By Vindell Kerr, Contributor
AT A TIME when the need for decisive, prudent and effective governance is needed more than anytime else in Jamaica's history, some of our leaders continue to demonstrate apathy towards the imperatives of good corporate governance, and the day-to-day issues which underpin local realities. Contrary the above, Minister of Commerce, Science & Technology, Phillip Paulwell, very obsessed with innovation and creativity, has made yet another bold move, this time towards embracing Digital Governance.
This author hopes to analyse the merits of that initiative in a forthcoming article: "Digital Governance and the Emerging Knowledge Society. "The Jamaican small shareholders and institutional investors alike are made to wait in earnest on the final ratification of the draft Companies Act of Jamaica (2001) or the "draft Bill". For nearly two years now the draft Bill has been hijacked before a Special Committee of Parliament. I was reliably informed that soon after Parliament received the draft document, over 200 amendments were to be made. These days we are no longer told what's happening to the proposed Bill and that Special Committee.
The public needs to know who are now given that responsibility and how soon the Jamaican business milieu can await the completion of the proposed Companies Act of Jamaica (2001).
SHAREHOLDERS JUSTICE: DENIED OR DISTORTED?
One wonders why Parliamentarians have to be made to review and ratify important matters affecting our lives when so often the issues they are put to preside over are outside their intellectual grasp. Not withstanding this, there are always many brilliant minds in Parliament. But what cannot be easily comprehended is the propensity of these men and women to pussyfoot the due processes that are so important the citizenry of Jamaica. It might be opportune time for more power to be given to the Finance Ministry, or the Ministry of Commerce for that matter, to appoint a Committee of qualified, experience and untainted citizens to review, produce and vet important issues such as the Companies Act. After the opinions and input of the learned private individuals, then the draft should be presented to Parliament as a matter of formally. Important issues such as the proposed bill should be fast-tracked through Parliament rather being railroaded. The longer it takes to pass these pieces of legislation, is the more shareholders are "dragged", "kicked" and "boxed" by "Boardroom Cowboys".
A case in point is that of the experience of a young investor. It follows: in the early 1990s that the young investor spent a significant amount of his savings on acquiring stocks in many listed companies included Workers Bank (now defunct), and West Indies Pulp and Paper (WIPP), among others. Of the over $25,000 spent by the young investor in acquiring shares in Workers Bank-believed very passionately in supporting Jamaican owned enterprises at that time- he received in return, a mere $2240 for his $25,000 investment some five years later. We are all aware of what happened to Workers Bank. In the case of WIPP, it has been de-listed from the Jamaica Stock Exchange since February 22, 1999 (Source: JSE data). Some $16,000 was spent acquiring 4000 of that company's stocks. For the almost 4 years since WIPP has been de-listed for failure to file the necessary financial reports, no dividends have been paid, and common shareholders investment in that stock can be considered frozen, since stocks can neither be bought or sold. If that stock were to be re-listed now, the young investor's stake would have a face value of a mere $2200 (before fees) based on last quoted price of $0.55. As it stands, there is no recourse for the common shareholders, there is nothing that the JSE can do on the behalf of these shareholders as the rules and laws empowering the JSE do not provide it with powers, beyond de-listing of the delinquent companies. The Financial Services Commission (formerly Securities Commission) like the JSE, has no provisions in its mandate to hand-down punitive actions against delinquent companies and their directors, in situations of this nature. What therefore should be the recourse of that young investor? At least, from studying the new provisions of the proposed Companies Act (2001), and assume those provisions stand after deletions and/or amendment by the learned committee members, common shareholders might be able to file Law Suites against delinquent companies and their Boards of Directors. We eagerly await the final ratification of the proposed Companies Act of Jamaica (2001).
TOWARDS A JAMAICAN SHAREHOLDERS ASSOCIATION
With the tragic and most inhumane passing of Mr. Clifford Borough, once the sole voice championing the cause of small shareholders, a void has been created which can be filled with the establishment of a unified group of Jamaican common shareholders. The group envisaged could be similar to the UK Shareholders Association (UKSA). The UKSA is a leading independent organisation representing the views of individual shareholders. Since its founding in 1992, at which time it was the only such body in the entire World, it has represented the views of individual investors to Government, the London Stock Exchange, Boards of British Companies, regulators and the media.
The UKSA ensures that company managers interests are properly aligned with those of shareholders, empowered and educated individual investors whose interests are respected by Government, and who can operate on a level footing with institutional investors. As the Jamaican society at large cries for justice, the cry of the common shareholder is for too long too silent. As the small shareholder pleas, corporate governance structures are still failing to provide the medium through which recourse can be obtained for losses suffered as a result of "frozen" investments.
In countries such as Britain and the USA "Boardroom Cowboyism" is being challenged and toppled by radical investor movements. In the USA, radical institutional investors such as California Public Employees' Retirement System (CalPERS), California State Teachers Retirement System (CalSTRS), College Retirement Equities Fund (TIAA-CREF), New York City Funds (NYC) and State of Wisconsin Investment Board (SWIB) are known for their militancy in achieving boardroom reforms. These institutional investors have achieved much over the last ten years in determining the structure and composition of many boards. CalPERS famous corporate governance programme in the USA targeted corporations such as IBM, General Motors, American Express, Kmart and Sears. Some studies indicate that shareholder activism indeed may pay off. CalPERS, for example, claims that an investment of some USD 500,000 in shareholder activism leads to additional earnings of tens of millions of US dollars annually.
PRESERVING SHAREHOLDERS DEMOCRACY
To preserve shareholders' democracy and build confidence in the long-term future of the Jamaican equity market, the following are some humble suggestions by this author for the relevant authorities: Encourage the development of standards and procedures reasonably capable of reducing the prospect of organisational criminal conduct; appointment of a senior level individual within the corporation to monitor the standards and procedures, effective communication and training regarding the standards for all employees; effective monitoring and auditing of the system, an internal reporting mechanism for employees to communicate violations of the standards.
This should be the norm rather than the exception in state-owned agencies; To effectively achieve all the about may necessitate the creation of a board level committee to address these issues, or the expansion of the current audit committee (where there is one) to include compliance oversight. On the matter of governance of State-owned agencies, the lack of internal provides the most poignant and opportunistic task for the Government to guarantee its citizenry a commitment of transparency and accountability by stern and dedicated move in implementing internal audit controls of the institutions. Unfortunately, the proposed Companies Act of Jamaica (2001)-like its predecessor has ignored the modus operandi of State-owned companies.
In this context therefore, the author is suggesting a new and separate set of legislation to deal effectively, once and for all with the governance of State-owned enterprises. This call is urgent-these institutions could be still highly vulnerable to mal-administration and element of corporate misdeeds associated with the well-publicised "Fat Cat" Scandal of 1999. Finally, an organised and effective group of small shareholders could be forged in helping to secure and enforce shareholders rights, and to play a monitoring role in corporate governance development in Jamaica.
Vindel Kerr is conducting doctoral research in Corporate Governance, and is a Consultant on Business Profitability and Competitiveness. Comments at: vkerrl@anngel.com.jm.
