Published by Trinidad & Tobago Express Newspaper
In November 2012, the Trinidad and Tobago Chamber of Industry and Commerce, together with the Trinidad and Tobago Stock Exchange, partnered with the newly formed Caribbean Corporate Governance Institute to lead the development of a national Corporate Governance Code. In January 2013, a dedicated team of individuals from 15 organizations were assembled to develop a document that will not only be a customised set of best practices for T&T companies, but also irrevocably increase the standard of corporate governance, and thereby business performance in our nation.
Fast-forward six months to June 2013 at the second annual Corporate Governance event series hosted by the International Finance Corporation (IFC) at the Hyatt Regency in Port of Spain. At this occasion, Ms Alex Kjorven, chief executive officer of the Caribbean Corporate Governance Institute, on behalf of all partners on the Code project, including the Chamber, offered audience members a glimpse inside the current draft of this much anticipated Code.
Why a Code?
The idea of introducing new codes or standards are often met with either skepticism from those who feel Codes are not enough, or objection from those who feel there are already too many rules.
In order to gain clarity over those opposing new standards, we must look within our existing rules and frameworks. Although there exists reporting requirements to regulatory bodies, the requirements for reporting information to owners and investors are undeniably low. Existing laws in Trinidad and Tobago (T&T) around disclosure are currently less than half of what other emerging economies require of their companies (2011 Syntegra Change Architects -Corporate Governance Disclosure Practices in Trinidad & Tobago). Therefore, there is considerable room for improvement with regards to transparency and providing investors the tools they need to demand greater accountability.
As for the skeptics, who favour more heavy-handed approaches towards protecting public interest, we must look beyond our borders. There are currently over 90 countries around the world that have developed codes or guidelines on corporate governance. With the exception of only a few, these codes were implemented for adoption on a voluntary basis with higher rates of reported benefit than those implemented as law. Most common is the ‘comply or explain’ method where companies disclose that they are in compliance with the provision of a code or explain the reasoning behind any deviations they chose to make for their particular circumstance.
Although it may be widely accepted that establishment of national codes is in line with global practices, many underestimate the potency of creating what is, at the end of the day, a highly customisable resource for companies who understand the rewards of good governance, and who seek to achieve greater competitiveness in an increasingly demanding marketplace.
How Will Companies Benefit?
According to the 2012 World Economic Forum’s Global Competitiveness Index, T&T ranked 114 out of 144 on the efficacy of corporate boards, just one disappointing ranking amongst several in the category of institutional performance.
Now that corporate governance has been established as a key investment criterion to the point where investors may claim avoidance of not only companies with poor governance but also countries (McKinsey Global Investor Opinion Survey on Corporate Governance, 2002. Thirty-one per cent of investors survey claims avoidance of certain countries when making investment decisions.) that do not institute strong governance, then it must be recognised that the sustainability of our companies and our overall global competitiveness rests on the efforts we take to align ourselves with recognised best practices.
This Code builds consensus on what these best practices should be in the local context and the return on investment for companies who adopt it include lower costs of capitals due to increased investor confidence, lower risk of internal control failure that lead to fraud or scandal and stronger leadership and relationships between the board, management and investors. The benefits for the company quickly precipitate through to civil society, which will be strengthened by improved management of national wealth and improved market efficiency.
What Does the Code Look Like?
A readily available draft of the proposed Code is currently being circulated amongst the business community for feedback and consultation. It is free for public download on the website of the Caribbean Corporate Governance Institute, which was selected by all partners to act as Secretariat and long-term, independent lead for the Code.
The Code has been modelled after globally agreed upon best practices with specific consideration and much customisation for the local economy and dynamics of the T&T business society. It was developed with sensitivity towards the costs and benefits of implementation, ease of use and clarity to companies on the benefits for their organisation.
The Code consists of five Principles that represent the highest and most fundamental elements of good corporate governance. Companies should always maintain consistency with the spirit of each Principle when implementing governance initiatives. Within each Principle, there are several Recommendations that speak to specific practices that companies should adopt. Companies are asked to disclose in their annual reports whether they have applied the recommendations set out in the Code, or explain the reasons for not doing so. Finally, each Recommendation is supplemented with Guidance for practical application that may further strengthen the company’s understanding.
This Code is targeted towards companies with a public accountability for adoption on an “apply or explain” basis. This includes publically listed companies, or those who report to a securities commission or other regulatory organisation. It also includes companies who hold assets in a fiduciary capacity for a broad group of outsiders, such as financial institutions.
Going forward, it is the intention of the Institute and its collaborators to create future guidelines or publications that will address the more unique governance challenges faced by other types of organisations, such as state-enterprises or family-owned businesses. In the meantime, although the recommendations and guidance provided in the current draft of the Code have been crafted with a certain user group in mind, the overall Principles of the Code are universal, and should be seen as standards of best practice for all types of organisations.
How to get Involved
You are invited to join in this initiative by downloading the current draft, sharing your views and participating in a consultation session. Further information on this project as well as the current draft of the Code is available on the CCGI website (www.caribbeangovernance.org/codes-guides/ttcgc/feedback).
The anticipated publication date for the Code is November 2013. Additionally, individuals, investors, regulators and board directors are encouraged to become members of the Caribbean Corporate Governance Institute to contribute and stay abreast of developments related to the Code and other regional initiatives.
For information on the Code or on becoming a member, please contact:
Caribbean Corporate Governance Institute
14 Alcazar Street, Port of Spain
Phone: +1 868 221 8707
Fax: +1 868 221 5306