Home' Trinidad and Tobago Guardian : December 5th 2013 Contents BG6 | NEWS
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 2013 • WEEK ONE
To ask corporate T&T to abide by the principles
espoused in the newly-launched corporate
governance code is better than to use force
through legislation, an expert on corporate
governance from South Africa has said.
Attorney Andrew Johnston, the South African expert who
was brought in to deliver the feature address at the launch
of the T&T corporate governance code at the Hyatt Regency
Trinidad hotel in Port-of-Spain on November 26, said T&T
took a "leap of faith" with the adoption of the code.
T&T is now only the second Caribbean nation (after Jamaica)
to adopt a corporate governance code. The code s project part-
ners: the T&T Stock Exchange (TTSE), the T&T Chamber of
Industry and Commerce (TTCIC) and the Caribbean Corporate
Governance Institute CCGI); and the sponsors Ernst and Young
and Neal and Massy Holdings, flew Johnston into Trinidad
for the occasion.
At the after-launch reception, Johnston told the Business
Guardian: "When something s law, people look for more
reasons why not to do it. That s why apply or explain is better
than comply or explain . The worse thing you can do to an
emerging economy is to throw a whole set of laws at it."
Members of the TTSE and the TTCIC are invited to "apply
(the code) or explain" why they did not apply it, on a page
dedicated to the code in their annual reports. The code calls
for the implementation of many "global best practices" including
In presenting the code at the launch, CCGI chief executive
officer Alex Kjorven said only five of the 51 internationally
recommended disclosure practices are required in T&T. Busi-
nesses that voluntarily implement the code in their annual
reporting in T&T would be raising their standard to 23 out
of 51, she told the Business Guardian at the after-launch recep-
Johnston, who helped to draft the third "King Report on
Corporate Governance for South Africa", had the audience at
the launch in stitches with his remarks.
"Whenever I am invited to address audiences at functions
such as this, I am reminded of the three cardinal rules of
public speaking, namely: stand up: so you can be seen; speak
up: so you can be heard; and shut up: so you can be enjoyed.
It naturally follows, therefore, that the secret of a good speech
is to have a good beginning, and a good ending and to have
the two as close together as possible. Accordingly, and as
Henry VIII said to each of his wives, I shan t keep you long ."
Seriously, though, he explained in great detail the benefits
of a voluntary-based code.
"Similar to the third King Report on Corporate Governance
for South Africa, the T&T code of corporate governance has
adopted the voluntary basis for governance compliance rather
than a rule or legislated basis for governance compliance.
"I maintain that a principle-based approach will always
lead the way. While one will inevitably see an interplay between
principles and legislation, developments in governance move
at a far greater pace than changes to the law. Such corporate
governance developments drive legislation and should continue
to do so."
What's the King Report?
The South African code is called the "King Report" because
it is named after Justice Mervyn King, the first chairman of
the first committee to draft the code. There were two iterations
after the first code and this is why there is reference to the
third King Report.
TTSE CEO Wainwright Iton said that in T&T, too, other
iterations are expected to be produced in the future. He said
at the launch: "This is day 1, and we will have many more
The first King Report came out in 1994, the second in 2002,
and the third in 2010.
Continuing to explain the volunteerism called for in the
implementation of the code, Johnston said: "As a lawyer of
many years I can assure you that it is easy to get around the
law; but it s not so easy to get around a principle. A princi-
ple-based approach is dependent on moral persuasion, which,
more often than not, is impossible to legislate for."
Furthermore, he said, "it is common cause that in those
countries which have sought to adopt a rules-based approach
to governance, such as the USA (according to Sarbanes Oxley),
this has come with an exceptionally high cost of compliance
with little associated benefit to the organisation relative to the
"To this extent, an undervalued aspect of the T&T code
will undoubtedly be the apply or explain approach, which
it has adopted, where companies may consider the applicability
of the code to its own situation, with the opportunity to explain
to its stakeholders why they have chosen a different approach."
He hastened to add, however, that while good behaviour
will always exist without the codification of principles, an
appropriate combination of principles and legislation will
always be necessary to enforce - when necessary - minimum
standards of acceptable behaviour.
"I would submit that this will become an area of future
focus for T&T as legislation seeks to reinforce some of the
key corporate governance principles rather than to undermine
"You actually achieve a great deal, even as a corporation,
by setting stretch goals. If you just got descriptive (rather than
progressive), you would remain mired in mediocrity and that
would not address the prerequisite developments that com-
mercial concerns have to strive for, even in terms of setting
profit goals," Johnston said.
However, a set of good principles on their own does not
automatically translate into well governed companies or a
responsible state, he said. Questions, therefore, are bound to
arise as to how this code will or should apply in practice,
including the anticipated challenges which inevitably arise
when seeking to---in a sense---codify responsible and ethical
business practices, he said.
"These challenges are not unique to T&T, having been sim-
ilarly experienced in the USA, United Kingdom, Europe and
South Africa. Instead, they should be viewed as opportunities
to take corporate governance within the region to the next
level of maturity and development."
"While any corporate governance code should be principle
rather than rule-based, a combination of principles and leg-
islation is inevitable and, indeed, encouraged in order to realise
the full benefit of any corporate governance framework.
"In time, this will evolve in T&T to the point where both
local corporate and other laws, plus regulations governing,
among others, the stock exchanges in the region, are going
to need to keep pace with developments in corporate governance,
which tend to follow global rather than only regional trends.
"This interplay will not be without its tensions, and com-
promises and alignment will become the order of the day.
What will be critical to guard against is the creation of a com-
pliance mind set within corporations and the risk of associated
costs, which will flow therefrom, especially for the smaller
corporates. Ideally, the law needs to become the what while
the governance principles are the how ," he said.
This will necessitate the fostering of a good governance
mind set among both the public and private sectors and
between government and the business community, which is
not predicated on a compliance mind set, he said. Such a
change will mean shifting away from, and displacing the role
of legal and compliance departments, to "a move towards
ownership of governance from a board level through the day-
to-day running of the company," he said.
Johnston said even in those countries which have mature
and progressive corporate governance regimes, one hears the
concerns being raised that boards today may be spending too
much time on governance compliance and not enough time
on material issues, such as strategy and risk management.
"Companies which have fallen into this tick-box mind set
do not fully understand the primary intention of the principles
of good governance," he said.
Changing the way boards think requires "an enormous
amount of courage and courageous leadership," he said. "The
shift to sustainable thinking is going to be key."
Good leadership needs to be pioneering to deal with the
disincentives and the short-term-ism inherent in companies,
"The bottom line is that sound corporate governance asks
you to apply yourself in leadership and that s broader than
the financial bottom line. Governance should just be part of
your business process. It shouldn t be something that you do
because it is required to be done -- but there should be some
business sense in following these principles as a part of your
corporate DNA. How you do it and adapt it to your business
is a leadership choice, but be transparent about the choices
you make. Be courageous about your choices, and if you believe
you don t want to apply aspects of the code, well, that s
He said that a question often raised is whether or not good
corporate governance translates into good company perform-
ance. Measured in purely financial returns, the results are
mixed, although many global studies have shown a strong
correlation between good corporate governance and financial
profits; not to mention an enhanced corporate reputation
translating into a more attractive investment proposition and
a higher share price.
Johnston quoted Justice King: "There is a high correlation
between good, honest, common sense corporate governance
and good numbers."
South African governance expert explains
Why voluntary governance
code better than compulsory
A question often raised
is whether or not good
translates into good
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