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Choosing Directors Based on Competence in the State Sector

The total replacement of directors on state boards is one of the major challenges facing the improvement of governance in the state enterprises. This is one of the key messages which resonated among participants of the just concluded Governance Week 2021 hosted by the Caribbean Corporate Governance Institute. In the region, Jamaica has moved past this issue by developing legislation which makes it mandatory for one third of the board to remain in place for continuity.  The conference was also reminded that in Curacao there was a system which ensures that boards do not change when governments change.

This was one of many issues that was raised during the five-day conference which featured over 50 speakers, panellists and moderators from the Caribbean region. Participants joined virtually to discuss governance in the state sector, in the private sector, for groups and conglomerates as well as governance of family-owned businesses. The conference was sponsored by Republic Bank Limited (gold sponsor) and PwC and Angostura Limited (bronze sponsors) was held from June 27 to July 2, 2021 and comprised speakers and panellists from Jamaica, Guyana, Barbados, Trinidad and Tobago as well as the UK and South Africa, as the Opening keynote was delivered by Prof Mervyn King, of the King Committee in South Africa.

In a candid presentation on the challenges facing the boardroom of state enterprises, Dr Terrence Farrell, former deputy governor of the Central Bank of Trinidad and Tobago, captured many of the challenges facing governance of state enterprises. He cited the fact that many of the appointees are politically connected and are sometimes not selected for their competence. Pointing out that the failures in state enterprises are due to failures in governance, Dr Farrell also offered a range of solutions to boards as to how they can manage political interference including steering the line minister to alternatives that are more in keeping with the mandate of the state enterprise.

In his contribution, CCGI director and attorney-at-law called for the appointment of a Board Selection Committee which would assist in selection of professional and independent directors for state boards who are politically neutral.

Former Attorney General John Jeremie pointed to the conflict between prevailing theory as to whom does state directors owe their fiduciary duty. He said many state-owned enterprises are governed by the Companies Act but that these enterprises must be guided by more than profitability and look at the wider constituency who are impacted. This then creates a gap leading to litigation because there is no certainty on this point. Retired Permanent Secretary lamented the fact that very often directors are appointed to state-ownedenterprises but they do not know what are their duties as directors. She also pointed out that it is necessary to find strategies to change the narrative so that directors can understand and fulfil the characteristics of trustworthiness and loyalty.

Bernard Mitchell, who served as CEO of the National Petroleum company told participants that he agreed with Dr Farrell that serving as directors in the state sector can be risky, short term and onerous but added the warning that not all directors go on state enterprises in order to serve the organisation. He suggested onboarding practices so that directors are better equipped to differentiate what is corporate governance and not engage in political governance using state funds.

Family owned businesses were also noted to be facing many governance challenges, especially in succession to third generations when the majority of these businesses fail. The conference however revealed that setting up independent advisors to family boards generally helps to ensure that the business thrives through several generations. Corporate secretaries were also reminded that boards require their guidance if directors are better understand their role and function.