The long, winding road to good corporate governance
by Christopher Ram
February 29, 2004
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Against all that is taking place in the country, talk of corporate governance may seem almost irrelevant.
This is a pity and one of the regrets of Business Page in which no single topic has received more attention over the years. Poor governance and weak accounting and auditing have been with us from the colonial era establishing a culture which changes in law, personnel, constitutional status or economic systems have been unable to dislodge. But if as a country we want to move out of the backwaters within the framework of a market economy, if we want to develop a culture of competence and accountability and if we want better governance, then the private sector must start within itself.
It is being far too pessimistic to say that there have been no changes, or that the situation offers no hope. The Securities Council established under the Securities Industry Act and the one-lady band of insurance regulator, despite their limited resources are trying to bring some sort of regulatory discipline to the companies which they supervise. The Bank of Guyana too, following the Globe Trust debacle has been much more proactive in regulating the financial sector though its re-luctance to bring the New Building Society and the 'co-operative societies' under its purview are residual causes of concern.
The Registrar of Companies and the Institute of Chartered Accountants of Guyana have been most disappointing, though for different reasons.
The majority of companies - large and small - do not bother to file annual returns, including their annual financial statements, confident that the Registrar's office does not have the capacity to apply the legal sanctions. Accountants, on the other hand, do nothing to influence compliance while their institute has provided no guidance on recent, relevant legislation such as the Financial Institutions Act, the Insurance Act and the Securities Industry Act, all of which have implications for the auditing profession. Auditors are confident that the uninformed and tolerant public would never ever contemplate suing them, no matter how recklessly they perform.
Conflicts of interest
The Stock Exchange itself is rife with potential and actual conflicts of interest, with some of the more high-profile public companies having direct ties to companies operating on the exchange. Trust Company Guyana Limited, a member of the Stock Exchange, is registrar and transfer agent for DDL of which, in both a beneficial and legal capacity it is a major shareholder and with which it shares a common chairman, Mr Yesu Persaud. Another member of the Stock Exchange, Beharry Stock-brokers Limited, is part of a group which is also a major investor in public companies. And still with the Stock Exchange, there is concern that its senior manager is adviser to a public company. Even allowing for the smallness of our country it is hard to understand why these situations are tolerated.
Part of the problem of those who want to see better governance, transparency and integrity in the public part of the private sector is that other than the Stabroek News, which has introduced a well-researched weekly Business Supplement, the media seem to regard financial and governance issues as beyond the scope of mainstream journalism. The government appears completely oblivious to the many shortcomings of the Companies Act passed over twelve years ago, institutional investors appear to have no impact on the companies, while many directors seem to regard their role as perfunctory and as a reward for their past achievements.
The legacy of paramountcy on commercial entities previously held by the state as well as the privatisations undertaken by both the PNC and the PPP administrations, has undermined corporate governance in this country. With the privatisation objective shifted from economic democracy to maximising the returns from each transaction, now privatised state-owned enterprises are totally controlled by the investor with no attention to minority shareholders, even if that minority shareholder is the government itself. Influential and critical voices at shareholders' meetings have been silenced by appointments to boards, a strategy which would have made Machiavelli jealous.
The more activist regulators get considerable opposition from the companies they are required to supervise, and the instinctive reaction from some of the top companies is to turn to their attorneys. Corporate governance for them is to comply grudgingly with what the law unambiguously requires and to use any perceived ambiguity as grounds for non-compliance, confident that the government treats such issues as academic and therefore of no interest to it.
While in the USA and Europe the abuses of the boardrooms of top companies are being laid bare in the courtrooms and former icons and tycoons are now being sent to jail, there is still among our captains of industry, a high degree of intolerance of accountability, and resentment of questions being asked of them. Demerara Distillers Limited has failed to respond to questions posed two years ago by this columnist who was recently charged by the company G$100,000 for a 388 page share register ($258 per page). And the directors of Banks DIH have arrogated to themselves the right to decide that the position of chairman and CEO of that company will always be combined.
Not only is this not a matter within the authority of the directors, but what could suggest to them that they can bind future boards?
The disregard for having their affairs and conduct scrutinized publicly may be manifested in ways not unlike how politicians would behave. It is not unknown for business to be taken away, as happened recently when following a column on telecommunications in which GT&T's role was called into question, was criticised, it pulled its ad that had been running for two years on Plain Talk. GT&T is incidentally a public interest company in which the Government of Guyana is a shareholder.
If as a country we want to move out of the backwaters within the framework of a market economy, mobilise and reduce the cost of capital, a functioning vibrant stock exchange is a necessity, not only for the sale and purchase of existing shares but to raise capital, to create new financial instruments and to allocate resources. Why should a Guyanese be able to own shares in Cable and Wireless in the Caribbbean or BT in the UK, but not in the country's telephone or electricity company? Is it not good business for companies with a large customer base such as this newspaper or Courts, the furniture giants, to bring their customers and subscribers into partnership, or to have a secondary market for mortgages? Would the Guyanese worker be as prone to strikes if they felt they shared a common interest with their employer?
The Guyana Securities Council, the Office of the Commissioner of Insurance or the Bank of Guyana will not alone solve the many governance problems we have, particularly in relation to minority shareholders. That needs a more informed culture and some courage to stand up to the corporate giants. We need to move away from measuring everything with an ethnic yardstick and to call directors, whoever they are, to account. I recall last year as I sought counsel to initiate an action against Banks DIH, every Afro-Guyanese lawyer I met was "sorry I cannot take it - but why not ask so-and-so?" even as they shared their experiences with me. As if to show how balanced we are, an Indo-Guyanese friend recently challenged me to be as critical of Banks DIH as I was about DDL, clearly more concerned about ethnic balance than about the serious unanswered issues which Business Page raised about DDL.
Integrity versus structure
While Business Page is not happy with the state of corporate governance in Guyana, the Securities Industry Act (SIA) is having some impact as companies find that they have to furnish the Securities Council with information it requires on pain of sanction. Already this has put a brake on the share transactions of directors, and directors have become aware of the authority of the council to intervene in meetings called by the company and to prescribe the contents of annual reports. Companies are also rushing to report that they have set up audit and other board committees which have long since been mandatory in most jurisdictions. While BP welcomes this development, it is the composition, terms of reference and performance of these committees that are important; it believes that integrity is at least as important as structures, and substance more important than form.
More recently the Securities Council has published Guidelines on Corporate Governance, although it has not indicated when this will become mandatory on public companies. The Guidelines would be considered innocuous by international standards, and it is not as comprehensive or prescriptive as it ought to be. Even with those limitations, however, if the guidelines become mandatory, they will lead to positive changes in how our public companies are run and how they account to shareholders. Optimistically, the guidelines require that training be provided for new directors, but avoid the issue of age and term limits or the availability and type of training required. It provides that directors be free to acquire independent professional advice at the expense of the company, and for the disclosure of the remuneration of executive and non-executive directors, recommends the separation of the roles of chairman and CEO, and for the audit, remuneration and governance committees to be mandatory.
Even the cautious steps proposed by the Securities Council are welcome. But we need independent directors to assert themselves, the institutional investors, the legal and accounting professionals to play their part and the government to become more informed and active in the legal and regulatory framework. The Office of the Registrar has to be given the tools to carry out its mandate. With these in place we can look forward to better results for the company and its shareholders.
Banks DIH will be holding its AGM on Saturday, March 6, 2004. A review by Christopher Ram will appear in the Stabroek Business Supplement of Thursday, March 4, 2004.