caribbean corporate governance forum
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Caribbean Corporate Governance Forum
"Effective Corporate Governance: Perspectives
for the Caribbean Corporations and SMEs"
September 3rd – 5th, 2003ECCB, St. Kitts
Vicki D. Carmichael
GOOD CORPORATE GOVERNANCE DEMANDS HEALTHY DOSES OF:
RESPONSIBILITY
ACCOUNTABILITY
TRANSPARENCY
NON-CONFLICT OF INTEREST
UNHEALTHY PRACTICES COULD HAVE ANY OR ALL OF THE FOLLOWING IMPLICATIONS:
FINANCIAL
ECONOMIC
LEGAL
MORAL
POLITICAL
PART I
Sound Corporate Governance involves the necessary checks & balances needed within an effective corporate governance structure:
MMEEAASSUURREEMMEENNTT
&& AACCCCOOUUNNTTAABBIILLIITTYY
ORGANISATION
Employees
Business Environment
Board
Management
Investment & Financial
Community Regulators &
Government
Shareholders
CCOOMMMMUUNNIICCAATTIIOONN
&& DDIISSCCLLOOSSUURREE
IINNTTEERRNNAALL && EEXXTTEERRNNAALL AAUUDDIITTSS
Key components of good corporate governance are:
A. Effective and efficient Internal Controls & Risk Management
B. Conducive Organisational structure & culture
C. Sound Management philosophy and operating style
D. Effective and proactive Board and committees: Well-delineated roles and responsibilities of Board, management and employees.
E. High standard of Integrity and ethical values
F. Commitment to excellence.
SECTION A:
EFFECTIVE & EFFICIENT INTERNAL CONTROLS & RISK MANAGEMENT
Internal Control: 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
Internal Control Systems: 1. Determine your GOAL.
2. Establish a STEERING COMMITTEE.
3. ENABLE & EMPOWER the Audit Committee.
4. Select a SUITABLE & REALISTIC framework.
5. COMMIT and ENCOURAGE endorsement of plan.
Internal Control Systems, cont’d.6. SENSITISE employees and
ENCOURAGE input and/or recommendations.
7. IMPLEMENT and encourage CONTINUAL MONITORING of the systems employed.
8. IMPLEMENT and/or MAINTAIN an effective and well-organised record management system of all policies & procedures.
Internal Control Systems, cont’d.
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.
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.
9. The Board must demand a written assessment from the following persons, on an annual basis:
Risk managementRisk management::
The major risks to identify include:
1. Business continuity;
2. Management of strategic & operational change;
3. Business reputation;
4. Market & competition;
5. Financial & Economic;
6. Regulatory & Legal;
7. Challenges to intellectual property rights;
8. The recruitment & retention of competent personnel;
9. Evaluation & integration of acquisitions; and
10.Protection of IT systems & data.
Risk management cont’d:
SECTION B:
CONDUCIVE ORGANISATIONAL STRUCTURE & CULTURE
Corporations and SMEs need to ensure that a vibrant organisational structure exists to:
1. Encourage best practices;
2. Provide clearly defined roles &
responsibilities;
3. Allow adaptation to change;
4. Improve communication;
5. Build team-spiritedness;
6. Provide a sense of commitment;
and
7. Cultivate the appropriate culture.
Recommended Organisational
structures:
Production
Accounting
Business
R&D
Dept. DDept. CDept. BDept. A
Matrix Organisational Structure
Functional/Participatory Structure
SalesM anager
Prom otionM anager
M arketingM anager
DesignM anager
M anufacturingM anager
ProductionM anager
M anagem entAccountant
FinancialAccountant
FinanceM anager
G eneralM anager
The appropriate culture, tone and attitude of the workplace is also key to the effectiveness of corporate governance.
AttentionTo Detail
Low/High
OutcomeOrientation
Low/High
PeopleOrientation
Low/High
TeamOrientation
Low/High
AggressivenessLow/High
Innovation &Risk Taking
Low/High
StabilityLow/High
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: a) Coercive tactics that lead to
fear and intimidation.
Notions of ‘bossism’ and authoritarianism.
Therefore, what kind of management/leadership style & structure does your organisation have?
4 Basic Leadership Styles
Autocratic
Leaders tellStaff whatto do
BureaucraticStructure
Participative
Leaders expectStaff toparticipate
Functional /ParticipatoryStructure
Democratic
Leaders seeksMajority ruleFrom staff
Functional /ParticipatoryStructure
Laissez-Faire
Leaders letStaff toMake decisions
MatrixStructure
Again it is recommended to cultivate either a functional/participatory or matrix structure.
SECTION C:
SOUND MANAGEMENT PHILOSOPHY & OPERATING
STYLE
The Company's management philosophy is reflected in the systems, policies & protocols by which its business is conducted. It should echo:
1. Transparency2. Accountability3. Responsibility4. Non-conflict of interest; and5. Value for Employees
SECTION D:
EFFECTIVE AND PROACTIVE BOARD & COMMITTEES: WELL-
DELINEATED ROLES AND RESPONSIBILITIES OF BOARDS,
MANAGEMENT & EMPLOYEES
The Board of Directors
Companies should ensure that:
1. The Board is aware of its mandate.
2. The Board understands the company’s strategy and are aware of the risks associated therein.
3. Directors are aware of their fiduciary duty & duty of care.
4. The Board monitors management’s performance.
5. The Board’s composition is a healthy mix of expertise and does not present a conflict of interest.
6. Directors receive the requisite orientation.
7. The Board meets frequently and have required access to information and personnel.
8. The protocol and conduct of all meetings be honoured.
Management & Employees
Companies should ensure that:
1. The delegation of authority and responsibility be clearly defined and inforced; and
Job function skillsTime-Management skills
Human Relation skillsCommunication skills
Presentation skillsNegotiation skills Analytical skills
IT skills
Types of Managerial Skills
2. Management is competently skilled. These skills should include:
3. Employees should also have the
requisite skills for their required job functions.
4. Both management and employees’ performance must be devoid of conflicting interests.
5. Employees must be given clearly defined job charters.
6. Requests made to staff must be clear and unambiguous.
SECTION E:
HIGH STANDARD OF INTEGRITY AND ETHICAL VALUES
It is imperative that the following groups operate with high levels of integrity and ethical values in any Corporation or SME:1. Board of directors2. Senior management3. Employees4. Internal auditors
5. External auditors
The success or failure is determined by these values and reputation risks are also at stake.
SECTION F:
EFFICIENCY & COMMITMENT TO EXCELLENCE
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.”
PART II
EEMBRACINGMBRACING C CORPORATEORPORATE GGOVERNANCEOVERNANCE S STANDARDSTANDARDS
ATAT THETHE CCORPORATION & SME LEVELORPORATION & SME LEVEL
What confronts us?
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.
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.
SUMMARY
YOUR ORGANISATION SHOULD CAREFULLY
CONSIDER THE FOLLOWING:
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?
1. Admit that the business
environment has profoundly changed.
2. Accept that Corporate Governance is no longer a nicety.
3. Effectively and efficiently employ the key components of sound corporate governance.
Corporations and SMEs must:
The ball is in our court….
Thank you for allowing me to participate in this forum.
V. Carmichael.
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