Principles of Good Governance
The Combined Code on Corporate Governance sets out standards of good practice in relation to issues such as board composition and development, remuneration, accountability and audit, and relations with shareholders.
The Combined Code contains broad principles and more specific provisions. As part of the Listing Rules, companies listed on the Irish Stock Exchange are required to report on how they have applied the principles of the Combined Code, and either to confirm that they have complied with the provisions of the Combined Code or, where they have not, to provide an explanation.
The Financial Reporting Council (FRC) began a review of the effectiveness of the Combined Code in March 2009 and published its findings in December 2009. It found that while the Combined Code and its related guidance require some updating, it remains broadly fit for purpose. The main changes, which are proposed to apply to accounting periods beginning on or after 29 June 2010, include new Code principles on: the roles of the Chairman and non-executive directors; the need for the board to have an appropriate mix of skills, experience and independence; the commitment levels expected of directors; and the board’s responsibility for defining the company’s risk appetite and tolerance.
The proposed new Code also includes the following new provisions: board evaluation reviews to be externally facilitated at least every three years; and the Chairman to hold regular development reviews with all directors.
Bord Gáis Éireann is a body corporate established under the Gas Act, 1976, and, as a result, is not required to adhere to the Combined Code. However, the Board is committed to achieving the highest standards of corporate governance and ethical business conduct and the principles of Section 1 of the Combined Code are applied with the following exceptions:
Board Balance and Independence: The composition of the Board is a matter for the Minister and the Board currently has one executive Member as outlined below.
Appointments to the Board and Re-election: The appointment and re-appointment of Board Members is a matter for the Minister.
Level and Make-up of Remuneration: The Remuneration Committee, chaired by the Chairman, considers and makes recommendations to the Board solely on the remuneration of the Chief Executive. The remuneration of non-executive Board Members is a matter for the Minister.
Constructive use of the AGM: An Annual General Meeting cannot be held as it is not provided for under the Gas Acts 1976 to 2002. A meeting of Capital Stockholders is held in accordance with the Capital Stock Scheme implemented as part of the Bord Gáis Employee Share Ownership Plan.
Bord Gáis Éireann complies with the provisions of Section 1 of the Combined Code with the following exception:
The Board has agreed that the appointment of a Senior Independent Director would not be appropriate in the context of Bord Gáis Éireann as a semi-state organisation.
Bord Gáis Éireann also complies with the corporate governance and other obligations imposed by the Ethics in Public Office Act, 1995 and the Standards in Public Office Act, 2001.
Board Membership
The Board comprises the Chief Executive and eight independent non-executive Board Members (including the Chairman) who are appointed by the Minister. The only executive Board Member is the Chief Executive. Board Members are generally appointed for five year terms and the terms and conditions of appointments and details of Board Members’ fees are set out in writing.
The Roles of the Chairman and the Chief Executive
The roles of the Chairman and Chief Executive are separate and there is clear division of responsibilities between them.
The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. The Chairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda. The Chairman facilitates the effective contribution of all Board Members and constructive relations between the Chief Executive and the other Board Members and ensures that Board Members receive relevant, accurate and timely information.
The Chief Executive has direct charge of Bord Gáis Éireann on a day to day basis and is accountable to the Board for financial and operational performance.
The Board has delegated the following responsibilities to the Chief Executive:
- the development and recommendation of strategic plans for consideration by the Board that reflect the longer-term objectives and priorities established by the Board;
- implementation of the strategies and policies of the organisation as determined by the Board;
- monitoring of the operating and financial results against plans and budgets;
- prioritising the allocation of technical and human resources;
- implementing risk management systems.
The Chief Executive is accountable to the Board for all authority delegated to executive management.
The Board
While day to day responsibility for leadership and control is delegated, within defined authority limits, to the Chief Executive and his Management Team, the Board is ultimately accountable for the performance of Bord Gáis Éireann.
The following matters are reserved for Board approval:
- Corporate Plan
- Annual Report and Financial Statements
- Treasury Policy
- Risk Management Policy
- Energy Trading Risk Management Policy
- General Tendering and Purchasing Procedures
- Review of Effectiveness of System of Internal Control
- Annual Budget
- Expenditure Authorisation Levels Including Terms of Major Contracts
- Code of Conduct
- Disaster Contingency Plans
- Policy on Determination of Senior Management Remuneration
- Appointment, Remuneration and Assessment of Performance of the Chief Executive
- Significant Amendments to Pension Benefits of the Chief Executive and Staff (which may require Ministerial approval).
The Board Members, in the furtherance of their duties, can at the expense of Bord Gáis Éireann, take independent professional advice. All Board Members have access to the advice and services of the Secretary who is responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with. Insurance cover is in place to protect Board Members and Officers against liability arising from legal actions taken against them in the course of their duties.
The Board recognises the need to ensure that Board Members are aware of their legal and fiduciary responsibilities and that they are kept up to date and fully informed of industry, economic and corporate governance developments and changes in best practice.
An induction process is in place for new Board Members and a comprehensive set of briefing papers is issued to all Board Members on their appointment.
Board papers, which include monthly Management Accounts, are sent to Board Members in the week prior to Board Meetings.
Briefings by specialist external speakers are provided at Board meetings on a regular basis.
Board Members’ Remuneration
The Minister determines the fees payable to Board Members. The remuneration of the Chief Executive is in line with “Guidelines on Contracts, Remuneration and other Conditions of Chief Executives and Senior Management of Commercial State Bodies” issued in March 2006.
Board Members’ Independence
Non-executive Board Members are independent of management and are required to declare any interests or relationship which could interfere with the exercise of their independent judgement.
Board Evaluation
The Board has completed annual formal evaluations of its own performance, that of individual Board Members and of its Committees. The process by which the Board and Committee evaluation was undertaken involved the completion by the Board Members of a detailed questionnaire and preparation of a report back to the Board. In the case of individual Board Member performance this was carried out by means of a one to one session with the Chairman.
The non-executive Board Members meet annually to carry out a performance evaluation of the Chairman taking into account the views of the Chief Executive.
Communication with the Principal Shareholder
Through regular contact with the Department of Communications, Energy and Natural Resources, the Board and management maintain an ongoing dialogue with the principal shareholder on strategic issues to ensure that Board Members are aware of and kept up to date on the views of the shareholder.