Assignment

Conduct a review of the governance of your organisation (or one with which you are familiar) in
the form of a report to the Chairman (or President) of the Governing Board of Directors. In the
brief report use the concepts, tools and techniques learned in this subject to review the structure,
process and effectiveness of the governance of the organisation and to make recommendations
for appropriate improvements.
Executive Summary
Corporate governance has seen a recent resurgence, due in large part to the public failures of
large financial giants, such as Enron and WorldCom. The knee-jerk reaction by the US
Governance in legislating the Sarbanes-Oxley Act of 2002, has caused a ripple effect across the
entire globe. At its core, corporate governance essentially is about systems that are put in place to
deal with matters that arise from a divorce of control and ownership (Nagalakshmi et al, 2013).
However, the topic is a vast one, with many opinions and variations. As the subject of corporate
governance continues to evolve and change, it is evident that companies wishing to implement a
governance framework are in need of stringent guidance. Even in a small developing country,
like Trinidad and Tobago, where companies outwardly seem to have implemented stable
governance policies, there have been occurrences of financial scandals and corporate failures.
This report aims to use internationally recognized principles of corporate governance with which
to assess the governance framework implemented by Guardian Holdings Limited (GHL). A brief
overview of governance and its importance is first discussed, after which an assessment of GHL
is conducted against the principles. Coming out of this, strengths, weaknesses and areas for
improvement are identified. Recommendations to the company are then made as to how their
governance framework can be improved.

Contents
Introduction......................................................................................................................................4
The Importance Of Corporate Governance.....................................................................................4
Background To The Company Guardian Holdings Ltd. (GHL)...................................................5
GHLs Corporate Governance Framework..................................................................................5

Corporate Governance In Trinidad And Tobago..........................................................................6

The OECD Principles: How They Affect Good Governance..........................................................6
Analysis Of GHLs Corporate Governance Against The OECD Principles....................................8
Board Structure............................................................................................................................8
Strengths of GHLs Corporate Governance.................................................................................9
Issues with GHLs Corporate Governance...................................................................................9
Conclusion.....................................................................................................................................10
Recommendations..........................................................................................................................11
References......................................................................................................................................11

Introduction
The generally accepted definition of corporate governance states that it is the system by which
companies are directed and controlled. (The Committee on the Financial Aspects of Corporate
Governance, 1992, p. 14). However, corporate governance is an age-old principle that has only
recently been reinvigorated in part due to the fairly recent scandals of large, globally-operating
companies.
It is a misconception that corporate governance is only about rules and regulations (Hillier, 2008
cited by The University of Leeds, 2008). Tricker (2012a) argues that corporate governance is
more about the behaviour of the board of directors, interactions between them and the
management, and how the company has established relationships with all stakeholders. He noted
that while many countries and companies have implemented governance codes, they have failed
in altering corporate behaviours at its core. It stands to reason that corporate governance must be
about managing behaviours.
The Importance Of Corporate Governance
As the global corporate economy continues to grow and evolve in the present day, the need to
govern and guide decision-making has never been more important. Primarily owing to the
collapse of the global financial economy, which was itself largely impelled by the downfall of
several major US organizations, an increasing number of countries have begun revising and
introducing codes of conduct to incite companies to adopt and follow corporate governance
policies and practices. Though the recent emphasis being placed on establishing corporate
governance frameworks across the globe has been largely reactionary, these events have served
to set corporate governance in the forefront of the business environment of the 21st century.
As such, it is essential to understand the importance of corporate governance. Effective corporate
governance is a contributor to a higher standard of performance at an organizational level, as it
aids the directing body in executing their duties with the goal of satisfying shareholder interest
(FRC, 2008). This standpoint is supported by the OECDs Principles of Corporate Governance,
which states:

The presence of an effective corporate governance system, within an individual

company and across an economy as a whole, helps to provide a degree of confidence that is
necessary for the proper functioning of a market economy. As a result, the cost of capital is
lower and firms are encouraged to use resources more efficiently, thereby underpinning growth.
(OECD, 2004a, p 11)
Corporate governance is also important because when its principles are implanted correctly and
observed thoroughly, there can be a plethora of benefits for a corporation and the economy in
general. Corporate governance is an important dynamic to decision-making in investments. It can
improve the assurance of good faith in investor relations, lessen costs, supports the effective
performance of financial markets, thereby generating more enduring finance sources (OECD,
2004b).
Background To The Company Guardian Holdings Ltd. (GHL)
GHL is the parent company of the integrated financial group, Guardian Group. The company
holds current operations within the English and Dutch speaking Caribbean. Originating in
Trinidad in 1847, as a branch of Scotlands Standard Life, the company soon became Guardian
Life due to mandatory country policy for all insurance firms to localize operations.
GHL grew through a number of acquisitions, mergers and strategic alliances and eventually
became publicly listed on the Trinidad Stock Exchange on June 18, 1996. Having won numerous
rewards, the company has been recognized on numerous occasions as a leader in the Caribbean
for insurance provision (GHL, n.d.)
GHLs Corporate Governance Framework
GHL introduced a formal corporate governance framework in 2004, recognizing the heightened
role of the main industry regulator, the Financial Services Framework (GHL, 2004a).
Initially only having a single audit committee (GHL, 2004b) the structure has been reviewed and
reorganized over the years, eventually becoming what it is today.
A prime example of this restructuring can be seen in GHL effectively establishing a corporate
governance committee in 2006, which merged the functions of the nomination and conduct

review committee. This was likely done in an attempt to prevent duplication of efforts (Tricker,
2012b)
Corporate Governance In Trinidad And Tobago
The Global Competitive Index Report 2013-2014 (World Economic Forum, 2014) shows that
there is still much to be desired from corporate governance in Trinidad. The countrys rank fell
from 84 to 92 out of 148 and corporate governance score is 3.41 on a scale of 1-7. The following
areas were identified as the primary shortfalls of Trinidadian corporate governance:

Public fund rerouting

Evident trust in politicians
Bribes and erratic payments
Favouritism shown by government decision-making
Lack of ethical behaviour
Standards of auditing and reporting
State board efficacy
Equitable treatment and safeguarding of minority shareholder interest

This study was conducted long following the collapse of corporate entities such as CL Financial
and the Hindu Credit Union (HCU), which makes it seem that not much is being done in the way
of establishing official governance principles. It is imperative that the Trinidadian government
fast-track the adoption of a formal code, or policy of corporate governance in order to mitigate
these issues. A highly recommended option is the Principles for Corporate Governance published
by the Organization for Economic Co-operation and Development (OECD).
The OECD Principles: How They Affect Good Governance
The OECD Principles were developed and first published in 1999 with a revision conducted in
2004. The principles are internationally recognized as key standards and have been implemented
in several member and non-member countries across the globe.
It is widely accepted that there are seven characteristics of good corporate governance (IDSIS,
2009 cited by Solomon, 2009). Each of the principles in the OECD document, if implemented
properly, supports every one of those characteristics.

The first principle, Ensuring the Basis for an Effective Governance Framework, lends itself
to both discipline and independence. This principle encourages that the design of the corporate
governance framework should endorse transparency, alignment with the rule of law and distinct
delegation of responsibilities to the various powers that be. This leads to improved quality and
independence of supervision and enforcement (OECD, 2004c).
The principle of The Rights of Shareholders and Key Ownership Functions ensures
responsibility; the basic rights of shareholders and ownership of shareholders should be
established and clearly outlined, pertaining to voting, shares, nominations and removals. The
Equitable Treatment of Shareholders principle warrants fairness but also responsibility, as it
ties directly back into the first principle, dealing with all shareholders having access to rights,
regardless of status, protecting those rights and being able to seek comeuppance for
contravention of same.
The Role of Stakeholders in Corporate Governance principle is tied to the responsibility
characteristic as well. The term stakeholder here encompasses shareholders as well as all
contributors of resources, including employees, creditors and suppliers (OECD, 2007). The
principle establishes that any stakeholder rights supported by legislation or contractual
agreement must be honoured. Stakeholders also must have an avenue of redress should there be a
breach of rights.
Disclosure and Transparency is a principle tied obviously to the transparency characteristic. A
key factor in good corporate governance (Green, 2005, p. 63), transparency and disclosure can be
a formidable influence on company behaviour and investor security. Shareholders require access
to readily available information, delivered to them in a high-standard of reporting consistent with
accounting norms. This principle also covers the auditing process and external auditor
accountability to shareholders.
The final principle The Responsibilities of the Board, lends itself to both the accountability
and social responsibility principles. An effective corporate governance framework should lend
itself to directing the organization strategically. The board is also expected to monitor and
evaluate itself and the management team, while being held accountable to the shareholders and

the company in general. In this perspective, observation of environmental and social principles
are also applicable (OECD, 2004d, p. 58).
Analysis Of GHLs Corporate Governance Against The OECD Principles
As highlighted in the previous section, each of the OECD principles supports good governance.
An analysis, therefore, of GHLs current corporate governance framework, against the
internationally recognized OECD standards provides a strong juxtaposition, from which various
strengths and issues can be gleaned.
It should be noted beforehand, that no particular set of standards have been identified by GHL as
the base for building their Corporate Governance framework. GHL is guided only by the
Companies Act of Trinidad and Tobago. They have cited no international code on which they
have structured their governance framework.
Board Structure
Currently the board comprises a total of eleven members, five of whom meet the criteria of
GHLs internally regulated independence clause (GHL, 2012a). Based on the governance report,
GHL has a unitary board structure in place, a very high CEO/chairman separation and a high
number of outside directors, which seems to follow the UK/Australian norms (Tricker, 2013).
As is common with most large corporations, GHL has established several committees for more
efficient decision-making. There are currently five committees, two of which were established in
2012:

The Audit Committee

The Risk and Compliance committee
The Remuneration Committee
The Corporate Governance Committee
The Enterprise Investment Committee

These committees, in accordance with the OECD principles, are composed of both executive and
non-executive directors.

Strengths of GHLs Corporate Governance

There are a number of things that GHL does well, in terms of the OECD framework. They have
consistently and clearly articulated their independence criteria for directors.
As one approach to controlling CEO manipulation of directors and monitoring board activity,
GHL has implemented a recognized good practice of CEO/chairman separation (The Hampel
Report, 1998, OECD, 2004, Noe et al, 2013).
Their existing board has more than 40% non-executive director in the make-up, which is
considered a good practice by the OECD. They have made it a point to continuously disclose any
beneficial interests of shareholders.
GHL has also made improvements to the structure of the committees as necessary, and made the
proper disclosures for such actions. In terms of corporate social responsibility, the firm has
published a full report detailing their policies and contributions to education, sport,
environmental factors and communities (GHL, 2010).
Issues with GHLs Corporate Governance
In evaluating GHLs Board against Principle I of the OECD Principles, it is unclear as to what
governance principles form the basis for their governance structure. The OECD postulates that a
good governance structure aligns with an existing rule of law. In their 2012 Corporate
Governance report, the Corporate Governance committee recommended the implementation of
official Governance Principles, leading to the assumption that their current framework is not in
keeping with OECDs first Principle. GHL also did not identify which specific law, principles or
standards considered to when producing their governance framework.
GHLs major issue is one of disclosure and transparency. Though they have been transparent on
some matters, this OECD disclosure encourages full disclosure of all material matters. Their
Corporate Governance reports dating back to 2004 have major gaps in this area when measured
against the OECD principles.
Upon additional investigating of the governance report, some issues pertaining to committee
membership stands out. The chairman of the board sits on the audit committee, and while he is a

non-executive director, he has not been identified as meeting the independence criteria. The
OECD Principle V, subsection D, suggests that a good practice is to have an audit committee
comprising of independent directors who recommends an external auditor. This elucidates the
accountability of the external auditor to the shareholders rather than an individual (OECD, 2004,
Tricker, 2012).
The chairman of the board is also chairman of the remuneration committee. This set-up may also
call into question the ethics of GHL as he would, in theory, be able to manipulate his salary. It is
considered a best-practice that the remuneration committee should consist of wholly or mostly
independent directors, and that, while the board chair can sit on the remuneration committee, he
should not also chair it (OECD, 2011, Institute of Directors, 2013).
Further to this, the OECD also establishes that there should be a clear link between remuneration
and company performance. This brings about another issue within GHL, which is the evaluation
of the board. While GHL has considered an instrument for evaluation of the Boards performance
(GHL, 2012b, p 39) nothing has yet been formally implemented. The OECD has recognized that
delegated self-assessment of board performance is a good practice. Doing this is an aspect of
Principle VI and can enhance monitoring and review of the board to make necessary changes.
The fact that several of the directors have been serving on the board since 2004 can raise some
red flags for stakeholders.
Conclusion
GHL, undeniably has one of the strongest corporate governance frameworks in the country.
Having had a rich and vibrant history, it is clear that there is an understanding of what good
governance is, and are endeavouring, year after year, to restructure and improve their framework
so that it meets a higher standard.
However, there are a number of shortcomings they must address if they wish to maintain their
public image and achieve sustainable competitive advantage. GHL recently served as part of
sample group in a study of Corporate Governance Disclosure in Trinidad and Tobago. In this
study it was discovered that the typical corporation in the country discloses below 50% of the
disclosure items found in the ISAR benchmarks (Syntegra, 2011). Since then, GHL has made
adjustments to their governance structure, but not to their transparency efforts. Considering the

failures of other financial institutions in the country, it is no stretch of the imagination to think
that GHLs ethics could fall under scrutiny.
By adopting international standards for corporate governance, implementing a formal board
evaluation process and improving access to relevant information, GHL can become one of the
leaders in good corporate governance in the Caribbean.
Boards have to recognize issues and make choices. This is a function of corporate governance,
which needs to be built on the bedrock of business ethics. (Tricker, 2013)
Recommendations
The following recommendations are based on the issues found in the analysis:
1. It is imperative that GHL adopt international governance codes or principles on which to
base their Governance Structure. The recommended option is the OECD Principles.
Adopting a universally recognized set of principles ensures a more comprehensive
governance framework, rather than one based on guesswork.
2. A review of the board should be conducted immediately to address the issues concerning
transparency.
3. The chairman should be removed from the audit committee as well as the remuneration
committee in order to better conform to international best practice, as well as to improve
GHLs overall image in the eyes of their stakeholders.
4. Formal evaluation policies and procedures should be implemented in order to conduct
regular assessments of the board of directors. Regular board reviews have a number of
benefits, most notably the fact that it gives a candid view of board behaviour and
performance (Tricker, 2012).
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