Governance and respect for stakeholders
By Christopher Ram
October 27, 2002
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The reasons for the lack of accountability in the private sector lie partly in Guyana's culture but that culture helps to explain the country's lack of economic progress despite all the natural resources with which we are endowed and the human capital which we are still lucky to produce. In a developed system, institutional investors serve as an important brake on the excesses of management but in this country the representatives of the institutional investors become sucked into the system and often forget why they are there in the first place. In other situations, it seems that arrangements are made that virtually provide for non-participation if not non-interference.
In one of our public companies, an institutional shareholder holds close to twenty percent of the shares in the company but has not a single representative on the Board. Indeed, there is no evidence that that institutional investor is even represented at the Annual General Meetings of the company. If the big shareholders do not want to raise issues where does this leave the small ones?
In today's column we refer to two examples of bad shareholder\stakeholder relationships involving two of our major public companies whose governance arrangements have been previously questioned in these columns.
Demerara Distillers Limited
Over three months ago I wrote the Company Secretary of Demerara Distillers Limited, a company in which I am a shareholder, seeking answers to certain specific issues relating to that company, all arising out of the company's Annual Report. Despite a number of reminders there has been no response and since these issues are matters of concern not only to the shareholders of the company but to the public as well, they are being raised in this medium. The original of the letter has been edited in the interest of space but the substance is unaltered.
In the letter I noted that I was writing again (I had three weeks earlier written challenging the holding of the AGM without the annual report having been circulated in accordance with the law) "as a shareholder of the company to request responses to some concerns that I have in connection with some critical issues in the company. These are as follows:
Governance - Audit & Compensation Committee
Grateful if you would provide me with information on the existence, membership and terms of reference of these committees. If there is currently no committee, please indicate plans for this.
In the (company's) 2001 Annual Report, there was only limited information on balances with Demerara Bank Ltd while it is clear from the financial statements that the company carries on business with a number of subsidiaries.
You are probably aware as well that under IAS 24, key management and the directors are related parties of the enterprise. As you know the ICAG has adopted IAS`s and under the Companies Act 1991, the company is required to comply therewith. In the circumstances fees, remuneration and compensation apply to and should be disclosed in relation to all directors.
Grateful if you would provide me with an explanation for this omission.
Other issues relating to Directors' Remuneration
You are aware that S104 of the Act provides as follows: (1) Subject to subsection (2), no remuneration shall be paid to a director of a company unless the amount or rate thereof is specified in the articles of incorporation or by-laws of the company or in a written service agreement between the company and the director which has been authorised or approved by a general meeting of the company.
(2) If a written service agreement between a company and a director of the company is entered into without the authorisation of a general meeting, remuneration may be paid under the agreement to the director for a period not exceeding six months until the remuneration is approved by a general meeting, but if such approval is refused no remuneration for a period prior to the refusal is recoverable by the company.
Remuneration has been defined by this section to include:
salary, fees, commission, share or percentage of profits, expenses allowance and any other form of emolument whether in cash or not, relating to services as a director of a company or any of its subsidiaries.
Grateful if you would indicate whether the company has complied with this requirement and if not, why not?
Transactions with directors
Information gained from the records held at the Courts indicates that some of the companies now (the original of the letter had erroneously stated "not") listed as subsidiaries were once controlled by various directors of the company. I would appreciate if you could advise me of: the names of those companies; the directors involved; the basis of the decision by the company to assume a controlling interest; whether the decision was made by the full board excluding those directors involved; and whether the directors made any profits on the transactions.
I am aware that the Chairman is over 70 years old. Can you indicate the terms and conditions of his tenure and any severance arrangements? Can you indicate whether there is a designated successor and the manner in which that decision was made?
Can you indicate the names of the directors of the overseas companies and any fees and expenses paid to them?
You referred in the 2001 Annual Report to a 1991 Strategic Plan. Can you point out in any Annual Report since that time any reference to that plan?
You indicated in the 2001 Annual Report as well that the `directors are in consultation with an international firm of experts to restructure the company". Can you please indicate the name of the firm, whether the firm was appointed by tender and the status of those consultations?'"
The letter concluded by noting that some of the matters raised therein might require more time for consideration than others but that they were all issues which directly or indirectly affect shareholders. Recognising that the letter was perhaps too late to be addressed in its entirety at the AGM, "that as far as possible they could be addressed at the AGM tomorrow with some commitment on a timing for dealing with the remaining issues."
The Stabroek News (October 26) carries a letter from a W.Griffith on the increase in bread prices and critical of the failure of Banks DIH for not having the "courtesy to publicise this 16% price increase to consumers". The letter was also critical of the company for its decision to spend over one hundred and seventy million dollars in a bread-making machine which the writer claimed "eliminated the small baker" rather than invest in a biscuit-making plant to compete with Bermudez of Trinidad and win an export market" The writer then drew a comparison with DDL which has won numerous awards for its high quality rum exports.
Unfortunately, instead of the Chairman of Banks apologising to the writer who may also be one of the thousands of shareholders the company likes to boast about, he responds in language and tone which on paper seem most inappropriate. "Almost everyone in the country must have by now understood that there was a price increase for all flour products coming out of the National Milling Company Inc." says the Chairman and refers to a letter in the press by that company. Surely the flour company does not speak for the bakery industry and what would have been proper was for the main players in the industry to have issued a joint notice to the public in which they could have referred to the efforts they made to reduce the impact on consumers.
As Guyana lags further and further behind just about everyone in development, and as the private sector is proclaimed to be the engine of growth, it is to the captains of industry that we must look to help us out of this morass of bad governance. Banks DIH and DDL are important players in the economy and they have served this country well. They now need to recognise that they can do so even better if they too recognise their shortcomings and take steps to address them.