Many may recall the scandalous fall from grace by a number of multilateral companies a few years ago. Notable among these were Enron and Worldcom in the U.S. and Parmalat in Italy.
Fraudulent behavior at the highest levels of those companies resulted in massive losses to stakeholders followed by a renewed and expanded interest in regulatory oversight by governments around the globe.
In an attempt to prevent a similar recurrence in the future, national, regional and international regulatory bodies introduced a series of laws, rules and regulations which required corporations and indeed regulatory bodies themselves, to subscribe to a clear and concise set of guidelines regarding the day-to-day conduct of commercial operations.
In the last decade the United States, the United Kingdom and the OECD countries established a set of general principles to be adopted by all companies to ensure that proper corporate governance structures and procedures are in place at all times.
Those principles addressed matters regarding respect for the rights of shareholders, increased transparency and open and timely communications to stakeholders on anything affecting the company.
It is also expected that companies recognize that they have legal, contractual and social obligations to non-stakeholders and to the community in which they operate.
An emphasis was placed on disclosure and transparency issues with particular reference to explaining to the public the role and responsibilities of the board of directors and management.
As regards the board of directors, it was the expectation that the individuals on the board would possess the relevant skills and qualifications to not only understand the operations of the company, but also to challenge management if the need so arises.
Above all, a fundamental requirement of the new corporate governance guidelines was a code of conduct based on integrity and ethical behavior for directors and executives to ensure responsible decision-making capability on the part of the organization.
Good corporate governance standards have been adopted worldwide and here in The Bahamas, the financial services regulators in particular (Central Bank of The Bahamas, Securities Commission of The Bahamas, Insurance Commission of The Bahamas and the Registrar’s Office) have been in the forefront of implementing governance practices in the local financial services industry.
The Central Bank has been especially vigilant in ensuring that its licensees adopt the highest corporate governance standards inclusive of appointments to the boards of directors.
The boards have a pivotal role in governance in that they have the responsibility for overseeing the organization’s strategy and policy direction as well as weighing in on senior staff appointments and salary levels, and ensuring the institutions’ accountability to the shareholders, regulators and the wider community.
To that end, our regulators ensure that the boards have sufficient directors with the requisite qualifications and relevant experience to sit on various sub-committees (audit, management, risk and compliance, loans, assets and liabilities). Care is also taken to ensure that a number of the directors are independent and that their terms of appointment are staggered to ensure continuity.
It could be successfully argued that our regulators’ renewed emphasis on good corporate governance has instilled a sense of confidence in the financial services sector by both local and foreign investors.
Ironically, if one examines the structures of and many of the appointments to the government’s boards (Central Bank, Bank of The Bahamas, Bahamas Development Bank, Broadcasting Corporation of The Bahamas, Bahamas Electricity Corporation, National Insurance Board to name a few) it is patently clear that those organizations are exempted from the international standards of corporate governance which are imposed on local private institutions.
That omission might very well explain, in part, some of the problems with efficiency, transparency and in some cases, profitability being experienced in the public sector institutions.
Editorial from The Freeport News
