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Improving Organisational Governance and Ethics

Apr 13, 2017

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  • REVITALISING THE AUDIT COMMITTEE A STRATEGIC

    PRIORITY IN AN UNCERTAIN ECONOMIC

    ENVIRONMENT

    Title of Paper:

    Improving Organisational Governance and

    Ethics

    Caribbean Association of Audit Committee Members Inc.

    CAACMs 8th Annual General Meeting & Conference, 10th-11th July, 2014

    Hilton Hotel, Port-of-Spain, Trinidad and Tobago

    By Vindel L. Kerr, DBA

  • OUTLINE

    1. Why Governance and Ethics now more than ever?

    2. The Inextricable link between the Audit Committee and

    Organisational Governance and Ethics

    3. Legal vs Ethical Duties of the Board of Directors. Can they be reconciled?

    4. Board Role in Developing and Preserving the Governance

    and Ethical Frameworks of an Organisation: The Corporate Governance Code

    The Code of Ethics and Business Conduct

    5. Conclusions/Suggestions

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  • WHY ORGANIZATIONAL GOVERNANCE

    AND ETHICS NOW MORE THAN EVER?

    The proliferation of financial crises has been a

    particularly severe wake-up call, because it has

    adversely affected employment, consumer

    spending, pensions, the finances of national and

    local governments and the global economy.

    These crises are manifestations of several

    structural reasons why corporate governance has

    become more important for economic

    development and a more significant policy issue

    in many countries.

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  • WHY.IN THE CONTEXT OF THE

    CARIBBEAN PUBLIC SECTOR

    Corporate Governance and Ethics are more important now than

    ever for the following reasons:

    There is a dearth of empirical literature in Corporate

    Governance

    Inadequate Corporate Governance Structures and

    Practices

    Weak and Underdeveloped Regulatory Frameworks

    Systemic Weaknesses in the in the Financial Sector

    The prevalence of Corporate and Political Corruption

    Source: Vindel Kerr Thesis (2010), Manchester Business School, England

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  • Among these are the following additional

    compelling realities:

    The globalization of financial markets and the

    commodification of capital

    Trade liberalization

    Complexity in the allocation and monitoring of

    capital by International Financial Institutions

    Increase in international financial integration

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  • Therefore, in sum it can be argued that the

    introduction of corporate governance and ethics

    has been generally motivated by a desire for

    greater transparency, accountability,

    probity, elimination of public sector

    corruption, adjustment of regulatory

    systemic weaknesses and increase investor

    confidence in the stock market as a whole.

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  • THE INEXTRICABLE LINK BETWEEN THE

    AUDIT COMMITTEE AND ORGANISATIONAL

    GOVERNANCE AND ETHICS

    The Audit Committee

    This committee was invented with the purpose of monitoring

    the integrity of financial statements and the internal

    financial control systems. Its scope has long been extended to

    that of providing an enterprise-wide approach to the review of

    not just financial statements and internal control systems

    (policies, procedures, processes, fit-and-properness of persons,

    risk management, inter alia), but assesses independence,

    objectivity and fairness in organisational decision making. In

    essence, the modern role of the Audit Committee is to ensure

    transparency, accountability, probity, equity and ultimately,

    value-for-money.

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  • AUDIT COMMITTEE (CONTD.)

    It is the structure of the Board that assesses the

    performance of the organisation and presents regular

    and period updates to the Board of Directors

    It presides over the recruitment of the external auditors

    and makes recommendations to the Board for removal

    To perform its duties effectively, international audit

    conventions have specified minimum standards for its

    membership, skill, experience and qualifications

    (training) of members, its relationship with the BOD,

    whistle-blowing, and role in external shareholder

    relations

    See Sir Robert Smith Report (2003), Financial Reporting Council, UK

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  • WHAT IS CORPORATE GOVERNANCE?

    Corporate governance refers to the set of laws, regulations and voluntary principles, practices and processes (a mixed of the hard and soft laws) by which a company is governed. They provide the basis as to how the company is directed and controlled such that it can fulfill its goals and objectives in a manner that adds value to shareholders and stakeholders over the long-term.

    The Board of Directors have ultimate and overarching responsibilities for an organisations corporate governance system, and is the sole body and authority to whom the Chief Executive Officer reports and is accountable.

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    10

    CORPORATE GOVERNANCE

    SYSTEM

    Ethical Standards

    Accountability

    Vigilance

    Internal Control Transparency

    Strategic Direction: Vision,

    Mission & Strategy

    A Basic Corporate Governance System

  • The Board as the Fulcrum of Organisational

    Ethics and Governance: 0

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    The Board of

    Directors

    Vision, Mission &

    Strategy

    Performance & Reward Systems

    Balancing Stakeholders

    Interests

    Governance and Ethics

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  • WHAT IS ETHICS?

    Ethics is the branch of philosophy that is

    concerned with the rules, guidelines and

    principles that underpin the decisions that people

    make in any given aspect of their lives.

    Ethics therefore embodies concerns with the

    determination of what is right or what is wrong.

    Noel Cowell, Archibald Campbell, Gavin Chen and Stanford Moore (eds),

    Ethical Perspectives for Caribbean Business (Arawak 2007)

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  • LEGAL VS. ETHICAL DUTIES OF

    DIRECTORS.

    CAN THEY BE RECONCILED?

    Section 99 (1) (a) of the TT Companies Act states that directors and officers have a duty to act honestly and in good faith with a view to the best interest of the company.

    Section 99 imposes legal duties on the directors, but from these duties, one can clearly see ethical duties breaking the surface such as care, honesty and loyalty, which are two key ethical duties which would ultimately lead to the success of any company.

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  • Section 99 1(b) of the TT Companies Act states:

    1) Every director and officer of a company shall in exercising his powers and discharging his duties

    (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

    o In Re: City Equitable Fire Insurance Co [1925] Ch 407, Lord Justice Romer stated that the duty of care and skill involved three basic elements: competence and skill in conducting the companys affairs, diligence and devotion to those affairs and the proper delegation of their duties.

    o John Stuart Mill, posited under the Utilitarian Theory that an act or action is proper if it produces more positive consequences for the majority.

    o Section 99(1)(b) which states that Directors must take into account the interest of Shareholders and Employees therefore impliedly encompasses an ethical duty as stipulated by Mill to ensure that Directors actions are beneficial to the majority of the stakeholders.

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