The flourishing Irish economy and its rapidly growing stock market have attracted greater attention to Ireland's corporate governance framework. The law firm of Weil, Gotshal, and Manges' reported in 2002 that while most of Ireland's company law is based on the United Kingdom's laws, Ireland is becoming increasingly more active in establishing its own legislative and regulatory systems to improve the attractiveness of its business environment. The Organization of Economic Cooperation and Development (OECD) suggests that transferring powers in 2001 to an independent regulator, the Office of the Director of Corporate Enforcement, has improved enforcement. The OECD also notes that Ireland intends to streamline its company code and expects that the business environment will be in compliance with the legal framework. The 2006 International Monetary Fund Financial Systems Stability Assessment Update recommends that Ireland further improve its adherence to best practices in market conduct to enhance corporate governance.

General Overview

The 2002 report by the law firm of Weil, Gotshal, and Manges (WGM) notes that, since the Irish Stock Exchange (ISE) officially departed from the London Stock Exchange (LSE) in 1995, Ireland's corporate governance practices have been closely aligned with the United Kingdom's. Most of Ireland's Company Law is adopted from the UK. However, Ireland is becoming increasingly more active in establishing its own legislative and regulatory systems to improve the attractiveness of its business environment. The 2004 Organization of Economic Cooperation and Development (OECD) survey of corporate governance in OECD countries reports that, in Ireland "enforcement of corporate law has been tightened by focusing investigation and prosecution with a regulator separated from the line ministry" (p. 41). It also notes that Ireland intends to streamline its company code and expects that the law will accurately represent the business environment. The 2006 International Monetary Fund's (IMF) Financial Systems Stability Assessment (FSSA) Update indicates the existing "marriage of prudential supervision and consumer protection" (p. 24) is beneficial. However, further improving adherence to best practices in market conduct would greatly enhance good corporate governance.

With respect to the legal framework, the WGM's 2002 report indicates that the Corporate Governance, Share Option, and Other Incentive-Scheme Guidelines (1999) adopted the United Kingdom's Combined Code which has been incorporated into the listing rules of the ISE. Companies are required to comply with the code or publicly explain any noncompliance. According to the KPMG's 2002 report, company law governs the appointment and removal of directors, directors' duties, directors' disclosure requirements, remuneration, reporting requirements, and annual general meetings (AGMs). Other regulatory requirements pertain to governance, including the Listing Rules and the Irish Stock Exchange (ISE). In his 2006 paper, Manish Gupta conveys that directors are responsible for actively enforcing the Companies Acts within a company or else they are criminally liable. It is insufficient to simply not break the law.

According to the Department of Enterprise, Trade and Employment website, as of February 2007, Ireland had introduced the Company Law Enforcement Act in 2001; the Companies (Auditing and Accounting) Act in 2003; the Investment Funds, Companies and Miscellaneous Provisions Act in 2005; and the Investment Funds, Companies and Miscellaneous Provisions Act in 2006. The purpose of the Company Law Enforcement Act of 2001 is to ensure compliance with the Companies Acts. It establishes the Office of the Director of Corporate Enforcement (ODCE) and lays out the terms, conditions, and functions of the ODCE. The ODCE is the principal regulator. Gupta's 2006 paper reports that the ODCE's powers include investigating and prosecuting violations of the Companies Act, viewing a company's minutes without providing a reason, requiring the release of any books or documents suspected to be fraudulent, and petition a court for warrants. The Department of Enterprise, Trade and Employment website, as of February 2007, adds that the Company Law Review Group was established as a statutory body to advise the Minister on the Companies Law.

In addition, the Companies (Auditing and Accounting) Act of 2003 establishes the Irish Auditing and Accounting Supervisory Board (IAASA), gives it the responsibility to supervise the regulatory functions of accountancy bodies, authorizes the Board to amend the Companies Law to transfer to it the necessary function to carry out its responsibility, and provides it with the authority to amend the company law with respect to auditing and accounting matters. In 2005, Mason Hayes and Curran (MHC) report that the Act applies to all public limited companies and large private companies. The Act requires that all public limited companies have an audit committee and the Boards of Directors of medium-sized companies must state their compliance with legal obligations in a Directors' Compliance Statement. The statement must include internal procedures to ensure compliance. The Investment Funds, Companies and Miscellaneous Provisions Act of 2005 implements market abuse regulations, in preparation for the introduction of the EU Market Abuse Directive that focuses on preventing insider trading and market manipulation. The Company Law Review Group reports in 2007 that the Department of Enterprise, Trade and Employment has submitted the New Companies Bill, which proposes to consolidate all the companies legislation into one companies code in order to simplify starting and running a business.

The U.S. Department of Commerce's 2007 Country Commercial Guide provides a good overview of capital market conditions in Ireland. Total market capitalization of the ISE reached euro 118.8 billion, almost 68 percent of the projected 2006 nominal GDP. In 2002, the ISE experienced a significant drop due to the mismanagement of a number of major Irish companies; but then experienced enormous growth between 2002 and 2006. The ISE opened the Irish Enterprise Exchange (IEX) for small and medium sized firms in 2005. In its first 11 months, IEX returns were up 28 percent.

The Investor Protection Index is a subcomponent of the World Bank's 2007 Doing Business Indicators. The Investment Protection Index consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indices range between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Ireland scores 10 in the Disclosure Index, against an OECD average of 6.3. It scores 6 in the Director Liability Index, against an OECD average of 5.0 and 9 in the Shareholder Suits Index against an OECD average of 6.6.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

II

The WGM law firm's 2002 report states that since the ISE's official departure from the LSE in 1995, Ireland's corporate governance practices have been closely aligned with the UK's. Most of Ireland's Company Law is adopted from the UK. However, Ireland is becoming increasingly more active in establishing its legislative and regulatory systems to improve the attractiveness of its business environment. The 2004 OECD survey of corporate governance in OECD countries reports that in Ireland "enforcement of corporate law has been tightened by focusing investigation and prosecution with a regulator separated from the line ministry" (p. 41). The survey also notes that Ireland intends to streamline its company code and expects that the law will accurately represent the business environment. The IMF's 2006 FSSA Update indicates that the existing "marriage of prudential supervision and consumer protection" (p. 24) is beneficial. However, further improving adherence to best practices in market conduct would greater enhance good corporate governance. Nonetheless, the publicly available information does not directly address Ireland's compliance with this principle.

With respect to the legal framework, the WGM's 2002 report indicates that the Corporate Governance, Share Option and Other Incentive Scheme Guidelines (1999) adopted the UK's Combined Code which has been incorporated into the listing rules of the ISE. Companies are required to comply with the Code and or provide a publicly available explanation for noncompliance. According to the KPMG's 2002 report, company law governs the appointment and removal of directors, directors' duties, directors' disclosure requirements, remuneration, reporting requirements, and AGMs. There are other regulatory requirements pertaining to governance, including the Listing Rules and the ISE. In Gupta's 2006 paper, the author states that directors are responsible for actively enforcing the Companies Acts within a company or else they are criminally liable. It is insufficient to simply not break the law. According to the Department of Enterprise Trade, and Employment website, as of February 2007, Ireland introduced the Company Law Enforcement Act in 2001; the Companies (Auditing and Accounting) Act in 2003; the Investment Funds, Companies, and Miscellaneous Provisions Act in 2005; and the Investment Funds, Companies and Miscellaneous Provisions Act in 2006, all of which modify and expand on existing legislation pertaining to corporate governance. The Company Law Review Group reports in 2002 that the Department of Enterprise, Trade and Employment has submitted the New Companies Bill which proposes to consolidate all the companies legislation into one companies code in order to simplify starting and running a business.

The Office of the Director of Corporate Enforcement (ODCE) was established by the Company Law Enforcement Act of 2001. The ODCE is the principal regulator and responsible for monitoring and ensuring compliance with the Companies Laws 1963-2006. Gupta reports ins 2006 that the DCE's powers include investigating and prosecuting violations of the Companies Act, viewing a company's minutes without providing a reason, requiring the release of any books or documents suspected to be fraudulent, and petition a court for warrants. The Department of Enterprise, Trade, and Employment website adds that, as of February 2007, the Company Law Review Group was established to monitor, review and advise the Minister with respect to the Companies Law.

Principle II: The Rights of Shareholders and Key Ownership Function

II

According to the WGM law firm's 2002 report, the ISE has disclosure requirements for share structure and significant shareholders. Shareholder approval is required for directors' reports and annual accounts. Shareholders also have decision making power with regard to dividends, election of directors, auditor appointments, auditor compensation, authorization of share repurchases, dividend reinvestment plans, amending the articles of association, stock issues approval, authorized capital increases, amending the stock option plans, director remuneration approval, and authorizing stock purchase plans. Also, there are no duties on controlling shareholders. In accordance with a 2004 amendment to section 131 of the 1963 Company Act, a company is required to hold an Annual General Meeting (AGM) each year. However, the Company Law Review Group's 2004 report points out that a written resolution signed by the shareholders entitled to attend and may override the requirement for an AGM. According to the KPMG International 2002 report, the Combined Code encourages the use of the AGM to foster communication between boards and private investors, and initiate investor participation. Also, the Combined Code recommends that be willing to create a dialogue with institutional investors based on the direction of the company, but institutional investors should not be privy to more information than private shareholders. However, the publicly available information does not directly address Ireland's compliance with this principle.

Manish Gupta reports in 2006 that Irish law stipulates that public companies must have at least two shareholders, while private companies may have no more than fifty shareholders. The shares of public companies may be transferred freely, while transferring the shares of a private company requires board approval.

Principle III: The Equitable Treatment of Shareholders

II

According to the WGM law firm's 2002 report, it is customary for companies in Ireland to apply the one-share/ one-vote principle, meaning that a shareholder's voting power is directly proportional to number of shares owned. The laws do not protect shareholders from voting restrictions or multiple-voting shares. However, shares of the same class are valued the same and receive equitable rights. However, the publicly available information does not directly address Ireland's compliance with this principle.

The Department of Enterprise, Trade and Employment website asserts that, as of February 2007, the Investment Funds, Companies and Miscellaneous Provisions Act of 2005 implemented market abuse regulations, to prepare for the introduction of the EU Market Abuse Directive, which focuses on preventing insider trading and market manipulation. The ISE website indicates that Part V of the Companies Act of 1990 prohibits insider trading and charges the Exchange with investigating insider trading.

Principle IV: The Role of Stakeholders in Corporate Governance

II

The WGM law firm's 2002 report notes that the Share Option and Other Incentive Scheme Guidelines of 1999 include parameters for several employee incentive schemes. Also, According to Manish Gupta's 2006 paper, members of the IAASA include the Irish Business and Employees Confederation and the Irish Congress of Trade Unions, among several others. However, the publicly available information does not directly address Ireland's compliance with this principle.

Principle V: Disclosure and Transparency

EN

In its 2002 report, the WGM law firm asserts that the Listing Rules require companies to comply with the Combined Code or provide a public explanation for noncompliance. According to the Department of Enterprise, Trade and Employment website, as of February 2007, the Companies (Auditing and Accounting) Act of 2003 established the IAASA, gave it the responsibility to supervise the regulatory functions of accountancy bodies, authorized the Board to amend the Companies Law to transfer to it the necessary function to carry out its responsibility, and provided it with the authority to amend the company law with respect to auditing and accounting matters. Mason Hayes and Curran report in a 2005 article that the Act applies to all public limited companies and large private companies. The Act requires that all public limited companies have an audit committee and the Board of Directors of medium-sized companies states its compliance with legal obligations in a "Directors' Compliance Statement," including internal procedures to ensure compliance. In his 2006 paper, Manish Gupta states that failure to produce auditor qualifications at the DCE's request is a criminal offense.

The Companies (Auditing and Accounting) Act requires disclosure of auditor remuneration for both audit and non-audit work. In the annual accounting statement, companies must disclose whether preparation of their accounts is in accordance with accounting standards, and explain the reason for and effect of any divergences. The Act mandates that companies establish audit committees and that a company's audit committee must review the company's account of compliance with accounting standards and evaluate the auditor's work. Directors must explain the internal procedures of the company that ensure compliance with the Companies Acts, Irish tax law, and other relevant laws. Paul Appleby, the DCE, announced, in 2007 that the ODCE will be initiating a program to monitor compliance with new e-communications disclosure requirements that were introduced in April.

In addition, Manish Gupta's 2006 paper indicates that there are 13 EU directives or proposals for directives pertaining to company law. The directives stipulate a number of disclosure requirements, including disclosure of a company's constitutional documents. Patrick Neary's 2006 press statement indicates that the Transparency Directive (with required implementation by January 2007) improves disclosure requirements for publicly traded companies to supply investors with better information. The Markets in Financial Instruments Directives, due to be implemented in November 2007, call for the implementation of a system to ensure proper reporting of transactions in financial instruments.

Principle VI: The Responsibilities of the Board

EN

The WGM law firm reported in 2002 that company law mandates that the directors' responsibility is to the company as a whole and not to any individual shareholder or employees. Directors are obligated to ensure the company's compliance with all applicable legislation and they are liable for failure to do so. The fiduciary responsibilities of directors derive from case law. They must act in the company's best interest, exercise their powers appropriately, avoid conflicts of interest, and refrain from making improper profits. Requirements for the makeup of the board are described in the KPMG's 2002 report. At least one-third of the board should be comprised of non-executive directors and the majority of them should be independent. Executive directors are obligated each make independent judgments and a company should select directors on their ability to do so.

In Manish Gupta's 2006 paper, the author reports that the law requires that all companies have at least two directors and one secretary. "Directors have almost unlimited powers to exercise the objects of the company" (p. 16). The powers may be limited by a company's Articles of Association and shareholder agreements. The directors and secretary are responsible for ensuring the company's compliance with the Companies Act, including the composition of the annual return and filing it with the Registrar of Companies. Directors must explain the internal procedures of the company to ensure compliance with the Companies Acts, Irish tax law, and other relevant laws. Also, one-third of directors must offer to resign every three years.