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CARICOM (Caribbean Community) Governance
Ronaele Dathorne-Bayrd
Regional Corporate Services Leader, PwC in the Caribbean; Partner, Tax and Legal Services, PwC in the East Caribbean
Introduction
The rapid pace of globalization and the strides made by CARICOM1 toward the establishment of the CARICOM Single Market and Economy have made it imperative that the governments and private sectors of Caribbean jurisdictions focus their collective minds on the area of corporate governance. Thus far, there has been a failure to fully acknowledge the impact of this concept, and indeed way of doing business, on the economic viability of corporations, the investing public, and thus the growth and potential of entire commercial sectors and the developing economies they serve.
The region must continue to embrace the increasingly international character of investment. International cross-listings and flows of capital enable companies to access financing and capital from a much larger pool. However, if our corporations are to position themselves to take advantage of this widening pool, to reap the benefits of the local, regional, and global capital markets, their corporate governance policies and practices must be well established and, to the greatest extent possible, in accordance with international best practice. This requirement will increasingly apply to local and regional investment pools, as Caribbean investors become more sophisticated, knowledgeable, and acutely aware of the standards that should be met by companies courting their investment dollars.
Corporate governance is now showing the way toward improving economic, social, and environmental effectiveness, efficiency, and growth, thereby enhancing investor confidence. At an international level, policymakers are keenly aware of the positive impact that good corporate governance can have on financial market stability and overall economic growth of corporations and the countries in which they operate. These corporations in turn are becoming ever more aware of how good corporate governance affects their cost of capital and thus their competitiveness. Sustainability is key to the region's companies and economies. The triple-bottom-line accounting framework, focusing simultaneously on people, planet, and profit, is important for our developing economies. Such integrated thinking is an important tool that extends strategy and daily management beyond the purely financial to encompass the social and environmental factors that deeply affect a company's future viability.2
Stakeholders of course are becoming more intuitive, more demanding of accountability, and overall more educated as to what good corporate governance entails. The stakeholder group continues to widen, with stakeholders other than shareholders becoming increasingly interested in corporate governance policies adopted by corporations. This was an inevitable development in light of the growing employee base of private sector companies, our increased reliance on private sector institutions in the management of personal savings and retirement incomes, and the increased exposure of the region's population to the global marketplace via digital interconnectivity. The U.S. Business Roundtable's dramatic shift from principles of shareholder primacy to the undertaking of 181 CEOs to lead their corporations for the benefit of all stakeholders is a remarkable development in the right direction.3
Public legislation and regulation have a role to play, but our private sector must accept the mandate of driving the right attitudes, behaviors, and competence building not only in their own companies, but in the region generally, to ensure that accountability and ethical behavior are demanded at every level of society, both private and public and in our state-owned enterprises. It should seek to drive the pressure to create a business environment of greater trust and accountability. There have been positive steps in this area, but the region's place in the international marketplace will be largely dependent on the example set and what can then be further insisted on from governments, the public sector, regulators, and legislators.
A key factor will be the development of a more modern view of governance and its rigorous implementation. The approach must be less check-the-box and more focused on real action within a sensible governance framework, which is founded on forward-thinking, long-term sustainability based on value creation and that helps set the standard for how the region moves forward.
Landscape
One of the many factors negatively affecting the level of discussion and debate on the issue of corporate governance as per Caribbean commercial enterprises is the dearth of empirical data and analysis of the Caribbean status on this subject. A recent survey of the directors of Barbados companies is a good start,4 but much more can be done. This factor only compounds the challenges faced by the fact that there are a few territory codes but no functioning regional corporate governance framework.
In order to effectively analyze the Caribbean position and future in this area it is important to consider our own Caribbean corporate commercial experience. This will allow us to discern the background against which regional corporations have functioned and within which any existing and new framework of corporate governance, based on international best practice and new focus on tangible results rather than ticking boxes, can be tailored to be responsive to our own Caribbean experience.
The goals of territorial and possibly regional frameworks for corporate governance are varied, with the daunting task of striking a balance between accountability and the encouragement of enterprise invariably being a difficult one to strike. These varied goals must be examined with focus being placed on the goal of ensuring the survival and indeed growth of Caribbean corporations in the Caribbean Single Market and Economy (CSME) and global marketplaces. Focus must also be placed on the desire to increase the level of sophistication and knowledge of regional investors and the protection of their rights while encouraging the establishment of a single regional stock exchange.
Current Regional Initiatives
The current regional initiatives aimed at establishing or amending various corporate governance codes provide evidence of increased awareness of the importance of this issue, but to date most of the region's corporations, especially private, are yet to grapple with the effect that this issue will have on long-term growth and commercial activity. The reason for this is clear, being that for developing nations other more immediately impacting issues are given priority of necessity. However as the countries of CARICOM face the challenge of economic recovery in some cases, and continued growth in others, while managing the environmental vulnerabilities and impacts of climate change, the resilience of our private sectors will continue to be tested. It is against this backdrop that companies and their boards will need to consider what their roles will be in meeting the expectations of the region's governments, shareholders, employees, and wider stakeholder groups. This role will be vital in setting the tone at the top, influencing and shaping the way these countries do business. Accountability, independence of thought, continuous learning, effective performance, and the benefits of diverse perspectives—these are all fundamental to good governance, whether in private companies, public companies, or the public sector. Our corporations, governed by competent, motivated, and learning boards,5 have the potential to help drive growth based on sound principles of good governance, demanding the same of our governments, regardless of political change.
The current initiatives must therefore be examined with an aim toward establishing whether we are on the right path and what further steps need to be taken, ultimately showing that some work needs to be done in a relatively short time frame if we as a region are able to have our commercial presence felt in the global marketplace.
Local Context and Circumstances
Factors that may greatly affect our ability to make robust strides in this area include the embryonic stage of many Caribbean corporations and financial markets and thus our ability to tolerate additional costs, which are inherent in real change. The absence of cultures of corporate governance and other cultural obstacles may also hinder development in this area.
Care must also be taken to acknowledge the variations within the Caribbean as per the level of economic maturity of jurisdictions and the corporations operating within them. These variations must be borne in mind in the context of any discussion regarding a regional Code for Corporate Governance. Benefits can be derived from the creation of one regional Code to add a more substantial level of governance to that already in existence by virtue of territory specific codes and legislation. However, any such code will not prove successful without the fueling of cultural changes that embrace and give rise to their effective and consistent utilization.
Most Caribbean corporate commercial sectors are still at various embryonic stages of development, seeking to nurture their growth and expansion and being extremely vulnerable to external factors. Commercial enterprise is still largely dependent on small independent entrepreneurs operating as sole proprietors, and partnerships between such entrepreneurs and small and medium-sized family-owned and -run businesses. In territories such as Jamaica, Trinidad, and Barbados, the last few decades have seen the birth and growth of the region's larger conglomerates, which have in many instances listed on one or more of our regional exchanges and which operate throughout the region and to some extent beyond. These large corporations have been borne of mergers, acquisitions, and the growth, expansion, and public listing of our family-owned companies.
Governance Challenges
The metamorphosis of the latter type of large corporation, the formerly family-owned corporation, may pose some challenge to the true adoption of regional codes of corporate governance. The work of Dr. Christine Barrow and J. E. Greene6 on the development of the small business in Barbados sheds some light on the social, economic, and political challenges facing small businessmen in Barbados in the mid-1970s. Among other things they note that there were a wide range of issues challenging the success of small businesses in this small developing economy, itself dependent on developed nations.
These factors may give rise to a reluctance to take any steps that appear to be in support of the relinquishing of power and control. It is safe to say that identical issues have similarly affected commerce in many other Caribbean islands, albeit to varied degrees. In our small, close-knit societies, accountability and transparency issues are yet to be fully embraced by all but some of our larger corporations. Our medium-sized businesses seeking to expand to the next level of growth, including via public listings, still face the task of implementing corporate governance best practice, more fully changing their mindsets to embrace the values that good corporate governance and increased investor confidence require.
Developing Best Practices
There are, however, some notable exceptions, including GraceKennedy Ltd., a company incorporated in 1922, listed on the Jamaica Stock Exchange since September 11, 1986, and subsequently also listed on the Trinidad Stock Exchange.7 The company has enjoyed a succession of outstanding leaders, including Douglas Orane, who assumed the roles of CEO (in 1995) and chairman (in 1998) after a long career with the company. In 2000, under the stewardship of Mr. Orane in the dual role of chairman/CEO and building on the internal corporate culture established by the company's founders and his predecessors, Grace introduced a formal corporate governance structure long before others in the region acknowledged this as an important issue. The Grace board took the initiative to independently and voluntarily adopt many of the principles and provisions of the UK Combined Code, thereby establishing a Corporate Governance Committee comprised of all of its nonexecutive directors. In this regard Grace set itself apart and led the way for other regional companies to consider the benefits of good corporate governance.
Sagicor Financial Corporation has also provided leadership in this area. Sagicor's corporate governance policies were from inception well thought out and carefully implemented. This is in no small measure due to the company's historical culture of being a mutual company. The company was established in 1840 as The Mutual and has arguably grown to become the leading indigenous financial services company in the Caribbean. Sagicor's financial services include life and health insurance, annuities, pensions, property and casualty insurance, banking, investment, and card processing services.
For several years the company has closely followed international trends and held true to such fundamentals as the need for the separation of the roles of chair and CEO and the independence of the majority of the members of the board. The company's willingness to embrace the concept of good corporate governance is clearly based on the need not only to demonstrate its accountability to existing stakeholders, but also to facilitate the international growth mandated by its board.
These and other conglomerates have done their part to help to set the right tone in the region for the growth of our economies to be based on sound principles of good governance, but there's the potential for so much more. The potential for good governance to be the basis of sustainable growth of companies and their countries cannot be overstated. As noted by Duncan Green, “Economic transformation can have a strong disruptive effect on political governance, giving rise, for example, to interest groups that push for accountable leaders and effective institutions.”8
The challenges faced by the realistic implementation and adoption of Caribbean corporate governance codes, though numerous, are definitely not insurmountable. These challenges are in most instances cultural in nature, and others merely the result of the developing and embryonic states of our economies.
Challenges to a Caribbean-Wide Corporate Governance Framework
In 2003 the Caribbean Corporate Governance Forum (CCGF)9 identified some challenges to a Caribbean-wide corporate governance framework, including:
- Judicial systems poorly equipped to address healthy governance practices
- Very complex ownership structure of corporate sector
- High level of interlocking directorships
- Minimal investor participation in companies
- Lack of transparency in the management of companies
- Limited/scarce human resource capabilities in the relevant areas
- Limited ability of companies to innovate, set trends, and attract talented people
- Tendency for organizations to resist change
There have been positive strides in many of these areas since the 2003 CCGF Report, but there remains room for improvement. Another fundamental challenge is the absence of a culture of transparency in the realm of corporate activity. Thus requirements for disclosure of information such as director remuneration will invariably be met with resistance in small, close-knit societies. The overall low levels of awareness as to what corporate governance is and the benefits it offers, illiquid markets, shallow investor interest, and the perception of minority investor protection as weak or nonexistent must also be overcome by education of both the business community and the investing public. The over-dependency on interlocking directorships and the purported shortage of truly independent and qualified directors still also present challenges.
Debt financing is the traditional commercial capital source which in recent years has become even more readily accessible to regional companies; thus there is little pressure on companies to seek public listings or to be immediately concerned with public perception and pleasing potential investors. On this basis and if companies are only concerned with short-term goals, the costs of adapting to corporate governance best practice will appear difficult to justify. Although the region has had its share of corporate failures,10 which continue to negatively impact the lives of many individual investors, corporate governance is still seen more as a regulatory response to scandals and less so as a self-driven initiative for long-term economic success.
Goals
In spite of these challenges, an effective regional corporate governance framework can be designed to ensure improved social responsibility and allow for greater transparency, accountability, business prosperity, and economic growth and stability within the Caribbean. According to the report of the CCGF, such a Caribbean-wide framework should aim for:
- Enhanced self-regulation of companies (especially in newly privatized utility and public companies)
- Positive societal recognition due to a transparent internal governance structure
- Direct tackling of the supply side of corruption
Charkham identifies two main goals of corporate governance. The first is that it must allow for management to drive the business forward without undue constraint caused by government interference, fear of litigation, or fear of displacement. The second is that this freedom given to management to use power and patronage must be exercised within a framework of effective accountability—nominal accountability will not suffice.11 The combined effect of these goals dictates the need to find a balanced position which will facilitate commercial activity within the confines of a regulatory regime that demands economic, social, and environmental accountability to stakeholders. What must be determined by the drafters of Caribbean codes is how to strike this balance, how much reliance to place on the corporation's own ability to internalize social values, and which stakeholders are those to whom the company must be held accountable.
A Caribbean Governance Code
Any plausible Caribbean Code must also help to ensure the survival and indeed growth of Caribbean corporations in the CSME and global marketplaces, but only by coming to the level of what is acceptable internationally will our companies be able to benefit rather than suffer from the opening up of borders and access to a wider pool of investors. Such investors from outside the region are more sophisticated and thus more demanding. Meeting international standards will also impact accessibility to wider pools of debt financing, should such ever be necessary, since international lending bodies will invariably shy away from companies that lack systems that meet international basic standards of accountability.
Local Context Crucial
However, in the Caribbean context this goal of embracing acceptable levels of international best practice must be balanced with an unwavering appreciation for the embryonic stages of our economies and the companies operating within them. This is especially true of any code aimed at the region as a whole. Care must be taken to balance good levels of international best practice with the need to ensure the effectiveness of boards, thereby maintaining the viability of the companies operating within the realm of such codes. The path chosen by existing Caribbean initiatives, that of the comply-or-explain UK model, has the potential to allow for a reasonable, well-thought-out and possibly phased-in approach to corporate governance by Caribbean public companies and private companies seeking proper governance.
Conclusion
However, it is also imperative that we acknowledge the widening of the stakeholder group, which takes us full circle, back to the age-old debate on whether a company should be governed only in the financial interest of its owners, or should take the wider stakeholder group into account. Governance ultimately asks boards to govern management in a manner that allows for striking the right balance between accountability and the encouragement of enterprise. A more modern view of governance that is less check-the-box and more focused on real action within a sensible governance framework, that is founded on forward-thinking, long-term value creation, and that sets the standards for how the region moves forward, is vital.
About the Author
Ronaele Dathorne-Bayrd is the PricewaterhouseCoopers East Caribbean (PwC) Tax and Legal services partner leading the PwC Caribbean Region Corporate Services practice. She is an attorney-at-law, a Fellow of the Institute of Chartered Secretaries of Canada, and holds an LLM Masters in Corporate and Commercial Law with an emphasis on corporate governance.
She leads a regional team helping clients to optimise their corporate structures for success. Ronaele has over 20 years' experience in corporate practice, providing corporate advice to local, regional, and international clients. This includes advice on the initial structuring and ongoing restructuring of corporate entities, focusing heavily on the benefits of good governance.
She is passionate about her family, team, and clients, who together allow her to succeed.
Notes
- 1. The Caribbean Community Market (CARICOM) is an organization of 15 Caribbean nations established in 1973 whose main purposes are to promote economic integration and cooperation among its members, to ensure that the benefits of integration are equitably shared, and to coordinate foreign policy. Its major activities involve coordinating economic policies and development planning; devising and instituting special projects for the less-developed countries within its jurisdiction; operating as a regional single market for many of its members (CARICOM Single Market); and handling regional trade disputes.
- 2. M. King and L. Roberts, Integrate: Doing Business in the 21st Century (Juta Academic, 2013).
- 3. On August 19, 2019, the Business Roundtable announced the release of a new Statement on the Purpose of a Corporation signed by 181 CEOs who committed to leading their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders.
- 4. PricewaterhouseCoopers Barbados Corporate Services, “Directors of Our Fate,” November 2018 Survey of Directors of Barbados Companies.
- 5. B. Garratt, The Fish Rots from the Head: Developing Effective Boards (Profile Books, Ltd. 2010).
- 6. C. Barrow and J.E. Greene, Small Business in Barbados: A Case of Survival (Institute of Social and Economic Research (Eastern Caribbean), University of the West Indies, Cave Hill Barbados, 1979.
- 7. The company's services include various financial services (insurance, commercial banking, merchant banking, stock brokerages, remittances), food trading retail (supermarkets), and manufacturing.
- 8. D. Green, head of research, World Economic Forum, What Is the Relationship Between Governance and Economic Growth?
- 9. ECCB Headquarters, St. Kitts, September 3–5, 2003.
- 10. These include the corporate failure of Colonial Life Insurance Company (Trinidad) Limited (CLICO) and its parent company, CL Financial, in January 2009, the largest conglomerate in Trinidad and Tobago and the Caribbean, which was arguably the worst financial crisis experienced by the region.
- 11. J. Charkham, “Keeping Good Company,” in H. Short, Corporate Governance: Cadbury, Greenbury and Hampel—A Review (1998), 7:1 Journal of Financial Regulation and Compliance 59.