March 2, 2024
Time for Guyana to have a code of Corporate Governance
Introduction
For decades, the captains of Guyana industry – almost all men – have resisted the introduction of a binding code of corporate governance. It has not been for want of effort. There have been numerous efforts at the establishment of a code of corporate governance including one by the Securities Council and another by the Private Sector Commission. Neither of these came to fruition and there is now a total void with companies limited to more narrow codes issued for particular sector, or to practices likely to get past a general body of unenlightened shareholders.
In a column I did several years ago, I wrote that the international quest for a modern corporate governance code began in the UK in 1991. Then Pime Minister John Major appointed a committee headed by Sir Adrian Cadbury following a number of high-profile corporate failures which were attributed to poor governance, poor accounting and inadequate disclosures. The most significant corporate failures were the Maxwell Communications Corporation scandal in 1991 which surfaced after chairman Robert Maxwell died in the most unusual circumstances, revealing that he had fraudulently misappropriated hundreds of millions of British pounds belonging to the group’s pension schemes. Then there was the failure of the Bank of Credit and Commerce International which collapsed after an investigation revealed that it had been engaged in fraud and money laundering.
As its formal name implies – the Report of the Committee on the Financial Aspects of Corporate Governance published in December 1992 – the Cadbury Report really had a fairly narrow focus. Its principal recommendations emphasised improving corporate governance and accountability in public companies in the United Kingdom. There was more to follow. South Africa in 1994 saw the King Report on corporate governance, now recognised internationally as perhaps the leading code of corporate governance of any country of the world. Germany published its code in 2002 with Japan following some years later. A code for the US followed the debacle of Enron and WorldCom failures and took the legislative route with the passing of the Sarbanes-Oxley Act (2002).
Particularly in the UK and South Africa, there were iterations and additions in subsequent years with the UK now having a full corporate governance code embodying several other reports while in South Africa, the King Report is now in its fourth iteration.
Guyana’s Experiences
A Business Page I authored years ago had reported that the Council of the Private Sector Commission (PSC) of Guyana on 7 April 2011 had accepted a Code on Corporate Governance which could have some transformational effect on the way Guyana companies are managed. Like the draft Code published by the Securities Council, the PSC’s code did not get far, effectively killed by officers of the PSC itself. As I wrote then, the then Chairman of the PSC was Mr Ramesh Dookhoo, an executive of Banks DIH while Mr Chintamani (DEMTOCO) had been a member of the executive of the PSC. They could not persuade their own companies to adopt the PSC’s Code, with Chintamani pouring scorn on the idea of a mandatory code.
So here we are, decades later with no Code and a PSC that has become no more than ceremonial and largely inactive. What the absence of a code does is allow for poor governance with directors handpicked by an all-powerful chairman who reports to himself and a compliant set of directors. Directors’ turnover is minimal, and it is striking that since their formation, both Banks DIH Limited and Demerara Distillers Limited have been firmly controlled for decades under hereditary fiat by four men – Peter D’Aguiar and Clifford Reis at Banks DIH Limited and Yesu Persaud and Komal Samaroo at DDL. Independent directors are almost invisible and ineffective, serving at the will of the Chairman while the executive directors are not subject to election or re-election. The shareholders with any real voice and influence are the Institutional investors but these operate as cartels, even at the cost of their own interest.
Guyana’s Failures
Guyana too, has had more than its fair share of failures with Globe Trust and CLICO as standouts, but Guyana Refrigerators, Stockfeeds and many state-owned companies have also suffered. Yet, no meaningful action has been taken to strengthen corporate governance and to prevent a recurrence. These are not simply issues for the seven days’ news cycle. Companies will fail because of the type of industry they are in, because of technological advances and because of particular unique circumstances. But good corporate practices, careful planning and open communication do help in anticipating and preventing failures.
Boards have made too many costly blunders because of directors’ failures such as DDL investing in facilities in a dry state in India and Banks DIH making some costly strategic and tactical blunders, all with total immunity. This should not continue. There is a complete disconnect between a country determined to take its place among the richest in the world, tolerating corporate government practices that are backward, ineffective and which stifle growth and development.
Conclusion
A code not only sets the minimum standards of governance in companies but also requires them to report on how they apply relevant corporate governance principles, and also to be responsible enough to give an explanation to the shareholders of the reason(s) if they deviate from the code – the ‘comply or explain’ principle. The code also calls on companies to provide information on their corporate governance policies and principles at the request of shareholders for further evaluation, the very things DEMTOCO said they would only provide if the law so required it.
None of the senior members of the government have any corporate experience and would seem ill equipped to appreciate how the absence of a corporate governance code retards the development of the country. Yet, it is a great opportunity for the Minister of Business to convene a meeting of the Private Sector Commission and the securities council asking them to set up a committee with the express purpose of formulating a code of corporate governance. Let the Private Sector explain why it is not supportive of such a code.