Financial Services Commission Corporate Governance Seminar. Corporate Governance: Influencing Performance & Efficiency - Creating Opportunities

Transcription

1 Financial Services Commission Corporate Governance Seminar Corporate Governance: Influencing Performance & Efficiency - Creating Opportunities March 26, 2014 Opening Remarks Ms. Janice P Holness Executive Director Financial Services Commission Our Key Note Speaker - Mr. Bert van Selm - IMF Resident Representative in Jamaica, Distinguished Speakers Ladies and Gentlemen: Good Morning On behalf of the Financial Services Commission s (FSC) Board of Commissioners, the Executive Management and staff, I welcome you to our annual corporate governance seminar. Today s seminar is a small ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 1

2 reflection of the FSC s commitment to develop corporate governance practices in Jamaica. We at the FSC are fully convinced that good corporate governance influences better performance and efficiency. There are several identifiable channels through which corporate governance affect growth and development and aids in creating opportunities as the company becomes more accountable and transparent to investors: Firstly, with better corporate governance practices, investors and creditors are more willing to grant access to external financing. This in turn can lead to more investments, increased growth and greater employment creation. Secondly, there is the lowering of the cost of capital and associated higher firm valuation. This makes investment ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 2

3 opportunities more attractive to investors, and this again leads to growth and increased employment. The third channel is that there will also be better operational performance through better allocation of resources and better management. Generally this creates more wealth. Fourthly, good corporate governance is positively associated with a reduced risk of financial crises as the companies risk management program is enhanced. This is particularly important, as financial crises can have large economic and social costs. And lastly, good corporate governance can equate to better relationships with all stakeholders. All these channels matter for improved performance and efficiency, economic growth and employment. 1 1 Adapted from 2003, Stijn Claessens, Corporate Governance and Development ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 3

4 These anticipated benefits have made corporate governance a major issue for businesses in an increasingly global economy. Interestingly, before the 1980s, corporate governance was a phrase that meant little to all but us who are lawyers, scholars and a few shareholders. 2 Globally, it has evolved into a main topic of discussion in corporate boardrooms and meetings for academics, policymakers, regulators and even pension fund beneficiaries. Academic sources have credited three events as being responsible for the heightened interest in corporate governance. The first was the turmoil of the 1980s with the Savings and Loan crisis in the United States. The wave of financial crises in 1998 in Russia, Asia, and Brazil was cited as the second. The third occurred around 2001, when there was a significant decline in confidence in the corporate sector. This was 2 Adapted from 1996, Ronald J. Gilson, Corporate Governance And Economic Efficiency: When Do Institutions Matter? ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 4

5 due to the number of corporate scandals in the United States and Europe that triggered some of the largest insolvencies in history, with the largest global insolvencies being Enron and WorldCom. While I only mentioned three events, there are other corporate failures and scandals; all of which demonstrate that (i) the behavior of the corporate sector can affect entire economies, and (ii) deficiencies in corporate governance can endanger the stability of the financial system nationally and globally. Furthermore, the savings and wealth of many individuals are also at great risk. It is now widely accepted that there are potential macroeconomic consequences for weak corporate governance systems. Additionally, the corporate scandals, failures and financial crises are increasingly being viewed as just one of the reasons why corporate governance is ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 5

6 essential in all firms - financial and non-financial. In Jamaica, we can relate to the harmful effects of corporate governance weaknesses. These weaknesses included (1) absence of or failure to comply with proper internal control procedures; (2) troubled banks showed high incidence of fraud and other irregularities; (3) high levels of intra-group lending and related party balances; and (4) poor risk management and inadequate portfolio diversification. The crisis affected both financial and non-financial institutions alike. The Jamaican government absorbed debts amounting to 44 percent of GDP in the wake of the financial sector crisis of As seen in Jamaica and other countries, corporate governance is critically important for economic stability, development and well-being Council on Hemispheric Affairs, Jamaica: Debt, Economic Performance and Labour Productivity available online at ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 6

7 Out of every crisis cometh good and the Jamaican crisis led to an improvement in regulation and supervision of the financial sector. The FSC was created through the Financial Services Commission Act to oversee the supervision and regulation of Jamaica s insurance, pension and securities industries and is mandated to protect users of financial services in these sectors. To this end, the FSC, from its inception, has been promoting proper corporate governance. All three sectors - insurance, securities and pensions - have legislations that mandate licensees and registrants to comply with sound corporate governance requirements. For example: i. the Insurance and the Securities Acts, require the establishment of Board committees and the use of auditors and actuaries; and ii. for pension plans, there is the Pension Governance Regulations which mandate the duties of trustees, investment ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 7

8 managers and administrators in order to have proper governance of pension plans. In addition, we have collaborated with the Private Sector Organization of Jamaica in developing the PSOJ Code on Corporate Governance. We have also issued corporate governance guidelines for insurance companies. Further, the FSC, as a component of its annual onsite examination program, assesses the compliance of regulated entities with these requirements. Currently, we are in the process of developing rules and standards for the Conduct Review Committee for securities dealers. The main purpose of today s seminar is to provide additional insights to enhance corporate governance understanding and practices in Jamaica. The agenda is a full one and we have expert speakers. First, we will hear from Mr. Bert van Selm of the IMF. The IMF is one of the ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 8

9 international organizations that has been promoting corporate governance all over the world. The wider Government of Jamaica is committed to corporate governance and appreciates the economic benefits that can follow from implementing effective corporate governance practices. The Cabinet has given approval for the Corporate Governance framework for Public Bodies in Jamaica. The framework was revised in October 2012 and the aim is to improve accountability, probity and transparency among Public Bodies in order to achieve a more compliant, responsive, efficient and effective Public Service. This framework is essential and can help us achieve Vision As the program continues, we will explore three vital elements of corporate governance. The first will be risk management, which if applied comprehensively, is a key ingredient to any company s viability. Systems form the second key element and in today s world of rapidly ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 9

10 evolving technology, it is important for us to hear about information technology governance. The third element that we will look at is leadership and for this element we have two presentations geared toward Board education and Board assessments. I expect that from this seminar you will have a better understanding of best practices that influence performance and efficiency and be in a position to improve corporate governance in your institutions. I look forward to hearing the ideas that emerge today on these and on all of the other topics you may discuss. I wish you all an information filled and engaging seminar in this important initiative and hope that the cross-pollination of your ideas and varying experiences will yield the desired synergy in creating opportunities in your organizations. I warmly welcome you again and thank you. ED s Opening Remarks, 2014 FSC s Corporate Governance Seminar, Jamaica Pegasus Hotel Page 10