GOVERNMENTS ARE ACTIVELY WORKING the world over, including in the Caribbean, to improve governance within the public sector.
The governance of state-owned enterprises (SOEs) is important because they provide important services within a country and constitute a large and important part of the economy in terms of employment.
As a part of our regional columns on corporate governance, the Caribbean Corporate Governance Institute (CCGI) is launching a series of articles that focuses upon the governance of SOEs.
In this first article, we define what an SOE is and identify some of the international standards and applicable laws and regulations that apply to SOEs in the region.
Amongst many policymakers there has been a level of confusion as to which organisations are SOEs. The Organisation for Economic Cooperation and Development (OECD) define an SOE as being any kind of enterprise in which the state owns shares.
This simple definition provides a very useful method for identifying in many cases whether an organisation is an SOE or not.
For example, let us take the much discussed case of CL Financial. The government of Trinidad & Tobago provided more than TT$20 billion to the company, but left the ownership of the shares with the original owners. Some people have argued that this lack of direct share ownership means that the company is not an SOE.
However, we would argue that the shareholding agreement for the company gave the state the right to appoint a majority of the directors and that this indicates that there was a very significant level of state control. CL Financial should therefore be regarded as an SOE.
The key international governance standard for SOEs is the OECD Guidelines for SOEs. These guidelines were first published in 2005 and have been revised in 2015.
They are fully aligned with the more general G20/OECD Principles of Corporate Governance that were also published in 2015.
Both the principles and guidelines have benefitted from extensive consultations. Many of the CCGI’s partner organisations – in both developed and developing countries have been active participants.
The OECD guidelines outline the state’s role in an SOE as follows:
“The state exercises the ownership of SOEs in the interest of the general public . . . . The members of the public whose government exercises the ownership rights are the ultimate owners of SOEs.
This implies that those who exercise ownership rights over SOEs owe duties toward the public that are not unlike the fiduciary duties of a board toward the shareholders, and should act as trustees of the public interest.
High standards of transparency and accountability are needed to allow the public to assure itself that the state exercises its powers in accordance with the public’s best interest” (Page 32).
In Jamaica, the key references for SOE governance are: the Public Bodies Management and Accountability Act (2001); the Companies Act (2004); the Private Sector Organisation of Jamaica (PSOJ) Code on Corporate Governance (2009); the Accountability Framework for Senior Executive Officers (Permanent Secretaries, CEOs of Executive Agencies and Public Bodies) (2010) and the Corporate Governance Framework for Public Bodies in Jamaica (2012).
The Framework (2012) is currently being expanded with a Code of Conduct for Directors, a Competency Profile Instrument for Boards of Public Bodies, and a performance evaluation instrument.
At present, the PSOJ is in the final stages of revising the Code on Corporate Governance. The Ministry of Finance and Planning in Jamaica is actively working on progressing the complementing components of the Code on Corporate Governance.
In Trinidad & Tobago, the key references for SOEs are the Companies Act (1995); Integrity in Public Life Act (2000), the State Enterprises Performance Monitoring Manual (2011) and the Trinidad and Tobago Corporate Governance Code (2013).
SOEs must, of course, comply with their by-laws, special legislation applying to them, and laws of the country and special directions in cases where they are regulated, for example, in the financial sector.
All directors of SOEs should be aware of all legal requirements. At the same time they should be aware that the law is the minimum standard that needs to be complied with – it is not an indication of best practice. Many directors have found the tools developed by the Energy Chamber of Trinidad & Tobago to be very useful.
One of the tools includes a customised assessment of the current SOE legislative requirements in T&T and has four levels of maturity progression: Level 1 is the legal baseline.
Specific indicators define what each level of progression means and the CCGI recommends that all SOE boards should consider assessing their organisation using this framework and using this as a basis for developing plans for improving their compliance and governance.
Probity, transparency, accountability, and assured sustained performance are four hallmarks of corporate governance for all sectors and type of organisation.
Many countries have adopted legislation that enables citizens to get access to information on companies that fall under its remit – in the case of Jamaica this is the Access to Information Act (2002) and in Trinidad & Tobago the Freedom of Information Act (1999). These acts should be regarded as a “back-stop” feature of corporate governance because other existing legislation in both countries already mandates disclosure of much of the information covered in these acts.
In addition, international corporate governance standards recommend high levels of disclosure and transparency.
This article was written on behalf of the Caribbean Corporate Government Institute (CCGI) by chairman Dr Axel Kravatzky, and director of education Dr Chris Pierce. CCGI is a regional, independent, non-profit, professional membership organization based in Trinidad. It is the award body that provides the certificate and diploma in corporate governance and the chartered director qualification throughout the Caribbean. Part II will be published next week.