Transplanting Foreign Corporate Governance Codes
Jamaica’s Draft PSOJ Code is modelled on the United Kingdom Combined Code 2003 which also gives rise to concerns of suitability for the region.
A. Ratio of Executive and ?Independent’ Directors
The recommendation in the various codes of corporate governance, that board composition should reflect a certain ratio of executive to nonexecutive ?independent’ directors may be difficult to prescribe in the Caribbean as this largely depends on the size and type of company.[270] Many of the large companies in the region started out as family-owned companies which were enlarged to include peers of the families.
The directorship of many of these companies reflect that reality and, therefore, the balancing of the board of directors to include truly independent, nonexecutive directors may be difficult, especially in small societies.B. Interlocking Directorships
These arguments dovetail with the recommendations against interlocking directorships, a strong feature of Caribbean corporate boards. The general school of thought in the Commonwealth Caribbean is that interlocking directorships are inevitable due to the lack of a sufficient pool of directors. The reality, however, may be that those directorships represent an ?old-boys’ network,’[271] similar to that of the traditional United Kingdom boards which reflected class and old money without the attendant degree of responsibility and liability.[272] The aggressive drive in the United Kingdom, Canada and the United States to dismantle interlocking directorships in order to decrease the appearance of conflict and increase independence, mainly, if not always for the sake of minority shareholders and other stakeholders, has been by way of proposals and guidelines, limiting interlocking directorships and the number of directorships any one individual can hold and, indirectly, by the provisions designed to increase the duty of care and skill of that of the director and the attendant liabilities.[273]
If Commonwealth Caribbean territories adopt these guidelines and provisions, they need to appreciate the possible results of the adoption of those rules or legislative provisions which directly or indirectly impact on interlocking directorships.
The result here would not reflect the corporate reality of the region.C. Splitting CEO and Chairman
The further recommendations in many corporate governance codes, that the roles of CEO and Chairman be split, although theoretically sound, is of no real moment in the Commonwealth Caribbean where many of the best companies in the region have the same person fulfilling both roles or the roles are filled by close relatives. In any event, the smaller the society, the less relevant this recommendation, as the position of Chairman is still susceptible to abuse by the control he or she may have over the CEO.[274] The UK Combined Code recommendation that institutional shareholders should become more involved in the process of accountability and transparency in the companies in which they invest, does not accord with the business culture in the region.[275] Institutional shareholders are largely uninvolved in the region, with the focus being on financial targets.[276]
D. Shareholder Empowerment
Shareholder empowerment as recommended by corporate governance codes has been achieved in the region through legislation.[277] However, as observed in the United Kingdom in the Hampel Report the position at the time in the United Kingdom was that, private individuals owned only about 20 per cent of the shares in listed companies directly. It was further noted that only a minority of private shareholders take an active interest in the companies in which they invest.[278] The position in the Commonwealth Caribbean is even less. The investment market has been described as ?small, young, illiquid and lacking in variety, thus individual investors are by extension generally immature in character and almost invariably subscribe to a “buy and hold” investment strategy that does not call for active involvement.’[279]
E. Audit Requirements
Audit requirements under the Combined Code, although many have been adopted under the various companies legislation in the Commonwealth Caribbean, oftentimes introduce a great cost to even what may be considered a large company in the region. Even though there exists in the various territories Institutes of Chartered Accountants as well as a regional Institute of Chartered Accountants, there is no effective oversight or regulatory body for the accounting profession comparable to the Public Company Accounting Oversight Board introduced under the Sarbanes-Oxley Act.
This would involve added expense and bureaucracy for the small territories of the region. One solution to minimize expenses would be to pool resources to enable companies within the region to comply with any added audit requirements.The broader issue, relating to groups of companies, is also an area of concern when assessing the relative strengths and weaknesses of adoption of codes of corporate governance and legislation from developed markets.
Groups Within the Domestic Market
Within the domestic market, the challenges for corporate governance involve reconciling the Saloman v Saloman[280] principle of the separate legal entity doctrine and the perception of groups - parent and subsidiaries — as a single economic unit with direction and control from the parent company, interlocking directorships and nominee directors.[281] Parent companies are separate in law from their subsidiaries. The courts are loathe to lift the veil of incorporation for reasons other than fraud.
The prevalence of nominee directors and interlocking directorships between parent companies and subsidiaries for the purpose of control suggests a breach in established corporate governance principles. Indeed, interlocking directorships are a feature of Caribbean companies and many indigenous companies in the Commonwealth Caribbean have emerged from the private family company, which in turn, have expanded to become groups of companies.
Transnational Groups
Transnational groups have to consider domestic law as it relates to corporate governance, Private International Law rules as well as the interpretation and enforcement of treaties such as the Caribbean Community Revised Treaty of Chagauramus 2001, the basis for the Caribbean Single Market and Economy (CSME), which allows for freedom of movement of individuals and companies within the region
Many Commonwealth Caribbean countries depend on foreign companies, which are transnational in nature, for development of their resources, telecommunications and energy.
The countries affected by transnational groups of companies, therefore, have little control over the corporate governance practices of the transnational and can hardly rely on the standards set by the country of the parent company.If a company chooses to arrange the affairs of its group in such a way that the business carried on in a particular foreign country, is the business of the subsidiary and not its own, it is, in our judgment, entitled to do so. Neither in this class of case nor in any other class of case is it open to this court to disregard the principle of Salomon v Salomon [1897] AC 22 merely because it considers it just so to do.[282]
Further, there is now an aggressive takeover of companies within economically weaker Caribbean countries by companies in the economically stronger Caribbean countries. These factors no doubt, multiply the issues relating to corporate governance in the context of groups of companies. It is difficult, in these circumstances, to establish a coherent and consistent approach to corporate governance.
Transnational companies are out of control. Although critics of this assumption will point to the programme of ?sustainable development' referred to in many corporate codes of conduct and individual good practice, together with environmental auditing and international codes of conduct such as the OECD Guidelines on Multinational Enterprises (OECD), 1992) there is nevertheless a significant problem that will inevitably be compounded by the addiction to ?growth'. The political and economic poser of many transnationals dwarfs the traditional regulator, the nation state, makes the idea of shareholder control laughable, and leaves us groping for alternative control mechanisms.[283]
6.