Corporate Governance in The Caribbean

Caribbean Trade & Investment Report 2005
Chapter
X
CORPORATE GOVERNANCE IN THE CARIBBEAN
Introduction
Corporate governance issues in the Caribbean must inevitably take into

account developments in the rest of the world and the lessons to be learnt.
Nevertheless there are certain problems peculiar to small and micro
states and relatively small companies relating inter alia, to issues such as
the rights of shareholders, equitable treatment of shareholders, majority
and minority and the role of the various stakeholders, bearing in mind that
there might be conflict of interest. Robert Monk defined corporate
governance in the following way:
“Corporate Governance" refers to the "relationship among various

participants in determining the direction and performance of
corporations. The primary participants are (1) the shareholders, (2)
the management (led by the chief executive officer), and (3) the
board of directors1
On the same issue, Oliver Fremond and Mierta Capaul said “corporate
governance is about the definition of property rights of shareholders and
the mechanisms of exercising such rights”2 In trying to satisfy the needs
of the various stakeholders whose objectives might not always be
synchronous, corporate governance has to be guided by the need for
equity within the organization and the wider community. Other issues,
such as disclosure, transparency, discipline, independence, accountability,
fairness, social responsibility and the role and function of the board of
directors of listed companies are critical to the development of corporate
governance. An overview of efforts at both the regional and the domestic
level to craft corporate governance codes will be provided.
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Corporate governance principles have engaged the attention of the UK

and North America for some time and the Organization for Economic
Cooperation and Development (OECD) has crafted a set of principles that
are meant to guide the corporate world. In addition, the Enron
phenomenon has added a new dimension to the issue and a greater
sense of urgency. These form the backdrop for determining how closely
the Region approximates to what exists in the developed world, bearing in
mind the pervasive nature of global competition.
Corporate governance practices developed differently in different

countries and the principles and practices of any country are the product
of a particular development experience at a particular time. Any attempt
therefore to transplant wholesale one system to another country has at
best a modest chance of success with the greater risk of it being rendered
unworkable. The challenge therefore is not only to establish appropriate
rules of corporate governance for publicly traded companies but to
develop models of governance that address all economic structures.
A. Development of International Best Practice
A review of the corporate governance literature shows the historical and

contextual nature of corporate governance. A combination of factors has
helped to shape and influence corporate governance systems around the
world. One of the most significant cases of a single incident having a
strong negative impact on the public’s confidence in private corporate
governance was the failure of the Mississippi Company in 1720 when
France was ‘rescued’ from financial ruins by a Scotsman John Law, who
took over of all its debts in return for a monopoly on trade with Louisiana.
Law’s company failed with heavy losses borne by the French Government
and its wealthy citizens. So traumatised were the French that they banned
joint stock companies and stayed away from the financial markets.3
Interestingly enough, however, the British who had at just about the same
time their own bad experience with the South Sea Bubble4, did not
respond similarly and this has been explained as being partly due to
different legal systems. In Britain (a common law country) financial crises
were met by legislative action to protect investor rights while in the civil
law European countries the banks and state investment programmes
became a substitute for capital markets. As Morck and Steier observed
“Common law countries’ courts and governments sought to protect the
weak from the strong; civil law countries’ governments sought alternative
ways of implementing the public policy goal of efficient capital allocation.”5
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1. The Underpinnings of the Joint Stock Company Form
The rise of corporate governance is rooted in the development of the joint

stock company form in which, for the first time, management and
ownership were not vested in the same persons. The equity in a company
and dividends accrue to the shareholders, but the day to day running of
the organization is performed by professional managers with the oversight
of directors. By law, the directors are appointed by the shareholders who,
unless they are also full-time employees of the company, are precluded
from taking an active part in the management of the entity. This remains
valid, not withstanding the feature in the Companies Act of a number of
territories which provides for directors’ and, by extension, management’s
action, to be subject to a unanimous shareholders’ agreement – an
innovative concept imported from Canada but one which is hardly
applicable to public companies.
The challenge of corporate governance is to reconcile the competing

interests and agendas of managers and directors on the one hand, and
owners and other stakeholders on the other in a transparent, fair and open
process that is potentially adversarial.
Law, in the form of companies’ legislation, has been the primary vehicle
for addressing and resolving these conflicts with the [United Kingdom]
Joint Stock Companies Act of 1844 being the watershed event. Prior to
that legislation, companies were created by and operated under Royal
Charter and four hundred years ago, the British East India Company in the
UK and the Dutch East India Company in Holland were granted charters
with permanent capital and shares of unlimited duration. Neither the law
nor commerce had yet invented an appropriate vehicle for the undertaking
of commercial exploitation of the colonising conquest of other countries.
In 1720, the British Government passed the Bubble Act - following the
crash of the South Sea Company - forbidding unchartered companies
from issuing stock, thus forcing all companies wishing to raise capital to
first obtain a Certificate of Incorporation requiring an Act of Parliament.
Joint stock companies in France fared even worse following the crash of
Law’s Company in 1720 and were banned, returning France to the earlier
system whereby the economy was run on religious directives.
Companies legislation in CARICOM countries all have their origins in the

repeal of the Bubble Act in 1825 which had severely impaired the growth
of privately own companies and the economy. Still hesitant to open the
floodgates to the private company form, the UK Parliament passed the
Chartered Companies Act of 1837 which included a provision of limited
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liability. However, owing to the cost and difficulty of acquiring a charter,

this form of company was not common and in
1844, the Joint Stock Companies Act was passed, prohibiting large
unincorporated businesses - for example, a partnership could have no
more than twenty partners and a private company no more than fifty
members-and allowing for joint stock companies to be created by
registration.
2. The U.K. and German Experience
Reform of corporate governance has largely been a reactive exercise

which the Institute of Chartered Accountants in England and Wales
(ICAEW) admitted as much when it wrote: “Initial corporate governance
developments in the UK began in the late 1980s and early 1990s in the
wake of corporate scandals such as Polly Peck and Maxwell.”6
Perhaps the most famous work on Corporate Governance in the western

world is the Adrian Cadbury’s Report7. The report presented a code of
best practice that companies should adopt for good corporate governance.
The Code of Best Practice included the following:
• Audit committees should be established for all companies listed on

the stock exchange.
• Directors’ service contracts should not exceed 3 years, without

shareholder approval.
• Directors’ total emoluments and those of the chairman should be

fully disclosed and split into salary and performance related
elements; and
• Executive directors’ pay should be subject to the recommendations

of a remuneration committee of wholly or mainly non-executive
directors.
The Cadbury Report points out that “effective accountability” is the

essence of good governance and is required if boards of directors are to
discharge their responsibilities in a manner that will drive their companies
forward and make them more competitive. The Cadbury report states:
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Chapter X
“By adhering to the Code, listed companies will strengthen both

their control over their businesses and their public accountability. In
so doing, they will be striking the right balance between meeting the
standards of corporate governance now expected of them and
retaining the essential spirit of enterprise. Bringing greater clarity to
the respective roles and responsibilities of directors, shareholders
and auditors will also strengthen trust in the corporate system.
Companies whose standards of corporate governance are high are
the most likely to gain the confidence of investors and support for
the development of their businesses.”
Box X.1: Inclusions in the London Stock Exchange
The London Stock Exchange implemented certain recommendations that were made in the
Cadbury report including:
• Remuneration committee:
• Boards of directors should set up remuneration committees of exclusively non-executive
directors to determine (within terms of reference):
o the company’s policy on executive remuneration;
o specific remuneration packages for each executive director.
• The remuneration committee’s chairman should attend the AGM to answer
shareholders’ questions about directors’ remuneration.
• Disclosure and approval
• The remuneration committee should make a report each year to the shareholders on
behalf of the board (part of which should be annexed to the annual report and
accounts).
• The accounts are to include specific details of remuneration for each named director,
including salary, bonuses, share options and pension entitlement.
• Remuneration policy: Remuneration committees must provide the packages needed to
attract, retain and motivate directors of the quality required but should avoid paying
more than is necessary for this purpose.
• Service contracts and compensation
• Remuneration committees should consider what compensation commitments their
directors’ service contracts would entail in the event of early termination, particularly for
unsatisfactory performance.
Source: Compiled the Cadbury report
Other reports in the UK have made similar recommendations, including

the Hampel Report which identified a number of principles. These are
stated in Box X. 2 and Box X.3 below.
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Box X.2: Principles of Corporate Governance
• Companies should include in their annual reports a non-mandatory narrative account of

how they apply the broad principles of corporate governance
• Directors
• executive and non-executive directors should continue to have the same duties under the
law;
• the majority of non-executive directors should be independent and, to be effective, should
make up at least one third of the membership of the board. This applies to all sizes of
company;
• there are no compelling reasons to move away from the unitary board system;
• the separation of the roles of chairman and chief executive should not be a firm rule, but
separation is to be preferred. Companies should justify a decision to combine the roles;
• there should be a lead non-executive director other than the chairman, who should be
identified in the annual report; companies should set up a nomination committee to make
recommendations to the board on all new board appointments; all directors should submit
themselves for re-election at least every three years and companies should make any
necessary changes in their Articles of Association as soon as possible.
• Directors’ remuneration
• no further refinement to the Greenbury Code provisions relating to performance related
pay is necessary, but remuneration committees should use their judgement in devising
schemes appropriate to the specific circumstances of the company;
• it is permissible for non-executive directors’ remuneration to include company shares, but
this should not be universal practice;
• there is a strong general case for setting directors’ contract periods at one year or less,
but in some cases periods of up to two years may be acceptable;
• there are advantages in dealing with a director’s early departure by agreeing in advance
the payments to which he or she would be entitled in such circumstances;
• remuneration committees, chaired by non-executive directors, should develop policy on
remuneration and devise remuneration packages for individual executive directors;
• these should then be recommended to the board for approval. It is expected that the
board would endorse the committee’s recommendations in all but a few cases. The board
as a whole should devise remuneration packages for non-executive directors; the
requirement to include in the annual report a general statement on remuneration policy,
together with disclosure of individual remuneration packages (including those of overseas
directors) should be retained. Reports to shareholders on remuneration should be made
in the name of the board as a whole.
Source: Compiled from website
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Chapter X
Box X.3: Stakeholders and the AGM
Role of Stakeholders
• Institutional investors have an obligation to their clients to adopt a considered

policy on voting their shares, but voting should not be compulsory;
• boards should provide a full business presentation at the AGM with a question
and answer session. In addition a resumé of discussions at the AGM should be
made available to shareholders on request;
• shareholders should be able to vote separately on each substantially separate
issue; and the practice of “bundling” unrelated proposals in a single resolution
should cease.
• Accountability and audit
• The audit committee should keep the nature and extent of non-audit services
under review;
• auditors should report on internal control privately to the directors. This allows
for an effective dialogue to take place and for best practice to evolve in
preference to prescription;
• directors should maintain and review controls relating to all relevant control
objectives and not merely financial controls
Source: Compiled from websites and other reports
Germany and certain other Continental European countries have at the

heart of their governance arrangement co-determination, so called
because of the involvement of workers in the management of companies.
The German Corporate Governance Code has as its objectives, the

recognition and clarification of the rights of shareholders, the providers of
risk capital to the company. The Code provides for a dual board system
which is prescribed by law for German stock corporations.
The Management Board is responsible for managing the enterprise. Its

members are jointly accountable for the management of the enterprise.
The Chairman of the Management Board coordinates the work of the
Management Board.
The Supervisory Board appoints, supervises and advises the members of

the Management Board and is directly involved in decisions of
fundamental importance to the enterprise. The chairman of the
Supervisory Board coordinates the work of the Supervisory Board.
The members of the Supervisory Board are elected by the shareholders at

the General Meeting. In enterprises having more than 500 to more than
2000 employees in Germany, employees are also represented in the
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Supervisory Board, which then is composed of employee representatives

to one third or to one half respectively. For enterprises with more than
2000 employees, the Chairman of the Supervisory Board, who, for all
practical purposes, is a representative of the shareholders, has the casting
vote in the case of split resolutions. The representatives elected by the
shareholders and the representatives of the employees are equally
obliged to act in the enterprise’s best interests.
While, theoretically, this model is very different from the more generally
known single management body (Board of Directors), there is
convergence in practice because of the intensive interaction of the
Management Board and the Supervisory Board in the dual system.
The German model has operated very successfully for more than fifty
years but is being criticized as being too unwieldy - there can be more
than two dozen directors sitting around the boardroom table - and
inefficient with worker representatives viewing their primary role as the
preservation of jobs rather than efficiency, profitability and international
competitiveness.
3. The North American Experience
In the aftermath of the corporate failures in the USA and more notably,
that of Enron Corporation, a number of steps were taken to ensure that
the corporate sector, including those of accounting and auditing, were
made more impregnable. The experience of Enron Corporation, whose
main activity was the provision of products and services related to natural
gas, electricity and communications to wholesale and retail customers
through subsidiaries and affiliates is central to issues relating to the failure
of corporate entities in the developed world . The Group's activities at the
height of operations were divided into five segments: transportation and
distribution, wholesale services, retail energy services, broadband
services and other. The Group operated in the United States, Canada,
Europe, Japan, Australia, South America and India. And seemingly
“epitomised the triumph of the new economy.”10 However , it achieved a
status of notoriety within a few years of being hailed by one of the top
management gurus and business writers, Gary Hamel as “one of the grey-
haired revolutionaries – the rarest breed of all – that have managed to re-
invent themselves and their industry more than once.” According to
Hamel, “their grey hair comes not from years, but from the experience of
having lived through several strategy lifetimes.”11
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Chapter X
As if to prove however that Enron was not an aberration, a long list of

“blue chip” companies soon hit the headlines in the American press, not
for their outstanding performance or how they were effectively out
performing their European and Japanese counterparts, but how cavalierly
they conducted their business, engaged in innovative accounting practices
and misled their employees, shareholders, regulators and the press.
Among those that followed Enron were WorldCom, Global Crossing,
Adelphia, Tyco and Waste Management; all substantial public companies.
While the USA press put the spotlight on weaknesses in the accounting
profession and the quality of Corporate Governance in public companies
in that country’s sections of the international press and of the accounting
profession outside of North America placed the blame, at least in part, to:
• American greed, facilitated by a close and impenetrable network of

directors and auditors.
• The carelessness of the investment banking community (Wall

Street).
• Inattentiveness of the financial press; and
• An investing public beguiled by astronomical and unsustainable

returns.
While this was happening, similar episodes were taking place in Europe
for example Parmalat in Italy, followed by Ahold in Holland in 2004. The
recent corporate failures have served to place ‘good governance’ at the
top of the international agenda, with a number of countries scrambling to
put in place corporate governance codes. With the need to ensure that
investor confidence is restored, the search for solutions ensued as
governments and regulators sought to fix real and perceived problems
which threatened to bring an end to one of the most extended periods of
sustained economic growth on record. Among the initiatives taken after
the string of high profile corporate failures was the passage of new laws
including the Sarbanes-Oxley Act in the US , and changes in the
regulatory environment governing the market for securities, particularly,
the accounting profession whose leading member, Arthur Andersen, was
one of the more prominent casualties of the misfortune resulting from the
failure of Enron and others .
The Sarbanes-Oxley Act, perhaps the most significant piece of

securities legislation since the Great Depression inspired Securities
and Exchange Act of 1933, was signed into law on 30 July 2002 and
contained significant legislative changes to financial practice and
corporate governance regulation. The Act introduced stringent new rules
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with the stated objective being “to protect investors by improving the
accuracy and reliability of corporate disclosures made pursuant to the
securities laws”. Among the consequences of the Act was its extra-
territorial application to USA listed companies operating outside of the
USA, with the auditors of the overseas subsidiaries having to comply with
the independence rules prescribed under the Act.
Table X. 1: The 15 Largest US Bankruptcies Since 198012
Total Assets Pre-

Company Bankruptcy Date
Bankruptcy (US$Mn)
Worldcom, Inc. 07/21/2002 103,914
Enron Corp.* 12/2/2001 63,392
Conseco, Inc. 12/18/2002 61,392
Texaco, Inc. 4/12/1987 35,892
Financial Corp. of America 9/9/1988 33,864
Refco Inc. 10/17/2005 33,333
Global Crossing Ltd. 1/28/2002 30,185
Pacific Gas and Electric Co. 4/6/2001 29,770
UAL Corp. 12/9/2002 25,197
Delta Air Lines, Inc. 9/14/2005 21,801
Adelphia Communications 6/25/2002 21,499
MCorp 3/31/1989 20,228
Mirant Corporation 7/14/2003 19,415
Delphi Corporation 10/8/2005 16,593
First Executive Corp. 5/13/1991 15,193
Table X.1 shows the 15 largest bankruptcies in the USA since 1980. The
interesting thing to note is that the failures were not confined to any one
particular sector. This indicates that, if poor governance was the cause of
the failures, it tends to exists in all sectors including manufacturing, air
transport and financial services. The sums involved are large by any
estimation and include a wide cross section of share holders. The failure
of these companies has pushed corporate governance into the
mainstream of both economics and accounting as it not only involved
finance / accounting issues but also the potential to bring on an economic
crisis. What these failures showed is that improper practice, buttressed by
inactivity of shareholders, can have long run effects well beyond the
survival of the firms involved.
As far back as 1994, Canada recognized the importance of good

corporate governance. In a report entitled “ Where were the Directors”,
the Toronto Stock Exchange Committee on Corporate Governance
noted “ in Canada’s complex market economy , the corporation is one of
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Chapter X
the principal vehicles for risk taking and one of the major sources of
change . The performance of our corporations is therefore of vital interest
to us all. Well functioning corporations are a key agent of wealth creation
and social progress. Dull under performing and uncompetitive
corporations represent mismanaged resources and can impede social
progress” 13
The report recommendations concentrated on the structure of the board of

directors and enhanced disclosure requirements. The following areas
which are outlined below were specifically addressed:
• The role of the board of directors including their involvement in

strategic planning, risk management, internal control and
management information systems and succession planning;
• The structure of the board of directors, covering the requirement

that the majority of members be unrelated to the corporation,
selection of new members, orientation for new members, board
size, independence and the requirement for position descriptions
and director's compensation;
• The role of the audit committee including the requirement that

members be outside directors, responsibilities overseeing internal
controls and the relationship with external and internal auditors; and
• Enhanced disclosure requirements.
Box X. 4: Guidelines for Improved Corporate Governance in Canada
The board of directors of every corporation should explicitly assume responsibility for
the stewardship of the corporation and, as part of that overall stewardship should
assume responsibility for a number of matters including the adoption of a strategic
planning process and succession planning, including appointing, training and monitoring
senior management .In addition, Dey recommended that the board of directors of every
corporation should be constituted with a majority of individuals who qualify as
unrelated directors . In making sure that there is independence, he also called for the
board of every corporation to appoint a committee of directors composed exclusively of
outside directors and to ensure that the board functions independently of management.
Source: Dey
4. The OECD Principles of Corporate Governance
“The OECD has worked to promote use of the Principles since they were
first adopted in 1999 to support good corporate governance policy and
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practice both within OECD countries and beyond. Policymakers, investors,

corporations and stakeholders worldwide have used the Principles to
tackle a broad set of relevant issues common to all, such as the need for
transparent reporting, informed shareholders and accountable boards.”14
The OECD principles focus on broad corporate governance e features
rather than detailed prescriptions, and so can be adopted to varying
legal, economic and social conditions .
Box X.5: The OECD Principles
In May 1999 ministers representing the 29 governments which comprise the Organization
for Economic Co-operation and Development (OECD) voted unanimously to endorse the
OECD Principles of Corporate Governance
Corporate Objective: The overriding objective of the corporation should be to optimize
over time the returns to its shareowners. Where other considerations affect this objective,
they should be clearly stated and disclosed. To achieve this objective, the corporation
should endeavor to ensure the long-term viability of its business, and to manage effectively
its relationships with stakeholders
Communications and Reporting: Corporations should disclose accurate, adequate and
timely information, in particular meeting market guidelines where they exist, so as to allow
investors to make informed decisions about the acquisition, ownership obligations and
rights, and sale of shares.
Voting Rights: Corporations' ordinary shares should feature one vote for each share.
Corporations should act to ensure the owners' rights to vote. Fiduciary investors have a
responsibility to vote. Regulators and law should facilitate voting rights and timely
disclosure of the levels of voting
Corporate Boards: The board of directors, or supervisory board, as an entity, and each of
its members, as an individual, is a fiduciary for all shareowners, and should be accountable
to the shareowner body as a whole. Each member should stand for election on a regular
basis.
Disclosure: Corporations should disclose upon appointment to the board, and thereafter
in each annual report or proxy statement, information on the identities, core competencies,
professional or other backgrounds, factors affecting independence, and overall
qualifications of board members and nominees so as to enable investors to weigh the value
they add to the company.
Corporate Remuneration Policies: Remuneration of corporate directors or supervisory
board members and key executives should be aligned with the interest of shareowners
Operating Performance: Corporate governance practices should focus board attention on

optimizing over time the company's operating performance. In particular, the company
should strive to excel in specific sector peer group comparisons.
Extract from OECD website
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Chapter X
B. Caribbean Corporate Behavioural Characteristics
1. The Problematique
In its search for good corporate governance the Caribbean is not

responding to any major corporate failure and therefore the approach
tended to be slow with little pressure coming governments, the academic
community, the press and civil society, unlike the developed world where
the development of corporate governance codes have been the result of
failures and public demands for reform.
In small developing countries, particularly the case of Jamaica and

Guyana, a state-owned entity can still play a significant role in the
economy and therefore adequate corporate governance is required, not
dissimilar to that applicable to publicly traded companies. Jamaica has
sought to promote and enforce corporate governance with the Public
Bodies Management and Accountability Act 2001.16 The Act sets out
guidelines for public bodies, including corporate plans and audit
committees, but does not go far enough to address some of the other
critical governance issues which are likely to operate in a public entity.
Another significant limitation of that Act is that while the concept of ‘public
bodies’ includes an authority or any government company, it specifically
excludes a statutory body which is often subject to the more traditional
kind of governance arrangement whereby the subject Minister has
oversight responsibility, makes all the key appointments and often
interferes in the day-to-day operations of the entity. In Guyana, there is the
Public Corporations Act that was passed in an era associated with political
control, but under recent legislation (the Audit Act) public corporations,
while subject to audit by the Office of the Auditor General, are subject to
auditor rotation, a principle which the international accounting and auditing
profession has strongly resisted.
Corporate governance problems and peculiarities of small developing

countries are reflected in the following characteristics:-
• Small pool from which to chose directors ;
• The concept of the independent director is hard to apply;
• Small number of public companies ;
• Relatively large number of private companies ;
• Active role of the State in economic activities;
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• Dominance of large family owned firms;
• Preference for commercial bank financing ; and
• Legal,statutory and regulatory framework that is under-resourced
Up to recently there was no formal mandatory framework of corporate

governance in any of the territories with often poorly administered
Companies Acts being the major drivers. However , the countries of the
Organisation of Eastern Caribbean States are in the final stages of
releasing a Code of Principles17 while, in Jamaica, the Private Sector
Organisation in the latter half of 2005 published a Code of Corporate
Governance based on the 2003 Combined Code of the Financial
Reporting Council of the United Kingdom.18 However, the rest of the
Caribbean has not been inactive and have held seminars and workshops
initiated by the central banks, the private sector and the accounting
profession, promoting awareness of the importance of good corporate
governance.
Public companies make up only a small part of the population of corporate

entities in the Region (see Table X.3) with the state, private companies,
commercial banks, insurance and trust companies, credit unions and other
private entities and groups playing a major role. Yet with few exceptions
the pursuit of corporate governance has been seen in the context of public
companies only. (See Chapter IX)
A number of financial institutions, utilities, credit unions and other entities

which have a large customer base or use public assets are often
incorporated or registered under legislation which does not prescribe
standards of corporate governance. Additionally, wealthy families have
significant holdings in a number of public companies and, also, in the
pyramidal business structure which differs from the conglomerate in that at
the top of the pyramid is a privately-held family company operating outside
of the public domain and attention. A good example would be CL
Financial Limited, which contains a number of companies, some of which
are public and others strictly private, Goddard Enterprise of Barbados, the
Matalon Group of Companies in Jamaica and the Beharry Group in
Guyana.
Among the subsidiaries, there may also be a large number of private

companies and sub-holding companies which are not subject to the rules
of disclosure applicable to public companies. Pyramid type companies are
generally associated with the intermediate stages of economic and market
development common in developing countries. However there are also a
number of large pyramidal type family controlled business groups in
Canada, Japan, and Europe. One explanation is that the pyramidal
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Chapter X
business groups of companies survive in developed countries because

they lock in the corporate governance power of an elite family over capital
assets worth far more than the family fortune. That power brings intangible
benefits that such families are loathe to surrender.
Table X.2 shows that certain well known companies have significant share
ownership in other reputable companies, with instances of director
representation. Cross share ownership also sometimes obtain. This
phenomenon may increase the problem of exercising effective corporate
governance...
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Table X.2: Institutional Shareholders in the Caribbean
Percent of Company Institutional Board Representative

Shareholder Yes No NA
Shareholding
Grace Kennedy Ltd. Insurance& Trust Co., PF. 25 Y
Investment Companies 5 Y
ANSA McAL Ltd. ANSA Investments Ltd. 49 Y
Neal & Massy RBTT Nominees Services 12 Note
Holdings Ltd. Ltd. (1)
NCB Jamaica Ltd. AIC (Barbados) 70 Y
Republic Bank Ltd CLICO 31 Y
Trintrust Limited 17 Y
Clico Investment Bank Ltd. 11 Y
First Caribbean Bank ltd. 9 Y
Eastern Caribbean Government of Saint Lucia 20 Y
Holding Co. Republic Bank Ltd. 20 Y
National Insurance 11 Y
Corporation
Barbados Shipping Neal & Massy Holdings Ltd. 20 Note
& Trading Co. Ltd. (2)
Sagicor 15 Y
BWIA West Indies Government of Trinidad 97 Y
Airways Ltd.
Guardian Holdings RBTT Insurance Holdings 20 Note
Ltd Ltd. (1)
Tenetic Limited 17 Note
( 3)
Jamaica Money CLICO Investment Bank Ltd. 28 Y
Market Brokers Ltd Trustees JMMB ESOP 12 Y
CLICO 8 Y
Concise Limited 13 Y
JVF Limited 11 Y
RBTT Financial National Insurance Board 15 Y
Holdings Ltd Guardian Holdings 13 Note
(1)
Trinidad Cement Ltd Institutional Shareholders 30 Y
Sierra Trading 20 Y
National Insurance Board 10 Y
FirstCaribbean CIBC** Investments 43 Y
International Bank (Cayman) Ltd.
Ltd Barclays’ Bank PLC 43 Y
Source: field survey
Note (1) - They have four common directors.

(2) - They have three common directors.
(3) - The Chairman (Arthur Lok Jack) and a Director (Imtiaz Ahmad) have
beneficial interests in Tenetic Limited.
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Chapter X
2. Corporate Failures in the Caribbean
While there has not been any recent major public company related
corporate governance failures in the Caribbean, even though it is not
uncommon for directors of public companies to be drawn from private
companies, bringing with them the private company culture of “non-
governance”. But this is not true of state-owned and private companies,
using the loan losses reported by commercial banks as a guide.
Countries in the Caribbean have had their own experiences with failures,
including Trinidad and Tobago which experienced problems in the
financial system during the eighties and then more significantly in the
period 1989-1993 when three financial houses – National Commercial
Bank, Trinidad and Tobago Cooperative Bank and the Workers Bank
became insolvent and were placed under Central Bank supervision.
Antigua and Barbuda also had a similar experience when one financial
house had to be rescued by the Antigua Barbuda Investment Bank while
Jamaica and Guyana have had fairly spectacular failures in the sector. In
the case of Guyana, two state-owned as well as one small public company
were involved, while in Jamaica the Government had to intervene in five
commercial banks, nine merchant banks and five insurance companies.
The Financial Sector Adjustment Company Limited (FINSAC) of Jamaica

was established in 1997 in an attempt to restore stability to that country’s
financial sector after the sector collapsed in the mid 1990’s. Some of the
governance problems reported by FINSAC in the banking sector were:
• Absence of or failure to comply with proper internal control

procedures;
• Poor risk management and inadequate portfolio diversification;
• High and increasing levels of non-performing assets;
• High operating costs;
• Poor quality of management and strategic planning;
• Failure to exercise due diligence and care;
• Unusually high appetite for risk;
• A high incidence of connected party lending; and
341
• Breach of fiduciary duty and outright fraud.
Box X. 6: Fixing Failed Firms Should be Based on Economics, not Revenge:

Unprecedented Corporate Failures
In Guyana the debate on insolvents and bankrupts has hardly begun despite the spate of
receiverships during the year. Never in the history of Guyana has there been so many
business failures in so short a period of time. No type of business has been spared -
whether in the public or private sector, in mining, rice, gold, trading or financial services. The
combined effects of these failures are a matter of national concern, not only that of the
business sector which itself seems unsympathetic to the plight of their colleagues. In
Guyana, to the extent that the law on corporate failures is an issue, we still seem steeped in
the distant past, one that gave to the creditor unfettered right to move against the debtor
and said that to offer protection to the debtor is undue interference in a contractual
relationship. The law reflects a form of inverted morality that insists that the borrower repay
his debt regardless of the circumstances or the consequences on the economy of putting
the debtor out of business. The socialist legacy tells us that the poor always repay their
debts and that it is only the "fat cats" and those who have shipped tons of money abroad
who are now crying out for help. Yet it is these same reformed socialists who advocate
entrepreneurship and investments - conditions which inevitably result in some failures.
Both our insolvency and bankruptcy laws are rooted in the British legal system and it is no
surprise that the first reaction to a failure is to blame the borrower (investor or entrepreneur)
for any number of reasons. Indeed the Minister of Finance is reported to have attributed
many of the business failures to mismanagement and capital flight, an oversimplification if
ever there was one.
Like the rest of the Caribbean, most bankruptcies in Guyana are in the nature of corporate
insolvencies and are dealt with via receiverships, a remedy of the secured creditor for
enforcing his security
Extract from Stabroek News Business Page – December 23rd, 2001
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Chapter X
Box X. 7: Melt Down in Trinidad and Tobago Financial System
1984 The inspector of banks was appointed receiver of the assets and
undertakings of international Trust Limited
In 1986, as a result of lessons learnt from the NFI crisis, several amendments were made to
the Central Bank Act and the Financial Institutions (Non-Banking) Act. The amendments
conferred special emergency powers on the Bank to intervene in financial institutions to
protect the interests of depositors and creditors. They also established the Deposit Insurance
Corporation as a subsidiary of the Bank. The amendments were quite timely as the Bank
utilized them that same year to close five NFIs. The Bank was also called upon to intervene
in the Trinidad Co-operative Bank in 1986 and in the Workers’ Bank in 1989.
1986 Central Bank assumed control of the Trinidad Cooperative Bank Limited in
order to restructure the business and reconstruct its capital base
The following four non bank financial institutions were closed as a result of
financial failure Trade Confirmers Ltd, commercial Finance Company Ltd ,
South western Atlantic Investment Trust Company Ltd and Summit
Finance Corporation ( Trinidad and Tobago) Ltd
1988 MAT Securities limited whose operations resumed in 1987 after being
suspended in 1986 was ordered to suspend its operations on 23 September
1988 and its business was subsequently wound up
1989 The Central Bank ordered the suspension of the business of Workers Bank
Limited and its subsidiary, Workers Bank Trust Company Limited for a period
of 30 days
1991 Central bank ordered the Bank of Credit and Commerce International
(Trinidad and Tobago Merchant bankers) Ltd to suspend operations
the central bank suspended the business of Principal Finance Company
Limited and Caribbean Mortgage and Funds Limited
1993 The central bank assumed control of the National Commercial bank in order
to effect a merger of the country’s three indigenous banks. the operations of
National Commercial bank, Workers bank (1989) ltd and the Trinidad
Cooperative Bank were merged to form a new entity, First Citizens Bank
Limited
In 1993, the Bank moved to merge the three indigenous institutions – National Commercial
Bank, Workers' Bank and Trinidad Co-operative Bank – to form the First Citizens Bank
(FCB). These actions were designed to avoid losses for depositors and forestall systemic
problems in the banking system. The role of the Bank in the formation of FCB is considered
as a major achievement in the Bank’s history and represents a shining example of an
innovative and successful restructuring exercise in the Caribbean.
From its inception, the Bank saw itself as having a developmental role. Consistent with this
orientation, from the start of the decade of the 1980’s, the Bank became involved in a number
of institution-building initiatives. Thus, for example, the Bank worked to establish the Trinidad
and Tobago Stock Exchange and the Trinidad and Tobago Unit Trust Corporation in 1981. In
1986, in collaboration with the commercial banks, life insurance companies, the National
Insurance Board and the International Finance Corporation, another familiar institution was
established: the Home Mortgage Bank
343
Box X.8: Conditions Prior to Response to Financial Sector Crisis in Jamaica
The Financial Sector
- Rapid expansion of financial sector following liberalisation.

- Emergence of large financial conglomerates, which diversified out of core business and were
plagued by connected party transactions.
- High levels of NPLs.
- Declining profitability in the sector.
- Deterioration in the banking system’s capital base.
- Mismatch of assets and liabilities.
- Liquidity problems in the life insurance and banking industries precipitated by the imprudent
over-investment in real estate and equity, and the subsequent collapse of these markets.
- Impending panic within the domestic financial system, as problems within numerous
institutions were revealed.
Policy response
Initially liquidity support provided through the central bank.
- The government intervened in the distressed institutions usually through capital injections, in
exchange for equity, board seats and assets. Occasionally institutions were closed.
- Deposits were protected, and repeated assurances were given as to the government’s
support of the financial system.
- A financial restructuring agency – FINSAC was created to aid in the restructuring of the
sector.
- Creation of ‘good bank/bad bank scenario’ to relieve banks of NPLs.
- The consolidation and rationalisation of the sector through mergers, closures, and sale to
overseas entities, as appropriate.
- Regulatory and supervisory reform.
- The divestment of equity and assets acquired by FINSAC to the private sector.
- Attempts to prosecute and pursue civil action against those responsible for the demise of the
institutions.
Effect
Within the financial sector. Apart from a ‘flight to quality’ within the domestic system, there was
no wholesale financial panic, nor international capital flight. The relatively smooth operation of
the financial sector was preserved, as depositors’ confidence in the system was bolstered.
- Possible moral hazard, which may have fostered greater incentives for risk taking and
imprudence by savers and lenders. (Attempts to avoid this in the future include the creation of
a Deposit Insurance Scheme).
- Leaner, more efficient financial sector.
- Improved regulatory and supervisory structure.
- Exposure of numerous financial institutions to the perceived threat of public debt insolvency.
3. Regulatory Concerns of Member States
“Corporate governance is concerned with holding the balance between

economic and social goals and between individual and communal
goals...the aim is to align as nearly as possible the interests of individuals,
corporations and society.”19
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Chapter X
The Caribbean’s initiatives to date have been limited to some country

efforts in the areas of training of directors in Jamaica and Barbados and
the development of specific codes as is the case in The Bahamas and
Barbados. One significant Caribbean response to seeking a regional
consensus on corporate governance issues was the workshop on
“Towards a Caribbean Governance Programme” held in Trinidad and
Tobago in 1999. However, this exercise failed to energise the debate
towards building a unified corporate governance movement for the
Caribbean. The first ever Caribbean-wide Corporate Governance Forum
20
(CCGF) was held over the period 3-5 September 2003 at the
Headquarters of the Eastern Caribbean Central Bank (ECCB), St. Kitts
and Nevis At the conclusion of the abovementioned 2003 forum, draft
recommendations for a Caribbean Code of Corporate Governance in
Securities Markets were issued. The code covered some key issues,
namely:-
• The Board of Directors (functioning, board committees, etc.)

• Remuneration of Directors, including Executive Directors (level,
disclosure, etc.)
• Role of Shareholders (meetings, voting, etc.)
• Financial Reporting, Transparency and Audit (standards,
liability, independence, etc.)
• Other Stakeholders
• Ethics
The CCGF focused on corporate governance reform and reviewed the

proposed Caribbean Corporate Governance Principles for region-wide
adoption. There were recommended six major principles.
This principles-based approach was very different from the initial focus on
a code and it was expected that this approach would accelerate the
process since it is always easier to agree on broad outlines than
exhaustive details. The approach appears to align with that of the OECD
.A number of other Member States have taken steps to draft corporate
governance codes/ principles
During 2003 the Central Bank of Barbados held a conference on

Corporate Governance which aimed specifically at the financial services
sector. Although standards and best practices were examined by the
Conference, no corporate governance principles were issued by the
sector.
In 2004, the Central Bank of The Bahamas issued “Guidelines for the
Corporate Governance of Banks and Trust Companies.” In commenting
on the 2003 CCGF, different views were proffered. In some cases it was
noted that the Guidelines were overly prescriptive, while others thought
345
that they were not precise enough in their requirements and yet there
were others who were concerned about the penalties for non-compliance.
The effort in respect of other public companies, however, has not been as
successful – while issuers have to comply with the rules and regulations of
the Securities Commission and the Bahamas International Securities
Exchange, no Corporate Governance rules have been issued.
Box X. 9: Principles of the Caribbean Corporate Governance Code
Principle I: The corporate governance framework within the Caribbean should

encourage the development of transparent and efficient markets, have its basis in
the rule of law and ethical standards to foster the division of responsibilities
among supervisory, regulatory, and enforcement bodies.
Principle II: The corporate governance framework should protect and facilitate the
exercise of shareholders rights.
Principle III: The corporate governance framework should ensure the equitable
treatment of all shareholders, including minority and foreign shareholders. All
shareholders should have the opportunity to obtain effective redress for violation
of their rights.
Principle IV: The corporate governance framework should recognize the rights of
stakeholders established by law or through mutual agreements and encourage
active co-operation between entities, including family owned businesses and
state-owned/controlled enterprises, and stakeholders in creating wealth, jobs, and
the sustainability of financially sound enterprises.
Principle V: The corporate governance framework should ensure that timely and
accurate disclosure is made on all material matters relating to the entity, including
its financial situation, performance, ownership, and governance.
Principle VI: The corporate governance framework should ensure the strategic
guidance of the entity, the effective monitoring of management by the Board, and
the Board’s accountability to the entity and to stakeholders.
Source: CCGF, 2003
In August 2005, the Securities Exchange announced that in an effort to

promote timely and consistent disclosure by its listed companies, it had
completed the first in a series of Continuing Obligations Filing Forms.
Keith Davies, CEO of the Exchange, stated that “Over the last several
years we focused heavily on simply getting companies to understand their
filing obligations and then to comply with them. In fact, we did a very good
job, because companies began to comply, but in many different ways via
emails and letters sent via fax or regular mail. So I took the affirmative
step to standardize the filing process and the result is this set of new
forms.”
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Chapter X
In Guyana, the Securities Council in 2003 issued the broad guidelines

developed at the first CCGF as its Recommendations for a Code of
Corporate Governance. After two years however, the Council has not
finalised the Code in any way and it does not appear to have been a
significant influence on the conduct of corporate governance among public
companies. Of great concern to the Securities Council and indeed the
public have been the several challenges from public companies to any
effort by the Council to ensure that reporting entities comply with the
Securities Industry Act. Companies have found it easy to persuade the
Courts that the Council has not acted properly and in the case of one
major company the Court has prevented the Council from further action
pending resolution of the case which, could take several years.
The Eastern Caribbean Securities Exchange has been a driving force of

the CCGF. Its efforts, along with those by the ECCB, have been propelling
this bloc towards having a harmonised set of Corporate Governance
provisions. This process also has support from the highest levels of
Government in the region with St. Kitts & Nevis’ Prime Minister Hon. Dr.
Denzil L. Douglas calling for “serious changes in the way that the Private
and Public Sectors do business” and for all activities and decision-making
in these sectors to be guided by principles of fairness, integrity, morality,
and responsibility. He noted that accountability reporting “must be
systematic – regular and accessible – to both shareholders and taxpayers,
so that they could be satisfied, and have the opportunity for input for their
best interest. New and enhanced Corporate Governance processes must
become enshrined in the policies and practices of both Governmental
institutions and Private Sector companies and institutions to avert the
debilitating fallout resulting from scandals of mismanagement and
unethical corporate practices.” Corporate Governance Codes in the rest of
the Region have seen slow progress. Each country has in place securities
legislation and relatively active monitoring and surveillance of the
securities markets. Most of them have explicitly or implicitly adopted
International Financial Reporting Standards and International Standards
on Auditing but some grey areas of compliance are still noted by
commentators, particularly in relation to disclosures.
Not surprisingly, given the role played by banks in the financing of

privately owned entities, the banking sector in each of the countries has
the highest degree of supervision while other sectors such as insurance,
trust business, credit unions and pensions are catching up. Banking is, of
course, critical to the regional economies and experience has shown that
any failure in the sector would have a negative psychological effect and
could potentially disrupt other sectors of the economy. The supervision of
banks, however, has been more concerned with protecting customer
347
deposits rather than shareholders funds or with general matters of

corporate governance.
Trinidad and Tobago was one of the early starters in establishing a

Corporate Governance Code. In February 2002, for example, Senator
Conrad Enill urged the “Trinidad and Tobago Stock Exchange to establish
immediately for all its listed companies a code of good corporate
governance, which is consistent with international best practices.” The
draft report on Corporate Governance for Trinidad and Tobago was
informed by the review of the Securities Industry Act, 1995, its by-laws
and associated legislation .Among the recommendations coming out of
the review were new provisions on management discussion and analysis,
publication of interim (quarterly) financial statements, certification of
annual financial statements by the CEO and CFO, and development of
corporate governance requirements, including the functioning,
responsibility and composition of boards of directors and the development
of audit committee responsibilities. With the exception of the OECS
territories, each country seems to have set its own objective and timetable
for a Corporate Governance Code. Regrettably, the efforts of the ECCB to
have a Caribbean-wide Code do not appear to have won favour
throughout the Region and even the efforts of the OECS itself appear to
have been diluted into a Statement of Principles rather than a mandatory
code. A danger is that the Region may end up with a number of national
codes instead of one that could truly be called a Caribbean Code of
Corporate Governance. And which could adequately serve the purpose of
the CSME.
C. The Role of Institutional Actors and Stakeholders
“Institutional investors are an important shareholder force. Their financial

strength, fiduciary responsibilities, access to research as well as voting
power enables them to influence Board and Management behaviour.
Institutional shareholders should play an active role in engaging the
Management and Board in the interest of good corporate governance, at
the appropriate forum.”21
Outside the Caribbean region, institutional investors -defined as an entity

with large amounts to invest, such as investment companies, mutual
funds, brokerages, insurance companies, pension funds, investment
banks and endowment funds- are major drivers of governance. They are
often covered by fewer protective regulations because it is assumed that
they are more knowledgeable and better able to protect themselves. They
account for a majority of share ownership and have played a leading role
in boardroom changes and influencing policies and practices.
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Chapter X
In the Caribbean, however, institutional investors have played a somewhat

different role- either accepting a passive position on the Board or taking a
hands-off approach to the company. In a survey carried out for the
purposes of this analysis, one institutional investor indicated that his firm
made its investment decision based on the reputation of the members of
the Board. Institutional investors are not accorded by the investee
company the respect and attention they deserve. No example in the
countries surveyed could be found where the institutional investors
initiated or succeeded in voting down a motion by the directors, or in
removing any directors from the Board.
Who drives corporate governance? In the traditional model, the

shareholders elect the Board (and the Board elects the CEO) to ensure
that their interests are safeguarded, but it is a commonplace now to
suggest that Boards are controlled by management. For example, Roe
(1996:6) argues: “Everyone knew that in the public firm the flow of power
was the reverse. The CEO recommended nominees to the board. Board
members were often insiders-employees or other CEOs, who have little
reason to invest time and energy in second-guessing the incumbent CEO
… the CEO dominating the election and the firm.”
The belief that managers control boards rather than boards control
management has been a dominant theme in both academic and
practitioner writings. The lack of accountability of senior managers has
been manifest in a number of areas, which have coalesced to bring the
corporate governance debate into prominence. Governance is exercised
at several levels within the organisation but there are external laws and
agencies that prescribe, monitor and enforce governance arrangements
within companies. These agencies include the Registrar of Companies
who is responsible for administering the Companies’ Act, the Securities
Council or Securities and Exchange Commission which administers the
Securities Act, the Stock Exchange which makes and enforces rules and
various specialised bodies, such as the Central Bank, with responsibility
for supervising the banking and financial sector and the Commissioner of
Insurance with responsibility for administering the insurance sector.
Internally, the directors hold primary responsibility for governance in the

entity though in theory they are elected and may be removed by
shareholders. Shareholders expect the directors not only to manage the
business with a view to receiving dividends on a sustained basis, but also
to provide them with proper information in a timely manner to help tin
making assessments of management or decisions regarding the company
and their holdings. Because of their pre-eminent authority derived from the
various legislation and corporate constitutions, the Board of Directors is
still seen as a constraint on managers.
349
‘Members’ and ‘shareholders’ are words used synonymously and

interchangeably in the corporate environment in the Caribbean. A member
acquires this status, carrying with it rights and obligations, by procuring
shares in the company and being entered in the register of members, one
of the key statutory records under all Caribbean legislation. Like their
counterparts from around the world, shareholders in the Caribbean have
passively accepted the actions of the Board which are often either
controlled by a majority shareholder or a powerful Chief Executive Officer.
In general, companies’ annual reports include only limited information on
shareholders and their profile, providing the minimum required by law.
There are some exceptions, one being Grace Kennedy and Company of
Jamaica which discloses the number and percentage of the outstanding
shares held by category of shareholders. In Jamaica, public companies
have been known to list their top ten shareholders, a practice that is useful
to potential investors.
Already a regional bond market is emerging with the hub of activity taking
place in Trinidad and Tobago. (See chapter VIII for more details on the
regional bond market) These bond holders require legal covenant
recourse. Here the covenants should restrict managers of the company
from changing business plans and engaging in riskier activities than
explained in the offering documents. Certain activities may benefit
shareholders or management but not the debt holders.
With almost every country in the Region having put new companies
legislation on its books within the past ten years, shareholders enjoy a
number of rights including increasingly favourable minority shareholder
protection, special voting on entrenched positions and the right to vote
against that special import from Canada, the unanimous shareholder
resolution. In contrast to the law, minority shareholders seem to enjoy little
rights in practice, with majority shareholders making almost all the
decisions, including the appointment of directors.
Annual reports and financial statements are becoming far more

comprehensive but it is unlikely that they are any more intelligible to the
ordinary shareholder. The complexity of the financial statements and the
depth of the notes thereon are generally only intelligible to a very small
group of technical professionals.
The Companies Acts of the Member States contain minority protection

provisions on the lines of the Canadian Business Corporations Act ,which
include amendment of the articles of the company; an order setting aside
a transaction; an order appointing directors in addition to or in replacement
of existing directors; an order to produce financial statements; an order
directing the company to pay a shareholder or debenture holder any part
of the monies paid by him for his shares; an order directing an
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Chapter X
investigation under the Act; rectification of records and an order

restraining the company from calling or holding a meeting of shareholders
or paying a dividend. In some countries there are formally constituted
shareholder groups that act as lobbying and or support groups for
individual shareholders promoting good governance in public companies.
The directors sit at the apex of corporate governance. All companies

incorporated or registered under the various Companies Acts are required
to have directors. Private companies may have only one director but a
public company must have more than one. In the case of Barbados,
Jamaica, Trinidad and Tobago, Saint Lucia and St Kitts and Nevis they
are required to have three. However, in Guyana a public company could
have only two (2) directors.
351
Table X.3: The Phases in the Evolution of Boards of Directors

Phase 1:
Ceremonial Phase 2: Liberated Phase 3: Progressive
Group CEO all powerful; Directors free to speak up in boardroom but….dialogue is Directors gel as a group. Mutual respect and
Dynamics directors passive fragmented, a few directors overstep bounds, tangents trust among directors and management. One
drain energy and most of the time no consensus is or two directors emerge as facilitators to
reached. channel lively debates. Everyone participates
and consensus is very frequently achieved on
key issues.
No productive Board pledges to improve but…focuses on mechanical Self-evaluation gives tool for continuous
dialogue in solutions and does not act on self-evaluation with improvement and directors take results
boardroom. conviction. seriously.
Information Management tightly Management willingly makes company transparent to Information is focused, timely, regular and
Architecture controls information board but is frustrated by ad hoc demands by some digestible. Management anticipates board
flow. directors that leave management scrambling. needs.
Usually not the Board asks for more information but….what they get is Directors learn the business.
right amount of not packaged well and doesn't help the directors
information. understand the guts of the business.
Information is
summarized at very
high level, and
presentations run
long.
Focus on Compliance only. Boards desires to make a contribution Board and CEO jointly set twelve-month
Substantive Usually rubber- but…..overwhelmed by issues, becomes driven by agenda. Board focuses on issues that are
Issues stamps CEO compliance and routine operating issues. value added and anticipatory, as well as those
decisions. that are compliance related.
Source: Ram Charran: Boards That Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage, 2005
352
Chapter X
The Acts usually set out the broad functions and duties of the Directors which are
to exercise the powers of the company directly or indirectly through the
employees and agents of the company; and direct the management of the
business and affairs of the company. The Board of Directors is decisive in
ensuring a company's long-term survival. To do so, the Board must be governed
by four principles: transparency; division of functions, both within the Board and
between the Board and the Executive Committee; collegiality; and unity.
In 2001 McKinsey & Company conducted an investors survey and concluded as

follows “Generally much of the corporate sector in emerging markets remain uncommitted to
reform. Initiatives to promote better practices , principally related to board reform , have either
been ignored , or perhaps even worse have been applied with a spirit of compliance to the
letter of the law, rather than driven by a performance mentality. For example , while most
companies in South Korea that have been compelled to appoint more non executive directors to
their boards have done so, few have proactively implemented steps to ensure these new
appointees are truly versed in the requirements of their new roles”22
Some of the inadequacies which the public attributes to Boards include:
• Directors’ emoluments and related transactions were not disclosed in the

annual reports;
• Excessive secrecy – Conformance rather than performance;
• Life time engagement – No term limit or age limit;
• No distinction between non – Executive and Independent Directors;
• Too many boards – Complaints about the small gene pool and non
disclosure; and
• No Directors Performance Evaluation.
353
Box X.10: Interlocking Directorships
Not surprisingly, because of the small size of its economies and the relatively few
public companies, the Region has spawned a concentration of interlocking
directorships far more pervasive than would be formed in developed markets. The
concentration exists well beyond public companies and is common and exacerbated
in state-owned enterprises and public bodies where political affiliation and loyalties
are valuable considerations.
But size and political considerations are only part of the broader mix in economies
and markets characterized by pyramiding and cross shareholdings. Understandably,
an investor company wishing to protect its investment in effect appoints members of
the parent to sit on the boards of its subsidiaries. With the increasing number of
subsidiaries, there are not enough directors to go round and one director mat sit on a
number of boards. This director owes his position and his loyalty not to the entire body
of shareholders of the subsidiary but to the parent company which he represents. The
concept of the independent director is therefore blurred if not lost altogether while the
unsuspecting public merely regards the nominee as non-executive director.
With few opportunities or requirement for directors to be exposed to appropriate

training, no periodic mandatory formal assessment of board members’ performance
and weak regulatory and other mechanisms to secure the interest of the minority
shareholders the damages of interlocking directorships are amplified.
At the same time however it is acknowledged the performance of the region’s stock
markets indicate that public companies fare as well as their counterparts in the more
developed markets. The reasons for this are manifold and go beyond financial
performance to include a paucity of investment opportunities, virtually non-existent
financial press, uncritical investors and apathetic and inactive shareholders.
Directors of public companies are generally drawn from an exclusive group of

persons. An examination of six important companies from across the Caribbean
shows a Board composition as follows:
Table X.4: Sample Composition of Boards of Directors in the Caribbean
Company Country Number of Number of Others

Directors Middle Class
Directors
A Barbados 10 10 Nil
B OECS 12 11 1
C Jamaica 12 12 Nil
D Jamaica 12 12 Nil
E Guyana 11 11 Nil
F Trinidad and Tobago 14 13 1
Source: Field Research
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Chapter X
One of the key responsibilities of the Board is to maintain sufficient procedures to

provide reasonable assurance that the Company is able to collect process and
disclose information, including non-financial information, required to be disclosed
in its periodic and annual financial reports and Exchange Act filings. To ensure
these compatibilities, the Board should establish an effective system of internal
controls, and not be unduly influenced by the Management of the company.
The Executive Committee is just as indispensable for good corporate governance

as the Board of Directors. Some of the tasks an Executive Committee must
undertake to contribute to the improvement of corporate governance are as
follows:-
• Design the company's medium and long-term strategy, draw up whatever

plans are required, and submit them to the Board of Directors for approval;
• Develop employees and, in particular, the next generation of managers;
• Get the organization's employees to commit to the company's mission and

project, through creating a demanding and positive working climate;
• Set standards and benchmarks, through internal regulations and manuals,

and above all through the living example of the senior executives; and
• Focus on operational efficiency, the right way of working, and excellence

in daily operations - essential to the achievement of long-term survival.
There are a number of other stakeholders who influence the pace of corporate
governance and these include employees, Employee Pension Funds, Unions,
Financial Institutions, regulators, the media and accountants, tax authorities are
also key stakeholders in public companies and try in some way to influence
Corporate Governance. There is considerable overlap between the various
sectors being regulated and in many cases a group may have subsidiaries in
more than one sector. There are efficiencies to be had with a single regulator in
each territory and indeed from having a regional committee made up of such
national regulators for the Caribbean. The media plays an important role in
bringing information to the public domain and, where necessary, in questioning
information provided by companies.
“Putting issues and events in context with perceptive comment and

communicating it in a way that is understandable by the investing public is a
challenge. It is critical and impacts the long term cultivation of retail investors.
The media should continue to play this key role in educating the retail investor.”23
355
In the Caribbean, the media has played a not insignificant role but has probably
approached the issue in a less than desirable manner. This may result from the
threat of withdrawal of support – in the form of advertising revenue – and or the
fact that many media houses have some parent-subsidiary or associate
relationship with large pubic companies.
While the directors hold a pre-eminent role in the Corporate Governance of the
company, there are other gatekeepers who play quite important roles as well. In
fact, company legislation deals specifically with two of these, the auditor and the
corporate secretary. The third group, the attorneys-at-law, have largely escaped
and or resisted any real scrutiny in the law or corporate governance frameworks
around the world. Some of the critical issues that have arisen in relation to
auditors and accountants are:
• Independence;
• Self – Regulation/Discipline ;
• The increasing complexity of accounting standards;
• The absence of a Caribbean accounting qualification;
• Need for small company accounting standards; and
• Convergence of international standards.
The accounting profession in the Caribbean is regulated at the national level by

domestic Institutes of Chartered Accountants. Enjoying statutory recognition and
privileges, these bodies wield considerable influence and authority in their
respective countries, with respect to the adoption and enforcement of standards
and monitoring and disciplining the members of their profession.
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Chapter X
Box X .11: Role and Function of the Institute of Accounting

Typically an Institute has the following powers:
• Promote internationally acceptable standards of best practice within the region.

• Promote and increase the knowledge and skills proficiency of its members and
students.
• Regulate the discipline and professional conduct of its members and students.
• Promote and protect the welfare and interests of the accountancy profession.
• Make provision for the training, education and examination of persons engaging or
intending to engage in the profession.
• Provide leadership on emerging issues as they affect the accounting profession.
• Submit views of members to the Government and public bodies on legislation or other
matters of professional interest to or affecting members.
The objectives of the Institute of Chartered Accountants of the Caribbean (ICAC) are to:
• Promote internationally acceptable standards of best practice within the region.

• Foster a strong, cohesive and self regulated regional Accountancy profession.
• Implement and coordinate a regional monitoring programme in collaboration with
reputable providers.
• Promote an institutional framework under the umbrella of territorial institutes within
which individual Accountants may associate and participate for mutual professional
and fraternal benefit.
• Standardise the qualification entry requirement and rules of professional conduct
among member Institutes and
• Provide leadership on emerging issues as they affect the accounting profession in the
Region.
Strategic Goals
The priority goals of the ICAC as articulated in the 2001-2005 Strategic Plan are:
• The institution of a Regional Peer Review/Monitoring system;

• The harmonization of Continuing Professional Education Policies;
• Partnering in joint CPD seminars with the Association of Certified Chartered
Accountants, the International Federation of Accountants (IFAC) and the Certified
General Accountants Association of Canada (CGA);
• Endorsing and promoting throughout the Caribbean, seminars held under the aegis
of territorial institutes, whether hosted solely or jointly with Affiliates;
• Encouraging the adoption of International Auditing Standards Audit (IASA) and
International Auditing Standards (IAS) among member territories; and
• The standardisation of qualification requirements for membership.
357
In its formative years the Institute devoted a considerable amount of its resources
and grant funds from the Association of Chartered Certified Accountants (ACCA)
to the establishment of a Caribbean professional accounting qualification in
association with the ACCA and the University of the West Indies. Those plans
are now temporarily shelved as the difficulties of setting and marking variant
papers in Taxation and Company Laws became more apparent.
The evidence in emerging markets suggests that auditors do have a corporate

governance role. Joseph P.H. Fan and T.J. Wong of Hong Kong University of
Science and Technology found that auditors in firms with a concentration of
share ownership potentially have a stronger governance role because the
conventional corporate systems are weak in protecting outside investors and
minority shareholders. On the other hand, evidence in a United Nations Report
(Rahman, 1999) questions whether auditors succeed in the role of corporate
monitors, noting that just months after giving some large East Asian companies
clean audit reports those companies became fatalities in the Asian Financial
Crisis.
Fan and Wong offered five reasons for the apparent failure of auditors in their
role as monitors of good corporate governance in East Asia. These are:
• The opaque nature of business dealings in that region makes auditing not
attractive as a profession and extremely difficult
• Audit committees that represent the interests of outside shareholders to

select external auditors are either ineffective or non-existent.
• An external audit loses its value when the auditor’s opinion may not bear
significant consequences in emerging markets where legal enforcement is
weak.
• Compared with the more developed economies, the lack of audit expertise
in emerging markets could weaken auditors’ monitoring role.
• Conflicts between their auditing and non-auditing roles may weaken

accounting firms’ incentives to be independent and consequently their
credibility as effective monitors.
Almost all of these conditions exist in varying degrees in the Caribbean and are
exacerbated by the limited choice of quality audit firms, the close relationship
between the auditors and the parent company or, not unusually, the Chief
Executive Officer. While trust has been a major element in boardroom
governance in the Caribbean, it is hard to believe that a more activist shareholder
group in the company would not contribute to a better level of corporate
governance in the individual territories, even though a policy of disruption by
358
Chapter X
small or institutional shareholders is hardly conducive to a stable company

environment.
D. Weaknesses in the Caribbean System of Corporate Governance
Some Member States have gone to great depth in defining corporate malpractice
and establishing stringent rules regarding mechanisms and disclosures which are
aimed at protecting all interested parties including potential investors and the
society at large. For example, Trinidad and Tobago has extensive provisions for
take-overs in the Securities Industry Act, 1995, and Take-over By-Laws thereon.
Disparities within the regulatory system, such as penalties for offences and
definitions and interpretation provisions stem from the individuality of
circumstances in each member state. With the CSME providing a unified regional
exchange of skills, and capital, there will be a greater need for harmonisation.
While companies legislation in the past has been the main driver of Corporate
Governance, this has been augmented by industry specific legislation for the
banking and insurance sectors and the securities industry in relation to public
companies. The industry-specific legislation is a mirror-image of the models
common to the developed world. Being of more recent vintage and applicable to
fewer entities it is often better enforced than the Companies Act.
In all the territories there is a raft of legislation designed to impose order and
discipline, regulate businesses, protect the public and enhance transparency and
disclosure and accountability, all with a view to contributing to a properly
functioning economy. It must be remembered, however, that while the law plays
a role in governance, it is both impracticable and inadvisable for governance to
be seen entirely as a statutory matter. Even those who advocate making a code
of corporate governance mandatory and part of the continuing obligations of
listed companies recognise that such a code should set the minimum conditions
and requirements, with companies encouraged to add and expand as they see fit
to suit their own circumstances.
The Office of the Registrar of Companies in the countries of the Region

administers the Companies Acts and therefore has a major role to play in
corporate accountability and ensuring easy access to information on companies.
The single most important general legislation is indeed the Companies Act which
regulates the conduct of all companies operating in the particular jurisdiction.
The Companies Acts of the Caribbean have an interesting history and lesson for
future efforts at harmonization of the Region’s laws and regulations. They all
have their genesis in the Companies Acts of the United Kingdom but each
territory enacted its own companies legislation at different times, using as its
359
model the operative Act in effect in the United Kingdom at the particular time .
Few, however, monitored changes in the United Kingdom legislation or amended
their legislation in keeping with developments in the UK. Recognizing that despite
the common source the companies legislation and rules of the various territories
were not only different but in many cases outdated, the Eighth Meeting of the
Council of Ministers of the Caribbean Free Trade Association (CARIFTA)
launched in March 1971 the Harmonisation of the Company Law Project which
has not yet completed its work despite the coming into being of the CARICOM
Single Market.
The Region’s professional accountants, academics, writers and members of the

business community need to apply their minds to a model of Corporate
Governance appropriate to our circumstances. While it is unquestionable that we
cannot re-invent the wheel, it is clear that wholesale importation from different
markets and circumstances is equally unproductive. The small market, limited
pool of talent, close personal relationships, and the consequential difficulties in
finding independent directors are perhaps the most significant challenges in
Corporate Governance facing the Region.
E. Towards a Regional Code of Corporate Governance
An examination of legislation provisions of Member States has identified

significant disparities in the definition/interpretation, regulations or restrictions
and penalties to be applied for infraction of the requirements. Who is an insider
and how it is defined varies from jurisdiction to jurisdiction. For example, the
OECS has a general definition of an “insider” with specific examples such as a
director, employee or shareholder having access to the information by virtue of
employment, office or profession, or directly or indirectly to any of the above. The
Statute of Barbados identifies an insider, in addition to the above, as a person
who beneficially owns more than 10% of shares with voting rights and details the
definition of a presumed insider as a director or officer of a body corporate that is
a subsidiary of the company. The Statutes of the Republic of Guyana and the
Republic of Trinidad & Tobago, however, take a different approach by introducing
into the definition the concept of price sensitive information and then go on to
state that trading of securities by persons connected (by virtue of privileged
access) or reasonably expected to be connected, is prohibited.
Generally, disclosure is required for any director or officer of the company who is
party, either directly or indirectly, in a material contract or proposed material
contract with the company. This disclosure requirement is consistent in all
Member States.
360
Chapter X
The Companies Act of the Republic of Guyana is the only Statute within
CARICOM that requires disclosure of directors’ emoluments. While the
Companies Act of Jamaica is the only Statute that requires disclosure of
payments in relation to loss of office by a director.
Various statutes, i.e. Companies Acts and Securities Industry Acts, require the
disclosure of beneficial interest in share capital by owners, and detailed
information about the holders thereto, upon request of the issuer of the security.
A monopolistic market exists where there are many demand units with few
supplier units controlling the market. While a regional Statute does not provide
regulators with the necessary powers to regulate market activity with regards to
monopolies, there has been action by regulators for public interest companies,
such as the Public Utilities Commission for power utilities and telecommunication
companies.
1. Takeover Provisions
A takeover in the Caribbean has generally been seen in a rather unfavourable

light, particularly if it is a cross-border transaction. While this may stem from a
defensive, nationalist tendency, it does not explain the more favourable treatment
given to the acquisition of state entities by a private company from another
jurisdiction. Yet the economic justification for takeovers remains the same
regardless of whether the asset is publicly or privately owned. They are seen as
a way of enhancing corporate performance and shareholder value by the
introduction of new policies and management and the elimination of
incompetence and managerial ineffectiveness. They constitute corporate
restructuring imposed from without the organisation. While conceding this point,
others argue that takeovers are not always the best option as the investors and
other pressure groups sometimes possess the ability to restructure failing
companies without the need for predatory action by outsiders.
There is a high incidence of takeovers in Anglo-American corporate life the

probability of such action has been seen as a great incentive to managers to
operate in a fashion that would satisfy the wishes of shareholders by maintaining
efficiency and maximizing profits. The take over explosion in the eighties in the
UK directly revealed excessive use of golden handshakes, the poison pill and
other corporate manoeuvrings and led to the setting up of the Cadbury
Commission, which pioneered the modern search for a code of corporate
governance.
The statutory provisions on takeovers are mainly contained in the Companies

Acts but Guyana, Barbados and Saint Lucia also have take over provisions in
their respective Securities Industry Acts which appear to conflict with the
provisions in their Companies Acts. The Guyana takeover regulations under its
Securities Industry Act, (SIA) 1998, appear to have been imported from the UK.
Knowledgeable legal sources have suggested that once the SIA became
361
operational, the corresponding provisions in the Companies Act should have

been repealed. The reasons for a similar situation in Barbados and Saint Lucia
are not obvious but it would appear necessary to have the provisions reviewed
and appropriate amendments made to the law.
The Statute of several Member States consistently defines a takeover bid as any
bid for the outstanding share of a particular class of shares and all offers by an
entity to acquire its own shares. Some States provide that offers to acquire
effective control of an entity, separately defined at varying rates of ownership but
all retaining the concept of majority voting rights, are considered takeover bids.
The Companies Act (CA) of the Republic of Guyana is the only Statute that
requires a mandatory take-over bid once a shareholder or group of shareholders,
acting in concert, acquires 30% of the shares of a particular class of shares.
While the CA of Barbados, Guyana and Saint Lucia consistently define control as
acquiring voting rights sufficient to elect a majority of the directors, Jamaica and
Trinidad & Tobago have taken different routes. In the case of Jamaica, it defines
control as board of directors holding more than half in nominal value of its equity
share capital. Trinidad & Tobago defines control as the holding of shares or the
possession of voting power in relation to that body corporate; or any other power
conferred by the articles of incorporation or other document regulating the body
corporate, that the business and affairs of the body corporate are conducted in
accordance with the wishes of that person.
Given such disparities in definitions, restrictions and general provisions for

takeover bids across CARICOM Member States, harmonisation is vital for the
smooth workings of the CSME and the movement of capital. The establishment
of a regional securities exchange would facilitate the process.
2. Supporting Measures
In the aftermath of the Corporate Governance scandals in the USA in 2001 and
worldwide concerns that the problem could extend beyond the borders of the
world’s largest and most regulated securities market, many countries undertook
efforts to ensure that the systems in their countries were working properly.
Reviews were done and minor adjustments made but there has been no
wholesale revamping of the system as was done in the USA.
The efforts in the Caribbean were far more limited and as the economies
continued to grow and the market steadily improved there was less urgency to
search for a national, let alone regional, Code of Corporate Governance. The
Private Sector Organisation of Jamaica has now published a Code for public
companies in that country while the Organisation of Eastern Caribbean States
(OECS) has held two major conferences on a Code. Except for these two efforts
any urgency to formulate a Code of Corporate Governance appears to have
362
Chapter X
dissipated, and in some cases to have been taken off the agenda, with reliance
placed on the regulators and the market to detect and address any issues. This
approach is likely to result in the authorities dealing with problems after they have
arisen and after the damage had been done.
There are a number of supporting measures which can serve to make more
effective the Regional Code of Corporate Governance that is being
recommended below . These include the following:-
• Giving a Role to Non - Controlling Shareholders in the Appointment

of Boards: Controlling shareholders have been known to use their
controlling shares to nominate and elect directors, appoint auditors and
enter into related party transactions often on terms and conditions less
favourable than are available on the open market. Mechanisms should be
incorporated into the law that allows for persons representing the other
shareholders to participate in the nomination of directors.
• Require Periodic Mandatory Independent Reviews of Boards and

Individual Directors: Boards operate collectively and the results
produced by the company reflect that collective responsibility and
performance. However, the contribution of individual directors under the
rubric of performance has been the subject of much public comment and
speculation. Consultants could be contracted to evaluate directors’
individual performances with a view to strengthening their contribution to
the company.
• Pensions for Non – Executive Directors: At least in one Member State

the practice has grown up of non – executive directors becoming eligible
for pensions. This practice should be expressly prohibited by law and
directors’ tenure on the board should be subject to strict term limits.
• Remuneration of Directors: Directors are perhaps the main Corporate

Governance player particularly in relation to non-routine transactions and
those involving themselves. A secretive directorate bent on relating its
own reality can manage profits by the simple device changes in
accounting policy. They may engage and authorise transactions with
themselves that they then do not disclose in their annual report. In matters
in which directors have the greatest interest to be transparent not to be
accountable and not to disclose, we leave it to them to decide how much
is paid to executive directors and how much if any is disclosed. There is
clearly a need to strengthen disclosure provisions relating to directors
dealing in the shares of the entity and other group company.
363
• Interim Reporting: Timely and adequate reporting are the corner stone of
accountability .Securities legislation currently requires half-yearly
reporting by public companies mandatory quarterly reports should
perhaps the new requirement.
• Establishing a Regional Competition Commission: This is a

requirement of Chapter 8 of the Revised Treaty of Chaguaramas
Establishing the Caribbean Community including the CARICOM Single
Market and Economy. While consolidation of small firms into large
entities would enhance the prospects of the Caribbean attaining global
competitiveness , regulators have to ensure that there is no abuse of
dominant market power in the Region and that contestability obtains in
situations where this would safeguard consumer interests.
• Strengthening the Accounting Profession: The accounting profession

in all the territories is essentially self regulated and has not been
independently enquired into. Since the Andersen fiasco the developed
markets have placed the profession under intense scrutiny although
outside of the United States they have stopped short of drastic changes in
the oversight of the profession.
Given the critical role accountants play in facilitating the work of the tax
authorities and the governance of public entities, there seems to be a case for
reviewing the structure and operation of the profession regionally and at the
national level.
Annual Reports of companies across the Region vary in quality and depth with
some of them nevertheless comparable to international standards. The
International Accounting Standards body has taken steps to introduce mandatory
Management Commentary across the world. Referred to in the US and Canada
and by the International Organisation of Securities Commission (IOSCO) as
Management Discussion and Analysis (MDA) and in the UK as Operating and
Financial Review (OFR), this commentary improves the quality of financial
reviews and helps shareholders reading same to make better economic
decisions.
Some Caribbean companies including Republic Bank, Grace Kennedy and First
Caribbean already include such a statement in their Annual Reports. Without
waiting on the IASC to finalise and publish its rules on such a statement, the
Caribbean profession should take the lead in adapting this requirement using any
of the standards currently applicable in North America or the UK.
The public interest requires that practising professionals be exposed to, and be
reasonably familiar with, Caribbean Corporate & Securities Law and Taxation.
The Caribbean Institute of Chartered Accountants should urgently revisit an
364
Chapter X
earlier plan to examine accounting students in corporate law and tax. The
Institute should also offer regular Continuing Professionals workshops on trends,
ethics techniques in the profession and accelerate movement on peer reviews.
While a number of jurisdictions have passed legislation dispensing with the audit,
bankers and other providers of capital still find the independently certified
financial statements critical to their loan decisions. The audit opinion, however,
does not distinguish between large and small companies and the standard of
care and quality and content of disclosure are the same for all companies. The
international profession has signalled its intention to produce an accounting
standard for small and medium-sized companies but the Region can hardly wait
for this to materialize and the profession ought to take the lead in developing a
standard appropriate to our needs.
• Disclosure and Public Interest Companies: There shall be introduction

of the concept of public interest companies so that those entities in which
the public have an important stake, for example banking and insurance
companies would be required to meet the same standard of disclosure as
a public company.
• Promotion of Public Sector Governance: Governments in the Region

still play a significant role in the economies, in some cases directly as
state owned firms and in others as statutory bodies. Corporate
governance in these bodies is as important as in public companies and
the example of Jamaica with the Public Bodies Management and
Accountability Act 2001 and the audit rotation principle in Guyana should
be the basis for the development of enforceable standards of corporate
governance in the Region. These are areas where the benefits of
traditional private sector corporate governance can be translated to the
public sector.
3. Issues for Inclusion in the Code
Corporate Governance has taken been shaped by developments in the more

developed markets. The stakeholders in the Region need to apply their minds to
a model of Corporate Governance appropriate to our circumstances. Table X.6
on a proposed regional code of corporate governance borrows from both
international best practice and the experiences gained in the Region. While it is
unquestionable that we cannot re-invent the wheel, it is clear that wholesale
importation from different markets and circumstances is equally unproductive.
365
Table X. 5: Recommended Regional Code of Corporate Governance
Issue Description
Disclosure of compliance with Companies are encouraged to report on how they apply
recommendations relevant corporate governance principles in practice.
BOARD ISSUES
Accountability to shareholders / Board is accountable to all shareholders including minority
stakeholders shareholders.
Mission and responsibility The Chairman has the responsibility to ensure all members
have been properly briefed on all issues of concern.
Election Non executive directors should be appointed for specific
terms and reappointment should not be automatic; all
directors should be subject to shareholder election following
their appointments and re-elections thereafter.
Appointment to the board should follow formal and
transparent procedures; the nomination committee should
make recommendations on all new appointments to board
positions.
Directors should submit themselves for re-election at regular
intervals of not more than three years.
Training should be available to any director upon
Orientation and Training appointment to the board.
Timeliness and quality of information reported to board
Access to Information members should occupy a priority in company procedures.
Directors should be free to acquire independent professional
advice at the expense of the company.
Sufficient biographical data should accompany the names of
Disclosure of Director directors submitted for election and re-election on the basis
Biographical Information of which shareholders may make informed voting decisions.
Non-executive directors should comprise not less than one-
Size third of the board of Directors.
Executive directors should be encouraged by their
Multiple Board Seats companies to accept only non-executive appointments in
other companies. The number of non-executive
appointments should not adversely impact upon the
directors’ executive responsibilities in their own company.
The following is an ideal situation that we should strive to
Chairman and CEO achieve: Any decision to combine these two positions must
be publicly justified; in all circumstances, a strong and
independent non-executive element must sit on the board
with a senior independent director, other than the Chairman
to whom issues can be referred and who, together with the
Chairman and CEO, should be identified in the annual
report.
Encourage separation of the functions of Chairman and
CEO.
The board of directors should include a balance of executive
Composition and non-executive directors (including independent non-
366
Chapter X
Issue Description
executives) so that no individual or group of individuals can
dominate the board’s decision making process.
The following is an ideal situation that we should work
Independence towards: A majority of non-executive directors should be
independent of management and free from any business or
other relationship that could interfere with their independent
judgement; they should be identified in the annual report.
The Board should have 3 mandatory committees namely the
Committees Audit, Remuneration & Governance Committees
The Audit committee should comprise at least of three non-
Audit Committee executive directors, a majority of whom should be
independent, with written terms of reference that identify
their authority and who should be named in the annual
report.
Governance Committee The Board should have some procedure for election of
members in this committee and it should largely comprise of
independent directors.
Nomination Committee Not compulsory
Remuneration Committee Remuneration committees should be made up exclusively of

non- executive directors who make recommendations on the
company’s framework of executive remuneration and who
must operate independently from managerial interference
and from any intrusive business relationship; they should be
granted full authority to seek counsel from both inside and
outside sources.
Other As the corporation sees fit.
Board Meetings The Board should meet regularly and have a formal
schedule of matters specifically reserved to it for decision.
The Board should establish procedures for assessing the
Performance effectiveness of the board as a whole, together with
contributions of individual directors.
Not covered, save with regard to re-election every three

Term Limits years.
Not covered. Liability of directors covered by various
Liability legislative measures in countries.
REMUNERATION
Remuneration should be sufficient to retain executive
Level of remuneration directors who can run the company successfully and should
be linked to performance; remuneration levels of non-
executive directors should reflect experience and level of
responsibilities undertaken by the particular non-executive
367
Issue Description
director.
For executive directors, the component parts of
Composition of remuneration remuneration should be structured so as to link rewards to
corporate and individual performance.
Performance to be evaluated; contracts reviews at pre-
Contracts and compensation determined intervals.
Remuneration of directors; including non-executive directors
Procedures for determination should be subject of recommendation to the board by a
remuneration committee.
The annual report should contain details of the remuneration
Disclosure of executive and non-executive directors.
Remuneration committee should disclose to the Board and
Shareholder involvement in to shareholders who can then vote on the matter.
determining remuneration
Corporations should be cautious about concluding extended
Severance Payments notice period and “golden parachute” arrangements with
executives.
ROLE OF SHAREHOLDERS
Shareholders have a responsibility to make considered use
Shareholder voting of their votes. Companies should have specific guidelines
for use of proxies and they should disclose the number of
proxy votes received “for and against” in an election.
Companies should establish guidelines to involve all
shareholders (especially institutional) to take an active roll at
the Annual General Meetings.
Management - Shareholder Separate Chairmen of Board committees should appear at
Communication the AGM to answer shareholders’ questions.
Governance disclosures Corporation should provide information on their Governance
policies and principles on the request of shareholders for
further evaluation.
General Meetings Board should use the AGM as the primary means of direct
communication with shareholders.
Notices of the AGMs should be sent to the shareholders at
least twenty working days before the meeting.
FINANCIAL REPORTING TRANSPARENCY & AUDIT
Financial reporting The financial statements are the responsibility of the
directors. The auditor is responsible for the reporting on the
financial statements.
Transparency The directors should establish formal and transparent
arrangements for considering the method in which they
should apply the financial reporting and internal control
principles and for maintaining an appropriate relationship
with the company’s auditors.
Companies must constantly strive for transparency.
Internal Control Directors should provide a statement in the financial
statements in relation to their internal controls.
Companies should have an effective internal audit function
that has the respect and co-operation of both the board of
directors and management.
368
Chapter X
Issue Description
Internal auditors should have unrestricted access to the
Chair of the audit committee. Annual report of Internal
Auditor to the Board.
Companies must ensure that audits and standards are in
Accounting Standards compliance with International Accounting Standards (IAS).
Not only should the auditors discharge their duties in total
Auditors Independence independence from personal interest or managerial
interference, they should also perform a regular review of
their independence, along with their cost effectiveness and
objectivity.
In the event that auditors provide the company with non-
Auditor’s Liability audit services, the audit committee should maintain full
records of them, balancing auditor objectivity against auditor
profit.
STAKEHOLDER
One of the principal responsibilities of the board of directors
Communication is developing and implementing an investor relations
programme or shareholder communication for the company.
Boards of directors must maintain an effective
communication policy that enables both the board and
management to communicate effectively with its
shareholders, stakeholders and the public generally.
Every affected company should have its own Code of
Ethics Ethics, which should be implemented as part of the
corporate governance of the Company. A code of ethics
should commit the corporation to the highest standards of
behaviour.
369
Endnotes
1
R. A. G., Monks, and N. Minow (1995)
2
O. Fremond and Mierta Capaul
3
R. K. Morck and L. Steier (2005).
4
The South Sea Bubble 1720: refers to the early 1700s when the British Stock Market crashed
after a boom created by speculation.
5
R. K. Morck and L. Steier, (2005).
6
ICAEW: Corporate Governance Development in the UK
(www.icaew.co.uk/index.cfm?aub=tb2i_78921)
7
Report of The Committee on the Financial Aspects of Corporate Governance, chaired by Adrian
Cadbury, December 1992.
10
B.McLean and P. Elkind, (2003).
11
G. Hamel, (2000).
12
BankruptcyData.com
13
P.Dey, (1994).
14
Corporate governance: Stronger principles for better market integrity
15 B. Witherell, (2004).
16
The Private Sector Organisation of Jamaica (http://www.psoj.org/cor_gov.html)
17
Caribbean Corporate Governance Forum
(http://www.ecseonline.com/corporategovernance.asp)
18
The Private Sector Organisation of Jamaica (http://www.psoj.org/cor_gov.html)
19
World Bank Report. 1999,
20
Caribbean Corporate Governance Forum
(http://www.ecseonline.com/corporategovernance.asp)
21
Speech by Hsieh Fu Hua, CEO of Singapore Exchange Limited (SGX), at the CAD Corporate
Governance Conference on 23 November 2005
22
McKinsey & Company 2001
23
See footnote 21.
370

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Caribbean Trade & Investment Report 2005

CORPORATE GOVERNANCE IN THE CARIBBEAN

Corporate governance issues in the Caribbean must inevitably take into

“Corporate Governance" refers to the "relationship among various

Corporate governance principles have engaged the attention of the UK

Corporate governance practices developed differently in different

A. Development of International Best Practice

A review of the corporate governance literature shows the historical and

1. The Underpinnings of the Joint Stock Company Form

The rise of corporate governance is rooted in the development of the joint

The challenge of corporate governance is to reconcile the competing

Companies legislation in CARICOM countries all have their origins in the

liability. However, owing to the cost and difficulty of acquiring a charter,

2. The U.K. and German Experience

Reform of corporate governance has largely been a reactive exercise

Perhaps the most famous work on Corporate Governance in the western

The Code of Best Practice included the following:

• Audit committees should be established for all companies listed on

• Directors’ service contracts should not exceed 3 years, without

• Directors’ total emoluments and those of the chairman should be

• Executive directors’ pay should be subject to the recommendations

The Cadbury Report points out that “effective accountability” is the

“By adhering to the Code, listed companies will strengthen both

Box X.1: Inclusions in the London Stock Exchange

Source: Compiled the Cadbury report

Other reports in the UK have made similar recommendations, including

Box X.2: Principles of Corporate Governance

• Companies should include in their annual reports a non-mandatory narrative account of

Source: Compiled from website

Box X.3: Stakeholders and the AGM

• Institutional investors have an obligation to their clients to adopt a considered

Source: Compiled from websites and other reports

Germany and certain other Continental European countries have at the

The German Corporate Governance Code has as its objectives, the

The Management Board is responsible for managing the enterprise. Its

The Supervisory Board appoints, supervises and advises the members of

The members of the Supervisory Board are elected by the shareholders at

Supervisory Board, which then is composed of employee representatives

3. The North American Experience

As if to prove however that Enron was not an aberration, a long list of

• American greed, facilitated by a close and impenetrable network of

• The carelessness of the investment banking community (Wall

• Inattentiveness of the financial press; and

• An investing public beguiled by astronomical and unsustainable

The Sarbanes-Oxley Act, perhaps the most significant piece of

Table X. 1: The 15 Largest US Bankruptcies Since 198012

Total Assets Pre-

As far back as 1994, Canada recognized the importance of good

The report recommendations concentrated on the structure of the board of

• The role of the board of directors including their involvement in

• The structure of the board of directors, covering the requirement

• The role of the audit committee including the requirement that

• Enhanced disclosure requirements.

Box X. 4: Guidelines for Improved Corporate Governance in Canada

4. The OECD Principles of Corporate Governance

practice both within OECD countries and beyond. Policymakers, investors,

Box X.5: The OECD Principles

Operating Performance: Corporate governance practices should focus board attention on