playing field in sectors where a dominant player — generally a commercial State-sponsored body or an enterprise which once held that status — has acquired an entrenched position. The Government has a taken a determined line in ensuring that these regulators are given the necessary powers to carry out this function effectively.
Third, there has been a growing awareness of the impact, both actual and potential, which the commercial State-sponsored bodies have on the economy generally in terms of the prices they charge and the quality of the services they provide. In an open economy such as ours, which is heavily reliant on direct inward investment, the economic impact of our State bodies should not be underestimated.
Fourth, the Government has made it increasingly clear that enhanced shareholder value is expected from each of our commercial State-sponsored bodies.
While their functions are rather different from those of their commercial counterparts, non-commercial State bodies have a key role to play in implementing Government policy in a wide variety of areas — regulatory, administrative, research, promotional, advisory and so on. The necessity for good governance is no less important in the non-commercial sector than in the larger commercial area.
The Government sees it as the responsibility of the boards of State bodies, whether in the commercial or non-commercial sectors, to give leadership and strategic direction; to define control mechanisms to safeguard public resources; to supervise the overall management of the bodies' activities; and to report on stewardship and performance.
The Government expects the boards of State-sponsored bodies to take their responsibilities seriously and realise they are carrying out an important public duty on behalf of the Irish people. These words have been supported by actions. I would like now to put on the record of the House some of the developments which have been initiated by the Government in this regard.
In October 2001, the Minister for Finance issued the code of practice for the governance of State bodies to his colleague Ministers for promulgation within the various State-sponsored bodies under their aegis. The purpose of the code is to provide a governance framework within which the internal management and internal and external reporting relationships of State bodies is to occur. This code was formally approved by the Government which had decided that it should be binding on all State-sponsored bodies. The code of practice replaced the earlier guidelines issued in 1992, adherence to which had not been obligatory, and reflected the greatly changed environment that had emerged during the intervening years. The code consolidates the various initiatives, both within the Irish public sector and more generally, which had been taken between 1992 and 2001 to enhance corporate governance.
The framework within which boards must operate is effectively set by the code. It sets out clearly the Government's expectations in this regard. It also provides board members with an invaluable instrument against which to measure their actions. Anyone who would like to see this document in full can do so by logging onto the Department of Finance's website where all of the Department's publications are available to the general public. The code of practice is far-reaching in its scope. It deals with the following matters: the need for appropriate codes of conduct; internal audit; procurement; disposal of assets; establishment of subsidiaries and acquisitions; diversification of activities; investment appraisal; remuneration and directors' fees; reporting arrangements; strategic and corporate planning; tax compliance; a framework code for best practice for corporate governance in State bodies; and quality customer service.
Extensive though this list may seem, it cannot deal with all situations which may arise. Directors and employees of State-sponsored bodies and their subsidiaries are advised in the code that it is primarily their responsibility to ensure that all of their activities, whether covered specifically or otherwise in the code, are governed by the ethical and other considerations implicit in the code.
An accusation which has sometimes been levelled against Government reports and publications is that they may be very good in their own terms and say all the right things but, once published, are left on the shelf to gather dust. I can guarantee the House that the State-sponsored bodies code is, and will remain, 100% dust-free. Ever since its initial roll-out, concerted efforts have been made to ensure that it was fully understood and applied.
Early on, the Minister for Finance gave his full support to the on-board initiative of the Institute of Public Administration which also had a significant input from the Belfast-based Chartered Institute of Public Finance and Accountancy. The on-board guide, which is available to all State-sponsored bodies provides detailed practical guidance on the application of the code of practice. Subsequently, conferences and half-day briefing sessions for the boards of a number of individual State bodies have been organised by the institute to explore with directors the full implications of the code of practice. Training in corporate governance remains the responsibility of the various bodies, and it is their decision as to whether they avail of the facilities of the IPA or some other body or provide any necessary training themselves.
In addition to the on-board initiative, the Department of Finance has given priority to making officials available to address the boards of a variety of State-sponsored bodies as well as various representative groupings. This process has proved to be greatly beneficial as it not alone clarifies fully the Government's intentions on the working through of its policies on good corporate governance, it also opens up a two-way dialogue on issues of shared concern in that area. In addition, the Department deals with ongoing queries from other Departments and State bodies on aspects of the code of practice.
As part of its policy of ensuring the code continues to address key issues in the area of corporate governance in the best possible way, the Department of Finance is seeking feedback from boards and parent Departments on experience to date. Should any necessary revisions or updating emerge, these will be addressed. To ensure that boards do not lose sight of the Government's requirements, each chairperson is obliged to include a confirmation in the context of the report to his or her parent Minister on the annual report and accounts that the code of practice has been adopted by the body and is being complied with.
I will now deal with the reforms to the Companies Acts that the Government has promoted in order to enhance corporate governance in Ireland overall. Company law applies across the board to the private sector and to those of our State-sponsored bodies which have company status. In recent years there have been a number of well documented cases where the precepts of company law were not adhered to and where those responsible had not been called to account. The cost of this misbehaviour has been borne by consumers, other businesses and the State. As a result of its concern with these disclosures, the Government decided to enhance the resources and legal instruments available to the State to supervise and enforce adherence to the requirements of company law. Accordingly, the Government brought forward the Company Law Enforcement Bill which was enacted in 2001 and in November of that year it established the office of the Director of Corporate Enforcement. Largely as a result of this initiative and the tremendous work done by the Office of the Director of Corporate Enforcement, the fiduciary duties and obligations of company directors under common law and statute law are now better understood than ever before.
The Companies Acts provide for two types of criminal offence, namely, summary and indictable offences. The maximum penalty on conviction of an indictable offence under the Companies Acts is €12,700 and/or five years imprisonment. Considerably higher sanctions are provided for in respect of certain offences, such as insider dealing. Under the provisions of the Company Law Enforcement Act 2001, the Director of Corporate Enforcement also has discretion to impose an administrative fine rather than initiating a summary prosecution. The director may also apply to the courts seeking the disqualification of any person guilty of two or more offences of failing to keep proper books of accounts or guilty of three or more defaults under the Companies Acts. I reiterate that this regime applies as much to public sector companies it does to their private sector counterparts.
Membership of the board of a State body is not a sinecure, it is a demanding role. The developments in the area of company law to which I have referred and which bring with them significant new responsibilities for all directors, together with the stringent requirements imposed by the Government under the code of practice, mean that there is a high degree of accountability associated with board membership. This is as it should be.
The Government has a commendable track record of commitment to the strengthening of the corporate governance of our State bodies. The evidence is there for all to see. I am pleased to recommend the amendment to the motion to the House.
