Corporate Governance
Corporate Governance practices
Allied Irish Banks, p.l.c. ("AIB") is subject to the provisions of the Central Bank of Ireland's Corporate Governance Code for Credit Institutions and Insurance Undertakings ("the Central Bank Code"), including compliance with requirements which specifically relate to 'major institutions', which imposes minimum core standards upon all credit institutions and insurance undertakings licensed or authorised by the Central Bank of Ireland.
AIB believes it has robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed, adequate internal controls, including sound administrative and accounting procedures, IT systems and controls. The system of governance is subject to regular internal review.
AIB's corporate governance practices also reflect Irish company law and, in relation to the UK businesses, UK company law, the Listing Rules of the Enterprise Securities Market of the Irish Stock Exchange, and certain provisions of the US Sarbanes Oxley Act of 2002.
The Board of Directors
The Board is responsible for the leadership, direction and control of AIB and its subsidiaries (collectively referred to as 'AIB' or the 'Group') and is accountable to shareholders for financial performance. There is a comprehensive range of matters specifically reserved for decision by the Board. At a high level these include:
-appointing the Chairman and the Chief Executive Officer, and Senior Management, and addressing succession planning;
-ultimate responsibility for corporate governance;
-determining the Group's strategic objectives;
-monitoring progress towards achievement of the Group's objectives, and overseeing the management of the business, including control systems and risk management; and
-approving annual operating and capital budgets, major acquisitions and disposals, and monitoring and reviewing financial performance.
The Board is responsible for approving high level policy and strategic direction in relation to the nature and scale of risk that AIB is prepared to assume in order to achieve its strategic objectives. The Board ensures that an appropriate system of internal controls is main - tained and reviews its effectiveness. Specifically the Board:
-sets the Group's Risk Appetite, incorporating risk limits;
-approves Risk Frameworks, incorporating risk strategies, policies, and principles;
-approves stress testing and capital plans under the Group's Internal Capital Adequacy Assessment Process ("ICAAP"); and
-approves other high-level risk limits as required by Credit, Capital, Liquidity and Market policies.
The Board receives regular updates on the Group's risk profile through the Chief Executive Officer's monthly report, and relevant updates from the Chairman of the Board Risk Committee.
The Board is also responsible for endorsing the appointment of individuals who may have a material impact on the risk profile of the Group and monitoring on an ongoing basis their appropriateness for the role. The removal from office of the head of a 'Control Function', as defined in the Central Bank Code, is also subject to Board approval.
AIB has received significant support from the Irish State ("the State") in the context of the financial crisis because of its systemic importance to the Irish financial system. This support has taken various forms including capital injections, asset relief and various guarantees. As a result of the State support measures, the State holds c. 99.8% of the ordinary shares of the Company. The
relationship between AIB and the State as shareholder is governed by a relationship framework ("the Framework"). Within the Framework, the Board retains full responsibility and authority for all of the operations and business of the Group in accordance with its legal and fiduciary duties and retains responsibility and authority for ensuring compliance with the regulatory and legal obligations of the Group.
Chairman
The Chairman's responsibilities include the leadership of the Board, ensuring its effectiveness, setting its agenda, ensuring that the Directors receive adequate, accurate and timely information, facilitating the effective contribution of the Non-Executive Directors, ensuring the proper induction of new directors, the ongoing training and development of all directors, and reviewing the performance of individual directors. Mr David Hodgkinson was appointed Executive Chairman on 27 October 2010 and Non-Executive Chairman with effect from 12 December 2011, following the appointment of Mr David Duffy as Chief Executive Officer.
The role of the Chairman is separate from the role of the Chief Executive Officer, with clearly-defined responsibilities attaching to each; these are set out in writing and agreed by the Board.
Chief Executive Officer
The Chief Executive Officer is responsible for the day-to-day running of the Group, ensuring an effective organisation structure, the appointment, motivation and direction of senior executive management, and for the operational management of all the Group's businesses. Mr David Duffy was appointed Chief Executive Officer on 12 December 2011 and was co-opted to the Board on 15 December 2011.
Company Secretary
The Directors have access to the advice and services of the Company Secretary, Mr David O'Callaghan, who is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.
Board Meetings
The Chairman sets the agenda for each Board meeting. The Directors are provided with relevant papers in advance of the meetings to enable them to consider the agenda items, and are encouraged to participate fully in the Board's deliberations. Executive management attend Board meetings and make regular presentations.
The Board held eleven scheduled meetings during 2012, and ten additional out-of-course meetings or briefings. Attendance at Board meetings and meetings of Committees of the Board is reported on below. During a number of Board meetings, the Non-Executive Directors met in the absence of the Executive Directors, in accordance with good governance standards. In addition to their attendance at Board and Committee meetings, Non-Executive Directors attended Board meetings of AIB Group (UK) p.l.c., AIB Mortgage Bank and EBS Limited and held consultative meetings with the Chairman.
Board Membership
It is the policy of the Board that a majority of the Directors should be Non-Executive. At 31 December 2012, there were 9 Non-Executive Directors and 2 Executive Directors. The Board deems the appropriate number of Directors to meet the requirements of the business to be between 10 and 14. Non-Executive Directors are appointed so as to maintain an appropriate balance on the Board, and to ensure a sufficiently wide and relevant mix of backgrounds, skills and experience to provide strong and effective leadership and appropriate challenge to executive management.
In the performance of their functions, the Directors have a duty to have regard to the matters mentioned in section 4 of the Credit Institutions (Stabilisation) Act 2010 ('the Act'). The duty imposed by the Act is owed by the Directors to the Minister for Finance on behalf of the Irish State, and takes priority over any other duty of the Directors to the extent of any inconsistency. Thereafter, all Directors are required to act in the best interests of the Group, and to bring independent judgement to bear in discharging their duties as Directors.
There is a procedure in place to enable the Directors to take independent professional advice, at the Group's expense. The Group holds insurance cover to protect Directors and Officers against liability arising from legal actions brought against them in the course of their duties.
Performance Evaluation
The Chairman meets annually with each Director individually to review their performance. These reviews include discussion of, inter alia, the Directors' individual contributions and performance at the Board and relevant Board Committees, the conduct of Board meetings, the performance of the Board as a whole and its committees, compliance with the Director-specific provisions of the Central Bank Code, the requirements of the Central Bank's Fitness and Probity Regulations, and other specific matters which the Chairman and/or Directors may wish to raise. Attendance at Board and Committee meetings is one of a number of important factors considered in evaluating Directors' performance, and a table showing each Board Member's attendance at such meetings is shown below and separately within the commentary on each of the Board Committees.
Attendance at scheduled Board and Board Committee Meetings
| Name |
Board |
Audit Committee |
Board Risk Committee |
Remuneration Committee |
Nomination & Corporate Governance Committee |
| Directors |
A |
B |
A |
B |
A |
B |
A |
B |
A |
B |
| Simon Ball |
11 |
11 |
|
|
12 |
11 |
|
|
|
|
| Bernard Byrne |
11 |
11 |
|
|
|
|
|
|
|
|
| David Duffy |
11 |
11 |
|
|
|
|
|
|
|
|
| Tom Foley |
4 |
4 |
3 |
3 |
|
|
1 |
1 |
|
|
| Peter Hagan |
5 |
5 |
|
|
4 |
4 |
1 |
1 |
1 |
1 |
| David Hodgkinson |
11 |
11 |
|
|
|
|
4 |
4 |
6 |
6 |
| Jim O'Hara |
11 |
10 |
13 |
13 |
|
|
4 |
3 |
6 |
6 |
| Dr. Michael Somers |
11 |
11 |
|
|
12 |
12 |
|
|
|
|
| Dick Spring |
11 |
11 |
|
|
12 |
12 |
|
|
6 |
3 |
| Tom Wacker |
11 |
11 |
13 |
13 |
|
|
|
|
|
|
| Catherine Woods |
11 |
11 |
13 |
13 |
12 |
12 |
|
|
|
|
| Former Directors |
|
|
|
|
|
|
|
|
|
|
| Declan Collier |
6 |
5 |
7 |
6 |
|
|
3 |
3 |
|
|
Column A indicates the number of scheduled meetings held during 2012 which the Director was eligible to attend; Column B indicates the number of meetings attended by each Director during 2012. The Board held eleven scheduled meetings during 2012, and ten additional out-of-course meetings or briefings.
Terms of Appointment
Non-Executive Directors are generally appointed for a three-year term, with the possibility of renewal for a further three years; the term may be further extended, in exceptional circumstances, on the recommendation of the Nomination and Corporate Governance Committee.
Mr Dick Spring was appointed Non-Executive Director in 2009 as a nominee of the Minister for Finance under the Irish Government's
Credit Institutions (Financial Support) Scheme 2008 (S.I. No. 411 of 2008). Dr Michael Somers was appointed Non-Executive Director in
2010 as a nominee of the Minister for Finance under the Irish Government's National Pensions Reserve Fund Act 2000 (as amended) for a three year term to 31 December 2012. Dr Somers was reappointed a Non-Executive Director, under the same regime, for a further period of one year with effect from 1 January 2013.
Following appointment, in accordance with the requirements of the Articles of Association, Directors are required to retire at the next Annual General Meeting ("AGM"), and may go forward for reappointment, and are subsequently required to make themselves available for re-appointment at intervals of not more than three years. Since 2005, all Directors have retired from office at the AGM and have offered themselves for reappointment with the exception of Messrs Somers and Spring.
Under the terms of the Government's preference share investment, Messrs. Somers and Spring are not required to stand for election or regular re-election by shareholders.
Letters of appointment, as well as dealing with appointees' responsibilities, stipulate that a specific time commitment is required from Directors. A copy of the standard terms of the letter of appointment of Non-Executive Directors is available on request from the Company Secretary.
The Board has determined that all Non-Executive Directors in office in December 2012, namely Mr Simon Ball, Mr Tom Foley,
Mr Peter Hagan, Mr David Hodgkinson, Mr Jim O'Hara, Dr Michael Somers, Mr Dick Spring, Mr Tom Wacker and Ms Catherine Woods are independent in character and judgement and free from any business or other relationship with the Company or the Group that could affect their judgement. In 2011, the Central Bank confirmed that Messrs Somers and Spring should be considered independent for the purposes of the Central Bank Corporate Governance Code.
Induction and Professional Development
There is an induction process for new directors. Its content varies between Executive and Non-Executive Directors. In respect of the latter, the induction is designed to familiarise Non-Executive Directors with the Group and its operations, and comprises the provision of relevant briefing material, including details of the Group's strategic and operational plans, and a programme of meetings with the Chief Executive Officer, the Leadership team and the Senior Management of businesses and support functions. A continuous programme of targeted and continuous professional development is in place for Non-Executive Directors.
Board Committees
The Board is assisted in the discharge of its duties by a number of Board Committees, whose purpose it is to consider, in greater depth than would be practicable at Board meetings, matters for which the Board retains responsibility. The composition of such Committees is reviewed annually by the Board. A description of these Committees, each of which operates under Terms of Reference approved by the Board, and their membership, is given later in this section. The minutes of all meetings of Board Committees are circulated to all Directors, for information, with their Board papers, and are formally noted by the Board. This provides an opportunity for Directors who are not members of those Committees to seek additional information or to comment on issues being addressed at Committee level. In carrying out their duties, the Board Committees are entitled to take independent professional advice, at the Group's expense, where deemed necessary or desirable by the Committee Members.
Audit Committee
Current Members: Ms Catherine Woods, Chairman; Mr Tom Foley (from 13 September 2012); Mr Jim O'Hara; Mr Tom Wacker. Former Members during the year: Mr Declan Collier (resigned from the Board 28 June 2012).
| Member attendance during 2012: |
|
A |
B |
| Declan Collier |
Former Member |
7 |
6 |
| Tom Foley |
Current Member |
3 |
3 |
| Jim O'Hara |
Current Member |
13 |
13 |
| Tom Wacker |
Current Member |
13 |
13 |
| Catherine Woods |
Current Member |
13 |
13 |
Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the number of meetings attended by each Member during 2012.
The Audit Committee comprises Non-Executive Directors whom the Board has determined have the collective skills and relevant financial experience to enable the Committee to discharge its responsibilities. The Audit Committee has oversight responsibility for:
-the quality and integrity of the Group's accounting policies, financial statements and disclosure practices;
-compliance with relevant laws, regulations, codes of conduct and "conduct of business" rules;
-the independence and performance of the External Auditor ("the Auditor") and the Group Internal Auditor; and
-the adequacy and performance of systems of internal control and the management of financial and non-financial risks.
These responsibilities are discharged through its meetings with and receipt of reports from management, the Auditor, the Chief Financial Officer, the Group Internal Auditor, the Chief Risk Officer and the Head of Regulation and Compliance.
The Sarbanes-Oxley Act requires that the Audit Committee membership includes an 'audit committee financial expert', as defined in related SEC rules. The Board has determined that Ms Catherine Woods is an 'independent audit committee financial expert' for these purposes. Ms Woods has accepted this determination on the understanding that she has not thereby agreed to undertake additional responsibilities beyond those of a member and Chairman of the Audit Committee.
During 2012, the Audit Committee met on thirteen occasions. The following, whilst not intended to be exhaustive, is a summary of the activities undertaken by the Committee in the discharge of its responsibilities. The Committee:
-reviewed the Group's annual and interim financial statements prior to approval by the Board, including: the Group's accounting policies and practices; the minutes of the Group Disclosure Committee (an executive committee whose role is to ensure the compliance of AIB Group Financial Information with legal and regulatory requirements prior to external publication); reports on compliance; effectiveness of internal controls; and the findings, conclusions and recommendations of the Auditor and Group Internal Auditor;
-reviewed the scope of the independent audit, and the findings, conclusions and recommendations of the Auditor;
-satisfied itself through regular reports from the Head of Internal Audit, the Chief Financial Officer, the Chief Risk Officer, the Auditor and the Head of Governance and Assurance that the system of internal controls over financial reporting was effective;
-provided oversight in relation to the Auditor's effectiveness and relationship with the Group, including agreeing the Auditor's terms of engagement, audit plans and remuneration;
-reviewed and monitored the independence and objectivity of the Auditor, including approving, within pre-determined limits approved by the Board, the range and nature of non-audit services provided and related fees;
-provided assurance regarding the independence and performance of the Group Internal Audit Function, through reviews of rolling quarterly updates on control issues and related remediating actions, and a monthly report detailing Internal Audit Reports issued during the previous month; the annual audit plan and related progress; and the adequacy of resources allocated to the function; the Chairman of the Committee, met with the Head of Internal Audit and the Lead Audit Partner between scheduled meetings of the Committee to discuss material issues arising;
-received rolling updates from the Chief Risk Officer and the Head of Governance and Assurance to satisfy itself that the Group was in compliance with all regulatory and compliance obligations and considered key developments and emerging issues, particularly in respect of the Group's responsibilities under the Government Guarantee and Capital Subscription and Planning Agreements with the Minister, the operation of the Speak-Up process and key interactions with Regulators in the various jurisdictions;
-reviewed the minutes of all meetings of subsidiary companies' Audit Committees, requesting and receiving further clarification on issues when required, and met with, and received annual reports from, the subsidiary Audit Committee chairmen; and
-held formal confidential consultations during the year separately with the Lead Audit Partner, and the Chief Risk Officer and the Head of Internal Audit in each case with only Non-Executive Directors present.
The Committee is also responsible for making recommendations in relation to the Head of Internal Audit, including appointment, replacement, and remuneration, in conjunction with the Remuneration Committee, and confirming the Head of Internal Audit's independence; the Committee meets with the Head of Internal Audit in confidential session, in the absence of management. The Head of Internal Audit has unrestricted access to the Chairman of the Audit Committee.
The following attend the Committee's meetings by invitation: the Lead Audit Partner; the Chief Financial Officer, the Chief Risk Officer;the Head of Internal Audit; and the Head of Governance and Assurance. Other senior executives also attend where appropriate.
Audit Committee - Terms of Reference
Board Risk Committee
Current Members: Dr. Michael Somers, Chairman; Mr. Simon Ball; Mr. Peter Hagan (from 26 July 2012) Mr. Dick Spring; and
Ms. Catherine Woods.
| Member attendance during 2012: |
|
A |
B |
| Simon Ball |
Current Member |
12 |
11 |
| Peter Hagan |
Current Member |
4 |
4 |
| Dr Michael Sommers |
Current Member |
12 |
12 |
| Dick Spring |
Current Member |
12 |
12 |
| Catherine Woods |
Current Member |
12 |
12 |
Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the number of meetings attended by each Member during 2012.
The Board Risk Committee was established to assist the Board in proactively fostering sound risk governance within the Group through ensuring that risks are appropriately identified and managed, and that the Group's strategy is informed by, and aligned with, the Board approved risk appetite.
The Board Risk Committee comprises Non-Executive Directors whom the Board has determined have the collective skills and relevant experience to enable the Committee to discharge its responsibilities. To ensure co-ordination of the work of the Board Risk Committee with the risk related considerations of the Audit Committee, the Chairman of the Audit Committee is also a member of the Board Risk Committee.
The Board Risk Committee has responsibility for:
-providing oversight and advice to the Board in relation to current and potential future risks facing the Group and risk strategy in that regard, including the Group's risk appetite and tolerance;
-the effectiveness of the Group's risk management infrastructure;
- monitoring and reviewing the Group's risk profile, risk trends, risk concentrations and risk policies; and
-considering and acting upon the implications of reviews of risk management undertaken by Group Internal Audit and/or external third parties.
The responsibilities of the Committee are discharged through its meetings, receiving, commissioning and considering reports from the Chief Risk Officer, the Chief Credit Officer, the Chief Financial Officer, the Head of Internal Audit, the Head of Governance and Assurance and other members of management.
During 2012, the Board Risk Committee met on twelve occasions. The following, while not intended to be exhaustive, is a summary of the key items considered, reviewed and/or approved or recommended by the Committee during the year:
-monthly reports from the Chief Risk Officer which provided an overview of key risks including liquidity and funding, capital adequacy, credit risk, market risk, regulatory risk, business risk, and related mitigants
-periodic reports from the Chief Credit Officer regarding the credit quality, performance and outlook of key credit portfolios within the Group;
-items of a risk related nature, including:
(a) the governance, organisational and delegated authority framework;
(b) the risk appetite framework and risk appetite statement;
(c) the funding and liquidity strategy;
(d) risk frameworks and policies, including those relating to
(i) credit risk, (ii) operational risk, (iii) financial risk, including market and pension risk, and (iv) compliance;
(e) the code of conduct and conflict of interest policy for employees; and
(f) capital planning including consideration of the quarterly, six monthly and annual ICAAP Reports and related firm wide stress test scenarios as at 31 December 2011 and 30 June 2012;
- reports from management on a number of specific areas in order to ensure that appropriate management oversight and control was evident, including:
(a) arrangements for dealing with customers in difficulty, including debt settlement strategies and preparations for personal insolvency legislation and amendments to the Irish Bankruptcy Law;
(b) Eurozone risks and management's contingency planning in that regard;
(c) significant operational risk events, potential business 'knock out' risks, and the Group's business continuity planning arrangements;
(d) credit risk performance and trends, including days past due and monthly overview of significant credit transactions; and
(e) regulatory developments and business preparedness for changes to regulatory codes and directives, including Consumer Protection Code, Fitness and Probity and Anti-Money Laundering/Financial Sanctions;
-presentations from the individual businesses on their high level risks and related mitigants;
-management's plans and progress in meeting the actions required in the Central Bank of Ireland's Risk Mitigation Programme; and
the Group's Risk Management infrastructure including actions taken to strengthen the Group's risk management governance, people skills and system capabilities, and to address the risk management related recommendations arising from the Central Bank of Ireland's Supervisory Review and Evaluation Process.
The Committee is also responsible for making recommendations in relation to the Chief Risk Officer, including appointment, replacement, and remuneration, in conjunction with the Remuneration Committee, and confirming the Chief Risk Officer's independence; the Committee meets with the Chief Risk Officer in confidential session, in the absence of management. The Chief Risk Officer has unrestricted access to the Chairman of the Board Risk Committee.
The following attend the Committee's meetings by invitation: the Lead Audit Partner; the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Chief Credit Officer, the Head of Internal Audit, and the Head of Governance and Assurance. Other senior executives also attend where appropriate.
Board Risk Committee - Terms of Reference
Nomination and Corporate Governance Committee
Current Members: Mr. David Hodgkinson (Chairman); Mr. Jim O'Hara, Mr. Peter Hagan (from 26 July 2012); and Mr. Dick Spring.
| Member attendance during 2012: |
|
A |
B |
| Peter Hagan |
Current member |
1 |
1 |
| David Hodgkinson |
Current member |
6 |
6 |
| Jim O'Hara |
Current Member |
6 |
6 |
| Dick Spring |
Current member |
6 |
3 |
Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the number of meetings attended by each Member during 2012.
The Nomination and Corporate Governance Committee's responsibilities include: recommending candidates to the Board for appointment as Directors; reviewing the size, structure and composition of the Board and the Board Committees, reviewing succession planning, and monitoring the Group's responsibilities and activities concerning staff, the marketplace (including customers, products and suppliers), the environment and the community.
The search for suitable candidates for the Board is a continuous process, and recommendations for appointment are made, based on merit and objective criteria, following an appraisal process and interviews. The Committee is also responsible for approving corporate-giving budgets and any substantial philanthropic donations, and reviewing the Group's corporate governance policies and practices. The Committee met six times during 2012. Messrs Tom Foley and Peter Hagan were nominated by the Committee to the Board and appointed Non-Executive Directors on 13 September 2012 and 26 July 2012, respectively, following a selection process that included the services of an external executive search consultancy firm.
Corporate Governance - Terms of Reference
Remuneration Committee
Members: Mr Jim O'Hara (Chairman from 14 August 2012); Mr Tom Foley (from 13 September 2012); Mr Peter Hagan (from 26 July
2012); and Mr David Hodgkinson.
Former Members during the year: Mr Declan Collier (former Committee Chairman, resigned from the Board 28 June 2012).
| Member attendance during 2012: |
|
A |
B |
| Declan Collier |
Former member |
3 |
3 |
| Tom Foley |
Current member |
1 |
1 |
| Peter Hagan |
Current member |
1 |
1 |
| David Hodgkinson |
Current member |
4 |
4 |
| Jim O'Hara |
Current member |
4 |
3 |
Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the number of meetings attended by each Member during 2012.
AIB's remuneration policies are set and governed by the Remuneration Committee whose purpose, duties and membership are set by its Terms of Reference which may be viewed below. The scope of the Committee's activities is broad based, ranging from setting pay policy to determining appropriate pension arrangements.
The Remuneration Committee's responsibilities include recommending to the Board: Group remuneration policies and practices; the remuneration of the Chairman of the Board (which matter is considered in his absence); and, performance-related and share-based incentive schemes when appropriate.
The Committee also determines the remuneration of the Chief Executive Officer, and, in consultation with the Chief Executive Officer, the remuneration of other Executive Directors, when in office, and the other members of the Executive Leadership Team, under advice to the Board. Details of the total remuneration of the Directors in office during 2012 and 2011 are shown in note 62. The Remuneration Committee is also required to review the remuneration components of Identified Staff who are individuals classified by AIB as 'material risk takers' in accordance with the Remuneration Guidelines of the European Banking Authority ("EBA"). Remuneration matters of a significant nature are also considered by the Board.
The Committee met four times during 2012.
Remuneration Committee - Terms of Reference
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