**Awakening to the importance of proper oversight of corporate affairs**
A good deal of attention is being given to the issue of corporate governance in financial institutions. Supervisory authorities in particular are devoting significant amounts of time and resources to the development of sound policies of corporate governance.
The Organisation for Economic Cooperation and Development (OECD) also has issued a set of corporate governance standards and guidelines to help governments *”in their efforts to evaluate and improve the legal, institutional, and regulatory framework for corporate governance in their countries, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance.”*
**Banking and Trust Sector**
The Basel Committee has been active in drawing from the collective supervisory experience of its members and other supervisory authorities to issue supervisory guidance to foster safe and sound banking policies regarding corporate governance. The Committee was established by the Central Bank Governors of the Group of Ten (G-10), and pursues two basic principles: that no foreign banking establishment should escape supervision and that supervision should be adequate. These principles were conceived almost three decades ago in the aftermath of “serious disturbances in international currency and banking markets.”
Papers released from a Regional Workshop hosted by the Caribbean Group of Banking Supervisors show the commitment of supervisory authorities to remain abreast of developments in the financial sector and to undertake responsibilities more efficiently and effectively. Member banks all have issued guidelines on corporate governance.
According to the Central Bank of The Bahamas Guidelines, corporate governance is described as processes, structures and information for directing and overseeing the management of an organisation; it involves the relationship between the Board of Directors, management, shareholders, clients, employees, and other stakeholders; and embodies the structure through which objectives are determined, and strategies developed and implemented.
Simply put, it is a system of processes adopted to direct and manage the business and affairs of a company. It is a process that involves the knowledge and experience of directors to establish:
. responsibilities – who should do what;
. accountabilities – to whom those with responsibilities must account and how; and
. checks and balances – the system of supervision, control procedures and communication flows.
Banks and trust companies in The Bahamas were required to have the governance process in place by December 31, 2002, with annual certification by external auditors beginning with fiscal periods ending **December 31, 2003.**
The CBB’s Guidelines effectively ensure that banks and trust companies directly address the issue of corporate governance. Auditors of banks are required to meet certain criteria, such as being knowledgeable and skilled, having sufficient professional indemnity insurance, no fees of one client exceeding 10% of firm’s fees, and no conflicts in relationships with the client. Banks and trust companies are also required to meet a wide array of regulatory requirements related to KYC rules and money laundering. Compliance with these regulations is an integral part of the governance process of licensees.
It has been anticipated that the guidelines on corporate governance will result in some kind of audit committee function, if not a full audit committee, in the boards of banks and trust companies. Other entities that are required to provide accountability will also be looking at setting up this function as part of their board’s activity. Some boards already maintain finance or risk management committees.
**The Governance Equation**
Writing for a BFSB publication, Philip B. Stubbs, Managing Partner of Ernst & Young says, *”Other regulators are also viewing this aspect of oversight as a complement to their responsibilities. Growing awareness of their rights by shareholders of public companies and a penchant for accountability, will eventually make this subject a must for managers and directors. Government corporations, already with legislative and other public accountability measures in place, will also fully implement corporate governance processes.”*
He points out that surveys of investors show that board practices are considered more important than financial issues in evaluating investee companies. He further states, *”They also indicate that investors are prepared to pay a higher price for shares of a well-governed company.”*
Participants in a Canada/US Financial Reporting Conference held last year came up with suggestions as to what each group comprising the “governance equation” can do to strengthen its roles:
· for managers: creating a culture of honest and open communications, refocusing internal audit onto big and more riskier issues, and encouraging a safe channel for employees to communicate serious concerns (whistle blowing);
· for directors: gaining a better understanding of the business, using that understanding to make a more informed and constructive challenge to management, exercising the right of access to information via internal and external auditors; and
· for auditors: revisiting audit fees to ensure the budget supports sufficient work, investing in staff training and retention, treating the audit committee as the client, understanding business complexities.
The following have been identified as areas for which professional advisers can be called on for assistance:
· identification and documentation of current corporate governance practices;
· comparison to acknowledged best practices to identify weaknesses;
· development of actions required to address weaknesses and establish best practices;
· documentation of the processes and development of a plan for monitoring compliance; and
· preparation of a corporate governance statement for reporting purposes.
Participants in the Bahamian corporate process – managers, shareholders, auditors, and directors – have been challenged to embrace these principles and strengthen their contribution to the improvement of corporate governance.