Monday 19 June 2017
Last Thursday, 15 June 2017, PAI hosted a conference on the new Code of Practice for the Governance of State Bodies.
Chairman Andy Cullen began the morning’s discussions by exploring Ireland’s ranking by the World Bank. On factors of governance, we rank very highly. However, this seems incongruent when considering the fact that it seems as though “there’s a governance scandal every week”. One of the biggest issues with improper governance in Ireland, according to Mr Cullen, is the accountability mechanisms in place. “What are the consequences of poor governance?”
Unfortunately, there is very little consequence for lack of good governance, at the moment. Mr Cullen notes, “the citizens at large have expectations”. These expectations should be met fairly and transparently. There is no reason why Ireland should not aim to rise above the Scandinavian countries who top the World Bank rankings.
The speakers for the morning were:
Bernard Barron, Partner, Mazars
Ms Fiona Tierney, CEO, Public Appointments Service
Séan Fleming TD, Chairman, Public Accounts Committee
Justin Moran, Director of Governance, Risk and Internal Control, Mazars
Sean Quigley, Head of Resource Management and Accountant of the Courts of Justice, The Courts Service
Imelda Reynolds, Partner, Beauchamps Solicitors
Pat Downes, Corporate Governance Association of Ireland and Managing Partner of Lionheart Management Consultants.
Bernard Barron of Mazars took a look at where priorities should lie when applying the Code to organisations. The areas that fall under the remit of the Board must be considered. The Board should be comprised of members with the adequate skills to fulfil its responsibilities. In the main, Boards will be responsible for:
- Business and Financial Reporting
- Quality Customer Base
- Relations with the Oireachtas, Minister and Parental Department
- Remuneration and Superannuation
- Risk Management, Internal Control, Internal Audit and Audit & Risk Committees
Three main questions presented themselves through Mr Barron’s presentation:
How do you assess an organisation through its board?
Does the Board perform effectively?
How do you identify failures?
The main priority in all of this, according to Mr Barron, should be the Board. The 2016 Code provides an explicit requirement that the members of the Board must sign-off on the annual report on internal compliance. By doing so, it clearly shows the reader who is responsible for the maintenance of compliance within the organisation. The management must take on the on-going responsibility to look at how each element of the Code is applied, with a review as often as every three months. It should become part of the regular running of the organisation, thereby developing a culture where risks are assessed and addressed quickly.
“ … it clearly shows the reader who is responsible for the maintenance of compliance within the organisation”
Fiona McTierney, CEO of the Public Appointments Service (PAS), called the attendees attention to “the landscape we are now operating in”, and asked them to “look at what has happened over the last few years”. The examples of misgovernance are both serious and many. Good governance by Boards is essential to changing the culture of state bodies at large. Things are, as Ms McTierney noted, “a little more upbeat now”. We must continue the positive changes made in the last few years of progress.
As a result of the downturn, public eyes were trained squarely at those appointed to State Boards, and the process by which they were selected. The Public Appointments Service underwent a major overhaul, where selection processes were completely reshaped. A lot of work was done in identifying all State Boards, and the necessary skills needed for each. This was done with the ethos of “driving improvement of capability and capacity of Boards”. Among other improvements, there is now more responsibility on the Chair of the Board. There is constant conversation between them and the PAS.
In the interest of transparency, it is now possible to view all State Board members in a register that is available on stateboards.ie and is maintained by the Department of Public Expenditure and Reform.
Ms Tierney noted that the number of women putting themselves forward was still low, at around 30% of all applications submitted. However, when women do apply, they do well. The PAS consistently “hits the target of 40% of board appointments” being women. A key priority for the PAS going forward is the focus on increasing diversity – not just in gender, but also in age, sexuality, and race.
Sean Fleming TD, the Chairman of the Public Accounts Committee, spoke about the need, when having conversations about Corporate Governance, to address the corporate context. Above all, there should be a guiding principle of fairness, and a want to do things in an open and honest way. In the past, there has been a reliance of the privacy of closed doors. As a result, the country experienced a terrible downturn and a loss of public trust. Remnants of this are still seen today. Deputy Fleming spoke to the recent events in high-profile white collar crime cases. We are not, he commented, tough enough on this issue.
“We are not tough enough on white collar crime”
It is also true that organisations have, over time, developed a culture of protecting the organisation from harm. This protection has often been more important to those organisations than the services they are supposed to provide to the citizens of the country. Again, high-profile cases have pervaded the media of late, showing how organisations have failed, systemically, and showing the harm to those our state bodies should protect.
Going forward, State Boards must aim to embed the culture of good governance in their practices and within their own personal ethics. In doing so, we can keep in mind the true purpose of State Bodies – providing services to the citizens of the country.
Justin Moran, Director of Governance, Risk and Internal Control at Mazars, spoke about risk management.
According to Mr Moran it is important to accurately assess the risks involved in the running of the organisation. Once the risks are identified, then the Board should begin to asking itself:
What are the actions we are already taking to mitigate risk? What else should we be doing?
Once these are identified and defined, the question becomes:
How do we go about embedding the actions in the culture of the organisation?
All Boards should be managing risk on a day-to-day basis. The problem, Mr Moran notes, can often be in translating these daily actions into a report. The ‘big picture’ is often harder to communicate than the on-going actions.
Key to ensuring that Risk Management stays at the forefront of matters, Boards must ensure it is tabled suitably high on the agenda when meetings happen. If not, it can often fall by the wayside when time is tight. This opens both the Board and the organisation up to greater harm.
When doing risk assessments, it is often helpful to “do a common-sense check” to ensure the controls are appropriate and adequately defined. In the past, there has been a tendency towards risk reports that, according to Mr Moran, consisted solely of, “our risk appetite is low, full-stop”. He did also note that the conversation has matured of late.
Finally, he emphasised that cyber-security is an area people must pay close attention to. There must be the appropriate controls in place. Awareness and training are key – most cyber threats prey on human weakness.
“training is key … most cyber-threats exploit human weakness”
Sean Quigley, Head of Resource Management and Accountant of the Courts of Justice at the Courts Service, continued on the theme of the need to change the organisational culture. He said,
“Good governance must come from the lived values of ethics and integrity within the organisation”.
He commented further, “it is easy to make codes”, the real task and the real change comes when and with how the Code is applied within an organisation.
Further to the comments of Deputy Fleming, Mr Quigley also noted that it is obvious that “scandals often drive development in corporate governance”. From a practical point of view, Mr Quigley finds little different between the 2009 version of the Code, and the Code released in 2016. Wherein there are comparable components, they have been developed in greater detail in the newest version of the Code.
Speaking to the uneven application of the Code through State Bodies, Mr Quigley said, “Organisations don’t abandon just abandon Corporate Governance ‘willy-nilly’. Sometimes [the organisation] are left with a choice.”
When resources are tight, this can often mean good governance is set aside.
“do not let a ‘tick-box’ compliance philosophy pervade”
This point goes to the heart of what Mr Quigley felt was the biggest obstacle, at present, to applying the Code all across organisations. Extra resources may be needed to ensure organisations are compliant. This is something he feels should be addressed, when apparent, in the Chair’s report to the Minister.
His final point revolved around the practical drill-down of risk management. It should not just be applied at a macro, corporate level. It should filter down to the realities of the operations of the organisation. His final comment to organisations:
“do not let a ‘tick-box’ compliance philosophy pervade”.
Imelda Reynolds of Beauchamps took a practical look at the differences in the newest version of the Code. The question Ms Reynolds felt Board should ask themselves is:
“Are the systems in place robust enough that you are confident in your ability to tackle issues when they arise?”
The Board should have the bigger picture in perspective at all times. This means mapping out the overlapping responsibilities of the Board, and the organisation. A lot of the Board’s time can go into the practicalities of corporate governance, while less time is spent on strategy. Under the 2016 Code, the Strategic Plan should pay due regard to the strategy of the parent Department of the organisation. There are other, more specific, Codes in place for different sectors. Because of these, organisations often believed the 2009 Code “doesn’t include” them. The ambiguity of this has been removed with the new Code. Where there is a Code for a sector, but the organisation within that sector is defined as a state body, both or all Codes should be applied throughout the organisation.
This point was later echoed in the open-floor discussion. Ms Reynolds noted that “there must be a sense of joined-up thinking. By spending more in one area, you could save money in another.”
Ms Reynolds reinforced the idea that the Board must also set the ethical tone of the organisation – not just in its action, but also in relation to the staff and systems. While keeping in mind the duties they have, they must also keep asking,
“To whom is the duty owed?”
Essential to the running of the Board, according to Ms Reynolds, is “keeping the dialogue flowing, with the right amount of tension.” Debate should be facilitated and encouraged by the Chair. The Chair should also ensure effective communication with all relevant stakeholders. They should also communicate with the Minister when skills needed on The Board. She noted that State Boards often do not get to avail of the PAS and therefore can find they have skills gaps within the Board. It is important that frequency of Board member attendance is noted and kept. The annual report should be a “true and fair view of operations”.
Finally, Ms Reynolds briefly discussed the benefits of Board self-assessments. They can often be useful for flushing out issues with boards. There is currently a link within the Code to a self-assessment questionnaire, a useful tool in terms of beginning to change the culture within the board.
Pat Downes, of the Corporate Governance Association of Ireland and Lionheart Consultancy, gave the final presentation of the day.
“people often talk about their rights, but rarely mention their obligations”
Much ado was paid to the conference setting, Croke Park, “a venue that has played host to many historical events”. Historically speaking, bad governance is abound. Going forward, Mr Downes believes we should encourage the public to take up a more active roles in how their history progresses. This seems difficult at times.
“We suffer, to a certain extent, from information fatigue … The cause of anxiety in many homes all around Ireland, across the world, is the uncertainty of what’s ahead. We are in a period of great change. Change is constant, but the pace of change at the moment is notable.”
It is notable that “people often talk about their rights, but rarely mention their obligations”, which is the counter-balance. Public service is based on the idea that we should leave the place in a better condition than we found it.
However, the ways in which we engage have evolved. Public sentiment can often paint members of the Oireachtas as “out-of-touch” with the technology embedded in communities. Mass proliferation of information means that citizens are now more informed than ever. This knowledge of their rights – and indeed their responsibilities – has led to greater community engagement across the country. Mr Downes believes we should continue this momentum. He suggests that the education system should seek to foster a sense of civic duty in students, who would also know their rights and responsibility.
As with many of the speakers on the morning, Mr Downes spoke to the Board, and the ethics inherent within it, being a catalyst for change. Further, he picked up on Ms McTierney’s earlier point of diversity. Good governance is rooted in diversity, according to Mr Downes. Ultimately, “democracy calls for engaged citizens, in order to deliver the best outcome, for the greater good”.
Mr Downes’ stark statement called to mind the reason for good governance: “People matter.” He continued:
“Our first duty of care is to the service of our fellow citizens. What we’re there to do, what we strive to perform, is helping the people we live with, walk with, break bread with.”
During the open-floor discussion, Chairman Andy Cullen stressed the nature of the Board as independent from the Departmental structure of government. “The independence of the Board, and the freedom for them to make their own decisions” ensures the appropriate checks and balances are in place.
When the panel of speakers were asked whether or not it would be beneficial to explicitly state the nature and work of the Board, as well as the required skills, into primary legislation would be an appropriate solution, several points were discussed.
When the legislation is introduced to establish new boards, the legislation should then also include certain parameters of the Code within it to ensure good governance from the beginning. However, this presents an issue when considering the length of time it takes for legislation to be enacted and changed. “Organisational demands change by the day or week or year”, said Chairman Andy Cullen. If a new skillset is needed, there isn’t time to wait for the legislation to be changed. This is where the nature of PAS’ model is preferable, as it is dynamic and can change as often as the needs of the organisation.
Throughout the morning, there were echoes of the same sentiment in almost every presentation: good governance cannot come from the Code alone. It should be rooted in strong values and ethics of fairness, transparency, and civic responsibility. Losing sight of the reason the State Body exists has historically proven to not only result in lower trust in the institutions of the state, but also real harm done to citizens.