Stephen FitzSimons and Gill Lohan

Following an earlier consultation process, Euronext Dublin has published an Irish Corporate Governance Code.

Although Euronext Dublin has recognised the UK Corporate Governance Code (a revised version of which was published by the UK Financial Reporting Council on 22 January 2024) as being synonymous with international best practice, it was felt that now is an opportune time for Ireland to have its own code.

The Irish Code is therefore designed to allow for greater flexibility to adapt and evolve as the corporate, legal, and economic climate changes, ensuring that governance standards remain relevant and effective for the Irish market.

The Irish Code will apply to Irish companies listed on the regulated market of Euronext Dublin for accounting years commencing on or after 1 January 2025.

However, given the large number of dual-listed companies with a UK and an Irish listing and in order to reduce the reporting burden for these companies they will have the choice to adopt the Irish Code or the UK Code under the proposed changes to the Euronext Dublin listing rules.

Comparison to UK Code

Euronext Dublin has recognised that historically Irish companies (whether or not they are dual-listed on a London market) have adhered to the provisions of the UK Code. For this and other reasons, the provisions of the UK Code form the basis of the Irish Code, albeit with certain differences and allowing for the flexibility for further divergence in due course as the Irish Code develops.

Irish issuers should note the following in particular:

• “Comply or explain”: The “comply or explain” approach at the core of the UK Code has been adopted by the Irish Code. As Irish issuers will be familiar with, this means that adherence to the various provisions are required to be detailed (in the case of compliance) or explained in the case of non-compliance) in the issuer’s annual report.

• Director independence: The Irish Code adopts the same position as the UK Code on the fact that the assessment of director independence is a matter for board determination and also provides a list of circumstances which are likely to impair a director’s independence. It is noteworthy that one of these circumstances – employment by the company – is subtly different between the Irish Code (which has a three-year lookback period on this point) and the UK Code (which has a five-year lookback period).

• Votes against recommendation: A key aspect of the UK Code is the requirement to communicate effectively with shareholders in the event that a significant number of votes are received against a proposal recommended by the board. Under the UK Code, the threshold for dissent is 20%. Under the Irish Code the threshold is set at 25%, following which the board must detail in the company’s next annual report and, if applicable, the explanatory notes to resolutions at the next shareholder meeting the engagement process undertaken, what impact the feedback has had on the decisions the board has taken and any actions or resolutions now proposed.

• Workforce engagement: Although the principle of wider stakeholder (and workforce) engagement is central to each of the UK Code and the Irish Code, the Irish Code provides that a board should routinely review the company’s policy with respect to the means for the workforce to raise concerns in confidence and, if they wish, anonymously.

• Company secretary: Each of the UK Code and the Irish Code provides that directors should have access to the advice of the company secretary and that the company secretary is responsible for advising the board on all governance matters.  In addition, the Irish Code provides that the company secretary is responsible for the following: under the direction of the chair ensuring a good information flow within the board and its committees and between management and non-executive board members; ensuring that the essence of the discussions and decisions at board meetings are accurately captured in the minutes; facilitating induction for new appointments to the board; and assisting with professional development as required.

• Diversity and inclusion policy: The Irish Code specifically mandates the maintenance of a diversity and inclusion policy with regard to gender and other aspects of diversity of relevance to the company such as, age, disabilities and educational and professional background which should include measurable objectives for implementing such a policy.

• Audit committee: Under the Irish Code, at least one member of the audit committee should have “competence in accounting or auditing” (which is consistent with the wording of section 167(6) of the Companies Act 2014, rather than “recent and relevant financial experience” under the UK Code). Further, under the Irish Code the audit committee is required to monitor the “corporate reporting process” (rather than the “financial reporting process” under the UK Code).

• Share award vesting: Under the Irish Code share awards granted to executive directors should only be released for sale on a phased basis and be subject to a total vesting and holding period of three years or more (rather than a period of five years or more under the UK Code).

Comment

The introduction of the Irish Code is a welcome development in the evolution of the Irish equity capital markets landscape.

The continuing (and expected future) divergence between UK and EU equity capital markets regimes provided a strong impetus to constitute a corporate governance regime which is tailored to the Irish market and has the flexibility to diverge further from its UK equivalent to account for the evolving Irish equity capital markets landscape.

Further, the use of the UK Code (with which Irish issuers are familiar) as adapted for the Irish market and the flexibility to be provided by Euronext Dublin’s new listing rules for Dublin/London dual-listed companies to choose whether to apply the Irish Code or the UK Code is a feature of the new regime we expect issuers to welcome.

• Stephen FitzSimons is partner and head of the corporate group and Gill Lohan is a partner at McCann FitzGerald.