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Sunday, June 25, 2017

Governor of the Central Bank, Dr Alvin Hilaire, and his executive staff seem intent on ensuring that board members of local financial institutions meet the characteristics of being “fit and proper” people to take on the onerous responsibility of fashioning high quality corporate governance structures for the operations of financial institutions.

This is a responsibility that, among others, the bank plans to exercise by instituting international systems and criteria that will ensure that the financial institutions place on their boards people of known training, experience and competence in financial and related matters, along with board members having solid integrity and independence of thought and action. This is opposed to the privately-owned financial institutions following the historical pattern of having friends, family and business colleagues constitute a board cartel that exercises effective power in the business world and economy.

In the 1980s, Carl Parris, then UWI lecturer, researched what he called the “interlocking directorates”—business executives who roamed the boards of business and financial institutions so that bank boards would resemble those of the corporate and commercial business operations. One result of the interlocking directorate board structure was the prevalence of cartel-like behaviours in the business world to perpetuate privilege and distort the economy and society. In the contemporary era, such behaviours deepen the risk of failure of financial institutions and systems.

Governor of the Central Bank, Dr Alvin Hilaire, a seemingly mild-mannered man, and a high-quality technocrat not given to excursions into the political economy, responded to my question as to whether or not the interlocking directorate pattern had changed; he said he did not know, I presume the research work has not been done.

Undoubtedly though, the international financial crash of 2008 and continuing in parts of the financial world, and our own link to that crash, best demonstrated locally in the Clico/CL Financial meltdown, which the Government here had to step in with a reported $20 billion bailout, have hastened the action of the governor to establish international standards of selecting and monitoring boards for quality governance structures to be developed.

The impulse to quicken the institutional restructuring of the system must also have been “jumbied” by the stalking of Lawrence Duprey, former chairman and major shareholder of the CL group, and reportedly a group of associates, as they plan to retrieve (through a yet-to-be-revealed mechanism) Clico and the CL group of companies, and the assets of those companies taken over by the Government when Clico screamed for assistance from the bank.

At a previous news conference in response to my question as to whether Mr Duprey met the Central Bank criteria of being “fit and proper” to once again take charge of perhaps the largest non-bank financial institution in Caricom, the governor’s response then was to the effect that the bank was developing the fit and proper criteria.

It is unfortunate though, that eight years have passed between the crash of Clico and the establishment of an adequate regulatory system to supervise the finance houses. Moreover, that the Insurance Bill to build the muscle of the regulator to exercise authority over the financial institutions is among the weed in the parliamentary agenda.

In justification for the foray of the bank into corporate governance issues, Governor Hilaire informs on the dangers posed by the intrinsic nature of banks and non-bank financial institutions to be “opaque and complex structures” as such structures “can obscure problems and risks. As a result, boards of directors and management play a critical role in the governance of financial institutions”.

To attend to what must surely lead eventually to a restructuring of the boards of financial institutions to “safeguarding stakeholders’ interests”, and the implementation of an “effective governance framework”, Governor Hilaire and his team will pursue implementation of the Basel 11 Accord. The accord consists of a raft of banking laws and regulations established in Europe and accepted around the world.

Unfortunately, the governance issues articulated at the bank’s recent news conference were largely left behind by the reporting press for the more “sexy” subjects such as interest rates, profitability of the financial institutions, the spread between lending and borrowing rates, service charges etc.

However, at the heart and structure of the financial institutional systems are quality corporate governance policies and programmes, and having the directorship and executive management of the banks adhere to the established international governance practices.

The development of our financial institutions is lodged in the social, financial and political history of T&T. The private sector institutions emerged out of the then prevailing structure of dominance by special interest groups; surmounting that historical development is not going to be easy for the bank.

In the present, the couple state-sector finance houses controlled and now partly owned by the Government are open to appointments to boards and governance procedures by the political regime in office, it would be surprising if political directorates know or care anything about the Basel-type criteria for board appointments.

The question is: Do the governor and his executive staff have the capacity and gumption to institute the necessary measures in the system to achieve the objective of quality governance procedures? Critically, will they be supported by the Parliament to pass the necessary legislation in quick time? We in the media have the responsibility to monitor and report on any slacking of intent and action by the Central Bank and the Parliament.


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