Corporate Governance Code - Questions and Answers
How and when will we know if we are a major Institution?
The Code contains guidelines for assessing if a firm is a major institution or not. Firms must also disclose if they are a major institution in their annual report so it may be possible to assess a firm’s status by benchmarking against competitors. The Central Bank will also write to firms to inform them of their status.
How do the limits on directorships operate? Are they cumulative?
Yes they are cumulative; this means for a non-major institution a director can hold 5 financial directorships (banks, insurance entities etc) and 8 non-financial directorships. For major institutions a director can hold 3 financial directorships and 5 non-financial directorships.
Directors are required to attend each board meeting – not clear if attendance by phone or video-link is sufficient
Attendance in person is preferred and other types of attendance should only be on an exceptional basis.
When does the clock start running in respect of 9 year limit for directors?
The clock runs from when the director is appointed even if this was before the implementation date for the Code in January 2011.
Are reinsurance captives covered?
No, the Code does not apply to reinsurance captives.
Could a NED in a group company qualify as an INED in a subsidiary? Could an INED in a group company qualify as an INED in a subsidiary?
A NED in a group company is very unlikely to be an INED in a subsidiary when the test of independence in the Code is applied. An INED in a group company could be an INED in a subsidiary.
The Code requires that the risk appetite must be clear to all stakeholders – who are stakeholders?
Stakeholders would include all types of stakeholders including shareholders and depositors.
All companies currently have a quorum which may consist of two directors. How does this interact with the requirement for all directors to attend all meetings (where possible) in the Code?
The quorum must be present for the board to be validly constituted and for the board to make decisions. If the quorum is not present then any decisions made will not be binding on the board. The Code requires that all directors attend meetings, where all directors do not attend, this will not impact the validity of decisions made from a company law perspective (once a quorum is present) but it may be a breach of the Code. Firms may also have to demonstrate how the board was effective for that meeting for the purposes of the Code if a number of directors were missing.
Does the same requirement to attend board meetings apply in respect of sub-committees of the board?
Section 19.1(d) provides that committee members must attend “regularly” therefore there is no obligation to attend every sub-committee meeting. Members that are unable to commit sufficient time to the committee over the medium to long terms must be removed.
Will firms that move from being normal institutions to Major Institutions once the Code is effective be given a period of grace to implement the additional requirements?
The Code does not provide for a period of grace. Generally, firms will not move from being non-major to major institutions over night and therefore the Central Bank would expect firms to tailor their position to the size of the firm, for example the larger the firm is, the less time directors will be able to spend on other directorships and they would expect directors to respond accordingly. Where a firm becomes a major institution we would expect, given it is the imposition of a new condition, that firms would be given an opportunity to make representations to the Central Bank in respect of the timelines for implementation.
Are directorships held in funds or trustees included in the count for “non-financial directorships”?
Yes, they are included.
Can you have the same CEO for 3 Irish regulated insurance companies (all writing business outside Ireland) and 100% owned by the same foreign group? Can the same Chairman (Head of insurance for the foreign group) act in this role for the 3 regulated insurance companies?
No, a person can only be a CEO or a Chairman of one entity (including group entities) at a time.
How will the code for funds and investment firms interact with the Code for Banks and Insurance undertakings?
It is unclear at present as the codes have yet to be developed.
Section 7.6 provides that the board shall indicate a time commitment expected from directors in letters of appointment. Does this mean that existing letters of appointment must be updated before the end of the term of appointment?
Firms will be expected to update / amend director’s letters of appointment.
Section 9.5 provides that the renewal of CEO contracts shall be reviewed at least every 5 years. This would appear to have implications for contracts of indefinite duration i.e. permanent contracts. Should the position not be renewed entities would then have to provide suitable alternative employment. That in itself can give rise to constructive dismissal claims where there is no suitable alternative employment. Alternatively it could give rise to an unfair dismissal claim in the event that the contract is terminated.
Firms will be expected to adhere to the Code irrespective of existing contractual arrangements. Firms should note that CEOs may act as executive directors if their contract as CEO is not renewed. All directorships are subject to review after 9 years.
Section 14.5 provides that key control functions such as Internal Audit, Compliance and Risk Management shall be independent of business units. How is "independent" to be interpreted for example independence of tasks or independence of reporting structure/lines?
Independence can be assessed on a number of factors including independence of tasks, independence of reporting structures/lines and funding/finance independence. The primary rule is that no influence should be brought to bear on these control functions as a result of any connection.
*This questions and answers document has been developed by Deloitte. We have consulted with the Central Bank in producing this document however the Central Bank has not issued this document and a separate questions and answers document will be issued by them in due course. This document is for guidance only and should not be relied upon. The answers may be subject to change and the individual circumstances of each firm and director may be considered by the Central Bank in any situation.