Thursday, 11 December 2008
Dáil Eireann Debate
6. Deputy Joe Costello asked the Minister for Finance his views on whether persons appointed to the boards of banks covered by the bank guarantee to guard the public interest could contravene the legal requirement of company directors to act in the interests of the company’s shareholders at all times; if a legal mechanism is to be used to avoid such conflict of interest; and if he will make a statement on the matter. [45378/08]
21. Deputy James Reilly asked the Minister for Finance the mandate he has given to the public interest directors who he proposes the banks participating in the guarantee scheme appoint to their boards. [45217/08]
36. Deputy Willie Penrose asked the Minister for Finance if he has clarified the way in which the public interest directors being appointed to the boards of institutions covered by the bank guarantee scheme can exercise their public interest mandates in the context of company law requiring directors to act in the interests of shareholders; and if he will make a statement on the matter. [45348/08]
These questions are concerned with the issue of possible conflicts of interest for non-executive directors appointed from the panel approved by me in safeguarding the public interest while delivering their obligations to shareholders under company law; the legal mechanisms in place to deal with conflicts of interest should they arise; and the directions they have been given by me so that they can exercise their public interest mandate in the context of company law. The panel of directors to be appointed in the public interest by the covered institutions are subject to the provisions of company law. In company law a director is bound to act in the best interests of the separate legal entity that is the company. The requirement to act in the interests of the company means to act in the interests of the members as a whole, both present and future. It is acceptable for those directors to draw upon their experience, public service interest and civic mindedness and to have regard to that experience when exercising their duties to the company and deciding what they believe is in the company’s interests. It is for each director to decide what, in his or her opinion, is in the company’s interests. To a great extent the public interest and the interests of the covered institutions are likely to coincide. A solvent, profitable institution which is a going concern and has the confidence of its stakeholders is as much in the public interest as it is in the interests of the covered institutions.
I have arranged for a briefing session for the panel before they take up their appointments so they are fully aware of their public interest mandate and their duties and responsibilities under company law.
Deputy Joan Burton: Does the Minister not appreciate that there is a clear conflict of interest between a director’s mandate under company law to act at all times in the interests of the shareholders and their public interest mandate which the Minister has outlined as assisting the banks to return to a more stable situation?
How much money are these directors to be paid and who will pick up the tab? Are they being paid by the banks and will that compromise their independence rather fundamentally? Will these directors have a mandate to ask the board to fire non-performing directors and non-performing chief executives who got the banks into the kind of trouble they are now in? In the public interest will these directors ask about the bonus culture in banks? I heard the chief executive of Anglo-Irish Bank, whose shares yesterday were 33 cent, boasting in an RTE interview that he was taking a pay cut, which included bonuses, from about €3 million to half of that amount, €1.5 million. What planet is that man living on and is he planning, as was implicit in his answer, to pay himself and his staff bonuses? I do not think any of them earned salaries approaching €1.5 million, for tax avoidance reasons, if for no other reason. I ask the Minister to comment.
Deputy Brian Lenihan: When this matter was progressed through these Houses, there was considerable reservation expressed about the fact that the panel envisaged left to the financial institution an element of choice or discretion in the selection of the appointees. In the event, I constituted a panel of 12 persons. I requested their assignment to particular institutions and the institutions accepted the assignment made by the Minister. I can assure the Deputy that all the persons involved have my full confidence as persons who have a strong knowledge of what the public interest in this country requires and who are equally capable of performing their fiduciary duties as directors of the relevant institutions.
Deputy Richard Bruton: The Minister did not answer the question of whether there was a mandate which they were to execute in the public interest. I am concerned that if we put in these directors, who are all worthy people, with no public mandate as to their duties, with no banking experience apart from one of them, we are putting lambs in among wolves. Unless we equip people with a serious mandate that can give them the authority to ride shotgun in the public interest in respect of very clear issues, knowing what it was they are policing and pursuing, what will this really achieve? Do we not need the people who have a clear knowledge of what is at stake and who have a mandate as to what to do, to have some accountability to the Minister and through him to the House?
Deputy Brian Lenihan: We know from our debate on the legislation that the guaranteed institutions are not nationalised institutions and the State does not have shareholdings in them. In the course of the enactment of the legislation and the preparation of the scheme, the banks agreed to the constitution of a panel of appointees and I decided, in consultation with the leaders of Fine Gael and the Labour Party, on the appointment of persons to this panel. My primary concern was to ensure these appointments were persons who, having regard to the particular characteristics of the institutions, would have an understanding of what the public interest entailed in these institutions. Were I to have used banking experience as an exclusive criterion, as Deputy Bruton appears to imply, I do not think I would have secured the public interest in the appointments. I do not wish to enter into details of personalities but it is inaccurate to suggest that the persons involved had very limited knowledge of banking. When one considers the positions held by many of these persons it is very clear that they have the kind of experience that brings a public interest dimension to the performance of their fiduciary duties as directors of the relevant institutions.
Deputy Arthur Morgan: Will the Minister confirm that he has the power under the legislation to strengthen the role of these panel members who are about to be appointed directors of the banks? Is it his intention or is he considering taking a substantial shareholding in either a bank or banks? This would clearly deal with any conflict of interest which might arise.
Deputy Brian Lenihan: Once these directors are appointed, they have a fiduciary obligation to the banking institution. I was somewhat in the position of a Taoiseach when he appoints his Ministers in that the most important time is the period prior to the appointment. This is the reason I took some time for reflection as to who should be appointed to these institutions because I believed it was important that whoever was appointed had a concept of the public interest and experience of what the public interest requires, prior to his or her appointment.
On the other question of whether the State should take a shareholding in these institutions, I have made it clear that I have invited the banks to reflect on their own capital requirements. I have pointed out to them that the onus is on them as private institutions to capitalise themselves and I have also made it clear that in appropriate circumstances the State will invest in financial institutions by way of supplement to private investment or by way of co-investment with other interests.
Deputy Kieran O’Donnell: The problems in the banking system arose because there were technical problems which required knowledge of derivatives and in-depth knowledge of banking. The people the Minister has appointed are excellent people in their own field but I question their lack of banking experience. Is the Minister satisfied they will have adequate knowledge to deal with issues?
On the question of their fiduciary duties, I refer to the situation in my constituency in Limerick, where the Government appointees to the board of Aer Lingus effectively were not worth the paper they were written on, so to speak.
These directors have been appointed for a specific public interest purpose. Is the Minister willing to change legislation dealing with company law to ensure these directors are there in the public interest? How often will they report back on progress in the banks to the Minister?
Deputy Brian Lenihan: In the case of Aer Lingus, it is not an analogous position because the State retains a shareholding in Aer Lingus. The State does not have a shareholding in the financial institutions and for that reason, it is not possible to amend company law to elevate these directors to some peculiar status. I hope some day that Deputy O’Donnell will have the honour to sit in an Irish Government and he will realise that the public interest can be learned there and in some of the senior posts in our Administration far faster than in the private halls of commerce.
Deputy Joan Burton: Nobody has any query about the public interest credentials of all the people being offered for appointment to the banks. The Minister spoke about some kind of training course or briefing course being made available to these directors before they take up their appointment. What are they going to be trained or briefed on? Is this about the public interest or is it about modern financial products, the kind of products that have led to the crash? Will it carry a mandate of how they report back? The critical issue is whether those directors at their first meeting with the banks have a mandate from the Minister to say to some of those boards to get rid of the senior executives and directors who have failed in their duty. That is critical. On RTE last week one bank chief executive had the gall to talk about a reduction in salary, emoluments and bonuses. Will these directors agree to take no bonuses? Will the Minister give the appointees that mandate until the banks return to normal? The Labour Party has suggested that no banker should earn more than the salary of the Minister for Finance, approximately €250,000. It would probably be a modest salary by banking standards but large compensation by the standards of many ordinary people. Will the Minister just let them toddle off on their own like the FÁS directors, for us to only hear about it four years later? They are high quality individuals but if they do not have powers and a mandate, what are they to do?
Deputy Brian Lenihan: I thank Deputy Burton for acknowledging the quality of the appointees. I am not in a position to give directions on the mandate to these individuals as to what they should or should not do in particular institutions.
Deputy Brian Lenihan: I am not copping out. That is the strict statutory position. However, I have every confidence in their ability to discharge their duties and to ensure the changes we all want to see in the banking sector take place.
Deputy Kieran O’Donnell: The Minister misunderstood the questions. The gentlemen in question are excellent in their fields of expertise. However, this is an unprecedented situation. Will they be reporting to the Minister? Is he giving them a mandate for small businesses? It is of no benefit if directors are put on the boards in the public interest just for the sake of it.
Regarding another point raised by Deputy O’Donnell, and echoed by Deputy Burton, the problems in the Irish banking sector do not derive from the trading in derivatives or other such financial instruments. They arose from an excessive exposure to property lending, a much more old-fashioned form of exposure.
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