Both the Board of Directors and the Management have fiduciary and legal duties to the shareholders of a company and these are the same whether the company is in New York or Nassau, The Bahamas, an accountant told the Business Journal in a recent interview.
“Directors and managers have always had a fiduciary and legal duty to their shareholders,” said Ishmael Lightbourne, managing partner at PricewaterhouseCoopers, in a recent telephone interview.
The current global concern over corporate governance or more correctly its well-publicised failure has been the primary driving force behind creating greater accountability and transparency in boardrooms.
The Enrons, the Parmalats, the Worldcoms and the Global Crossings have all undermined investor confidence in the companies and the markets that trade in their securities.
Mr. Lightbourne who addressed the state of corporate governance and shareholder activism in The Bahamas said that shareholders have to show greater authority by demanding that boards and management recognize that “the shareholder is king.”
Corporate governance issues are exacerbated by the fact that The Bahamas is what Alliance Investment Managementﾴs president Julian Brown said was an “emerging market”.
For Mr. Brown the challenges to transparency and accountability were both formidable and systemic.
“When you look at the makeup of the board in public companies,” he said “you will find that there is hardly any representation for minority shareholders.”
Mr. Brown who is an ardent supporter of shareholder and especially minority shareholder rights, believes that provisions should be made for the minority shareholders to have a voice on the board.
“Even here at my company I am agitating for us to put in place provisions for the minority shareholders to elect at least one director,” he said, “so that their voice can be heard.”
He believes this is necessary if corporate governance is to be effective. His concerns grew out of problems he had with the merger that created First Caribbean International Bank, in which, in order to facilitate the merger, one bank CIBC West Indies revalued its shares and its parent company in Canada took a one-time cost of $170 million.
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The effect of the re-evaluation was that shareholders who had purchased the shares at the much higher price prior to the merger now saw their holdings in the bank cut by as much as 50 percent. Nor were they appeased when the bank gave them an option to buy into the new entity at the new price.
“Why would I want to put money into buying more shares when you have just gone ahead and cut my investment by 50 percent?” Mr. Brown asked. “And there was nothing minority shareholders could do.”
He said that not only was there a tendency for the big publicly traded companies to act as a law unto themselves in these matters but also that the small pool from which directors were traditionally drawn helped to contribute to that tendency.
“Take a look at the boards today and you will find that for instance you have lawyers sitting on the boards,” he said. “Dig a little deeper and the chances are very good that that lawyer is there because his firm does a significant amount of business with the company.”
Mr. Brown said under those circumstances it is highly unlikely that such a board member would be expressing the kind of rigorous and independent positions required.
“Do you think such a lawyer will be inclined to or feel free to express positions that may be viewed as not going along with the programme?” he asked.
Referring to the recent Finco case where a shareholder at the recent AGM was told that the $1.3 million or 36.25 percent increase in general and administrative expenses was a “sensitive and confidential matter” which could not be discussed, Mr. Brown said that the issue was that there was no one on that board who said hey “ﾑwait a minute we do have a duty to tell our minority shareholders what this is all about.ﾴ”
He also expressed concern about the impact of board membership on directors.
“Membership brings with it a certain status in the community,” he explained. “You are seen as someone who is in the know with access to the inside. At that point the decision is whether the board member is going to be looking out for the best interests of all the shareholders or to what extent his decisions will be influenced by him protecting his status.”
Mr. Brown said that it was critical that major shareholders begin to address these issues in making board appointments and also to ensure that the minority shareholdersﾴ voice is represented. Bahamian investors need to know that they have a voice on the board, a voice that they can elect and remove as they see fit, he said.
The status quo served a particular set of values but today when global organisations such as the OECD are not only calling for greater accountability and transparency but are prepared to blacklist entire countries as they did with the Financial Action Task Force initiatives against money laundering, it is critical for the major players to be proactive in the area of corporate governance.
C.E. Huggins, The Bahama Journal
