I would like to thank you for the kind invitation to speak tonight. I would like to start by acknowledging the presence of some of your very distinguished guests.
During his time in Dublin, Ambassador King has worked hard on trying to broaden and deepen bilateral relations between this country and our nearest neighbour. There was always a risk that there would be a drift in relations following the more intense contacts of the many years which were required to negotiate and implement a sustainable peace settlement. The Ambassador has played an important role in making sure that this hasn’t happened – including enabling this month’s historic state visit of his Head of State.
I would also like to acknowledge the presence of Ambassador Atsumi. The relations between this country and Japan have always been strong. At this time of year this history can be seen in the flowering of cherry-blossom trees which were given as a gift of friendship many years ago and are to be found in important public places such as the campus of our largest university. Through a succession of state and official visits we have moved beyond these traditional cultural links to very significant commercial partnerships. Growing these connections in the financial services sector was a priority for me as both Enterprise Minister and Minister for Foreign Affairs.
Our countries have also worked together in the field of international development. Japan has for many years been the world’s largest and most important aid donor. While other wealthy countries have conspicuously failed to meet their global responsibilities, Japan has been a true leader. In recent times Ireland became one of the top ten donors in the world and we have very much valued the advice, support and partnership of the Japanese government.
In light of Japan’s spirit of generosity to others it is particularly appropriate to offer them our assistance following the recent earthquake and tsunami. The ACOI’s fundraising draw this evening is a reflection of the sympathy of the wider Irish public towards the suffering of the people of Japan and our respect for the astonishing resilience they have shown in the face of recent trauma.
I have known Alan Dukes for many years and his reputation for integrity and public service is admired across all political boundaries. His current public service role in Anglo-Irish Bank is no-one’s idea of an easy job and I think he and his colleagues deserve great respect and thanks for their work on behalf of the people.
In its relatively short existence the ACOI has begun to have a very significant influence, particularly in the financial services sector. In international terms, its membership and impact on professional development is proportionally extremely high. No one can doubt that one of the most important points to be learned about this recession in Ireland and throughout the developed world is that a more systemic approach to compliance is essential in all aspects of public and commercial life.
The scale and pace of activity in the modern economy can enable great innovation and rising standards of living. Equally it is clear that the failure to balance rapid development with equally strong and innovative governance can rapidly destroy progress.
Gordon Brown made a very important point when he described this recession as the first crisis of globalisation and said that to come through it and learn its lessons we must be willing to engage with and rethink our approach to many issues.
At the core of the worst financial crisis in seventy years lies a broadly-shared complacency. In international politics the fall of the Berlin Wall led to the foolish idea of “the end of history” and the absolute victory of liberal democracy. At the same time sustained growth led to the equally wrong idea that the 1980s had brought forth a monetary framework which would end the era of unwanted shocks. This complacency showed itself in parliaments, governments, regulators, the media and corporations around the world.
Just as the causes of the crisis were complex and their impacts have been profound – so too is it important to acknowledge that we will never deal with them effectively if we only look for simple answers and easy actions.
The recent Nyberg Report has been dismissed by some commentators because it didn’t satisfy their desire for a handful of names on whom everything could be blamed. To be sure, the report clearly points to major failings which must link to individuals. The DPP and financial authorities have now got both the information and powers they need to pursue these individuals. However, I think people are missing the fact that Nyberg is actually a much more serious and challenging report because it concentrates on systemic issues. The evidence it presents is compelling and means that we cannot comfort ourselves by condemning a small number of individuals and then just carry on as we did before.
By showing clearly the motivations and failings at all levels of the Irish political and financial establishment, the report gives us a deeper understanding of what went wrong and an agenda which actually has the capacity, if implemented, to make sure that it would be unlikely to happen again. To be found in every part of this agenda is the issue of developing a more comprehensive and effective approach to governance.
I believe that we must take a new approach to appreciating, understanding and implementing governance within most parts of our public and private sectors. Governance issues can’t be an add-on, they have to be deeply embedded. We must value consensus, but subject it to rigorous questioning and broaden the diversity of expertise which is valued. I think that this organisation summarises the need well when you describe one of your strategic priorities for 2010-2012 as being to “enhance the brand of compliance”.
In my view, the next few years should see dramatic change in a range of governance areas and I would like to mention just a few. Specifically, we should see change in the working of the Oireachtas and government, the role of European institutions and the regulatory framework for the private sector.
Let me be very clear in saying that I am a person who has never shied from accepting responsibility when I am responsible. When I assumed responsibility for the leadership of the Fianna Fáil movement in January of this year, in my first speech I moved quickly to take responsibility for policies which contributed to the boom and for failing to challenge the prevailing consensus in core areas of economic policy.
But what the Irish people deserve now is an honest effort by all their representatives to reflect on their role in bringing us to this point and a real effort among the entire political community to comprehensively renew how the Irish state does its business.
For my part, I believe that the first thing we must do is to renew our approach to governance within parliament and government.
It is a striking fact that in the decade before the effective collapse of the Irish banking system, banking regulation was discussed in the national parliament on exactly one occasion. That was on the bill to establish the Central Bank and Financial Services Regulatory Authority. Looking back on that debate you will see that the main concern of all parties was actually about bank charges on customers. There was no deep engagement on how a regulator should operate in such a complex sector, no consideration of risk, no examination of how financial institutions work and no focus on the core issue of the new entity’s relationship to the ECB.
Each week in the Dáil, all members who don’t sit in the Ceann Comháirle’s seat have an opportunity to raise topics. They can ask questions, table motions and raise debating points. They can also request committee hearings, commission reports and invite in expert groups. The government has the ability to control much of the agenda, but anyone who wants to raise an issue will find a way. In light of this, the silence about the evolving and ultimately catastrophic developments in the financial sector is deafening. It suggests a parliament which is broken and needs reform – not mainly in terms of how often it sits, how much it costs or how many people are in it, but in much more serious ways.
This same failing can be found in relation to fiscal policy, where a period which we now know to have been too expansionary was dominated not by criticism that we were being too generous, but by unmet demands for even more to be spent.
I think at its core we have a system of parliamentary and executive governance which is not capable of systematically engaging with complex areas when they are not in crisis.
To mention a couple of problems and to be completely frank, we select office holders in a manner which has little relevance to the tasks they are supposed to carry out and we operate under a set of constitutional principles in relation to legislation and public finances which date back to late-Medieval England.
It is not widely known that Bunreacht na hEireann actually forbids any member of the Dáil from introducing a measure which would cost money unless they are a member of government and have the Taoiseach’s signature on the measure. Therefore the overwhelming majority of members of the Dáil may only play the role of commentators on, rather than participants, in a vast range of policy areas. The core constitutional principle underpinning our parliament is that parliament be a commentator and criticrather than an active agent on most public issues. How can this ensure good governance?
We also limit membership of government to elected politicians. The result is that we have an electoral system which chooses representatives based on one set of skills which are important but which bear little direct relevance to an entirely different set of skills required to run a modern government. In international terms, we are very unusual in this approach.
A further obstacle to good governance is that members of government make up nearly 20% of the members of the Dáil. They are not active participants in any of the general work of the Dáil and they are certainly not in any position to oversee their own work.
At any level of the public or private sectors it would be hard to find a worse system to ensure effective oversight and sustainable policy development.
In a few months’ time a Constitutional Assembly will be formed to propose changes in a number of areas. I pushed in the Dáil this week for agreement that the Assembly would be allowed to get into issues like restrictions on membership of government. Hopefully, it will agree proposals to be put to the people next year which will give us a more expert, reflective and effective system of political governance – in essence to allow people from outside parliament to serve in Government.
A point which is only beginning to be debated is the fact that the crisis has also exposed serious failings in governance at a European level.
Within the Council, Commission and Parliament an examination of the years leading up to the crisis found a failure to identify, appreciate or act on warning signs. In the case of Ireland, a detailed report on economic projections showed official praise having been given to policies which are now seen in a different light.
Some members of the Executive Board of the ECB are the only people left in Europe who don’t accept that the financial crisis has also exposed serious errors in their work. Raising interest rates after a crisis has begun and doing so again before it is over has deeply damaged the credibility of both the mandate given to the Bank and its often rigid orthodoxies. An official account which explicitly rejects any responsibility whatsoever on its part for regulatory failures, combined with an unofficial policy of regular anonymous briefings has undermined trust in the Bank.
It is a young and powerful institution which does not appear to have the humility required to evolve or the diversity to encourage rigorous debate on policy alternatives. Its defensiveness in the face of criticism serves no positive public service.
The architecture of European integration evolved rapidly over a period of twenty years from the moment that Jacques Delors rightly set out to reinvigorate the most important multi-national organisation ever established. There have been regular changes in the basic law of the Union and the competencies of different bodies have changed radically. It is natural that not everything carried out in such a dynamic period will have been successful. I think one of the great failings which we are seeing is that there is a lack of clarity within institutions about how they review their own work and how they can develop a culture of welcoming oversight and criticism rather than reacting defensively.
I don’t believe that there is any logic or benefit to a new programme of major European constitutional change. Such a programme would potentially undermine the collective spirit which represents Europe when it is at its best. Rather, we need a serious re-evaluation of how the institutions work. In particular we need to find ways of involving more independent oversight at both a strategic and an operational level. Certainly we need to reduce the incentive to self-justification which comes from having so many tightly closed senior leadership teams.
If we can move the agenda away from Treaties and powers and towards a new approach to governance issues in the Union we will have achieved a lot.
It is in the private sector that most of your members work and there will undoubtedly continue to be significant changes in how governance is carried out across industry, and not just within the financial services sector. There are major issues concerning the resourcing and framework of regulatory authorities which involve too much to address quickly here. Suffice it to say that I believe that we should take a much more urgent and comprehensive approach to reviewing our regulatory bodies.
Within companies, I believe that the evidence of failings in the working of company law boards is now overwhelming. Enormous damage has been caused by a failure to embed a culture of respect for risk management and review. There is little evidence that boards have genuinely worked in the long-term interest of shareholders in a manner which is independent from the executive leadership of companies.
I believe we should consider a more radical approach to the operation of boards of significant public companies. We should require an increased influence for non-executive directors, including procedures where activism by institutional shareholders be encouraged rather than merely tolerated. This must involve a greater role for compliance officers, including making the position of secretary to the board more independent with mandated resources.
I appreciate that there is a balance to be found between rigorous oversight and undermining the ability of managers to manage. What is clear is that in many corporations this balance has not been found – and the major destruction in shareholder value and the wider economic impact which we have seen puts this beyond question.
As mentioned earlier, we have to start not with a list of populist measures based on understandable anger, but by committing to changing the way we develop regulatory changes. This is why my party is proposing a new regulatory oversight committee in the Dáil together with a new expert support system to move politics away from being reactive to becoming genuinely strategic. I am also establishing an expert advisory group which will support my party’s spokespeople in the technical areas of oversight and regulation.
Ireland can and will come through this recession. We have many strengths still in our economy such as a manufacturing sector which is running at an 11 year high. Only yesterday the Minister for Finance said that exchequer receipts are strong and spending is well under control. Consumer confidence is damaged but will slowly recover.
Everyone involved in public policy needs to make sure that the recovery is not only strong, but that it is also sustainable. Central to this is the need to make sure that the essential stabilisers of effective regulation and a culture of compliance are in place. It is a substantial amount of work which must be undertaken and I have no doubt that the growing body of compliance expertise which your organisation is enabling is essential, and will play a key role in our country’s return to sustainable growth.