What is the significance of the new appointments at AIB? Was it really about the salary cap, with structure and governance standards as the victims? Will the review expected about mid-2010 produce a more conventional structure with Colm Doherty as CEO – what AIB really wanted? If so, why the recent happenings and damage to the image of AIB?

The executive chairman at AIB will not be 'chairman and CEO'. The group managing director will not control all the activities of the AIB Group because some areas have been assigned to the chairman.

If Doherty was an outsider joining AIB at a difficult time, it might be easier to understand some key functions being temporarily assigned to the chairman.

The new structure at the top of AIB looks like an Irish solution to an Irish problem. The AIB board got its preferred candidate, albeit not in quite the role it wanted. And the minister enforced the salary cap. Is it a good compromise?

It is flawed. It represents less than best practice in corporate governance.

The executive chairman will be responsible for some key strategic areas within AIB, such as relations with Nama. He will report to the board and he will preside over the board's examination of his actions and proposals. Clearly, the chairman will not be independent.

It would not be a surprise if non-executive directors were to feel constrained in voicing contrary viewpoints or criticism. Consequently, independent oversight of the executive arm of the bank, in so far as the functions assigned to the executive chairman are concerned, may be compromised.

This could become a serious governance problem. AIB may find it difficult to agree valuations with Nama because of the implications the consequent write-offs could bring. In this situation it will be far from ideal to have one person proposing a course of action and also chairing the board – plus the same person implementing those decisions and presiding over the board's evaluation of the execution of them. While the situation is to be temporary the damage to independence could be enduring.

The group MD won't be responsible for all executive functions within AIB and will have a role little better than that of a chief operations officer. This is unusual.

The government escaped without a climb down on the salary cap and will be perceived by the electorate as not having given in to the bank. AIB may have 'got its man' but it has suffered reputational damage.

Good governance includes good risk management and reputational risk is one of the risks to be managed in any organisation. Once the speculation started in the media there was a need for the bank to quickly conclude consultations with the minister for finance. This did not happen and the reputation of AIB suffered. The board was portrayed as out of touch with political reality and was accused of behaving arrogantly.

This was frustrating for the AIB board. As stated by the chairman of its remuneration committee, it sought suitable candidates worldwide but concluded that Doherty was the best candidate. Since company law requires directors to act in the best interests of the company, it felt obliged to seek consent from the minister to appoint Doherty.

In so far as the argument goes, it was right. However, the company was ill-advised to get into a situation where it would appear it sought to appoint an insider and breach the salary cap. This displayed a lack of understanding for the position likely to be adopted by the minister.

Where now for AIB?

The first lesson to be taken from recent events must be that AIB needs a new strategy for coping with the constraints of having the government as its largest shareholder and being its lifeline to survival for the immediate future. Governments do not make ideal equity partners for enterprise-sector companies because they have to cope with the realities of political accountability. This can make it difficult for the minister to share objectives with the rest of the shareholders.

This is an unattractive situation which AIB must come to terms with until it can survive without state support. In the meantime, it must work out how to live with the constraints. This is something the boards and executives of state agencies do on a continuing basis. They sometimes have to live with political objectives they may not welcome.

Perhaps AIB could learn some practical survival lessons from the public sector and improve its risk management in the process!

Jerry Kelly is chairman of the Corporate Governance Association of Ireland