Thursday, May 13, 2010
Golden Circle Report
TASC have performed a social network analysis of directorships of large private companies and state bodies in Ireland. The report provides social network graphs for directors showing patterns of linkages between directors across many major state institutions and private companies from 2005 - 2007. The network pictures are great and will be of interest to anyone with any stake in the Irish economy. However, the arguments linking concentration of directorships to corporate governance are tricky to make from the data. Much of the report argues for greater diversity on boards, something that obviously has intuitive appeal to most of us not part of the wealthy elite. But at a fast reading, it doesn't look possible to use this type of data to demonstrate a causal effect of this type of concentration on either firm or economic performance though this is from a speed read. It is worth talking about what precisely these findings imply though we are likely to have a few days where such subtleties are overlooked.
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3 comments:
Hi Liam,
"... the arguments linking concentration of directorships to corporate governance are tricky to make from the data. ... at a fast reading, it doesn't look possible to use this type of data to demonstrate a causal effect of this type of concentration on either firm or economic performance"
The report does not examine the economic performance of the companies in question, it simply collates and presents the facts about of multiple directorships, remuneration, gender balance, etc.
However, the international literature indicates casual factors that weaken corporate governance include lack of diversity on boards, excessive remuneration, a lack of time for directors to do their work, and the potential divided loyalties caused by multiple directorships.
Our research establishes that these factors are present in Ireland. Hence the causal variables exist in Ireland that suggest that risks or weaknesses in corporate governance are possible.
More company-specific research, over a longer timeframe, would be needed to establish the causation between the above factors and company performance. However, it remains logical, from a systemic perspective, to seek to reduce the prevalence of the known causal factors in the system as a whole.
Nat O'Connor
Policy Analyst
TASC
Thanks Nat. I learned a lot from reading your report and I think it makes many important contributions.I also accept your characterisation of what your report is doing i.e. demonstrating that factors that have been implicated in international literatures as impacting adversely on performance were present in Ireland.
I would welcome more discussion though of whether multiple directorships and lack of diversity were the real culprits in the failure of Irish governance rather than simple failure to enforce existing regulations. For example, a tough bank regulator doing their job properly would have stopped a lot of what Fitzpatrick was doing at Anglo regardless of how many other appointments were held by Fitzpatrick. You give one specific example of where holding multiple directorships put Fitzpatrick in a major conflict of interest but even then that could have been easily dealt with by enforcing proper rules on who should set pay.
There is some danger in recent calls for changes in our governance and electoral system that we will spend a lot of time implementing widespread systemic changes that, while welcome, do not target precisely what was going wrong. In that regard I would prefer an Elderfield operating in the current system than a Neary operating in one where we have changed the multiple directorship rules.
Liam,
"I would prefer an Elderfield operating in the current system than a Neary operating in one where we have changed the multiple directorship rules"
I don't think that's a real choice. A lot of what Elderfield is doing is consulting on tighter rules, and in some cases proposing statutory limits on things like multiple directorships. The power of any regulator will be ultimately constrained by the legal requirements and possible legal sanctions. Hence, both systemic reform and stronger regulation are needed.
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