When all the technical discussions on the requirement for disclosures to
shareholders of public companies had been exhausted, the company executive
said to me that given the precarious security situation in Guyana it would
be dangerous to expose directors to criminal elements who would go after
them if statutorily prescribed information on their emoluments is disclosed.
It was the first time I learnt that bandits study annual reports to identify
their targets and my respect for that group has increased considerably since
then even though it is more likely that my colleague was clutching at straws
on corporate disclosures.
It was the revelation of the huge salaries which directors paid
themselves as salaries and benefits either when they were in office or as
compensation for leaving office that led to the setting up of the Committee
on the Financial Aspects of Corporate Governance (known as the Cadbury
Committee after its Chairman Sir Adrian Cadbury of the chocolate dynasty).
That committee issued its final report in December 1992 and gave birth to
the term corporate governance which is in essence nothing more than that
there is a basic duty of accountability and transparency owed to the
shareholders of public companies by those who manage the affairs of those
1992 and before:
Up till then corporate law was still the dominant framework for what
passed as corporate governance. Before 1992 (what a year!!), so little seems
to have been achieved. And since then it has been revolutionary. What took
place before Cadbury was clearly not adequate, was inflexible, often
out-of-date and therefore could not keep up with best practices even when
supported by additional stock exchange rules. More appears to have happened
in the past fourteen years than all that has taken place since the invention
of the joint stock company in 1844!! Yet, the California Public Employees'
Retirement System (CalPERS), the world's best known driver of corporate
governance recommended in a 1997 publication that periodic review and
updating of best practice guidelines should continue while noting that the
underlying principle of Cadbury was that the board's structure should be
built upon the twin concepts of independence from management and
accountability to owners.
Here in Guyana it has been a march backwards. Whether it is the
youngsters who say corporate governance in Guyana sucks or the more elegant
older folks who would be more comfortable to say that it stinks, the
consensus is that things are truly bad and any progress is more superficial
and cosmetic than real. Corporate bullies behave worse than the plantation
owners using their offices to secretly and improperly enrich themselves
often at shareholders' expense, turnaround and use shareholders' funds to
pay huge fees to their auditors and accountants to conceal their misdeeds
and then pay huge fees to their attorneys to frustrate shareholders' rights
and the regulators' duty to enforce the rules.
While we in Guyana seem doomed to this culture, the world of corporate
governance is moving on. This week the five-member US Securities and
Exchange Commission (SEC) voted unanimously to propose the biggest changes
in rules governing disclosure of executives' compensation since 1992. The
new rules requiring companies to provide far greater detail about
executives' pay and perks in an effort to bring more openness to an area
that has provoked investor anger and could come into force shortly after a
60-day public comment period, possibly in time for the spring annual-meeting
season next year.
Under the new rules, publicly traded companies would have to provide
annually information on the total yearly compensation for their chief
executive officers, chief financial officers and the next three highest-paid
executives. The true costs to the bottom line of the executives' pay
packages, including stock options, a regular feature of US executives'
compensation packages, would have to be spelled out. According to one of the
five SEC Commissioners, ''This information is information that shareholders
have a right to know.''
Companies would be required to explain the objectives behind executives'
compensation and annual filings would have to include sections written in
plain English on executive pay. Imagine in a post-Enron USA the SEC Chairman
Christopher Cox, who has made fuller disclosure a priority since taking the
agency helm last August saying, ''Simply put, our rules are out of date.''
He has not heard about Guyana.
Interestingly the Business Roundtable, a group representing chief
executives of the largest corporations, offered their support albeit with
some qualifications to the SEC proposal, making confirmation all the more
And in Jamaica, that country's Private Sector Organisation (PSOJ) has
just adopted rules on disclosure of compensation that follows the UK
practice before a more recent revision in the latter country. The PSOJ
clearly does not consider that the provisions of their newly minted
Companies Act go far enough. In legislation that is not dissimilar to Guyana
their Act requires disclosure of directors' emoluments, pensions (past and
present), and compensation in respect of loss of office. "Emoluments", in
relation to a director, means the gross sum subject to income tax payable to
him as emoluments and includes fees and percentages, any sums paid by way of
expenses allowance insofar as those sums are charged to income tax, any
contribution paid in respect of him under any pension scheme and the
estimated money value of any other benefits received by him otherwise than
in cash. "Pension" includes any superannuation allowance, superannuation
gratuity or similar payment.
The rules which will become mandatory effective next year will require
the company's annual report to contain a statement of remuneration policy
and details of the remuneration of its directors and set out the company
policy on non-executive directors' remuneration.
Previously set out in what is referred to as the Combined Code for listed
companies, the disclosure requirements in the UK have now put in the law
imposing on directors a duty to prepare a directors' remuneration report not
only setting out the information specified in the law but also how the
information should be presented (in tabular form).
The auditors are required to report in respect of the auditable part of
the directors' remuneration report whether in their opinion that part of the
directors' remuneration report has been properly prepared in accordance with
the Companies' Act.
The directors' remuneration report is subject to shareholders' approval
at the AGM and must be included in the notice therefor.
Information to be included in the remuneration report not requiring
examination by the auditor would include the name of each director who was a
member of the committee at any time when the committee was considering any
such matter and the name of any person who provided to the committee advice,
or services, that materially assisted the committee in their consideration
of any such matter.
Information to be included in the remuneration report and subject to
audit includes the amount of each director's emoluments and compensation
including the total amount of salary and fees paid to or receivable by the
person in respect of qualifying services; the total amount of bonuses so
paid or receivable; the total amount of sums paid by way of expenses
allowance; any compensation for loss of office; Excess retirement benefits
of directors and past directors; Pensions; Long term incentive schemes; and
Back to Guyana:
The Guyana Companies Act containing the basic disclosure requirement for
directors' remuneration is modelled on the Canadian Business Corporations
Act and the provisions are not too dissimilar to the UK's. The problem is
that the bunker ethos in our public companies causes them to ignore
completely both the law and good practice. Ever willing auditors not only
ignore their own professional obligations but act as the handmaidens to what
amounts to breaches of the law. The only time that the law was tested in
court resulted in a ruling that the company should disclose but this ruling
was ignored by the company despite its undertaking to do so.
Companies continue to follow questionable legal advice that the law on
disclosure only applies to non-executive directors. Would the accounting
profession now be brave and willing to seek further counsel given the
developments elsewhere? How much longer will it take us to digest the
findings of McKinsey the international management consultants that good
corporate practice is also good business.