Investors will pay for good governance

INVESTORS are likely to pay more for services provided if they are assured that good corporate governance are in place in your company, according to Banking Ombudsman Judy Chang. Chang explained that good corporate governance formed the backbone and strength of all organisations and called on the business community to establish self imposed rules of corporate governance, since investors were likely to pay more if such a structure was in place. Addressing a gathering of business professionals at the breakfast seminar organised by the NOVA Committee, at the Trinidad and Tobago Chamber of Industry and Commerce, Chang explained that the principles of corporate governance became popular after the Enron, Worldcom, Arthur Andersen debacles and most recently the collapse of Parmalat.

She noted that the American Competitiveness and Corporate Accountability Act 2002, more commonly known as the Sarbanes-Oxley Act, was signed in July 2002 to rebuild public trust in corporate USA. The law now requires that publicly traded corporations adhere to significant new governance standards that broaden Board member roles in overseeing financial transactions and auditing procedures. She explained that while the Sarbanes Oxley Act mainly applies to American publicly traded companies, it carried implications for other corporations throughout the world, especially if a corporation is a subsidiary or associated company of an American corporation, or supplier of goods and services to American companies.

She noted that the Act has tightened the rules concerning audit committees and closed the loopholes relating to destruction of documents and whistle-blower protection. The Act generally prohibits loans to any directors or executives of the corporation Making the connection to Trinidad and Tobago, Chang noted that we ought to take a lesson from what has happened internationally, and are well advised to follow similar procedures voluntarily, noting that it is better to have self-imposed rules than have regulations imposed for us. She advised that companies should compile a manual that would cover the organisation’s corporate governance policy, and appropriate measures and procedures necessary to achieve results. This manual should be reviewed at three-year intervals, so as to include recent developments and continuous updates.

Chang explained that there were basic principles that governed all corporations, and these have certain key objectives including the facilitation of efficient and effective management of the corporation by following formal procedures in making important decisions. Honesty and accountability in management must be promoted by imposing on directors certain duties in recognition of their special position as shareholder. In addition, the encouragement of core values by which the corporation wished to be associated should also form part of the basic governance principles.