INTRODUCTION Corporate governance has been defined in many ways throughout the years. In 1992 the Cadbury Committee defined corporate governance as the system by which companies are directed and controlled and underscored that Boards of directors are responsible for the governance of their companies. In 2023 the G20/OECD in its revised corporate governance principles noted that corporate governance involves a set of relationships between a company’s management, board, shareholders and stakeholders. Corporate governance also provides the structure and systems through which the company is directed and its objectives are set, and the means of attaining those objectives and monitoring performance are determined. While there may be no single definition of corporate governance, theorists and corporate governance practitioners around the globe agree on one thing: organizations that adopt sound corporate governance practices perform better, enjoy long-term sustainability and are trusted by their stakeholders. Weak governance, conversely, leads to failing organizations, corporate scandals, lasting reputational problems and perhaps more importantly but yet often overlooked, broken people and families. It is critical that we acknowledge that there is an inextricable link between corporate governance and the life of each and every individual in society. On the surface, this may seem like a long stretch. Some may ask How does my behaviour in a Boardroom affect the life of someone I never met? Consider this scenario: Sue has been working for ABC Ltd. for the past ten years. She is an asset to her organization and has been promoted several times. A Governance Code was recommended and its regulatory body has mandated that ABC Ltd adopt a Code of Ethics. The organization has done so, however, decisions and behaviour that violate the Code are repeatedly tolerated by the organization’s leaders, causing a toxic workplace environment for Sue. Sue, once a high achiever, has become withdrawn and her performance suffers. No attempt is made to determine what could be causing the change in Sue. Sue continues to come to work every day to battle a toxic environment. She longs for the years when the environment was positive and inspiring. Sue eventually becomes very ill and suffers from Acute Stress Disorder arising out of the challenges at work. Sue’s family is thrown into turmoil and must seek the help of therapists. Sue becomes pregnant and suffers a miscarriage because of workplace trauma. Sue is never the same again and unable to contribute to the broader economy. Every organization exists for a particular purpose and its leaders hold the power to cause significant harm or significant benefit to others in their pursuit of organizational purpose. Whether those individuals are employees, customers, suppliers, investors, or even directors of the governing body themselves, every director, under sections 60(b) and 99 of the Companies Act Chapter 81:01 of the Revised Laws of the Republic of Trinidad and Tobago, is entrusted with a statutory duty of care to the company, and in determining what are the best interests of a company, a director shall have regard to the interests of the company’s employees in general as well as to the interests of its owners. Therefore, directors of governing bodies must avoid the promotion of themselves and ensure that systems are in place to prevent agency conflict. Agency theory, developed in 1932 by Berle and Means, contemplates the existence of a principal-agent relationship between shareholders and directors with directors being the agents of the shareholders. In such a relationship, the agent is expected to represent the best interests of the principal above their own. Agency conflict arises when directors act in their own interests contrary to the principles of agency theory. Central to the recommendations in this Code is the need to promote the organization’s interests over self-interests. The organizations that adopt the recommendations in this Code, either in whole or in part should realize:-
The Code, being principle-based, adopts an apply or explain approach, requiring organizations to apply the principles or provide a clear explanation why they have not done so. This approach allows governing bodies the flexibility to tell a story of how corporate governance is being applied, having regard to their own unique circumstances and complexities. It is therefore envisaged that organizations will be called upon to report on their application of the Code by their respective regulatory and supervisory bodies such as the Trinidad and Tobago Securities and Exchange Commission, the Central Bank of Trinidad and Tobago and relevant Line Ministries of Government in the case of State Enterprises. It is noteworthy that in Trinidad and Tobago, legislation has already recognized the need for effective corporate governance practices and some elements of corporate governance have been codified. For example, an important change to the Insurance (Amendment) Act 2020 is the inclusion of provisions to strengthen internal controls, risk and capital management and corporate governance. This led to the Central Bank of Trinidad and Tobago (CBTT) in 2021 issuing revised corporate governance guidelines to those companies regulated by the CBTT. This trend is expected to continue as many countries are now adopting a hybrid approach to corporate governance combining mandatory laws and regulations with voluntary principle-based codes of best practice. For this reason, governing bodies ought to be aware of the legal and regulatory environment in which they operate and use the Code’s recommendations as a means of achieving compliance. Further, the Code’s structure is heavily influenced by the International Standard on Corporate Governance prepared by the International Organization for Standardizations (ISO 37000:2021 (E)) which demonstrates how the application of corporate governance principles enables an organization to realize its purpose and achieve desired outcomes. As such, the rationale, key aspects of practice and expected outcomes of each principle are presented. |