Below is an extract from the Trinidad & Tobago Corporate Governance Code which is scheduled to be released on November 26th, 2013 at a launch event held at the Hyatt Regency from 5-8pm. Click here for more information or to RSVP for the event.
FOREWORD: A MESSAGE FROM THE CHAIRMAN
The development of a Trinidad & Tobago Corporate Governance Code (“TTCGC” or “the Code”) is a partnership initiative led by the Caribbean Corporate Governance Institute, the Trinidad and Tobago Chamber of Industry and Commerce and the Trinidad and Tobago Stock Exchange. It is the first of its kind in the Republic and directed primarily to those companies with public accountability.
A Working Group was established in January 2013, consisting of a diverse team of industry stakeholders, to oversee the drafting and development of the Code, with the Institute acting as the Secretariat. By November 2013, the Committee, after many drafts, meetings and consultations with external stakeholders, arrived at what is now the Trinidad & Tobago Corporate Governance Code 2013.
The Code follows globally accepted best practices with specific consideration and much customization for the local economy and dynamics of the business society of Trinidad and Tobago. The objectives are to enhance business governance and performance, strengthen transparency and efficiency in the market, and improve the overall investment culture in Trinidad & Tobago. The Code is easy to understand, providing recommendations and guidelines for good corporate governance with a balance between costs and benefits of implementation. In this way, it provides the structure through which the company’s objectives are set along with the means of attaining them and monitoring performance.
There is little doubt that strong corporate governance and transparency are critical for the success of every organization. At the highest level, it provides many benefits including:
Lower cost of capital:
- In a well-governed company, performance targets, risks, and progress towards the targets are assured and reported to investors. Risks to investors are therefore reduced significantly and as a result capital can be obtained at lower costs.
Lower risk of scandals:
- Good corporate governance means that intentions of owners, the Board and Management are aligned. Capacity for taking up the roles in directing, monitoring, and communicating are there. Appropriate systems and processes for governance are in place, and the values of corporate governance, namely transparency, accountability, fairness, and corporate responsibility are alive throughout the organization. The end result is that risk of scandals is minimized or avoided altogether.
Higher performance of the organization. This is derived from:
- The Board’s enhanced role as a strategic contributor to business planning and risk management;
- decision-making authority being assigned at the right levels within the organization;
- delegation of authority being matched by adequate controls;
- improved information flows within the organization, with shareholders and the wider market;
- alignment between shareholders, the Board, executives and employees in the pursuit of company objectives; and
- Increased motivation, attraction and retention of talent as good corporate governance enables the development of value-based organizations.
The standardization of best practices may be approached in various ways. One approach is on a statutory basis where companies comply or face legal sanctions. The other approach, and probably the preferred one, is by way of a voluntary code of principles and recommended practices where companies are asked to apply the recommendations or explain their reasons for deviating from them. The Code embraces the latter approach in the expectation that it will encourage voluntary adoption by those institutions to which it is directed, namely companies with a public accountability, while encouraging broader level acceptance of the spirit of each Principle and how it may further the best interests of the company.
The objective of the Code is not to replace existing legislation or regulations but rather to bolster those statutory directives and provide recommendations that are meant to fill the knowledge gaps on how best to manage an organization. By striving towards these higher aims, organizations are better equipped to succeed in an increasingly global playing field, and overall market conditions rise to reflect a more competitive outlook.
In the 2013 World Economic Forum’s Global Competitive Index, Trinidad and Tobago ranked 118th out of 148 in Ethical Behaviour of Firms, 116 out of 148 in Efficacy of Corporate Boards and 111 out of 148 in Protection of Minority Shareholders’ Interests.
In 2011, a report by Syntegra Change Architects Ltd. found that the majority of corporations in Trinidad and Tobago disclosed less than 40% of the items recommended by International Standards of Accounting and Reporting (ISAR). The reporting requirements, even of regulated and listed companies, were the absolute lowest of all emerging and frontier markets surveyed by UNCTAD in 2010; out of a benchmark of fifty-one items relating to corporate governance, only five were required to be disclosed. This is against the backdrop of a survey by McKinsey & Co. in 2002 that global institutional investors were prepared to pay a premium of up to 40% for corporations that apply superior corporate best practices in countries where poor corporate governance poses a high risk to investments.
The introduction of a Code of Corporate Governance is therefore long overdue.
Experience has shown that the more corporations are encouraged to have such a structure in place the greater the opportunity to attract investment and increase its competitiveness in the field. The core values of any Code therefore must be fairness, transparency, responsibility and accountability, all of which feature prominently in this Code.
In the current economic climate, it is necessary for organizations to embrace these globally accepted best practices if corporate Trinidad and Tobago is to become an efficient and competitive player in the global market.
I am indeed grateful to the three partnering organizations for galvanizing efforts and building the foundation for this initiative and to Mr. Richard Frederick, International Corporate Governance Consultant, who provided guidance on the best approaches for undertaking such a task in Trinidad & Tobago. I record my thanks and appreciation to all the members of the Working Group for devoting time and effort in the interests of improving corporate Trinidad & Tobago, without remuneration or reimbursement of expenses.
It is important to recognize all the individuals who took part in the consultations and who commented on the draft versions of the Code, including our international colleagues and those who commented at the request of the Global Corporate Governance Forum.
I thank the Caribbean Corporate Governance Institute, who, under the dedicated leadership of its Chief Executive Officer, Mrs. Alex Kjorven, researched and prepared the first working draft of the Code, and convened the numerous Working Group meetings. Finally, I owe a debt of gratitude to Syntegra Change Architects Ltd. for introducing me to this project and lending their expertise and research, which catalyzed the collective effort in bringing about the transformation we are seeking.
Retired Justice of Appeal, Supreme Court of Trinidad & Tobago
Chairman of the Trinidad & Tobago Corporate Governance Code Working Group