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Guidance on corporate governance for the State bodies
On 1 September 2016 The Code of Practice for the Governance of State Bodies 2016 (The “Code”) published by the Department of Public Expenditure and Law Reform became effective. The aim of the Code is to provide a framework for the application of best practice in respect of corporate governance within State Bodies.
The Code applies to commercial and non-commercial state bodies as well as regulatory bodies, updating the previous code and providing additional guidance on areas including but not limited to;
- Oversight agreements between the parent Government Department and relevant State body;
- Alignment of statement and strategy; and
- Reporting obligations.
While compliance with the Code is not mandatory, the Code provides that board members and employees of State bodies and their subsidiaries should be “strongly guided” by the principles set out in the Code in order to meet the highest standards of corporate governance.
Comply or Explain
Under the Code, State bodies and their subsidiaries are required to confirm to their relevant Minister/parent Government Department that they comply with the Code. However, not all aspects of the Code may be applicable or appropriate for smaller State bodies. As such, the Code makes provision for certain requirements to be applied proportionally in certain circumstances subject to the written agreement of the relevant Minister/Parent Department.
In such cases, the relevant State body should reach agreement with the relevant Minister/parent Department on the extent to which the requirement to comply with the Code can be adapted.
In publishing the Code, the Minister for Public Expenditure and Reform, Pascal O’Donghue TD outlined one of the key benefits of the Code as being the fact that it “provides greater clarity regarding the roles and responsibilities of the Board of a State Body”. In order to achieve this aim, the Code has introduced a number of means by which to increase oversight and accountability of State bodies including the introduction of Oversight Agreements and Performance Delivery Agreements.
Oversight Agreements
One of the key changes heralded by the Code is the introduction of Oversight Agreements which will define and clarify the roles and responsibilities of both Government Departments and State bodies under their ageis.
Such agreements should clearly identify the terms of the State body’s relationship and with the relevant Minister/parent Departments and should reflect the:
- Legal framework of the State body;
- Environment in which it operates (e.g. commercial, non-commercial, regulatory body);
- Purpose and responsibilities of the State body;
- Level of compliance with the Code;
- Details of the Performance Delivery Agreement; and
- Arrangement for oversight, monitoring and reporting on conformity with the oversight agreement.
The Code provides that the Oversight Agreement should be a dynamic document, capable of evolving in light of changing circumstances which should be reviewed annually and updated as required.
Performance Delivery Agreements
Each Department is required to agree a Performance Delivery Agreement (reviewed annually) with all State bodies under its aegis including those State bodies who generate their own income and are not funded directly by the Exchequer.
Such agreements should:
- Include high level goals and objectives;
- Identify the key programmes of activity of the State body;
- Set out the key outputs specified; and
- Set out the process for formal review of the performance agreement.
The Code provides that where State Bodies already have existing service level agreements and/or performance frameworks (which include specific targets and indicators) in place with their relevant Minister/parent Departments they should be adapted to conform with the requirements of a Performance Delivery Agreement as set out in the Code.
Conclusion
The emphasis in the Code on accountability and transparency, together with the ability of State bodies to derogate from its provisions in certain circumstances (subject to agreement) provides a strong framework to ensure that State bodies can meet the highest standards of corporate governance. As such it is important that State bodies are familiar with the provisions of the Code and work towards developing and adapting their practices accordingly.
Click here for a link to the Code.
Authors: Natasha Forde and Aideen Ryan