The end of the Celtic Tiger: an Irish case study on the failure of corporate governance and company law

Abstract

This article considers the effect, if any, that company law and corporate governance law had on the phenomenon of excessive lending and borrowing that occurred in the Irish economy towards the end of the Celtic Tiger era (1990–2008). The final years of the Celtic Tiger period saw the growth and collapse of the Irish property bubble, fuelled by lending of ‘cheap’ money by Irish banks and borrowing by indigenous Irish property development companies. This chain of events culminated in a state guarantee and bailout of the Irish banking sector which has led to ongoing significant damage to Ireland and its economy, the full consequences of which are continuing to be manifest. What is clear is that excessive risktaking by banks, as lenders, and property development companies, as borrowers, led to the collapse of both sectors. The Irish property bubble, and this pattern of behaviour that caused it, is used here as a case study to raise questions as to why corporate governance law and company law seem to have failed to curtail such risktaking during this period. In describing these events from a legal perspective, the paper hypothesises that the failure of law can be explained by considering the inter-relationship between law and non-legal norms, the latter seeming to be more powerful and to have the ability to trump the rule of law in certain circumstances and contexts. This analysis of the role of non-legal norms is not intended to suggest that legal frameworks do not matter, but more to illustrate that, where they have failed to deliver stated goals, other factors must be understood so that the law can address the causes and drivers of this failure.