Friday 19 January 2018

I served on a board with Mary Davis

While the presidential candidate failed to impress me on the board, there is nothing she could have done about its mortgage policies, says Charles Lysaght

IT is a trifle unjust that Mary Davis's campaign to be President of Ireland should be undermined by the decision of the ICS Building Society in August 2005 to grant 100 per cent mortgages (meaning loans equal to the full value of the property purchased).

Having joined the board in 2004 she was not able to evade responsibility for going along with a measure whose general adoption by financial institutions is now firmly implanted in the mind of the public as a major cause of the disastrous property bubble. The reality is that she had no influence on the decision and could not have prevented it.

I was a fellow non-executive director of the ICS at the time. As such, I am in a position to place the whole matter in context and cast light on her performance as a non-executive director.

The ICS Building Society (formerly called the Irish Civil Service Building Society) had been taken over by the Bank of Ireland in 1984. To appease various objectors, the Labour Party's minister for the environment insisted that the society should be "mutualised" and its savers given a vote and a say in how it was run. To safeguard the interests of these savers, the society was to have directors independent of the Bank of Ireland.

Initially the pre-takeover non-executive directors of the building society (of which I was one) discharged this function. It was decreed by the minister that the bank was to have no vote in their election and they had to be a majority on the board. But the bank, which resented the restrictions that had been placed on their control of the society, got a later government to waive these requirements.

In law, the directors still were bound to balance the interests of the bank with those of the savers who still had a majority of votes. In reality, despite my protests, it was run by the bank purely to maximise profits.

In 2004 our incoming chairman John Collins (a house-trained official of the bank) informed us that Bank of Ireland had decided that Mary Davis should be co-opted by us to the board. We were told about her role in the Special Olympics but little else. I rather assumed it was a means of providing her with some income -- and so supporting what, in my innocence, I imagined was her voluntary work for the disabled.

I remarked that while it was good to have a second female director, the whole process of selection, especially the absence of prior consultation or possible alternatives at board level, was unsatisfactory -- having regard to the mutual character of the society and the fact that an Act of the Oireachtas required that our board should have governance of the society.

Mary Davis did not impress me greatly on the board. She attended less than other directors. When she did, I felt she gave little evidence of any expertise or of having mastered the subject matter.

In fairness to her, it was not encouraging that the Bank of Ireland clearly regarded the board as one for rubber-stamping decisions taken down their executive chain of command and for listening to "good news" stories, rather than for originating policy or even adjudicating on alternative strategies.

This found its apotheosis when all the branches were closed down by the chief executive without consulting the board.

I must record two positive recollections of Mary Davis as a director. In 2006 she joined the other two non-executive directors in dissenting -- albeit in vain -- from a proposal to reduce the number of board meetings annually from six to four (there were 12 when I joined the board in 1981). At annual general meetings she was prepared to linger on afterwards, talking to savers, mostly pensioners, for whom it was a day out. There is clearly a kindly side to her nature, which would be important in a president, and it would be unfair to dismiss her as a pure careerist.

It must also be said that she is right in her claim that the ICS was following the other financial institutions when it adopted 100 per cent mortgages. The context was provided by Bank of Ireland governor Richard Burrows when he visited us early in 2006.

He said that it was no secret that the Bank of Ireland had been asleep for several years before he had taken over in 2005 and he was in the process of waking it up.

Was sleep ever more blessed?

With Mr Burrows at the helm, a more aggressive and liberal lending policy was adopted in an effort to win back the market share that had been lost to Anglo and its imitators. The 100 per cent residential mortgage was part of that.

When I expressed reservations about it I was assured that such mortgages would be given only to those whose ability to re-pay could be guaranteed -- such as gardai married to teachers.

It may well be that this was done and that the losses that have been incurred have not been on 100 per cent mortgages. I attempted to find out about this, only to be told that non-executive directors were entitled only to concern themselves with general policy and not to examine individual cases.

It was my last lesson in the powerlessness of non-executive directors, which may have been the root cause of much of the trouble in our financial institutions. I cannot blame Mary Davis for not supporting me, as she was not there.

A final point: although they have bad debts, it seems that the ICS (unlike its parent bank) is still turning in a profit.

It is something for the red-suited Mary Davis to claim on the stump that she was on the board of Ireland's only financial institution that has remained in the black.

Sunday Indo Business

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