What problem could anyone possibly have with a code advocating good corporate governance? Good corporate governance strengthens boards, protects shareholders and the man on the street, as well as has positive all-round effects as it strengthens a country’s business reputation abroad and the economy here at home, doesn’t it? Last week, the Sunday BG explored these areas with English consultant to the Caribbean Corporate Governance Institute, Chris Pierce.
However, one Caribbean corporate governance expert has expressed the sentiment that “all that glitters is not gold” regarding the T&T Corporate Governance code. Among the many problems Dr Vindel Kerr has with the code is that it is “methodologically flawed” as it makes little to no use of empirical evidence in its drafting, was not national in scope and, in the long run, would do T&T more harm than good, he told the Sunday BG
The business ethics lecturer at the St Augustine campus of the University of the West Indies, Kerr said that it was necessary that misconceptions about the code’s formation and contents be cleared up before they resulted in widespread public misinformation. “You cannot implement what you cannot measure.”
At moments during the interview at the Hyatt Regency hotel, Dr Kerr held up a copy of the T&T corporate governance code and shook it. “This is theoretical stuff. This is from the textbook.”
The Jamaican national—who said he is the first person in the region to be awarded a doctorate in the area of corporate governance and the only person to have written a book treating with Caribbean corporate governance issues—said it is clear from the contents that the code was the result of “desk research.” He said it was important that the code tell companies how to go about implementing good corporate governance practices.
He drew reference to Principle 1 of the code, which is that adherents to the code should “establish a framework for effective governance” and that “every company should be headed by an effective board, which is collectively responsible for the long-term success of the company.” He also touched on Recommendation 1.1, which states: “The board should establish and make publicly available a clear outline of its roles and responsibilities, including any formal delegations to management.”
According to Dr Kerr, setting up frameworks had little to outlining roles and responsibilities and said this was not the way to build a corporate governance framework. He said the T&T code’s framers have borrowed heavily from other corporate governance codes around the world, including that of the Jamaican Stock Exchange, whose code he was personally involved in creating.
What the code framers needed to do instead, he said, was step out of the realm of theory and encourage companies via the code, to tailor their own solutions by assessing their current gaps. In terms of selecting a board he said:
“Globally, the best practice is that, because every company is unique, they should do an analysis of the unique needs of the organisation and then match that need with the skills and qualifications of directors, hence you need to develop a competence profile.” To demonstrate other practical approaches on how a code could be implemented, Kerr again made reference to his own country.
Kerr said, the Jamaican Stock Exchange went beyond just stipulating that companies abide by the code, and found practical ways to increase buy in. One of these was hosting an annual competition, where firms could cop prizes like “best prepared annual report” and “best corporate disclosure”. He said the awards were now in its 11th year, and firms were fierce competitors for the prizes. Beyond the lack of the practical, Kerr also took issue with the number of companies listed as having been signed onto the code.
In last week’s article, 110 companies were said to have signed on to the adopt principals of the code, with another 14 in train to do so. According to the CCGI chairman, Dr Axel Kravatzky, while some of the firms were able to implement some measures, most had not largely because of the timing of the release of the code. These had promised to implement by the end of coming financial year.
Kerr said: “Nothing can be adopted unless it is being implemented in the company. That begs for questioning and clarification... Adoption cannot be by word of mouth. That is where wrong impressions can be conveyed to John Public when you create what is supposed to be a beneficial instrument like this. “Instead of a survey being done, with follow up questions being asked like: ‘Have you adopted the code?’ ‘What aspect of the code have you adopted?’ ‘What is the process of adoption?’
“You cannot have people indicating that we are going to adopt. It does not mean implement.” The UWI lecturer said that the code did not stipulate how the CCGI planned to measure the compliance of its membership over a period of time. “What cannot be measured, cannot be implemented,” he concluded.
A ‘National’ code for private interests
Dr Kerr also questioned the motives of those who initiated the code. According to him, the code’s origins can be traced to “a few groups, private groups, peculiar groups.” The CCGI Web site lists the T&T Stock Exchange, as well as the Chamber of Commerce as its project partners. “You notice that the government has not put its stamp of approval upon this anywhere, yet interestingly, it is a T&T code,” said Kerr.
The UWI lecturer also noted the involvement of the Minister of Finance, Larry Howai, and his attempts to get the code adopted by the public sector. However, Dr Kerr said because of the initial flaw of not involving stakeholders from the highest level of the public sector in the formation of the code, there would be difficulty in getting buy-in from government ministries. He said that most codes around the world had a public sector and a private sector element in countries such as the UK, Canada, Singapore, Malaysia and Australia.
“There is no national code that has been developed by any small group of individuals and has been translated to a national code.” This is one of the key mistakes of the T&T code, he said, especially given what Dr Kerr saw as a current crisis in public sector governance. “As it is now, no matter how many of these (codes) you write, you cannot achieve excellence in corporate governance before, without someone in government at high level recognising that there are systemic weaknesses and dealing with them.”
Through his company, GovStrat Ltd, Dr Kerr said he had lectured to more than 1,900 directors, including those in the public sector over the past eight years, and he believed he was qualified through things he had “gleaned” in those sessions to make this pronouncement. One of the weaknesses he saw and believed was a major contributor to corruption in this country was too much director involvement in the procurement process in local state enterprises.
Dr Kerr said more meaningful collaboration between the public and the private sectors on the code could eliminate this fault. Another weakness was that the selection of state boards could not be covered by the current code. Looking at Principle 2 of the document, which treats with the strengthening the composition of boards, Dr Kerr said there was no proper definition of the term “independence”.
He wondered how the code planned to treat with the reality that private sector boards made selections based on “who they knew”, while state boards were made with “political connections” in mind. He said an improvement to the code, would be to insist that a new unit be developed within the Ministry of Finance to treat solely with the identification and selection of candidates for state boards.
Going again to Jamaica, Dr Kerr said selections to state enterprises had largely moved beyond partisan politics, preferring to select persons who could serve over those aligned to parties in the national interest. Dr Kerr also strongly disagreed with the idea presented by Mr. Pierce last week that the country was too small to find directors who were not connected in some fashion.
“I reject it. It is a common argument, but there are smaller economies that T&T that get their affairs in a more orderly and tidy manner and they are Commonwealth countries. So I don’t know why, if they can do it, Trinidad and Tobago can’t.” Barbados was his example. He also said not enough was being done to draw talent from the young, professional pool.