WHILE there appears to be strong support among the chief executive officers of local listed companies for the concept of independent directors on boards, the definition of who or what is an independent director could prove to be a sticking point.One CEO put it this way: "If being an independent director means that I can't be elected to my board after I have retired and no longer have a paid, executive relationship with the company, then it won't work here. In fact, I believe that the discussion should be about executive versus non-executive directors. The idea of developing totally outside, professional directors as is being promoted elsewhere is not appropriate for Jamaica."
At the same time, the CEOs were unanimous in the view that corporate governance policy statements and independent or non-executive directors on boards are extremely important for Jamaica.
Independent vs. non-executive directors
All of the CEOs with whom Sunday Business spoke were more comfortable with the terms, "non-executive" or "external" directors over independent directors. "Independent of what or whom?" asked Dr. Marshall Hall, managing director at Jamaica Producers. "What we really want to be sure about is that there are no conflicts of interest and that the director acts in the interest of the shareholders and of the company at all times. You don't have to go and recruit someone off the street in order to get that."
Other non-executive director qualities mentioned by the CEOs include:
Someone who does not occupy a paid position in the company, but who can be paid for specific services, under contract, if he or she has special expertise required by the company for a specific assignment.
Someone who has significant experience in the company's core or allied business, but is not employed by or related to anyone employed by the company.
Someone who is not an employee of the company and does not derive any income from the company except as a shareholder.
Someone who is independent of management and whose focus is to serve the interests of the shareholders and secure the future of the company. This must be paramount.
Written corporate governance policies
Of the 12 CEOs or senior representatives of listed and unlisted companies with whom we spoke, four of the listed said that their company had a written corporate governance policy, six said no and one of the latter said that such a policy is currently being developed. One of the two unlisted companies has had a written Corporate Code of Ethics since 1991.
Among the companies surveyed, the committees typically chaired by non-executive directors or that have majority non-executive directors are: audit; remuneration; code of conduct or code of ethics; and the corporate governance.
Scotiabank and CIBC, which were included in the survey, both have written corporate governance policies that incorporate a business code of ethics or code of conduct. In the case of BNS, directors and senior managers are required to certify each year that they have read the code at least once during the year. BNS has 14 directors, 10 of whom are external.
CIBC Vice President, Raymond Campbell, said that companies operating locally as a component of a larger international grouping are more likely to comply with global practices. In the case of CIBC, for example, their regional audit committee is made up entirely of external directors. "There may be a need," he said, "to distinguish between totally local companies and those operating here that are headquartered overseas in terms of their progress with corporate governance statements and the pace with which these may be developed.
Grace, Kennedy & Company is a striking exception. Over the past three to four years, Grace has developed what may be considered model statement and practices on corporate governance. Chaired by attorney Christopher Bovell, the corporate governance committee is made up entirely of external directors, meets regularly during the year (it met seven times last year) and effects modifications of the policy as circumstances dictate.
A non-executive director is defined in Grace's corporate governance policy as being, "independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement."
Furthermore, in defence of the combination of the positions of chairman and chief executive officer, a practice frowned on by most current international corporate governance standards, Grace's corporate governance statement says that in their case, "It is necessary to have one person holding both positions with the greater power and responsibility that this creates, in order to achieve quicker decision making and more decisive leadership."
As a balance to this power, according to the statement, one half of the board is made up of non-executive directors, three of whom are independent and all of whom are very strong and able individuals who can ensure that the chairman/CEO does not exert too much influence on the board and in the execution of his duties as CEO.
JSE Chairman, Roy Johnson, agrees that if a board is made up of a greater weighting of non-executive members over executive members, it is more likely that the board will function more objectively and will be able to ensure that management is executing its responsibilities capably. "There are strong suggestions that companies are likely to be more transparent, more responsive to stakeholders and benefit from improved stock valuation when a greater proportion of independent directors is on the board and by independent I mean independent of management. When independence from management is lacking among directors, the system erodes."
Johnson emphasised that corporate governance is a complex issue and that care needs to be taken that corporate governance standards and practices, which are fully conversant with and appropriate to Jamaica be developed. To this end, he said the Stock Exchange had recently approved the formation of an Exchange Development Committee, which will shortly initiate a process among market participants for the development of a standard corporate governance policy Statement to which listed companies will be required to subscribe.
