Published in Sunday Business Guardian
The recent announcement of the possible purchase by Cable & Wireless Communications Ltd of Columbus International Inc and the appointment of a new board of directors at Trinidad Cement Ltd (TCL) have each created challenges for the boards of Telecommunications Services of T&T (TSTT) and TCL; the principal challenge of the boards is to assure the respective shareholders, employees and other stakeholders that the directors, consistent with their fiduciary duties pursuant to section 99 (1) and (2) of the Companies Act Chapter 81:01 are looking after the best interest of the companies.
This statement by the Caribbean Corporate Governance Institute (the Institute) addresses the corporate governance issues in a general and not in any company specific manner consistent with the enabling legislation and international best practice.
It is now almost one year that the T&T Corporate Governance Code 2013 (“the code”) was launched by the Institute and its Partners, the T&T Chamber of Industry & Commerce and the T&T Stock Exchange. It is submitted that the code underscores and provides guidance in respect of the corporate governance issues, in particular, as in the present cases where a board of directors has, or might be facing the potential of having, directors nominated by competitors on their board.
There are three specific corporate governance issues namely:
(i) ensuring that the all directors individually and collectively satisfy their fiduciary duties to the company of which they are directors,
(ii) ensuring that all potential conflicts of interest are disclosed by directors and
(iii) ensuring that confidential and strategic information in relation to the companies remain confidential.
The code identifies five principles and contain 24 recommendations (download for free at CCGI: www.caribbeangovernance.org); this statement focuses on the practical implementation of the recommendations.
This is in the context that the code is designed to be a report on the application of the principles and recommendations. Or, to put it another way, it explains why and what you have done otherwise.
Principle 1 is concerned with the establishment of a framework for effective governance and states:
• Every company should be headed by an effective board, which is collectively responsible for the long-term success of the company.
• In general, no director should have any doubt about the fact that the law and best practice requires that every director is a fiduciary only to the company on whose board he serves irrespective of who nominated him and how he was voted onto the board.
Recommendation 1.1 states that the board should establish and make publicly available a clear outline of its roles and responsibilities, including any formal delegation to management. The guidance on this recommendation states that every board should have a formal charter. The board should fulfill certain functions, including: (i) monitoring and managing potential conflicts of interest of management and board members.
Therefore, the first thing that the board should establish is a charter; the charter should include (but not be limited to) how related party transactions are handled, the process of disclosure and communications with shareholders and stakeholders and a risk management framework; the charter should also address the process of review and approval of corporate strategy. These are all important considerations for the cases referred to above.
Recommendation 1.3 states that the board should demonstrate ethical leadership, which includes commitment to high ethical standards and responsible decision-making. In the guidance for this recommendation it then states that every company should adopt a written code of conduct that clarifies the standards of ethical behavior required of the board, management and employees.
Recommendation 1.5 states that the board should take into account the legitimate interests and expectations of all stakeholders. The guidance is that the board should formalise its strategies for achieving transparency, balance and equity in stakeholder engagement.
The general thrust, therefore, of the best practice recommendations in the code is for the board to be clear on its purpose and where its loyalty lies and then to design, formalise and publish its approach to governance consistent with this purpose.
Such an approach creates clarity and transparency and avoids potential conflicts of interests and builds confidence amongst all stakeholders; moreover companies which adopt these progressive governance and disclosure policies are more attractive to investors and are likely to attract a premium on their share value.
Other principles identified in the code have implications with respect to the issues that are being discussed and on the basis that the code is a holistic document It is noteworthy that there are interrelationships between the respective principles. We will now briefly refer to these principles.
Principle 2: there should be a balance of independence and diversity of skills, knowledge, experience, perspectives and gender among directors so that the board works effectively. The main thrust here is that when composing the board, the principal consideration should be the skills, perspectives, independence and knowledge that adds value to the board’s deliberations.
The board’s work is complemented by its various committees including the audit committee and the nominations committee; in respect of the latter, the majority of its members should be independent as defined in the code. There must also be a rigorous, transparent, and formal annual evaluation of (the boards) own performance and that of its committees and the individual directors.
Principle 3: All directors should act honestly and in good faith in the best interest of the company, ahead of any other interests. The code offers a definition of independence in the guidance to recommendation 3.1. Moreover the board should undertake an assessment of its independence on an annual basis and disclose in the annual report each non-executive director it considers to be independent.
The guidance is that a director is not independent if he represents a significant shareholder, to be considered as a person who either alone or with one or more affiliates or connected parties is entitled to exercise 20 per cent (or such other percentage as may be determined relevant on a case by case basis) or more of the voting power at any general meeting of the company.
Recommendation 3.3 states that members of the board and senior management should disclose to the board whether they, directly or indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the company.
Principle 4: the board should present an accurate, timely, balanced and understandable assessment of the company’s performance, position and prospects. The key here is disclosure, audit, the approach taken to manage all the risks of the organisation and reporting on the application of the code, its principles and recommendations.
Principle 5: the board should promote constructive relationships with all shareholders that facilitate the exercise of their ownership rights and encourage their engagement with the company. The key here is that all shareholder rights, including minority shareholders rights, are respected.
This statement represents the views of the Institute and not necessarily those of its individual members or partners and it is being issued consistent with the Institutes’ mandate to comment on corporate governance issues in the Caribbean.
The Caribbean Corporate Governance Institute (CCGI) is a non-profit, professional membership-based organisation serving directors, investors and other corporate governance stakeholders throughout the Caribbean.