Caribbean Corporate Governance Forum

1. Caribbean Corporate Governance Forum "Effective Corporate Governance: Perspectives for the Caribbean Corporations and SMEs" September 3rd – 5th, 2003 ECCB, St. Kitts Vicki D. Carmichael

2. GOOD CORPORATE GOVERNANCE DEMANDS HEALTHY DOSES OF: RESPONSIBILITY ACCOUNTABILITY TRANSPARENCY NON-CONFLICT OF INTEREST

3. UNHEALTHY PRACTICES COULD HAVE ANY OR ALL OF THE FOLLOWING IMPLICATIONS: FINANCIAL ECONOMIC LEGAL MORAL POLITICAL

4. PART I

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

6. Key components of good corporate governance are: • Effective and efficient Internal Controls & Risk Management • Conducive Organisational structure & culture • Sound Management philosophy and operating style • Effective and proactive Board and committees: Well-delineated roles and responsibilities of Board, management and employees. • High standard of Integrity and ethical values • Commitment to excellence.

7. SECTION A: EFFECTIVE & EFFICIENT INTERNAL CONTROLS & RISK MANAGEMENT

8. 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

9. Internal Control Systems: • Determine your GOAL. • Establish a STEERING COMMITTEE. • ENABLE & EMPOWER the Audit Committee. • Select a SUITABLE & REALISTIC framework. • COMMIT and ENCOURAGE endorsement of plan.

10. Internal Control Systems, cont’d. • SENSITISE employees and ENCOURAGE input and/or recommendations. • IMPLEMENT and encourage CONTINUALMONITORING of the systems employed. • IMPLEMENT and/or MAINTAIN an effective and well-organised record management system of all policies & procedures.

11. Internal Control Systems, cont’d. The Board must demand a written assessment from the following persons,on an annual basis: • 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.

12. Risk management: The major risks to identify include: • Business continuity; • Management of strategic & operational change; • Business reputation; • Market & competition; • Financial & Economic;

13. Risk management cont’d: Regulatory & Legal; Challenges to intellectual property rights; The recruitment & retention of competent personnel; Evaluation& integration of acquisitions; and Protection of IT systems & data.

14. SECTION B: CONDUCIVE ORGANISATIONAL STRUCTURE & CULTURE

15. Corporations and SMEs need to ensure that a vibrant organisational structure exists to: • Encourage best practices; • Provide clearly defined roles & responsibilities; • Allow adaptation to change;

16. Improve communication; • Build team-spiritedness; • Provide a sense of commitment; and • Cultivate the appropriate culture.

17. Recommended Organisational structures:

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

21. Coercive tactics that lead to fear and intimidation. Notions of ‘bossism’ and authoritarianism. 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:

22. Therefore, what kind of management/leadership style & structure does your organisation have? Again it is recommended to cultivate either a functional/participatory or matrix structure.

23. SECTION C: SOUND MANAGEMENT PHILOSOPHY & OPERATING STYLE

24. The Company's management philosophy is reflected in the systems, policies & protocols by which its business is conducted. It should echo: • Transparency • Accountability • Responsibility • Non-conflict of interest; and • Value for Employees

25. SECTION D: EFFECTIVE AND PROACTIVE BOARD & COMMITTEES: WELL-DELINEATED ROLES AND RESPONSIBILITIES OF BOARDS, MANAGEMENT & EMPLOYEES

26. The Board of Directors

27. Companies should ensure that: • The Board is aware of its mandate. • The Board understands the company’s strategy and are aware of the risks associated therein. • Directors are aware of theirfiduciary duty&duty of care. • The Board monitors management’s performance.

28. The Board’s composition is a healthy mix of expertise and does not present a conflict of interest. • Directors receive the requisite orientation. • The Board meets frequently and have required access to information and personnel. • The protocol and conduct of all meetings be honoured.

29. Management & Employees

30. Companies should ensure that: • The delegation of authority and responsibility be clearly defined and inforced; and

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

32. Employees should also have the requisite skills for their required job functions. • Both management and employees’ performance must be devoid of conflicting interests. • Employees must be given clearly defined job charters. • Requests made to staff must be clear and unambiguous.

33. SECTION E: HIGH STANDARD OF INTEGRITY AND ETHICAL VALUES

34. It is imperative that the following groups operate with high levels of integrity and ethical values in any Corporation or SME: • Board of directors • Senior management • Employees • Internal auditors • External auditors The success or failure is determined by these values and reputation risks are also at stake.

35. SECTION F: EFFICIENCY & COMMITMENT TO EXCELLENCE

36. 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.”

37. PART II

38. EMBRACING CORPORATE GOVERNANCE STANDARDSATTHECORPORATION & SME LEVEL What confronts us?

39. 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.

40. 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.

41. SUMMARY

42. YOUR ORGANISATION SHOULD CAREFULLY CONSIDER THE FOLLOWING:

43. 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?

44. Corporations and SMEs must: • Admit that the business environment has profoundly changed. • Accept that Corporate Governance is no longer a nicety. • Effectively and efficiently employ the key components of sound corporate governance.

45. The ball is in our court…. Thank you for allowing me to participate in this forum. V. Carmichael.