since the implosion in corporate America, the English-speaking Caribbean has
sought, in some cases quite energetically, a model of corporate governance
which reflects the ethos and realities of the region. This was taken a step
further earlier this month in St Kitts-Nevis with the hosting of a
region-wide forum attended by some one hundred and seventy persons from
about twenty countries.
Page is pleased to reproduce the points made in a presentation to the forum
by Mr Patrick McDonald, a partner in the Jamaican law firm Hart Muirhead
Fatta, and a member of the working party set up under the auspices of the
Eastern Caribbean Central Bank (ECCB) two years ago to develop a set of
principles for corporate governance for the region.
that the Caribbean environment has its own peculiarities, Mr McDonald said
that any regional initiative has so far been framed from the mould of the
developed countries and might not be entirely appropriate to the region.
Mirroring concerns about governance in the public sector, there has
developed a public sensitivity to poor corporate governance which can impact
on the confidence in and performance of firms perceived as having poor
corporate governance practices, particularly firms in the financial sector,
where trustworthiness is part of the value proposition. McDonald argued,
however, that the level of scrutiny into governance practices generally is
not high, and it generally takes a glaring breach of good corporate
governance standards to attract attention and perhaps invite sanction.
'One-size does not fit all'
considerable amount of work has been done in a number of territories on
sensitising decision-makers and members of the wider community on the
current issues in corporate governance, particularly in the financial
sector, the process has been mainly about principles and practices developed
outside of the region. McDonald accepts that the basic tenets of corporate
governance are of universal applicability which explains the more recent
formal initiatives being undertaken in terms of the development of draft
Caribbean principles, and the development in Jamaica of a draft corporate
governance code, which saw its public launch last month.
McDonald notes that there is little point in importing wholesale concepts
and practices developed elsewhere, and then trying to cultivate them in an
be unfair and unrealistic to expect that after centuries of
under-development the region could be at precisely the same stage of
development as the industrialised world. It should therefore avoid, as far
as possible, a 'one-size fits all' approach in developing its own corporate
same time he argues that the region needs to be receptive to ideas developed
elsewhere and extract those which can add value and which are workable in
all the circumstances.
strongly that embracing good corporate governance can elevate the regional
economies into the ranks of more advanced societies and economies. If the
region accepts that good corporate governance practices promote efficiency
and attract investment, then the regional and hemispheric trade arrangements
currently in place and yet to come, make it imperative that it takes a long
hard look at embracing high standards of corporate governance to meet the
challenge of becoming or remaining competitive.
recommends in his paper that in determining what is appropriate, the region
must take into consideration the peculiar mix of circumstances that
characterise Caribbean economies and societies and identified the following:
private sector is relatively closely held for the most part, with
significant share ownership by the wider society being comparatively
Multinational corporations, small to medium-sized enterprises (SME's) and
family-owned companies dominate the commercial landscape, and even where
ownership of such entities has been broadened through listing on stock
exchanges in the region, substantial control is retained by the parent
company in the case of the multinational corporations, or the controlling
family(ies) in the case of family companies.
Indigenous regional champions are few and tend to be effectively controlled
by a few significant shareholders, even if publicly listed.
state retains control of significant portions of the economy, including, eg
utilities, and in some cases, parts of the financial sector.
capital markets remain less popular than traditional debt financing as a
source of financing.
Regional stock exchanges reveal the relatively small level of public
participation in the equity market, with low volumes characterising the
typical trading day on all such exchanges.
Institutional investors are small in number, and generally do not have a
history of being active in shareholder advocacy.
to education resources is more restricted than in more developed societies,
and consequently a much smaller proportion of the regional population has
benefited from tertiary education.
notes that the culture of conducting business in the Caribbean is slowly
evolving, but in many instances, the demands for transparency and disclosure
are still greeted with suspicion, if not downright hostility. In the context
of an underdeveloped capital market, not all firms see a tangible benefit in
disclosing their prospects, performance and practices to the scrutiny of
investors. Controversial topics such as executive remuneration and
self-dealings are not usually publicly discussed, and the firms involved in
those discussions are usually taken aback by the discussion, as opposed to
being the ones inviting the discussion.
shareholders in particular wield little influence and are effectively shut
out from being able to play a useful role in the corporate governance
framework. Prevented from using the boardroom to challenge the dominant
shareholder(s), their complaints may not amount to the standard required by
the relevant companies legislation to justify intervention by the courts,
and they are too small to be able to mount a significant challenge to the
management at the forum of the annual general meeting.
state is the major shareholder, normal commercial considerations may not
apply, as political considerations can sometimes distort decision-making in
state enterprises, even where such considerations are predicated on the
basis of the national interest.
governance practices may often be regarded as bizarre in those entities,
when contrasted with a normal private sector entity. Beholden to no-one, the
state may not perceive the point of adopting sound governance practices in
calls for a robust enforcement of existing law and regulations. He noted the
effect of this culture on the corporate governance environment and noted
that without enforcement - in the broadest sense of that word - whatever
corporate governance framework is established will be ineffective and amount
to a mere shell.
challenged his audience to consider the best way to assure the enforcement
of whatever codes or principles are adopted in the Caribbean, and offered
the alternatives of legislation or voluntary compliance with the hope that
the advances of compliance are perceived by those in control of companies as
being in alignment with the self-interest of those companies.
cautioned against overburdening companies with new compliance requirements
that would unreasonably increase the cost of doing business, especially when
such requirements amount to a radical shift in practice. He thought it
interesting that an economy that is as market driven as the United States,
where the discipline of the market is perhaps best exemplified, would have
found it necessary to move towards an environment where corporate governance
is now practically legislated via Sarbanes-Oxley.
signal does that send to an environment like the Caribbean, where the
discipline of the market is far less effective, he asked?
the search for the most appropriate model is still on.