Caribbean Corporate Governance Forum

"Effective Corporate Governance: Perspectives

for the Caribbean Corporations and SMEs"

September 3rd – 5th, 2003ECCB, St. Kitts

Vicki D. Carmichael

GOOD CORPORATE GOVERNANCE DEMANDS HEALTHY DOSES OF:

RESPONSIBILITY

ACCOUNTABILITY 

TRANSPARENCY 

NON-CONFLICT OF INTEREST

UNHEALTHY PRACTICES COULD HAVE ANY OR ALL OF THE FOLLOWING IMPLICATIONS:

FINANCIAL 

ECONOMIC 

LEGAL 

MORAL 

POLITICAL

PART I

Sound Corporate Governance involves the necessary checks & balances needed within an effective corporate governance structure:

MMEEAASSUURREEMMEENNTT

&& AACCCCOOUUNNTTAABBIILLIITTYY

ORGANISATION

Employees

Business Environment

Board

Management

Investment & Financial

Community Regulators &

Government

Shareholders

CCOOMMMMUUNNIICCAATTIIOONN

&& DDIISSCCLLOOSSUURREE

IINNTTEERRNNAALL && EEXXTTEERRNNAALL AAUUDDIITTSS

Key components of good corporate governance are:

A. Effective and efficient Internal Controls & Risk Management

B. Conducive Organisational structure & culture

C. Sound Management philosophy and operating style

D. Effective and proactive Board and committees: Well-delineated roles and responsibilities of Board, management and employees.

E. High standard of Integrity and ethical values

F. Commitment to excellence.

SECTION A:

EFFECTIVE & EFFICIENT INTERNAL CONTROLS & RISK MANAGEMENT

Internal Control: Internal Control: Three pillars of internal control that can determine business success are:

Sound and accurate financial

& non-

financial reporting

Compliance with

applicable law &

regulations

Effectiveness and

efficiency in business operations

Internal Control Systems: 1. Determine your GOAL.

2. Establish a STEERING COMMITTEE.

3. ENABLE & EMPOWER the Audit Committee.

4. Select a SUITABLE & REALISTIC framework.

5. COMMIT and ENCOURAGE endorsement of plan.

Internal Control Systems, cont’d.6. SENSITISE employees and

ENCOURAGE input and/or recommendations.

7. IMPLEMENT and encourage CONTINUAL MONITORING of the systems employed.

8. IMPLEMENT and/or MAINTAIN an effective and well-organised record management system of all policies & procedures.

Internal Control Systems, cont’d.

Management’s view of what is deemed as significant risk, along with proof of analysis and mitigation.

Internal auditors’ independent evaluation of risk & control systems.

External auditors’ assessment of internal controls.

Management’s view of what is deemed as significant risk, along with proof of analysis and mitigation.

Internal auditors’ independent evaluation of risk & control systems.

External auditors’ assessment of internal controls.

9. The Board must demand a written assessment from the following persons, on an annual basis:

Risk managementRisk management::

The major risks to identify include:

1. Business continuity;

2. Management of strategic & operational change;

3. Business reputation;

4. Market & competition;

5. Financial & Economic;

6. Regulatory & Legal;

7. Challenges to intellectual property rights;

8. The recruitment & retention of competent personnel;

9. Evaluation & integration of acquisitions; and

10.Protection of IT systems & data.

Risk management cont’d:

SECTION B:

CONDUCIVE ORGANISATIONAL STRUCTURE & CULTURE

Corporations and SMEs need to ensure that a vibrant organisational structure exists to:

1. Encourage best practices;

2. Provide clearly defined roles &

responsibilities;

3. Allow adaptation to change;

4. Improve communication;

5. Build team-spiritedness;

6. Provide a sense of commitment;

and

7. Cultivate the appropriate culture.

Recommended Organisational

structures:

Production

Accounting

Business

R&D

Dept. DDept. CDept. BDept. A

Matrix Organisational Structure

Functional/Participatory Structure

SalesM anager

Prom otionM anager

M arketingM anager

DesignM anager

M anufacturingM anager

ProductionM anager

M anagem entAccountant

FinancialAccountant

FinanceM anager

G eneralM anager

The appropriate culture, tone and attitude of the workplace is also key to the effectiveness of corporate governance.

AttentionTo Detail

Low/High

OutcomeOrientation

Low/High

PeopleOrientation

Low/High

TeamOrientation

Low/High

AggressivenessLow/High

Innovation &Risk Taking

Low/High

StabilityLow/High

Many Caribbean companies need to consider the eradication of negativemanagement practices in order forsound corporate governance systems to thrive.

These ‘Pontius Pilate’ management practices include: a) Coercive tactics that lead to

fear and intimidation.

Notions of ‘bossism’ and authoritarianism.

Therefore, what kind of management/leadership style & structure does your organisation have?

4 Basic Leadership Styles

Autocratic

Leaders tellStaff whatto do

BureaucraticStructure

Participative

Leaders expectStaff toparticipate

Functional /ParticipatoryStructure

Democratic

Leaders seeksMajority ruleFrom staff

Functional /ParticipatoryStructure

Laissez-Faire

Leaders letStaff toMake decisions

MatrixStructure

Again it is recommended to cultivate either a functional/participatory or matrix structure.

SECTION C:

SOUND MANAGEMENT PHILOSOPHY & OPERATING

STYLE

The Company's management philosophy is reflected in the systems, policies & protocols by which its business is conducted. It should echo:

1. Transparency2. Accountability3. Responsibility4. Non-conflict of interest; and5. Value for Employees

SECTION D:

EFFECTIVE AND PROACTIVE BOARD & COMMITTEES: WELL-

DELINEATED ROLES AND RESPONSIBILITIES OF BOARDS,

MANAGEMENT & EMPLOYEES

The Board of Directors

Companies should ensure that:

1. The Board is aware of its mandate.

2. The Board understands the company’s strategy and are aware of the risks associated therein.

3. Directors are aware of their fiduciary duty & duty of care.

4. The Board monitors management’s performance.

5. The Board’s composition is a healthy mix of expertise and does not present a conflict of interest.

6. Directors receive the requisite orientation.

7. The Board meets frequently and have required access to information and personnel.

8. The protocol and conduct of all meetings be honoured.

Management & Employees

Companies should ensure that:

1. The delegation of authority and responsibility be clearly defined and inforced; and

Job function skillsTime-Management skills

Human Relation skillsCommunication skills

Presentation skillsNegotiation skills Analytical skills

IT skills

Types of Managerial Skills

2. Management is competently skilled. These skills should include:

3. Employees should also have the

requisite skills for their required job functions.

4. Both management and employees’ performance must be devoid of conflicting interests.

5. Employees must be given clearly defined job charters.

6. Requests made to staff must be clear and unambiguous.

SECTION E:

HIGH STANDARD OF INTEGRITY AND ETHICAL VALUES

It is imperative that the following groups operate with high levels of integrity and ethical values in any Corporation or SME:1. Board of directors2. Senior management3. Employees4. Internal auditors

5. External auditors

The success or failure is determined by these values and reputation risks are also at stake.

SECTION F:

EFFICIENCY & COMMITMENT TO EXCELLENCE

A businessman once said, “A business succeeds not because it is long established or because it is big, but because there are men and women in it who live it, sleep it, dream it, and build great future plans for it.”

PART II

EEMBRACINGMBRACING C CORPORATEORPORATE GGOVERNANCEOVERNANCE S STANDARDSTANDARDS

ATAT THETHE CCORPORATION & SME LEVELORPORATION & SME LEVEL

What confronts us?

The opening of the CSME would see trans-regional traffic of all resources.

With FTAA to take effect January 2005 there is no place to hide.

Companies are forced to be more vigilant of their financial practices with the recent pressure from FATF, CFATF, IAIS and FIU, for anti-money laundering legislation in Caribbean companies and the honouring of KYC rules.

In order to continue to access finance from international agencies, the need for disclosure, transparency, competitiveness and good management practices would come under great scrutiny.

SUMMARY

YOUR ORGANISATION SHOULD CAREFULLY

CONSIDER THE FOLLOWING:

What is the cost of non-compliance vs. compliance?

How essential is your staff to your business success?

What would be your financial and economic losses?

What are your reputation risks?

1. Admit that the business

environment has profoundly changed.

2. Accept that Corporate Governance is no longer a nicety.

3. Effectively and efficiently employ the key components of sound corporate governance.

Corporations and SMEs must:

The ball is in our court….

Thank you for allowing me to participate in this forum.

V. Carmichael.