Corporate Governance (Part 2)
The case for corporate governance
Recent local events and various international financial crises make the case for urgent corporate governance reforms. Corporate governance refers to the systems and processes through which an organisation is directed and controlled. It specifies the distribution of rights and responsibilities among the organisation’s stakeholders (including shareholders, directors and managers) and articulates the rules and procedures for making decisions on corporate affairs. Its benefits are real and tangible, resulting in increasing investor confidence, reduced risk and cost of capital and improving the effective functioning of a strong and sustainable organization.
In a recent study undertaken by Syntegra Change Architects in collaboration with UNCTAD, it was revealed that T&T has the lowest reporting requirements for corporate governance disclosure among 45 nations reviewed by UNCTAD. More than this, out of the five broad categories covering disclosure items, when compared to Boards in emerging markets, our average is less than 50% of their disclosure, with Corporate Responsibility and Compliance being the lowest.
The CL Financial debacle has laid bare our weakness in corporate governance and reinforced the need for more public disclosure. Evidence suggests that lower disclosure leads to poorer information for decision making, and reduced as well as weakened accountability. Over the past few years there has been some movement in the right direction. However continuing on the same path with an over-dependence on the regulator is not viable. The system would have crucial weaknesses, likely leading to value being destroyed, opportunities missed, and legitimate interests not met.
Shareholders, the investing public and media all have crucial roles to play in ensuring that firms are properly governed. The Chamber endorses the call for a multi-stakeholder, multi-pronged approach to Corporate governance reform where:
- The business community (including the 88 companies in which the state has an active interest) as well as the NGO community need to increase their awareness, knowledge of, and alignment with good governance practices.
- The media needs to increase its understanding, investigation, and reporting of corporate governance matters.
- Investors, private and especially institutional, need to increase their knowledge and advocacy for good corporate governance in their interest.
- Owners need to be more informed of their rights and knowledge about how to evaluate the performance of the directors they appoint.
We further recommend for Trinidad and Tobago:
- Developing a T&T Corporate Governance Code that will be the common benchmark for good practices
- Advocating a mandated increased public disclosure on corporate governance practices through further legislative and regulatory amendments and
- Promoting awareness and education about what corporate governance really is about and that sustainable and profitable companies always have effective corporate governance in place.
We see governance as not only about ensuring compliance with standards, but also including leadership and steering organizations safely towards sustained success.
The Chamber has already identified Ethics and Corporate Governance as a major area of focus. Through our Corporate Social Responsibility Committee, we are committed to building awareness and knowledge and being an advocate for good governance in Trinidad and Tobago. We call on like-minded corporate citizens to join us in this drive.
