Na­tal­ie?Brig­gs

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' code­for 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.