Raphael John-Lall

The chance of an­oth­er CL Fi­nan­cial-style col­lapse is less like­ly now be­cause T&T’s reg­u­la­to­ry en­vi­ron­ment is more ro­bust and cor­po­rate gov­er­nance prac­tices are more wide­spread, ac­cord­ing to ex­perts in the fi­nan­cial and man­age­ment fields.

How­ev­er, they urged cau­tion and ad­vo­cat­ed that busi­ness­peo­ple and those in the cor­po­rate world must con­tin­ue to ad­here to strict prin­ci­ples to safe­guard their in­vest­ments.

Busi­ness­man Lawrence Duprey, who was the ex­ec­u­tive chair­man of the CL Fi­nan­cial (CLF) group, un­til it col­lapsed in the first quar­ter of 2009, passed away last week at age 89. His death has once against stirred up de­bate on what went wrong with the group of com­pa­nies and how com­pa­nies, their share­hold­ers and oth­er stake­hold­ers can be pro­tect­ed in the fu­ture from such an in­ci­dent hap­pen­ing again.

The CL Fi­nan­cial group en­coun­tered liq­uid­i­ty is­sues and its sub­se­quent col­lapse in Jan­u­ary 2009 sent shock­waves through­out the Caribbean and re­sult­ed in the largest bailout in T&T’s his­to­ry.

Ac­cord­ing to Fi­nance Min­is­ter Colm Im­bert at a 2020 news con­fer­ence, the Gov­ern­ment spent at least TT$30 bil­lion on its bailout of the group.

CLF’s col­lapse af­fect­ed not on­ly T&Ts Gross Do­mes­tic Prod­uct (GDP) but the GDP of the rest of the Caribbean.

In a 2012 ar­ti­cle, the Amer­i­can In­ter­na­tion­al Jour­nal of Con­tem­po­rary Re­search de­scribed its dev­as­tat­ing ef­fects through­out the re­gion.

“Thus, af­ter 15 years of pos­i­tive eco­nom­ic growth, the T&T econ­o­my de­clined in 2009 (-3.5 per cent), as a re­sult of the im­pact of the glob­al cri­sis, and more par­tic­u­lar­ly, the col­lapse of Cli­co be­cause of its sheer size, the scope of its op­er­a­tions, and the sys­temic risk posed to the fi­nan­cial sys­tem. At is­sue, how­ev­er, was not on­ly the con­tain­ment of the risk ex­po­sure of the T&T econ­o­my (10 per cent of GDP), but al­so the spillover ef­fects in the wider Caribbean (17 per cent of GDP).”

In 2010, the Peo­ple’s Part­ner­ship Gov­ern­ment set up a Com­mis­sion of En­quiry in­to the fail­ure of the Hin­du Cred­it Union’s (HCU) and CLF, but to date, the full re­port of its find­ings has not been made pub­lic.

Cor­po­rate gov­er­nance

CEO of the Caribbean Cor­po­rate Gov­er­nance In­sti­tute Kam­la Ram­per­sad de Sil­va told the Sun­day Busi­ness Guardian that the col­lapse of CLF had ma­jor im­pli­ca­tions for cor­po­rate gov­er­nance. She main­tains, how­ev­er, cor­po­rate gov­er­nance sys­tems are now much more ro­bust.

“We have great con­fi­dence that tremen­dous lessons were learned from that ex­pe­ri­ence and led to im­proved gov­er­nance prac­tices not just here in T&T but in the wider Caribbean where a lot of the loss was felt.

“For one thing, the fact of the col­lapse raised aware­ness of how im­por­tant cor­po­rate gov­er­nance is and that even ma­jor com­pa­nies can fail when in­suf­fi­cient at­ten­tion is paid to their gov­er­nance prac­tices. As a re­sult, we see a lot more or­gan­i­sa­tions pay­ing clos­er at­ten­tion to how they man­age risk and have ro­bust risk man­age­ment frame­works in place. Al­so, more or­gan­i­sa­tions are pay­ing at­ten­tion to their in­ter­nal au­di­tors, who are the pro­fes­sion­als with­in the or­gan­i­sa­tion whose job it is to spot ma­te­r­i­al weak­ness­es that may be de­vel­op­ing,” said Ram­per­sad de Sil­va.

She al­so said more and more di­rec­tors are un­der­stand­ing that gov­er­nance is no longer a “se­cre­tive prac­tice” kept with­in the walls of the board­room, but that there must be a cer­tain amount of dis­clo­sure and trans­paren­cy in the way they do things.

“Many an­nu­al re­ports to­day car­ry a lot more de­tails in­clud­ing at­ten­dance of di­rec­tors at board meet­ings and the fre­quen­cy of board com­mit­tee meet­ings. You may re­call that the Com­mis­sion of En­quiry had re­vealed that the au­dit com­mit­tee of CLF was prac­ti­cal­ly non-func­tion­ing.”

She added that di­rec­tors are more will­ing to par­tic­i­pate in gov­er­nance dis­cus­sions and where there is hes­i­tance to be trained, she en­cour­ages se­nior ex­ec­u­tives to at­tend so that there is grow­ing com­pe­tence on evolv­ing gov­er­nance prac­tices.

Win­ston Dook­er­an was sworn in as Fi­nance Min­is­ter in May 2010. He said while Duprey meant well and had a vi­sion of fi­nan­cial pros­per­i­ty for T&T and the rest of the Caribbean re­gion, he made se­ri­ous er­rors which were al­lowed be­cause of weak leg­is­la­tion.

“Lawrence Duprey’s core con­tri­bu­tion was to con­vert ‘idle’ re­sources, the sav­ings of our peo­ple, in­to pro­duc­tive in­vest­ments. He did this by cre­at­ing in­vest­ing op­por­tu­ni­ties and di­ver­si­fy­ing the struc­ture of the econ­o­my. In his quest, he clashed with the in­sti­tu­tion­al re­stric­tions, the In­sur­ance Act, but dur­ing my tenure as Fi­nance Min­is­ter his fi­nan­cial em­pire turned the cor­ner and Cli­co re­turned to vi­a­bil­i­ty and his oth­er as­sets re­main mar­ketable,” Dook­er­an said.

He al­so said that in to­tal­i­ty, the col­lapse of CLF ex­posed the lim­its of the In­sur­ance Act, and the ab­sence of a pub­lic pol­i­cy in de­vel­op­ment, and par­tic­u­lar­ly how to chan­nel “idle” sav­ings in­to cre­at­ing new eco­nom­ic space.

“This quest of Lawrence Duprey is a clas­sic case study of the pit­falls when en­tre­pre­neur­ial ac­tion is not linked to the pub­lic search for new eco­nom­ic space. The ex­pe­ri­ence of Duprey has taught us a lot, and he must be ac­cord­ed the recog­ni­tion he has made to T&T’s de­vel­op­ment chal­lenge.”

Asked if he fore­sees the pos­si­bil­i­ty of oth­er com­pa­nies suf­fer­ing CLF’s fate in the fu­ture, Dook­er­an replied, “The prac­tice of cor­po­rate gov­er­nance does not co­in­cide nec­es­sar­i­ly with the struc­tures of com­pli­ance, so I am un­able to com­ment on the state of prac­tice of cor­po­rate gov­er­nance.”

Stronger reg­u­la­to­ry frame­work

Chair­man of the To­ba­go Busi­ness Cham­ber and At­tor­ney Mar­tin George told the Busi­ness Guardian that the busi­ness sec­tor, and coun­try as a whole, have come a long way since the CLF col­lapse of 2009.

He said there are more in­sti­tu­tions with over­sight and leg­is­la­tion now is much more rigid in de­mand­ing com­pli­ance in how com­pa­nies op­er­ate.

“The fi­nan­cial and in­vest­ment cli­mate in T&T is now much dif­fer­ent from the way it was in the hey­day of CLF and the cir­cum­stances which led to the crash of that fi­nan­cial dy­nasty.

“We have the fi­nan­cial om­buds­man, we have the Of­fice of the Pro­cure­ment Reg­u­la­tor, we have the new Gov­ern­ment pro­cure­ment reg­u­la­tions which are manda­to­ry for any­body do­ing busi­ness with the Gov­ern­ment over a cer­tain sum.

“We al­so have bod­ies such as the Se­cu­ri­ties Ex­change Com­mis­sion, we have the In­spec­tor of Banks and the Fi­nan­cial In­tel­li­gence Unit (FIU). We are sig­na­to­ries to The For­eign Ac­count Tax Com­pli­ance Act and re­quire­ments for re­port­ing in that re­gard. We al­so have the In­ter­na­tion­al Fi­nan­cial Cen­tre, which is look­ing to digi­tise things in T&T when it comes to fi­nan­cial trans­ac­tions and pay­ments when it comes to do­ing busi­ness with the Gov­ern­ment. There are many bod­ies and en­ti­ties that are avail­able now to car­ry out that mon­i­tor­ing and over­sight func­tions,” George said.

How­ev­er, he warns that giv­en the volatil­i­ty of the mod­ern world, busi­ness­es and com­pa­nies must re­main vig­i­lant.

“Let us not fool our­selves be­cause at the end of the day you have fi­nan­cial crash­es that oc­cur all over the world and the re­al­i­ty is that even with the best sys­tems and over­sight and reg­u­la­tions in place, peo­ple will be cre­ative and find ways to ei­ther get around the sys­tem or beat the sys­tem. Reg­u­la­to­ry bod­ies just have to con­tin­ue to tweak and im­prove their reg­u­la­tions, pro­ce­dures and se­cu­ri­ty to try to plug the gaps along the way.”

He used con­tem­po­rary ex­am­ples of in­ter­na­tion­al com­pa­nies that have run in­to trou­ble.

“You had the ma­jor crash of en­ti­ties such as En­ron and re­mem­ber in the 2008 fi­nan­cial cri­sis you had ma­jor lenders in the Unit­ed States like Fan­nie Mae and Fred­die Mac crash­ing. You had Bear Stearns go­ing through the roof. There was the ma­jor scam­mer Bernie Mad­off who was run­ning a Ponzi scheme. You have had these things through­out his­to­ry. Even as re­cent­ly as last year we saw the col­lapse of FTX in the Unit­ed States. FTX shot up like a bright star and then we re­alised it waas like a house of cards and the en­tire em­pire crum­bled. In Eu­rope, there was UBS, which has suf­fered tremen­dous shocks, there was al­so the Roy­al Bank of Scot­land al­so suf­fer­ing.

“The re­al­i­ty is that these things do hap­pen and you al­ways have per­sons who are seek­ing to find ways to beat the sys­tem and it is a ques­tion of con­stant­ly mon­i­tor­ing, man­ag­ing, mea­sur­ing and strength­en­ing your reg­u­la­to­ry frame­work as you go along and your leg­isla­tive un­der­pin­ning to give to that mus­cle that would en­force your laws and reg­u­la­tions par­tic­u­lar­ly when it comes to fi­nan­cial over­sight of in­sti­tu­tions.”