1 SETTING THE SCENE – SOURCES AND OVERVIEW
1.1 What are the main corporate entities to be discussed?
The responses to the questions in this chapter relate primarily to Irish incorporated companies with shares listed on the Main Market of the Irish Stock Exchange (which is a regulated market) or listed on the Enterprise Securities Market (ESM) of the Irish Stock Exchange.
1.2 What are the main legislative, regulatory and other corporate governance sources?
The law is stated as of 1 April 2011. As regards all companies, the primary corporate governance legislation is contained in the Companies Act 1963 to 1990 (the "Companies Acts"). Additional corporate governance requirements apply to Irish incorporated companies which are listed on a regulated market as a consequence of the Shareholders' Rights (Directive 2007/36/EC) Regulations 2009, European Communities (Directive 2006/46/EC) Regulations 2009, European Communities (Directive 2006/46/EC) (Amendment) Regulations 2010, European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010, European Communities (Statutory Audits) (Directive 2006/43/EC) (Amendment) Regulations 2011, Transparency (Directive 2004/109/EC) Regulations 2007 and the Market Abuse (Directive 2003/6/EC) Regulations 2005.
The activities of all Irish incorporated companies are also governed by the memorandum and articles of association of the company. The memorandum of association sets out the principal objects of the company, together with the powers of the company and it is important that the company conducts itself in accordance with its memorandum of association since otherwise there can be negative consequences under Irish company law. The articles of association of the company constitute a contract between the company and its shareholders and contain restrictions and requirements regarding such things as shareholder meetings, voting rights, powers and duties of directors, the composition of the Board and communications between the company and its shareholders.
Irish company law also includes many requirements regarding the duties and responsibilities of directors which have been set out in Court decisions.
Companies listed on the Main Market of the Irish Stock Exchange are expected to adhere, on a comply or explain basis, to the corporate governance principles set out in the UK Corporate Governance Code as supplemented by the Annex published by the Irish Stock Exchange (together the "Corporate Governance Code"). Irish companies listed on the ESM will generally seek to comply insofar as possible with the Corporate Governance Code and to the extent that they are unable to do so will also disclose their noncompliance.
Financial institutions are also required to comply with the Corporate Governance Code for Credit Institutions and Insurance Undertakings published by the Central Bank of Ireland. In the private sector, there is a significant number of companies which are State owned and all of these must comply with the Corporate Governance Guidelines published by the Department of Finance.
From time-to-time Irish listed companies will also consult with the Irish Association of Investment Managers which has issued guidelines and pronouncements over the years in regard to corporate governance matters. These guidelines and pronouncements do not have the force of law but generally reflect the requirements of Irish institutional investors.
1.3 What are the current topical issues, developments and trends in corporate governance?
As far back as the publication of the Cadbury Report in 1992, Irish listed companies have sought to follow the developments in UK corporate governance practice.
Irish companies with a listing on a regulated market are now required by law to disclose which corporate governance code is being applied by the company and the extent to which there is any non-compliance. This requirement, which first became law in 2010, has indirectly made corporate governance compliance a legal requirement in the sense that a company must now disclose, and may not mis-represent, the extent to which it complies with the prevailing corporate governance code.
As a result of the global financial crisis of 2008 to 2009, the Central Bank of Ireland has devoted significant resources to reviewing corporate governance practices in Irish financial institutions and in doing so has introduce a stringent corporate governance code for all Irish credit institutions and insurance undertakings.
The other significant development has been the role which is now played by the various shareholder advisory services which review corporate governance practices in companies prior to their annual general meetings each year. This has caused most Irish listed companies to consult on a private basis with one or more key shareholder advisory services with a view to ensuring that their corporate governance standards meet the relevant requirements.
The UK Stewardship Code for institutional investors is also applicable to Irish listed companies and this will therefore be an additional encouragement for Irish companies to ensure compliance with the Corporate Governance Code.
2.1 What rights and powers do shareholders have in the operation and management of the corporate entity/entities?
Under both company law and the applicable governance codes, the day-to-day operation and management of an Irish company is entrusted to its board of directors and the ability of shareholders to remove and appoint directors is the principal power of shareholders to influence the operation and management of the company.
Company law and various requirements in the Listing Rules of the Stock Exchange, as well as the Corporate Governance Code require certain rights and powers to be reserved to shareholders, largely through the requirement for shareholder approval by a resolution at a general meeting of shareholders. For instance, under Irish company law, directors do not have an absolute right to issue shares and must therefore seek prior approval from shareholders in addition to seeking shareholder approval for the dis-application of pre-emption rights where necessary. Under Irish company law, shareholders also have the ability to control the buy-back and reissue of shares by a company.
The Listing Rules of the Irish Stock Exchange impose various requirements for shareholder approval in respect of significant corporate transactions. An important difference between companies listed on the Main Market and the ESM is the fact that these requirements for shareholder approval are more relaxed in the case of the ESM.
Company law also protects shareholders against potential conflicts of interests in that transactions between a company and its directors and persons connected with them must be approved by shareholders where they exceed certain thresholds. Shareholders also have the right to convene shareholder meetings for the purpose of proposing resolutions which can direct the board to undertake certain actions. In the case of companies listed on the Main Market, it is possible for a shareholder or a group of shareholders holding at least 5% of the issued share capital of the company to convene such meetings. For other companies, the threshold is 10% of the issued share capital. The ability of shareholders to direct the board to undertake certain actions is limited to the extent that the matter is already reserved for the exclusive determination of the board under the articles of...