Eleven requirements for corporate governance
20 November, 2023
It is important to recognise that good corporate governance needs to be at the core of every organisation.
Below are some key matters for directors to consider to help them ensure that high standards of corporate governance are in place.
Corporate governance describes the processes, practices and structures through which a company manages its business and affairs and works to meet its financial, operational and strategic objectives and achieve long-term sustainability.
1. Directors
Under Irish law, all directors, executive or non-executive, have the same obligations and duties. The ideal and principles of best practice should be that the board acts collectively and in good faith for the overall benefit of the company/organisation.
2. Directors’ Disclosures
Directors should not have conflict of interests and directors have a specific duty of disclosure under the Companies Act 2014 to disclose an interest in a contract or proposed contract. The purchase or sale of shares in a company or group company (public or private) by a director must be disclosed to the company. A company should adopt a Conflict of Interest policy.
3. Governance Documents
Roles and responsibilities should be defined. Therefore, a board should establish a charter, powers reserved to the board (detailing specific matters that must go to the board for approval), delegated authority policy and terms of reference for any committees established.
4. Board Composition
A board should have diversity with different skills and background to achieve a well-balanced team focused on serving the interests of shareholders and other stakeholders over the long-term.
5. Committees of the Board
The board can delegate authority to committees of the board, however, it cannot dispense with its responsibilities for functions delegated. Each committee should have Terms of Reference which have been approved by the board. The recommendation is that certain committees should contain a majority of non-executive directors. Larger companies are required under the Companies Act 2014 to establish an Audit Committee or otherwise explain in the statutory financial statements the reason for not establishing such a committee.
6. Board Evaluation
There should be a formal and rigorous annual evaluation of the performance of the board, its committees, the chair and individual directors. The chair should consider having a regular externally facilitated board evaluation every three years. The evaluation should consider the board’s composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively. The chair should act on the results of the evaluation by recognising the strengths and addressing any weaknesses of the board.
7. Transaction with Directors
A company is restricted from entering into certain transactions with its directors i.e. making loans and substantial property transactions involving directors.
8. Directors’ Remuneration
Certain information in relation to directors’ salaries and remuneration must be disclosed in the company’s annual financial statements, which (subject to exemptions) must be publicly filed at the Companies Registration Office. Additionally, directors’ service contracts must be made available for inspection at a company’s registered office.
9. Constitution
The company’s constitution usually addresses quorum, notice requirements and voting requirements at meetings. The constitution contains the publicly registered internal rules of the company and binds the company and its members.
10. Directors’ Compliance Statement
For plcs and large private companies, a Directors’ Compliance Statement needs to be included in the statutory financial statements. The Statement acknowledges that the directors are responsible for compliance with the following “relevant obligations”:
a) preparation of “Compliance Policy”
b) implementation of structures which in the directors’ opinion are designed to secure material compliance
c) review during the relevant financial year of the structures put in place
The directors must confirm in the statutory financial statements that the above provisions have been complied with or explain why not.
11. Beneficial Ownership Register
Companies are required to maintain a register of beneficial owners. For corporate entities this is the natural person who ultimately owns or controls a legal entity. A shareholding or ownership interest of 25%+ meets these requirements.
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