By Vindel Kerr, ContributorAS REGULATORY barriers between national economies are removed and global competition for capital increases, investment capital will be directed to those countries and corporations that have adopted efficient corporate governance standards. These standards include acceptable levels of investor protection and board practices as well as satisfactory accounting and disclosures.
A reliable framework of corporate governance must include and ensure the full, timely and detailed disclosure of information on all material issues to include the establishment of internal audit committee. Transparency and disclosure include disclosure of information on financial operating results; ownership structure; members of board of directors and management; qualitative and quantitative matters concerning employees and other stakeholders within and outside the company.
CORPORATE DISCLOSURE REQUIREMENTS
In Jamaica, the Banking Act (1992) sets out the disclosure requirements for the deposit-taking entities it regulates. These requirements include quarterly financial statements among other reports. The Jamaica Stock Exchange (JSE) requires its members (listed companies) to submit quarterly and annual financial reports and stipulate punitive actions such as temporary or permanent de-listing where they fail to meet these requirements. The Companies Act sets out its standards of disclosure requirements. Guidelines from the Institute of Chartered Accountants of Jamaica (ICAJ) address issues of financial, auditing and accounting standards for its member-companies and practitioners and non-practitioner members. In spite of these rules and voluntary disclosure expectations, many Jamaican firms still refuse to comply in full or part. For example, the following statement was cited from one of our local newspapers: "...not a single company secretary was willing to provide clarification of details, or to provide basic information or even to engage the newspaper on the issue. Even though the companies are required to state the full packages of their executives, it is not clear if there is consistency among the companies in their interpretation or application of this rule. It is possible that some of the salaries that were reviewed do not reflect the total emoluments of executives, and that critical items like stock options, housing, and pension may have been omitted in some instances. Additionally, it is not known how some companies may have treated cost items like personal bodyguards provided to their executives".
NCB: STERLING YEAR-END
PERFORMANCE, ROOM FOR DISCLOSURE
Congratulations to the NCB group on what is nothing less than a sterling performance in its reported year-end financial performance-a whopping $1.95 billion compared to $0.370 billion in the previous year (2001). Notwithstanding this, it would be indeed useful to shareowners, clients and the public at large for explanation on what exactly would have accounted for more than a billion dollars of that bank's profit to be realised in the fourth quarter (period July 1-September 30, 2002). Such explanation would have been adequate corporate governance disclosure at the very zenith, considering that we are in an environment where shareholders and stakeholders often complain of the inadequacy of key information on operation and corporate development. Of course, if the fourth quarter's performance is to be used to predict future performances, then NCB will be a greater force to be reckoned with. It would seem also that shareholders should expect even greater value in the years ahead. Should they?
STATEMENT ON CORPORATE GOVERNANCE
Only two companies have been including a statement in their annual reports on corporate governance in Jamaica, one of which is a local subsidiary a of foreign-owned corporation. A closer examination revealed that the jurisdiction in which carent company of the foreign subsidiary is located, mandates all listed-companies, and more so financial institutions, to include adequate disclosures on specific matters of financial performance, director material connection, among other critical issues. It is quite sobering that this foreign subsidiary has been practising such high levels of disclosure even outside of the jurisdiction of it parent. Commendation is in order for the foreign-owned subsidiary; and to the Jamaican-owned listed company that has been consistent for the past three consecutive years on including a statement on its corporate governance activities, in its annual report. Also, it has been noted that a recent IPO has gone as far as including a brief statement on corporate governance in its offer document, though the scope of information could have been broader. Respect to that particular firm on such thoughtful voluntary action! Clearly, the trend is being set and more and more companies are adopting corporate governance voluntary best practices, in line with global trends.
In the spirit of good governance and to improve corporate disclosure among Jamaican companies, particularly listed-companies, this author is suggesting that the Bank of Jamaica, the Jamaica Stock Exchange and the Financial Services Commission, independently or in collaboration, establish a set of specific disclosure requirements and ask that their member-companies address these issues in a statement on corporate governance to be published in annual reports; where companies fail to report on the specific issues, those companies should be required to explain their non-compliance in a separate statement, albeit voluntary disclosures.
TOWARDS A DIRECTORY OF
CORPORATE DIRECTORS
Another move that could significantly improve the quality of corporate governance disclosures across all companies in Jamaica is the initiation and publication of a Jamaican directory of corporate directors. In US, Canada, Britain and several other countries institute of directors, stock exchanges and other regulatory or quasi-regulatory bodies publish directories of corporate board directors. Such a directory provides the name of individual directors; their level of interlocking across companies, among other things. In Jamaica, and in the absence of a directory of corporate directors, the Jamaica Stock Exchange (JSE) is well poised to undertake such a potentially useful initiative, which could include its members and non-members. Would the illustrious Iton-led management team and Seat-holders of the JSE rise to such a task? Director interlocking is where one director holds several directorships in related and unrelated companies. Given a specific director's stockholding (which normally would be included or indicated for each company s/he is a director of), the public would be able to determine a particular director's interconnection and possible influences. The directory of corporate directors has become a very important corporate governance tool in Britain, particularly after the debacle of Maxwell Communications Group in the 1980s. For better or worse, the late Robert Maxwell and the demised Maxwell Communications, PollyPeck and others, have open a new chapter on the need for and importance of adequate corporate governance disclosure in advancing ethics and integrity in both private sector and public businesses.
ANNUAL REPORTS
Adequacy of corporate governance disclosures must take into consideration the quality of information and how this information is presented in annual reports. This author is appalled about the shabby state of some of our annual reports. The information presented has not always in font size and language easily read and understood by many senior shareholders (older). Companies with ultra-conservative presentation of information in annual reports should give consideration to their wide shareholder base, ensure that that language is as simple as possible, legible and can be understood by the average literate shareholder. Some of our annual reports are just too small and void of creativity. It can be accepted that it would be difficult for any company to adequately satisfy the taste, preference and expectations of all its members. However, an effort should be made to ensure the information content of annual reports be attractively presented, and generally more reader-friendly. I have seen at least one annual report that would pose some difficulty reading-even with the aid of electronic magnification. Not withstanding the above, I must congratulate those many companies that have been constantly improving the quality and presentation of the information in their annual reports. Nothing is as wonderful and catchy as lovely pictorials and other high quality graphics-but today's shareholders require much more - they require frank and to-the-point explanation on extraordinary items, worse under-performances - put these up-front and in legible prints, not tucked away in the back, and in fine prints. Companies should recognise that shareholders are only given a comprehensive statement once per year by their firm. Therefore, it is the responsibility of the managers - hired hands (the agents) - to ensure that shareowners receive a statement presented at the highest standard and in non-discriminate manner.
Vindel Kerr is conducting doctoral research in corporate governance. Comments at: vkerrl@anngel.com.jm
