Historically, in Barbados, directors were chosen based on ethnicity and family connection.
This created a situation of interlocking directors as current board members claimed that there was a small pool from which to choose. This is an odd situation – how can a country that provides free education up to tertiary level be unable to find enough personnel to sit on its boards?
The Barbados Companies Act does not require any specific skills to be a director other than to act honestly and in good faith and exercise care, diligence and skill as a reasonably prudent person.
Only individuals who have been declared bankrupt, insane, or are under 18 years are not permitted to hold the office of director.
Therefore, it is left to the organization’s current board to determine what education level and skills, if any, are required to direct the company.
Many directors may not be aware of their legal responsibilities and liabilities – ignorance of the law, however, is no excuse.
The concept of personal liability is in place to ensure that, at least, statutory deductions are remitted promptly – but is this working?
Do directors understand that they are personally liable if these are not remitted?
The recent debate on the amendments to the Customs and Excise Act suggests that it is not understood.
Also, declaration of all conflicts of interest supports the premise that you are acting in good faith for the company.
More emphasis is placed on publicly listed companies than private companies, but should we excuse private companies from the requirement to train their directors and carry out satisfactory corporate governance?
A private company might not hold funds for the public but there is still a level of risk as there are employees and third parties who could suffer losses if the company collapses.
Remember that CLICO Holdings is a private company. A statutory (government-owned) company can also suffer loss which will have to be covered by taxpayers. Those directors, even though governed by specific legislation, must also be aware of their responsibilities.
All collapses will have some ripple effect on the economy but the severity of the effect on the economy will vary.
The 2002 collapse of Enron et al. in the United States created the environment for the Sarbanes-Oxley Act which requires that the company’s principal officers (typically the chief executive officer and chief financial officer) certify and approve the integrity of their company’s financial reports.
“Certify” and “approve” are strong words and one must wonder how many of our local directors would be prepared to certify and approve financial information if there was the risk of jail time for company failure or reporting discrepancies.
If you know a director, ask him/her.
The credit union league organizes training for its directors. Apart from that, there is no obvious evidence of director training even though various courses on ethics and governance have become more prevalent through the University of the West Indies and Institute of Chartered Accountants of Barbados.
It may well exist on a company-by-company basis but can this be adequate, especially for publicly listed and statutory bodies that have access to public funds?
How many corporate failures will be tolerated before we make director training mandatory, insist on minimum levels of competence, and hold directors accountable for their inaction?
• Ann Blanchard is a chartered accountant.