In light of recent discussions on this blog about Irish universities and their role in the wider economy, this article in the Sunday Business Post by Trinity’s Charles Larkin and Brian Lucey raises a lot of important issues.
Author: Karl Whelan
I’ve been reluctant to write anything about the DCC\Fyffes\Flavin case (see here and here) despite my suspicion that it represented a very unfortunate precedent in an age in which corporate malfeasance in our leading businesses is a major issue in Irish public life. This is because I can’t claim to have read the 700 page Shipsey report and have a very limited understanding the complex legal issues involved. However, I think that Matt Cooper has done the public an important service in raising the potential implications of the case in this article and I’d be interested in hearing the opinion of some of our more legally-minded commenters as to whether Cooper’s concerns are well-founded.
Shipsey found that Flavin had done no wrong because he had taken legal advice prior to the relevant share dealings. Paul Abbleby of the Office of Director of Corporate Enforcement then concluded “There’s no way that any court would sanction a director for having followed the company’s legal advice.”
Cooper asks “So the question arises: has Shipsey set a precedent that legal advice trumps the law?” and points out how any future businessman wishing to do something illegal now only has to find a lawyer to tell him that what he wants to do is ok.
In relation to the banking crisis, Cooper points out that the defence that people believed they were behaving legally can now come to the aid of those who clearly behaved in an illegal fashion and that a public banking inquiry is likely to be our only chance to see certain individuals called to account for their actions.
As I say, I’m not a legal expert, so I’d like to hear whether those in the know think Cooper has this wrong.
The year’s first week of Dail sittings came and went without much attention being paid to the government’s U-turn on its decision to cut the pay of Assistant Secretaries by 12 percent and the pay of Deputy Secretaries by 15 percent.
The lack of attention to this U-turn—the only cut in the budget that has been rolled back, as far as I know—could reflect a lack of interest from the public, who perhaps think that senior civil servants were being unfairly treated by the budget proposals. Alternatively, the lack of interest may reflect the original timing of the announcement—just before Christmas Eve and three weeks before the next meeting of the Dail, by which time other issues (such as banking inquiries) had arrived along to distract the public.
Credit then, to RTE’s Rachel English for putting a question about this U-turn to junior minister Dara Calleary on her Saturday View program. Mr Calleary’s response was “There’s a U-turn in relation to 160 people whose salaries are benchmarked against a European level unlike most others in the service.” This follows a similar line used by the Minister for Finance. The Irish Times reported:
Mr Lenihan said the pay of workers at this particular grade had been benchmarked against their counterparts in other European countries and they were not paid more than those at equivalent positions.
The benchmarking exercise that Ministers Calleary and Lenihan were referring to (the report of the Review Body on Higher Remuneration in the Public Sector) is here.
It discusses international comparisons and then recommends exactly the type of pay cuts that the government introduced in its budget. So the government’s defense of this U-turn is to use the same report that it used to justify introducing these pay cuts to now justify rolling back the pay cuts. This is hardly a satisfactory explanation.
The Sunday Times reports that the Information Commissioner, Emily O’Reilly, has denied their Freedom of Information request to release documents related to two meetings on the night of September 29/30, 2008, one involving senior ministers and officials and another also involving senior banking executives. The paper reports:
In making the decision, she rejected advice from Sean Garvey, a senior investigator in the Office of the Information Commissioner (OIC), who recommended that the documents be released to The Sunday Times under the Freedom of Information (FoI) legislation because of strong “public interest”.
and
O’Reilly’s decision is a victory for the Department of Finance, which fought a 14-month battle against the release of any documents related to the bank guarantee. It relented and released uncontentious material two weeks ago, but remains opposed to the release of records relating to the guarantee meetings of September 29/30.
The department had warned that it would take High Court action to prevent the release of these records after Garvey recommended their release, with some redactions. Both AIB and Bank of Ireland also opposed their release.
It appears now that we may have to wait until 2038 to see these documents.
Anyone hoping that the banking inquiry will shed light on these meetings is likely to be disappointed. My reading of comments from various government ministers (including the Taoiseach’s interview on RTE’s This Week) is that despite having a terms of reference that includes September 2008, the banking inquiry will not cover the issues related to how the government took the decision to give an almost blanket liability guarantee to the Irish banks.
I was already disappointed that the terms of reference excluded the months after September 2008, when the government consistently put forward a wildly incorrect diagnosis of the scale of the problems in the banking sector (a diagnosis that was shared by its advisers at PWC.) It is even more disappointing to think that perhaps the key policy decision in responding to the crisis will not be open for discussion.
If a major purpose of the banking inquiry is to see that banking crises don’t cost the state a huge amount of money in the future, then to my mind, it needs to come to conclusions not only about how the crisis came about but also about whether the government’s response to it was based on the best information and whether a more informed approach would have saved the taxpayer money.
Following on from last week’s post on Barclay’s and their comments on TBTF European banks, it’s interesting to see that President Obama today announced that he will be proposing legislation that will limit proprietary trading activities of large banks as well as impose limits on their growth in liabilities. Pretty clearly, whatever gets proposed isn’t going to please former IMF chief economist, Simon Johnson, but it’s still good to see these issues being addressed.
I’d guess it’s highly unlikely that any such bill would get passed through the US Congress—and I would have said this even before yesterday’s Senate election in Massachusetts. Indeed, I suspect Obama probably also figures it’s a long shot and that this annoucement and the proposed bank tax are primarily smart political moves from the President: “So if these folks want a fight, it’s a fight I’m ready to have” is just the kind of language to get the currently disappointed Democratic base charged up and it’s probably not a bad fight to have lost and thus have as a live issue going into the midterm elections.
From a European perspective, I suspect this may be an area where there would be more political agreement in Europe than in the US. An optimist might hope that the calls for limits on bank size from Lord Turner and other senior figures in the UK could lead to agreement at European level. Even more optimistically, one might hope that this could be an issue on which the new European Systemic Risk Board could also make some running to show it’s not just going to be a talk shop. A pessimist might reckon that both the EU and ESRB are far too unwieldy to make progress on such a complex issue.