Protectionism and procrastination
Protectionism and procrastination
the era of inertia in corporate affairs
Abstract and Keywords
Chapter 2 shows that the failure to develop a jurisprudence incorporating corporate wrongdoing into the architecture of the criminal law is not surprising. It was a consequence of Ireland’s history as a predominantly agrarian state and the resulting political and social inertia surrounding corporate affairs. Ireland remained a largely agrarian state for most of the 20th century. Initially it advanced protectionist policies to shield Irish industry from outside competition and as an assertion of sovereignty. Later, it opened up its economy, embracing free market capitalism to boost the prosperity of the State. However, earlier protectionist policies meant that there was little big business in Ireland so it had neither need nor experience of constructing a regulatory framework. Corporate activity was viewed positively and there was little political reflection on the desirability of corporate accountability and there was even less cultural recognition of the negative effects of corporate activity. The Irish State did not regularly or rigorously review company law and it avoided passing any original Irish company legislation. Corporate wrongdoing was addressed using conventional criminal law, without adoption or reflection, because it was easier than designing a specialised system of corporate enforcement.
In the last chapter, the issue of regulatory crime was analysed through the lens of doctrinal legal definition. It was shown that the Irish legal system adopted a narrow legal definition of crime, orientated to prioritise conventional crime and one that marginalised corporate wrongdoing from this analysis. This chapter shows that the failure to develop a jurisprudence incorporating corporate wrongdoing into the architecture of the criminal law was premised on a political and social inertia surrounding corporate affairs for most of the twentieth century. It is shown that addressing corporate wrongdoing was not considered a significant issue in an agrarian state, with relatively low levels of corporate activity, where the public was more concerned with job creation than crime, particularly corporate and white-collar crime. It describes the particular framework of social, political and economic factors that led to the marginalisation of corporate affairs within the legal system, thereby giving contextual flesh to the bones of the legal argument made in Chapter 1.
Assumptions, strategy choices and discourses are gathered as evidence and forged together to reveal the particular mindset or ‘logic of action’ that drove Ireland’s approach to corporate wrongdoing for much of the twentieth century. It prompted a distinctive architectural pattern of provisions, policy transfer strategies and enforcement choices. It explains why the criminal law was used to address corporate deviancy, without the appropriate reflection as to whether a model of justice addressing conventional crime was appropriate to the corporate setting. It also explains why liability was structured according to conventional criminal methods and why these criminal law provisions were so under-enforced.
Capturing all of the elements of this configuration would be impossible in this chapter alone. Accordingly, the effectiveness of this architecture and its enforcement are given specific attention in Chapters 3 and 4. This chapter is limited to capturing the mentality underpinning the traditional approach (p.31) and how this has impacted on policy choices. Though critically descriptive rather than archival, a large amount of information is analysed. By necessity, capturing the political, social and economic momentum of a century of legal history involves some generalisation. Opinions, priorities and legal responses may vary and shift. Discontinuities may occasionally appear. The transition from the traditional to the contemporary approach addressing corporate wrongdoing at the turn of the twenty-first century was not a seamless one; difficulties naturally arise when legal trends are pigeonholed into one period in a particular timescale. Therefore, any features which may more accurately reflect the emerging contemporary approach have been reserved for discussion in Part II of this monograph. Despite these qualifications, however, this chapter is necessary because it attempts to capture the particular character, momentum and personality of the traditional period. It teases out the interaction of social and legal forces, interpenetrating fields that inform each other in ways that are rarely acknowledged, let alone articulated.
Company law in the ‘peasant economy’
English legislation substantially influenced the shape and direction of Irish company law. Prior to 1922, all Irish company law was enacted by the British Parliament. It enacted a variety of Companies Acts to regulate the corporate sector and these were eventually consolidated into the Companies (Consolidation) Act 1908. A number of other British Acts enacted prior to Irish independence, and one Irish statute, made some minor additions to the Irish corporate framework in the early 1900s. In essence, however, the 1908 Act was ‘for Irish lawyers the bedrock of company law for over half a century’ (Keane, 1985: 15). With the exception of a report in 1927 on winding up companies and bankruptcy procedures, a report which was not implemented by the Irish Parliament, Irish company law, as embodied by the 1908 Act, did not undergo any substantial review for fifty years until the Company Law Reform Committee eventually reported (Cox, 1958). The only Irish Companies Act that was passed, the Companies (Re-constitution of Records) Act 1924, addressed the rebuilding of company records when the Companies Registration Office (CRO) was destroyed by fire in Dublin’s Custom House.
By contrast, English company law was regularly reviewed and amended following the enactment of the 1908 Act. In 1925, a committee headed by Wilfred Greene was established in England to consider how the Companies Acts 1908–17 could be amended and improved. The recommendations in the Greene Report were implemented in 1928 and the Companies Acts were consolidated by more legislation in 1929. In 1943, a committee chaired by Mr Justice Cohen was established to consider amending the 1929 (p.32) Act to further streamline company law and to protect both investors and the public interest. Some of the recommendations made in the Cohen Report were later implemented in the Companies Acts 1947 and 1948. In 1952, another committee chaired by Montague Gedge considered amending the 1948 Act. As noted by Gower (1997: 48): ‘By the end of the nineteenth century the Board of Trade had established the practice of appointing at intervals of about 20 years a Departmental Committee to review company law, implementing its recommendations by an amending Act which was then repealed and replaced by a consolidation of all company legislation in a Company Act.’ Therefore, company law was regularly and thoroughly reviewed in the UK in the first half of the twentieth century. The recommendations of the various committees were considered and implemented by the legislature. In Ireland, by contrast, company law review was non-existent. The reason for the disinterest in corporate affairs was ‘due in part perhaps to the lesser role played by industry and business in a predominantly agricultural economy’ (Keane, 1985: 15).
For most of the twentieth century, the Irish economy performed poorly. Writing prior to the economic boom of the 1990s, Lee (1989: 521) suggested: ‘It is difficult to avoid the conclusion that Irish economic performance has been the least impressive in western Europe, perhaps in all Europe, in the twentieth century.’ Though the substantial presence of natural resources (particularly coal and iron) in the Irish State has been doubted, it was in an ideal geographical location with easy access to the British market and it had suffered comparatively little damage following the world wars (Ferriter, 2005: 61, 32; Lee, 1989: 527). So why did the economy perform so poorly for so long? In the paragraphs below, it is shown that the Irish State was agrarian in orientation, had an insufficient knowledge of corporate and economic planning and pursued inadequate economic and corporate policies for the first half of the twentieth century. These policies continued to haunt the State for decades after they were abandoned. In particular, the Irish State failed to promote industry sufficiently, failed to encourage foreign investment and was too committed to the flawed policy of protectionism.
In the early years of the Irish Free State, foreign investment was not encouraged in case overseas investors would gain control of Irish industry and subvert national policies and interests for their own gain. Protectionist policies were advanced as an assertion of the sovereignty of the State and resistance to British influence, to avoid ‘contaminating economic contact with a certain neighbouring island race, who, through some unfortunate oversight in divine regional policy, had been located within smelling distance of the chosen people’ (Lee, 1989: 187). The Control of Manufactures Acts 1932 and 1934 enshrined the protection of Irish industry in legislation, shielding Irish companies from enormous tariffs and strict quotas that foreign companies were required to observe. (p.33) Furthermore, Irish people had to own in excess of half the equity of Irish firms, thereby ensuring that Irish companies were controlled by Irish people (Daly, 1984). Those companies that did not meet this requirement had to receive a special licence from the Minister for Industry and Commerce to operate in Ireland. As observed by the Organisation for Economic Co-operation and Development (OECD, 2001: 18):
While the rest of Western Europe began a process of trade liberalisation and integration in the immediate post-war years, Ireland maintained a protectionist self-sufficiency strategy. Tariffs on imports were maintained at very high levels until the end of the 1950s and quota restrictions were an important part of the protective milieu in which Irish businesses operated. In manufacturing, much of the sector had developed since the late 1920s under the cover of a very high protective barrier against external competition. With a small domestic market, the granting of protection could ensure a domestic monopoly for production.
Though the legislation resulted in an initial increase in manufacturing output and employment, ‘the spurt lasted only as long as it took the newly-founded firms to capture the home market, however, and was already over by the mid-1930s’ (O’Grada, 1997: 109). However, the Acts had a number of harmful effects on industry that were more enduring in nature. Irish firms were so sheltered from competition that they were unable to engage effectively in export markets. Furthermore, discouraging foreign corporate involvement meant that Irish industry was denied the opportunity to learn useful skills from businessmen in large, successful and efficient foreign firms. Politicians would later recognise the need to use tax incentives to ‘encourage the return from abroad of Irish nationals with managerial experience’ (Costello, 1965: 18). In addition, the legislation also stunted the growth and development of licensed businesses because the Acts ‘required that most licensed companies supply the majority of their capital from their own resources and this tended to exert a bias in favour of smaller companies’ (Daly, 1984: 259).
It is also significant that ‘from the 1930s on a series of state-owned companies were engaged in commercial activities that were not being undertaken by the private sector or which were felt to be outside the experience of existing firms’ (OECD, 2001: 19). Major investments in enterprise were State affairs, not private initiatives, as evidenced in the establishment of State companies in key areas, like the Electricity Supply Board (1927), the ICC Bank and Irish Life in financial services (1933 and 1939), Greencore Food Processing (1933), Aer Lingus and CIE in transport (1936 and 1944) and Irish Steel (1947), among others (OECD, 2001: 19). Given the bleak economic environment at the time, it is perhaps understandable that private enterprise was not sufficiently developed at this point to perform major corporate activities without State involvement. However, Lee (1989: 390–3) has also argued that the Irish people themselves failed to show entrepreneurial flair. In this early (p.34) stage of the development of the State, he argues that most rural Irish people were afraid to take the financial gambles that were central to developing businesses. Instead, they desired security and a steady income from managing family farms.
Where farming was not an option, industry and commerce were still avoided. Even in family businesses, parents usually discouraged their children from engaging in commercial trading. The gifted child was encouraged to join a profession while the lesser so continued the family business. Other children with skills were encouraged to join a trade. Even within the small business community that did exist, there still seemed to be a distinct dearth of commercial talent. As Lee (1989: 577) observed of the time: ‘most Irish businessmen were simply not interested in ideas. Indigenous industry consisted overwhelmingly of small firms enjoying a captive domestic market and enjoying few competitive pressures … A first-class business mind could be a joy to behold. There were too few of them in Ireland.’ Capturing the international view of the Irish as drunken ‘spud-gobblers’ without any entrepreneurial spirit, he suggested (379) that: ‘Industrialisation required sterner qualities of character than Paddy, charming a chap though he could be in his sober interludes, could possibly muster. It is somewhat cruel to impose the strain of trying on the poor fellow.’ Domestic financial institutions may also have considered Irish people bad entrepreneurial bets too because ‘Irish banks usually found it more profitable to invest their money in bonds in London than lend it to Irish businessmen’ (O’Grada, 1997: 231).
Ferriter (2005: 313) has observed that the agricultural sector employed 53 per cent of the workforce in the mid-1920s, when industry employed only 14 per cent of the workforce, compared to 35 per cent employed in industry in Northern Ireland at that time. He stated (313–14) that: ‘The idea of promoting industrialisation through a mixture of import substitution and monetary experimentation was rejected, the main focus instead being on the cultivation of a robust agricultural sector … [because] national development was synonymous with agricultural development; that the interests of the farmer and the nation were identical.’ Ireland was a rural ‘peasant economy’ (Lee, 1989: 284), epitomised by the narrow economic plan advanced by the Minister for Agriculture, Patrick Hogan: ‘one more cow, one more sow, and a few more acres under the plough’ (O’Brien, 1936: 368). The early emphasis on developing a viable agricultural economy, rather than a successful economy more generally, was then enshrined in the Irish Constitution. Article 45.2(v) provided that the State would, as a matter of social policy, secure ‘on the land in economic security as many families as in the circumstances shall be practicable’. Notwithstanding its shortcomings, the view of rural Ireland, as poor but happy, was glamorised and romanticised with panache in 1943 by An Taoiseach (Prime Minister), Eamon DeValera (Moynihan, 1980: 466):
(p.35) The Ireland which we have dreamed of would be the home of a people who valued material wealth only as a basis of right living, of a people who were satisfied with frugal comfort and devoted their leisure to things of the spirit; a land whose countryside would be bright with cosy homesteads, whose fields and villages would be joyous with the sounds of industry, with the romping of sturdy children, the contests of athletic youth, the laughter of comely maidens; whose firesides would be forums for the wisdom of serene old age. It would, in a word, be the home of a people living the life that God desires that men should live.
Agriculture was supported through programmes to increase tillage in the 1930s, through schemes to improve housing conditions for agricultural labourers, the 1938 Trade Agreement with Britain which ended the economic war and removed certain restrictions and tariffs on Irish agricultural imports to Britain, the Anglo-Irish agreement in 1948 involving British subsidisation of the Irish cattle industry, to mention a few. In 1945, 68 per cent of the total land area in the Republic of Ireland was used productively in agriculture (O’Nuallain, 1946–47). When Ireland did receive foreign assistance in the form of Marshall Aid, a significant portion was invested in agricultural projects like afforestation, land reclamation, and bog land development (Ferriter, 2005: 468). Proposals to build and equip factories for lease to private industry were not implemented. The investments in agriculture, it was suggested, ‘brutally exposed the continuing inability of Irish governments to devise a coherent long-term programme of public expenditure’ (Lee, 1989: 305).
In addition, it has been suggested that attempts to promote corporate development and increase prosperity may have been stifled by an ‘anti-business Catholic ethos’ (Ferriter, 2005: 61). Though Kennedy (1978: 52) has claimed that ‘the Catholic Church was itself a major consumer of goods and services [so] it is quite probable that the Church contributed to economic growth rather than the reverse’, Inglis (1998: 250) has convincingly argued that the ‘Catholic Church, because of the nature of its teachings and practices, in particular its opposition to materialism, consumerism and individualism, was an inhibiting factor in modernisation and industrialisation of Irish society.’ He argued that the Catholic Church required its flock to prioritise the frugal comfort of religion, family and community over success, economic prosperity and performance. This inhibited the development of a modern industrial economy because ‘up to the 1960s and in many cases after then religious belief and practice were not often rationally differentiated from economic and political activity’ (253). Daly (1994: 79) has agreed that while idealising spiritual values of rural frugal comfort ‘may not provide the major explanation for Ireland’s poor economic performance, ideals did influence policies, and, indirectly, performance’. Furthermore, ‘the idea that rural life was inherently superior to urban life went back a long way in the Irish Catholic consciousness’ (Tobin, 1984: 15). As a result, it ‘was committed ideologically to a rural fundamentalism which (p.36) was suspicious and fearful of the industrial city and it glorified the family farm and the little village as the pillars of social and economic life’ (Fahey, 1992: 262). The interconnecting ideas about rural Ireland and the role of religion therein is also neatly encapsulated by the views of Canon Hayes who suggested that ‘rural Ireland is real Ireland and rural Ireland is Ireland true to Christ’ (Ferriter, 2005: 377).
Nevertheless, contrary to the views of rural Ireland held by bombastic politicians and the clergy, rural Ireland was a ‘wasting society’ (Lee, 1989: 334). Many farmers had small non-viable holdings (Hannon and Commins, 1992). Mass emigration was so pronounced that the Irish were considered to be ‘vanishing’ (O’Brien, 1954). Of every five children born between 1931 and 1941 in Ireland, four of them emigrated in the 1950s (Tobin, 1984: 156). It is no wonder that historians have associated this period with terms like doom, drift, stagnation, crisis and malaise, with one Irish writer even describing 1950s Ireland as ‘the climate for the death wish’ (Cronin, 1954: 7). Crucially, as a result of the various inadequacies and flawed policies in the Irish State, corporate development and growth was visibly stunted. The number of public companies incorporated in Ireland remained relatively static, rising from just 363 in 1925 to 372 in 1956, though the number of private companies (often small and family owned) did increase from 1,088 to 7,385 in the same period (Cox, 1958: 15), relatively modest numbers compared to the 138,215 private companies and 1,103 public companies in Ireland by 2005 (CLRG, 2006: 16). In addition, relatively low levels of commercial activity naturally had knock-on effects on the financial services sector so that ‘between the 1920s and the 1950s the banks’ business reflected the sluggish nature of economic business generally’ (O’Grada, 1997: 175).
In concluding on the social and economic context during the first decades of the Irish State, and the effect this had on business and company law, it is clear to see why corporate issues did not rank highly on the national agenda. The combination of concerns relating to the sovereignty of the new Irish State, poor economic policies (particularly those relating to protectionism), the romanticisation of rural Ireland and political deference to the agricultural sector reduced Ireland to an impoverished State with low levels of corporate activity. In this context, Ireland was inward-looking, concerned more with self-sufficiency rather than attracting investment and promoting enterprise that could compete with players on an international level. Concerns with corporate deviancy and public corporate governance were not significant issues that had to be pursued vigorously in a State with relatively low levels of corporate activity. This would, of course, have implications for the enforcement of company law, but it also affected the substance of the law itself. The low level of corporate activity meant that updating and reviewing company law was not a significant priority for the Irish state.
It is unsurprising that there was so little reflection on the 1908 Act in the decades following independence. To expect the legislature to have updated company law every few years was to demand an experience and understanding of corporate regulatory affairs that, hitherto, the State did not have. Consequently, fifty years after the enactment of the legislation, the Cox Report (1958) detailed the various ways in which the law had naturally failed to keep up with contemporary regulatory challenges. Under the law at that time, auditors did not need professional qualifications to review company accounts. Public companies were not obliged to keep proper records, proper books of account, or file a profit and loss account with the Registrar of Companies. Private companies did not file a balance sheet with the Registrar of Companies and they were not obliged to present their shareholders with a report on the financial affairs of the company. Minority shareholders were particularly vulnerable. Directors could refuse to let them sell their shares and shareholders did not have effective or proportionate mechanisms to resolve their disputes with management. Loans from companies to directors were unregulated and creditors could be defrauded with little fear of reprisal. Shareholders could also obscure the fact that they owned shares in companies and liquidators often only investigated wrongdoing in companies that had sufficient assets to pay them. In highlighting these issues, the Cox Report illustrated that Irish company law lacked transparency, joined-up thinking, and adequate protections for stakeholders and the public generally. Moreover, the existing rules and regulations were aimed primarily at the regulation of public companies while private companies were often provided with exemptions from even the most minimal requirements in the legislation (40–1). Given that there were twenty times more public companies than private companies by 1955 in Ireland, this meant that most regulations did not apply to most Irish companies (15).
Nevertheless, despite being the first substantial review of company law in the history of the State, and despite highlighting significant deficiencies in the law, the Cox Report received relatively little attention. Only one article, consisting of thirty-two words, was written in the leading Irish broadsheet in the weeks prior to its release, perhaps reflecting the depth of Irish interest in corporate affairs among the general community (Irish Times, 21 June 1958: 7). Even after the publication of the report, it received a relatively mute and confused reaction, with journalists extracting significantly different conclusions from it. One journalist deduced that the report found the existing framework adequate to address the contemporary needs of Irish companies (Irish Times, 4 July 1958: 7), while another journalist in the same newspaper acknowledged that the report found Irish company legislation to be inadequate in 100 different ways (Irish Times, 29 July 1958: 11). Additionally, though the Irish Press (p.38) produced a short but accurate account of the key features of the report (4 July 1958: 7), the Irish Independent issued a two-part report which seemed to focus more on the ‘remarkable’ increase in private companies, holding companies, and subsidiary companies operating in the State, rather than the significant scale of corporate governance reforms that the Committee had proposed (4 July 1958: 12; 5 July 1958: 12).
Nevertheless, the inertia in corporate affairs must not be overstated. The State was not so inert that it would not enact legislation to implement the recommendations specified in the Cox Report. Perhaps one reason for this was that its release approximately coincided with the publication of a report entitled Economic Development (Whitaker, 1958). Whitaker’s report, a ‘watershed in the modern economic history of the country’ (Lyons, 1973: 628), recommended that the State should abandon protectionism, embrace competition and free trade, and develop indigenous industry so that it could compete in export markets. In addition, Whitaker argued that the State needed laws to protect investments, encourage profit, and attract foreign enterprise. These incentives would be crucial to Ireland’s success because ‘the real shortage is of ideas, and these are likely to fructify only if domestic conditions favour profit-making … Foreign industrialists will bring skills and techniques we need, and continuous and widespread publicity abroad is necessary to attract them’ (217–18).
Coinciding somewhat with this, DeValera – having dominated Irish politics for decades following independence, frequently serving as Taoiseach in the 1930s, 1940s and 1950s – was eventually replaced by Lemass as Taoiseach in 1959. DeValera had idealised agricultural living, frugality and isolationism, but Lemass, by contrast, was pro-competition, pro-industry and pro-European integration, overturning protectionist policies that he had earlier advanced under DeValera (Murphy, 2005). Much like the Cox Report, Whitaker’s Economic Development ‘did not, however, impinge on the consciousness of the body politic immediately. The major newspapers gave it only cursory treatment while the political parties showed a similar lack of interest’ (Murphy, 2005: 32). However, Lemass adopted Whitaker’s ideas as government policy. While the State was not especially interested in company law, it was interested in escaping its bleak economic situation and it seemed to recognise that company law reform was part of the package that would allow it to do so. Therefore, in both houses of the Oireachtas (Irish Parliament), the Dáil (Lower House) and the Seanad (Senate and Upper House), the Minister for Industry and Commerce, Jack Lynch, recognised that Irish corporate regulation was not only ‘seriously out of date’ (Dáil Deb 14 November 1962: vol. 197, col. 1174) but also ‘scanty in the extreme’ (Seanad Deb 13 November 1963: vol. 57, col. 48–49). It will be shown below that the legislature passed new laws to reassure investors that the Irish regulatory environment was modern and secure and that their investments would be safe if companies established themselves in the State.
(p.39) The legislature enacted the Companies Act 1959 which implemented a large number of proposals suggested in the Cox Report. Company law was then consolidated into the Companies Act 1963, often called the ‘Principal Act’ or ‘Primary Act’. Writing shortly after its enactment, Crowley (1973: 2) suggested: ‘The purpose of the Act is twofold, firstly to bring all the legislation on company law together and secondly to bring the law up to date by introducing measures to give protection to shareholders and creditors.’ As noted in the Dáil (Norton, Dáil Deb 14 November 1962: vol. 197, col. 1204–1205):
[R]eforms must be introduced which will have the effect of protecting the public in a much more positive way than they are protected under the existing company law which was introduced in the days of free enterprise and which gave the entrepreneur [italics in original] of the day as much freedom as he could wish for himself, while at the same time not providing the adequate protection which the modern state finds necessary in order to protect the shareholders and those with whom the companies trade.
It is interesting to note, however, that the government was not especially concerned with the protection of the general public who could be harmed by corporate irresponsibility, but instead, sought to protect the investing public and the trading public. This corresponds with the two major influences that Levi (2002: 423) identified in the regulation of the corporate sector: reassuring investors that their capital is secure and that the legal system has efficient rules to deal with cases of wrongdoing fairly. However, the Act had more than mere commercial significance, it also had social implications. Emerging alongside the plans proposed by Lemass and Whitaker for economic expansion and progress, the Primary Act was seen as an opportunity to facilitate the development of the Irish economy and boost the confidence of Irish and foreign investors in home industries.
Of course, the new corporate framework was merely one element of enterprise-inducing factors in Ireland (discussed in more detail in Chapter 5), but it did coincide with increased foreign investment from multinational companies in the 1960s. Increased industrial activity at that time resulted in increased economic growth and industrial output (O’Malley, 1992). More people moved from rural communities to live in urban centres and living standards increased significantly, resulting in a nostalgic view that it was ‘the best of decades’ (Tobin, 1984). It is tempting to form the conclusion that Ireland transitioned from an agrarian to a successful commercial society at this time, but that would be over-stating the case. While impressive compared to previous decades, ‘by European standards growth in the 1960s was not that fast and the target set for the decade in the government’s Second Programme for Economic Expansion – an average annual output growth rate of 4 per cent – was not quite met’ (O’Grada, 1997: 30). Indeed, this programme still prioritised the development of the agricultural sector for ‘primary attention’, even though (p.40) it was conceded that the industrial sector was most likely to be responsible for new employment, perhaps reflecting the continued identification of Ireland as a principally agrarian economy. Furthermore, the increased industrial growth experienced in Ireland was attributable to foreign-owned firms, and the performance of indigenous companies in Ireland actually declined during this time (O’Grada, 1997; O’Malley, 1992). This suggests that Ireland’s new entrepreneurial spirit was more transplanted than home-grown. In addition, though more people than ever were living in urban centres in the 1960s, industrialisation was relatively well dispersed in Ireland, owing to the availability of government grants to locate in less developed regions and cheaper labour costs in smaller towns and rural areas (O’Malley, 1992: 41–3). As late as 1992, the view remained that ‘Ireland as a whole is less industrially developed than most of Europe and this was even more obviously the case in the 1960s’ (42). In any event, the increased prosperity was short-lived when the economy declined again in the 1980s, making Ireland’s previous successes seem like a ‘glorious interlude’ (O’Grada, 1997: 30). All of this suggests that the State experienced an incomplete political and economic governance shift in the 1960s, as Ireland ‘ceases to be a primarily agricultural economy, but does quite become an industrial one’ (Girvin and Murphy, 2005: 8).
Nevertheless, Ireland had witnessed the benefits of increased industrialisation under free-market conditions and the State had abandoned its hostile attitudes to industry. Though the point should not be over-stated, it seems that the State, from about the late 1950s and early 1960s, became more willing to consider the importance of effective company law reform to attract foreign investment and boost the economic prosperity of the State. In doing so, it moved away from the ‘comely maidens’ approach of the 1930s, when opening Ireland up to foreign corporate activity would not have been countenanced. In this context, however, regulatory reform did not mean tight control over corporate risk-taking. In fact, it sought to minimise any regulatory hurdles that companies might face, cognisant of the fact that ‘it would be most unwise to impose on our companies more onerous obligations … than those which prevail in neighbouring countries, since this would place them at a competitive disadvantage’ (Lynch, Dáil Deb 14 November 1962: vol. 197, col 1176–1177). It was concerned that companies might find the cost of compliance too great and avoid doing business in Ireland. Therefore, in accordance with the Cox Report, it disfavoured an onerous corporate governance framework, suggesting instead that ‘flexibility’ must be maintained in Irish company law (1958: 18).
The increased interest in regulatory governance and the enactment of the Companies Acts 1959 and 1963 in quick succession suggests some departure from the inertia and hegemony of before. However, a closer examination of the content of the legislation and the thoughts of members of the legislature suggest a continued disinterest in issues of corporate governance. For example, (p.41) Ireland still had little opinion of its own on how to structure its company law framework so the Companies Act 1959 and 1963 borrowed heavily from the Companies Act 1948 in the UK. When the law needed updating, Ireland followed the route of policy transfer from England and Wales. While creating a shared company law framework made good economic sense, given Ireland’s reliance on Britain as a trading partner, it is also submitted that the culture of imitation reflected a lack of innovation and experience in corporate affairs on the part of the Irish State. In creating the corporate framework, Ireland modelled itself so closely on England that it followed English legislation even when that legislation was thought to be flawed and outdated. For example, the Cox Report considered that the ultra vires doctrine on corporate capacity had been ‘largely defeated’, but it did not recommend its abolition because Britain had not done so. Bad law was perpetuated because it was assumed that the British legislature knew best (Delaney, 1959: 305). This suggests that while Ireland was not so inert as to do nothing to update company law, it did not reflect on the propriety of using English law in an Irish context. British legislation was copied and pasted into Irish law; legislative changes were not underpinned by a different way of thinking about corporate affairs in Ireland.
In addition, politicians themselves highlighted their own continued disinterest in company law. They attributed their neglect to the fact that company law was a particularly complicated and technical field (Cosgrave, Dáil Deb 14 November 1962: vol. 197, col. 1193–1194). It was stated that this kind of legislation ‘was as dry as dust. Many sections of it could not be less interesting than they were … It will probably be another 50 years before we pass another one’ (Norton, Dáil Deb 5 November 1963: vol. 205, col. 821). Although the Primary Act was supplemented and amended a number of times in mostly minor ways over the next four decades or so, it continued to be the foundational framework for Irish company law in the twentieth century. Amendments were introduced in 1977, 1982, 1983, 1986, twice in 1990, and twice in 1999. Most of these statutes addressed specific and relatively minor issues relating to company formations and registrations, acting as a director or secretary, the recognition and qualification of auditors, the distribution of profits and assets, accounting rules, the sale of securities and examinership. The most substantial amendment to the Primary Act in the twentieth century was the Companies Act 1990. This was also heavily influenced by British legislation, specifically the Companies Act 1985, the Insolvency Act 1986 and the Company Directors Disqualification Act 1986 (Appleby, 2005). Ireland continued to imitate the UK, reflecting a lack of original thinking in addressing corporate reform and the same continued inertia in corporate affairs. Furthermore, another committee would not report on reforming company law until 1994, thirty-six years after the Cox Report, and regular company law reform would not be statutorily required until the twenty-first century.
The Companies Consolidation Act 1908 provided for the prosecution of companies and company officers (Law Reform Commission, 2005: 3). This was part of a longer trajectory in which the Factories Acts in the nineteenth century had also criminalised corporate wrongdoing (Carson, 1974; Greer and Nicolson, 2003; Norrie, 2001). Subsequent Companies Acts continued to enforce corporate obligations using criminal sanctions. In fact, the Companies Acts 1963–90 specified 280 distinct criminal offences (McDowell, 1998: 9). These offences spanned a range of wrongs, from relative minor summary offences, such as failing to provide the articles of association to a member, punishable by a maximum fine of £25 in accordance with section 29(1) of the Companies Act 1963, to serious indictable offences, such as unlawfully dealing in securities, punishable by a maximum sentence of ten years imprisonment and a fine of £200,000 in accordance with section 111 of the Companies Act 1990.
The Companies Acts also contained a number of civil sanctions, such as the ability to strike a company off the register of companies. Excluding those sanctions which imposed individual personal liability for the debts of the company, arguably the most significant civil sanction was stipulated by section 184 of the Primary Act, which provided for the ‘power of court to restrain certain persons from acting as directors of or managing companies’. It specified that if a director was convicted on indictment of an offence relating to the promotion, formation or management of a company, or any offence involving dishonesty, then the court, on the application of the Director of Public Prosecutions (DPP), could issue an order preventing the offender from acting as a director of a company. Therefore, this civil sanction could only be triggered by the criminal conviction of the accused, and then only on the application of the criminal prosecutor, and its breach was also a criminal offence, thereby demonstrating the primacy of the criminal law in the traditional period (O’Connell, 2009). Indeed, the influence and centrality of the criminal justice system to corporate enforcement was such that the DPP maintained the exclusive right to apply for a disqualification order on certain grounds right up to the enactment of the Company Law Enforcement Act 2001.
Criminal law was used to enforce corporate obligations but without much thought for enforcement. Prior to the Primary Act, companies could not be prosecuted on indictment in Ireland. In State (Batchelor & Co. Ireland Ltd) v. O’Lennain ( I.R. 1), the Supreme Court held that the preliminaries to the indictment required by the Indictable Offences (Ireland) Act 1849 had to be carried out in the presence of the accused at the pre-trial hearing but that these could not be observed because the company itself could not appear in person. Murnaghan J. stated that the legislation could not be interpreted to allow for a representative to appear on behalf of the company because the jurisdiction (p.43) of the District Court was to send the accused forward on bail, and bail, being a form of custody in itself, was not appropriate in the case of companies who could not, by their artificial nature, be held in custody. Though the Primary Act addressed this deficiency, the fact that companies could not be prosecuted on indictment in Ireland until the early 1960s is remarkable considering that such prosecutions had been explicitly permitted in England and Wales since the nineteenth century (section 2(1) of the Interpretation Act 1889).
Nevertheless, a lack of joined-up thinking regarding corporate enforcement persisted beyond the enactment of the Primary Act. For example, where no penalties were specified for particular indictable offences, then they were punishable by a maximum period of imprisonment of three years in accordance with section 240(1)(b) of the Companies Act 1990. However, for a suspect to be arrested without a warrant on suspicion of committing an offence, that offence had to be punishable by at least five years imprisonment, as stipulated by section 4 of the Criminal Justice Act 1984. This meant that company officers could not be arrested on the reasonable suspicion of committing the offence unless specific powers of arrest were specified for that offence in the Act. In addition, assimilating corporate wrongdoing into the criminal sphere meant that corporate wrongdoers had all the due process safeguards and subjective culpability requirements that generally attached to the criminal process (discussed further in Chapter 3). It also meant that the sanctions available to punish misbehaving company officers were the same for those who committed hard-core criminal offences. Given these issues, was the State really committed to prosecuting and imprisoning corporate offenders who were often regarded as pillars of the community, and for offences that were regarded as merely technically criminal rather than morally reprehensible? Was the State making a moral judgement about corporate deviancy? Or is it more likely that the State was simply drawing on the criminal law because it was a convenient enforcement mechanism that did not require any specialised knowledge or reflection on the nature of corporate activity? In the next paragraph, the sinking of the Betelgeuse is used as a case study to examine how Irish society traditionally thought about corporate harm.
On 7 January 1979, fifty people were killed when an oil tanker, the Betelgeuse, exploded while discharging fuel at an oil terminal at Whiddy Island in Bantry Bay, County Cork. Though these deaths, the highest number of people to be killed in a single incident in the history of the State, are officially recorded by the Marine accident statistics as ‘shipping casualties’, corporate irresponsibility was a key factor in the loss of life (McCullagh, 1995: 413). The Costello Inquiry (Report of tribunal into disaster at Whiddy Island, 1980) concluded that Gulf Oil, the owners of the oil terminal, had failed in numerous ways to maintain adequate safety measures to prevent or minimise emergencies. It had downgraded its fire-fighting systems, failed to train its staff (p.44) or provide proper rescue facilities, failed to reassess its procedures with any regularity, and failed to observe its existing safety policies, like providing a fire-fighting ship to immediately assist in the event of an emergency. The Inquiry (322) concluded that had even some of these deficiencies been remedied then ‘the lives of both the jetty crew and of those on board the ship would have been saved’. It also noted that the company which owned the Betelgeuse, Total, had failed to install basic safety technology that was standard on most ships at the time, and had failed to maintain the ship properly. Though the deaths of fifty innocent people attracted significant media coverage, the explosion was called a ‘disaster’, an ‘accident’ and a ‘tragedy’, terms which suggested a fait acompli for which no one could be held responsible, rather than an avoidable incident caused by companies who had taken unnecessary risks with peoples’ lives while operating in an insufficiently regulated environment (Irish Times, 8 January 1978; 1; 9 January 1978; 6). Prosecutions were not taken and there were no demands at this point for a statutory offence to specifically address corporate manslaughter.
By contrast, companies had been indicted for corporate manslaughter in England as early as 1927 (R v. Cory Brothers and Company Ltd  1 K.B. 810) and put on trial for same in the 1960s (R. v. Northern Strip Mining Construction Co. (The Times, 2, 4 and 5 February 1965). Further prosecutions were taken later in the century, for example, against P&O Ferries (R. v. P&O European Ferries (Dover) Ltd (1991) 93 Cr. App. R. 72), when an inquiry found that the ship’s crew and ‘[a]ll concerned in management, from the members of the Board of Directors down to the junior superintendents, were guilty of fault … [and] infected with the disease of sloppiness’ (Department of Transport, 1987: 14). In total, 192 passengers were killed when one of its ‘roll-on roll-off’ ferries capsized in 1987 as a result of the failure to close its bow doors when setting sail. Though this prosecution was ultimately unsuccessful, the concept of corporate manslaughter was officially recognised in law. Unlike Ireland, it was addressed head-on by the criminal justice system and the concept of corporate manslaughter had a ‘cultural recognition’ and ‘a clear place in popular vocabulary’ (Wells, 2001: 106).
The Irish inertia in addressing corporate and white-collar crime may also be located within the broader apathy towards crime more generally. Though it is extremely difficult to measure crime precisely and reduce crime trends to a general statement, it may tentatively be suggested that Ireland experienced relatively low levels of crime from the early to mid-twentieth century. If the Irish prison population can be taken as an indication of the level of serious crime committed in Ireland, then it is of note that the number of convicts committed to prison after the establishment of the Irish Free State declined significantly. Nearly 120 prisoners were committed to prison per 1000 indictable crimes in the late 1920s but this had dropped to below 20 per 1000 by the early (p.45) 1970s (Kilcommins et al., 2004: 56). The prison population and crime rate were so low in the 1950s that prisons in Cork and Sligo were closed and the number of Gardaí was reduced (60–2). Though the level of crime rose in the 1960s and peaked in 1983, it would again generally continue to either plateau or decline for the rest of the century (109). The relatively low levels of crime meant that crime was not a significant issue which regularly concerned the public or animated political debates. The public demand for information on combating crime was so low that the government failed to publish any annual reports on crime until 1950 (65–6).
The low levels of public concern about crime continued well into the twentieth century. An examination of opinion polls conducted by Irish newspapers in the run-up to general elections in the 1980s and early 1990s revealed that ‘the problem of crime was a low priority for voters. The over-riding concern was unemployment, usually followed closely by anxiety about how to get by in difficult economic circumstances’ (136). Ireland, simply put, was a nation ‘not obsessed by crime’ (Adler, 1983). There was little political will to adopt a strong law-and-order agenda and even when concern was expressed regarding crime, the concern was limited to the type of conventional crimes attributed to members of the travelling community and street thugs, rather than wrongs perpetrated by companies and company officers (Kilcommins et al., 2004: 66–7). Corporate activity generally maintained exclusively positive connotations.
As shown in the introduction to this chapter, it is quite difficult to capture all threads in a century of legal and socio-economic history. Of necessity, capturing the particular character of this period involved some generalisation and some omissions. Having made this qualification, this chapter has shown that Ireland moved from a closed, protected, agrarian state to one that advocated something closer to free-market, industrial capitalism. Agriculture was favoured above industry and foreign corporate activity was initially viewed with suspicion, as a threat to the sovereignty of the State. However, it was later seen to be a positive force that could stimulate economic recovery. Nevertheless, despite this shift in sentiment towards corporate activity, the State remained relatively consistent in its apathy towards corporate deviancy. Corporate wrongdoing was not a significant priority in a State which experienced relatively low levels of corporate activity and low levels of crime. In the midst of perpetual economic stagnation, the average member of the public was more concerned about the creation of employment, not whether or how corporate deviancy was being addressed.
This way of thinking supported the routine marginalisation of corporate issues within the legal system and had a profound impact upon the generative structure of company law. Regular company law review was non-existent, (p.46) corporate governance mechanisms were weak, high-profile instances of corporate wrongdoing were not adequately addressed and, perhaps most significantly, appropriate reflection was not given to the best method of enforcing company law. Consequently, criminal liability was used to underpin the enforcement of the Companies Acts, almost by default, without the appropriate reflection as to whether it was suited to this process. Though instances of corporate deviancy were often regarded merely as technical breaches of law, they were incorporated into a criminal justice system developed to address morally reprehensible misbehaviours, and this posed particular difficulties. It not only had an impact on the definition of crime but also affected the substance and effectiveness of the law on corporate and white-collar criminality itself, and had implications for its enforcement. We turn our attention to these issues in Chapters 3 and 4.