Corporate Governance and Ethics: Ireland vs. US Internal Controls

This essay delves into the critical aspects of corporate governance and ethics, with a primary focus on the internal control systems implemented within public corporations in Ireland. The introduction highlights the significance of internal controls in mitigating risks and ensuring compliance, especially in the wake of global financial scandals. The paper examines the regulatory framework in Ireland, including the influence of the UK Corporate Governance Code and the role of shareholders, directors, and audit committees. It also explores the responsibilities of non-executive directors in promoting effective corporate governance. Furthermore, the essay provides a comparative analysis of internal control systems in Ireland and the United States, contrasting the "explain or comply" approach in Ireland with the Sarbanes-Oxley Act (SOX) in the US. The comparison includes the division of roles between the chairman and CEO, highlighting the differences in practices and their impact on corporate governance and the incidence of scandals. The essay concludes by emphasizing the strengths of Ireland's corporate governance framework and the ongoing evolution of internal controls in the US.

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CORPORATE GOVERNANCE AND ETHICS
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Corporate Governance and Ethics
Introduction
The many financial scandals that have affected public companies and investors globally
have indeed resulted in the recognition of the key internal control system in the corporate
governance of companies. The relationship between internal control and corporate governance
entails the process plus the structure used to promote the management of risks and boosting the
success of the organization. This is designed to realize shareholders’ long-term value whilst
considering the interest of other stakeholders. Internal control as a process performed at different
organizations levels is designed to provide rational confidence concerning the attainment of the
goals of efficiency in addition to effectiveness of operating activities, consistency of accounting
data, compliance with laws, as well as regulations (Joseph, Ocasio, & McDonnell, 2014, pp.
1835). This implies that internal control systems in companies are effective when it offers
sufficient protection against risk, which may compromise the attainment of company’s goals.
Ireland has been in the forefront in the European Union (EU) in encouraging and ensuring public
companies adopt internal controls towards promoting compliance and reducing risks for
company’s resources. Therefore, internal control systems are essential to the success and
survival of public companies in Ireland and other parts of the world (Barker & Chiu, 2017, pp.
16).
The paper will investigate the internal control systems in Ireland in promoting corporate
governance; the responsibility of non-executive directors in internal controls, and finally discuss
compare the internal controls in Ireland and the United States (US).

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Internal Controls Public Corporations in Ireland
According to Walker (2009), corporate governance in Ireland has become centre of focus
of several scholars and researchers and a huge volume of reports have been published in
academic journals discussing standards of corporate governance. In Ireland, the corporate
governance of public corporations is derived from a blend of corporate law, statutory regulations,
as well as codes. Firms that are listed on the Main Securities Market are needed to fulfil both the
United Kingdom (UK) Corporate Governance Code and the Irish Governance Annex (Pickett,
2013, pp. 39). The corporate governance codes in Ireland are mainly self-regulating plus UK-
based. The daily operation and management of an Irish public company is normally entrusted to
the board of directors by the company’s shareholders founded on the memorandum plus the
articles of association. This is designed to boost the internal control systems towards promoting
compliance and the success of the firm. The capability of the shareholders in the company to
remove, as well as appoint the directors are the primary power of shareholders to influence the
management and operation of the firm towards compliance (Adeyemi & Fagbemi, 2010, pp.
619).
Thus, the company law along with diverse requirements in the Listing Rules of Euronext
Dublin and the Corporate Governance Code need definite rights plus powers to be reserved to
shareholders. In Ireland, the Listing Rules normally impose different requirements for
shareholder approval in line to considerable corporate transactions for public corporations on the
Main Market. The company law will regulate potential conflicts of interest by demanding that
certain transactions between a company and its directors to be approved by shareholders
(Tricker, 2012, pp. 92). This provides effective internal control systems in Ireland for the public

Corporate Governance and Ethics 4
corporations. In addition, shareholders have the primary responsibility in, but no specific
obligation for corporate governance. European Union and domestic legislative plus non-
legislative programs have been designed to motivate more active shareholder participation in
corporate governance towards managing risks in public corporations. Thus, the UK Stewardship
Code for institutional investors is too pertinent to Irish-listed corporations and seeks to
encourage a more meaningful association between investors and investee firms. Different
shareholder advisory services evaluate corporate governance practices in firms before their
annual general meetings (Dine & Koutsias, 2013, pp. 49).
All the Irish corporations are managed by directors (one-tier boards in Ireland), where the
number of directors in a company should be at least two directors (individuals need to be at least
18 years of age; however, there is no limit on the number of board of directors, which can be
appointed unless it is specified in the articles of association. Thus, the board of directors in
public corporations in Ireland has the role of ensuring that the firm complies with its
transparency and disclosure responsibilities as set out in the Companies Act, and the EU Market
Abuse Regulated (596/2014) (MAR). The one-tier body of directors in Ireland mainly comprises
both executive and non-executive directors (Walker, 2009, pp. 23).
Internal control systems are effective when the company’s corporate governance develop
audit structures to unearth inappropriate practices in public corporations in Ireland. Irish law
provides that public corporations in the regulated marketplace, or possibly their parent should
have an audit committee that comprises at least one independent director with competence in
auditing or accounting. The Corporate Governance Code demands that public corporations need
to have an audit committee that is composed of solely individuals recognized by the Code as

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independent non-executive directors. These directors will comprise individuals appointed to the
audit, nomination and remuneration committees of the board of the company. The audit
committee in Ireland has been found to play a crucial role in promoting internal control systems.
The committee reviews, as well as monitors the company’s systems of internal control. It also
has the role of reviewing the manner the company will manage the diverse risks. The majority of
the audit committees have financial expertise and for the many firms will be a member of board
with the financial knowledge and background. The audit committee will report to the board on
the weaknesses and failings of the firm’s internal control mechanisms (Bhimani, 2009, pp. 138).
Role of Non-executive directors in Internal Controls
It has been long confirmed that, in all, but most closely held owner-managed firms, the
powers that are delegated to the directors can allow them to serve their significance at the
expense of shareholders’. The corporate governance atmosphere in Ireland in promoting internal
control has put the non-executive director at the forefront of media, as well as shareholder
attention. The scandals witnessed in the past years have highlighted the challenges that the non-
executive director and auditors experiences in “standing-up” to dominant chairman or CEOs
(Turner, 2009, pp. 28).
In Irish law, there is no difference between the non-executive directors and any other
director and, therefore, the non-executive directors perform similar roles as other company
directors to the firm. The non-executive directors have been seen to play a leading role in brings
independence and expertise to the board. The non-executive director has attracted much
attention in the recent past on their significance of the duty as independent watchdog. The

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corporate governance code in Ireland obligates the non-executive directors to constructively
challenge the strategy of the board. The code further suggests that the board must appoint one
independent non-executive director to be the senior independent directors to offer a sounding
board for the chair (Freeman, Pearson & Taylor, 2012, pp. 17).
Like in other countries in the world, the non-executive directors in Ireland play an
important obligation in promoting corporate governance by playing an oversight role. Effective
boards in Ireland need to have a mix of executive and non-executive directors. Thus, the function
of the non-executive directors is to avail the element of independence along with expertise to the
company’s board that complements that of the executive directors. Thus, the responsibility of the
non-executive directors has become more and more vital in latest years in Ireland and EU and
probably to become even more so in regard to amplified corporate governance supervision of
board operation (Bhimani, 2009, pp. 139). The idea of incorporating the non-executive directors
to the company’s board is to challenge and in this regard, undertake more robust decisions of the
entire board. Therefore, the non-executive directors will bring independence and an external
view, which guarantee higher accountability in the end to shareholders. Idyllically, the
remuneration committee of big corporations in Ireland is required to be composed of self-
governing non-executive directors.
Comparison of Internal Controls in Ireland and United States
In the US, detailed regulations to Security Exchange Commission (SEC), NASDAQ,
New York Stock Exchange (NYSE) as well as Sarbanes-Oxley Act 2002 (SOX) primarily
impact corporate governance structures. Nonetheless, as compared to SOX, Ireland utilizes

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“explain or comply” strategy of corporate governance that is totally dissimilar from SOX. The
primary elements of SOX are PCAOB (the Public Company Accounting Oversight Board) that
manages the audit of public firms in relation to the US securities laws plus registering with
PCAOB of firm’s all auditors in line with the US securities laws (Spira & Slinn, 2013, pp. 41).
The US was the original nation in the world to introduce professional guidance on
internal control that in Ireland. The importance of the internal control in the US became an
important tool for the auditors. Its significance was linked to US audit processes starting to
develop independently from those that were used in the UK among the professionals. In the US,
managers are possible to put individual goals ahead of corporate objectives leading to conflict of
interests between stockholders in addition to the management of the company (Epps & Cereola,
2009, pp. 1137).
The function of the company’s chairman and the chief executive officer (CEO) are
mutually exclusive in Ireland. In Ireland the chairman and the CEO will not be the same
individuals, but this will be different individuals in the corporation. The corporate governance
code in Ireland requires that the Chairman and the CEO to be mutually exclusive to promote the
internal control system since they will one individual having the same position within the
company will easily manipulate the compliance laws and financial accounts (Ivan, 2009, pp. 11).
This practice in Ireland has been instrumental in promoting trust and transparency in the
management of public corporations preventing possible scandals and frauds. The recommended
split in the responsibilities occurred during the early 1990s by the Cadbury Report on Corporate
Governance in the UK. Nonetheless, it is a widespread practice in the US for the same person to
assume the position of Chairman and CEO resulting in weak corporate governance because of

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the lack of internal control systems. This has been found to expose the public companies in the
US to many risks that result in scandals and misappropriation of company’s resources. In Ireland
unlike in the US, the corporate governance code suggest that that no former CEO must become
the chairman of similar firm and that the division of roles between the chairman and CEO are
obviously recognized in writing and agreed by the board (Carcello, Hermanson & Raghunandan,
2009, pp. 120).
In the US, the expansion of the corporate governance is still considered to be under
evolution has it has not adequately developed internal control systems to curb the current waves
of scandals in the country. Ireland has well-developed corporate governance by are reinforced by
effective regulations and laws that govern the way companies operate. Despite the US adopting
the internal control measures earlier than Ireland, there is increased cases of weak corporate
governance in the US that permit managers and CEOs to commit fraud unlike in the Ireland
where there are less reported cases. The laws on compliance on internal controls in the US have
not been effective in promoting the management of the public companies. Many companies have
taken advantage of weak internal controls systems because of weak laws and regulations that
govern compliance in the US resulting in more scandals that have affected the reputation of the
affected companies unlike in Ireland (Muchlinski, 2009, pp. 47).
Conclusions
The factors that have catapulted the development of internal control comprise growing
public anticipations of auditing standards; and a trend in the evolution of management control
concepts in attaining the extensive influences on the control of companies. In Ireland, there is an

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increasing and strong tendency for the companies to develop internal controls that are designed
to boost compliance and promote accountability. This has seen Ireland report few cases of
corporate scandals in large companies. However, in the US, the internal control systems are
relatively weaker as compared to that of Ireland (Nordberg, 2011, pp. 72). The US in the last few
years has experienced growing cases of corporate scandals that have affected the corporate
governance and reputation of the companies. Ireland has continued to strengthen its corporate
governance by establishing better internal control systems to effectively manage companies. /m

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