The good news is that the authorities have decided to place into the Consolidated Fund the signature bonus of US$18 million that it received from ExxonMobil, and whenever the funds are needed parliamentary approval will be sought, presumably via a Supplementary Estimate. However, by Section 38(1) of the Fiscal Management and Accountability Act, “All public moneys raised or received by the Government shall be credited fully and promptly to the Consolidated Fund…” To the extent that the funds are yet to be deposited into the Consolidated Fund, the requirement of this section remains unfulfilled.
We are on record as having expressed our reservations about whether or not we should have accepted a signature bonus, considering the figure has been arbitrarily decided with no laid-down basis of arriving at it. Rather, our negotiations should have focused on: (i) arriving at a reasonable percentage of royalty by comparison to what other oil producing countries are receiving; (ii) sharing of revenue from the sale of crude oil, as opposed to profit-sharing because of the tremendous difficulty in verifying recoverable costs, as experienced by other countries; (iii) agreeing on a reasonable amount of fiscal concessions necessary to attract investment; and (iv) ensuring that the U.S. oil giant pays its fair share of income tax, value added tax, corporation tax and property tax, among others. Going forward, because of long-term commitments, we support the involvement of and approval by the Legislature of any petroleum agreement before it is signed by the Executive.
In our last two articles, we dealt with the King IV Report on Corporate Governance and the 17 basic principles that organisations should embrace to ensure efficiency and effectiveness of operations as well as positive outcomes and impacts in achieving their strategic objectives. These principles have been elaborated in a Code of Corporate Governance that governing bodies and their members should follow. In total, the Code comprises 215 items under five headings, namely, leadership, ethics and corporate citizenship; strategy, performance and reporting; governing structures and delegation; governance functional areas; and stakeholder relationships.
Today’s article is devoted to a brief outline of the key elements in the Code since they have significant relevance to Guyana, especially its public sector. In October 2016, we had carried an article entitled “Crisis in corporate governance” in which we highlighted some of the fundamental principles of corporate governance. We had stated that “For some time now, there has been a failure to adhere to these fundamental principles of corporate governance because of either a lack of understanding of these principles, or authoritarian tendencies, or simply attempts to display rank power and the desire to be in the public limelight.” We then discussed some events occurring at the time at five State-agencies in support of our contention – Georgetown City Council, Guyana Water Inc., Guyana National Broadcasting Authority, National Communications Network and the Georgetown Public Hospital. To this list, we must now add the Guyana Chronicle and to a lesser extent the Guyana Sugar Corporation because of recent events/occurrences.
Leadership, ethics and corporate citizenship
Members of the governing body should individually and collectively cultivate the following characteristics and exhibit them in their conduct: integrity, competence, responsibility, accountability, fairness and transparency. They must act in good faith and in the best interest of the organisation, avoiding conflicts of interest. Other requirements include:
(a) having sufficient working knowledge of the organisation, its industry, the triple context (economy, society and the natural environment) in which it operates, the capitals it uses and affects as well as the key laws, rules, codes and standards applicable to the organisation;
(b) acting with due care, skill and diligence, and taking reasonably diligent steps to become informed about matters for decision-making, in addition to striving for continuous development of their competence to lead effectively;
(c) assuming collective responsibility for steering and setting the direction of the organisation, approving policy and planning, overseeing and monitoring implementation and execution by management, and ensuring accountability for organizational performance;
(d) exercising courage in taking risks and capturing opportunities but doing so in a responsible manner in the best interest of the organisation;
(e) taking responsibility for anticipating, preventing or otherwise ameliorating the negative outcomes of the organisation’s activities and outputs on the triple context within which it operates and the capitals it uses and affects;
(f) attending meetings of the governing body and its committees, and devoting sufficient time and effort to prepare for these meetings;
(g) demonstrating willingness to answer for the execution of their responsibilities, even when they are delegated;
(h) adopting a stakeholder-inclusive approach in discharging their governance role and responsibilities;
(i) directing the organisation in such a way that it does not adversely affect the natural environment, society or future generations; and
(j) being transparent in the manner in which they exercise their governance role and responsibilities;
The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture. Members should act ethically beyond mere legal compliance and should set the tone for an ethical organizational culture. They should embrace the above ethical characteristics and publicise them in, but not limited to, codes of conduct and performance evaluation of the governing body and its members. The code should incorporate sanctions and remedies for any breach. The use of protected disclosure or whistleblowing mechanisms could be used as a means of detection.
The governing body should ensure that it is, and is seen to be, a responsible corporate citizen through compliance with constitutional and legislative requirements, internationally recognized standards and its own code of conduct and policies. It should provide the necessary oversight and monitoring on an on-going basis to ensure that this is so. Areas that require specific attention include: the workplace (employment equity, fair remuneration, and health, safety, dignity and development of employees); the economy (contribution to economic transformation, prevention, detection and response to fraud and corruption, and responsible and transparent tax policy); society (public health and safety, consumer protection, community development and protection of human rights); and the environment (prevention of pollution, responsible waste disposal and protection of biodiversity).
Strategy, performance and reporting
Strategy is about setting goals (short, medium and long-term), determining what actions are needed to achieve these goals, and mobilizing the resources needed to execute such actions. King IV defines it as setting the organisation’s short, medium and long-term directions towards realizing its core purpose and values. The governing body should assume responsibility for organisational performance by setting and steering the direction for the realisation of the organisation’s core purpose and values through strategy. This includes approving management’s operational plans and the related performance measures and targets to achieve strategic objectives and positive outcomes over the short, medium and long-term. It should also be alert to the general visibility of the organisation with regard to its reliance and effects on the capitals, its solvency and liquidity, and its status as a going concern.
The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members support continued improvement in its performance and effectiveness. This should be done through a formal externally facilitated process at least once every two years and the results disclosed.
The Governing body should ensure that reports, such as annual financial statements, sustainability reports and other reports, comply with the legal requirements and meet the expectations of material stakeholders. This includes an annual integrated report that can either be a stand-alone report linking it with other reports, or a distinguishable, prominent and accessible part of another report which includes annual financial statements and other reports issued in compliance with legal provisions. These reports should be publicized in the organisation’s website or other platforms, or through other media, to enable access by stakeholders.
Governing structures and delegation
The governing body should ensure that its role, responsibilities, membership requirements and procedural conduct are documented in a charter which is regularly reviewed to guide its effective functioning. It should approve the protocol to be followed for access to independent external professional advice.
Governance functional areas
The governing body should assume responsibility for its composition by setting direction and approving the process for it to attain the appropriate balance of knowledge, skills, experience, diversity and independence to objectively and effectively discharge its governance role and responsibilities. It should ensure that the majority of its members are non-executive, and there is succession planning of its membership, including staggered rotation to allow for new members with fresh ideas to serve. In addition, the chair and the vice-chair should be non-executive, and the chair should not be a member of the Audit Committee. Other committees that the governing body should consider establishing are Risk Governance Committee, Remuneration Committee, and Social and Ethics Committee.
The governing body should determine if and when to delegate particular roles and responsibilities to an individual member or to a committee. Such delegation should be recorded in writing, reflected in the form of terms of reference approved by the governing body, and reviewed annually. There should be a balance in the distribution of responsibilities so that no one individual has the ability to dominate decision-making, and no undue reliance is placed on any one individual. Each committee should have a minimum of three members, and members of the executive and senior management should be invited to bring insight into the deliberations without being accorded voting rights.
The governing body of any organisation that issues audited financial statements should consider establishing an audit committee to provide oversight of: (i) the effectiveness of internal and external assurance functions and services as well as the finance function; and (ii) integrity of the financial statements, and to the extent delegated by the governing body, other external reports issued by the organisation.
In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interest and expectations of material stakeholders in the best interest of the organisation over time. There should be an approved policy for articulating and giving effect to its directions on stakeholder relations as well as formal mechanisms for engaging and communicating with stakeholders, including dispute resolutions and associated processes, with appropriate disclosures.