Corporate Governance Maturity Framework Guide - …

1 Corporate Governance Maturity Framework Guide DRAFT: December 2013 The Energy Chamber of Trinidad and Tobago INDEX Background 7 Improving Corporate Governance 7 The Corporate Governance Maturity Framework 8 How to Use this Guide 10 I. Roles 13 1. DIVISION OF ROLES 15 2. DUTY OF CARE 17 3. DUTY OF LOYALTY 19 II. Board Composition 21 4. APPROPRIATE BOARD COMPOSITION 23 5. CHOOSING DIRECTORS 25 6. INDEPENDENCE FOR OVERSIGHT 27 7. NUMBER OF DIRECTORS 29 III. Board Tasks 31 8. DIRECTING, DELEGATING & MONITORING 33 9. RISK OVERSIGHT & AUDIT COMMITTEE 35 10. INTERNAL AUDIT 37 11. CONFLICT OF INTEREST 39 12. COMPLIANCE FUNCTION 41 13. WHISTLE-BLOWER POLICY 43 IV. Board Process 45 14. SEPARATION OF CHAIRMAN AND CEO 47 15. FREQUENCY OF MEETINGS 49 16. INDUCTION 51 17. BOARD CHARTER & COMMITTEE TERMS OF REFERENCE 53 18.

2 CODE OF ETHICS 55 19. EVALUATION 57 V. Disclosure and Transparency 59 20. DISCLOSURE 61 21. ACCOUNTING STANDARD 63 22. AUDITING STANDARD 65 VI. Shareholders 67 23. ONE-SHARE-ONE-VOTE 69 24. ANNUAL GENERAL MEETING 71 References 72 Appendix 1 Highlights of Corporate Governance Best Practice Guides 74 DRAFT: December 2013 The Energy Chamber of Trinidad and Tobago 5 LIST OF ACRONYMS CA Companies Act Chapter 81:01 CCGI Caribbean Corporate Governance Institute CHC Closely Held Company ECTT Energy Chamber of Trinidad and Tobago ECODA European Confederation of Directors Associations FCPA Foreign Corrupt Practices Act GCGF Global Corporate Governance Forum ICGN International Corporate Governance Network IPLA Integrity in Public Life Act IFRS International Financial Reporting Standards ISA International Standards of Auditing IFC International Finance Corporation LC Listed Company OECD Organization of Economic Co-operation and Development PSOJ Private Sector Organization of Jamaica SEPMM State Enterprises Performance Monitoring Manual SOE State Owned Enterprises TTCGC Trinidad and Tobago Corporate Governance Code TTSE Trinidad and Tobago Stock Exchange UNCTAD United Nations Conference on Trade and Development

3 LEGISLATIVE REFERENCES Corporate Governance The Companies Act Chapter 81:01 Integrity in Public Life Act Chapter 22:01 (persons in public life) The Prevention of Corruption Act Chapter 11:11 The Proceeds of Crime Act Chapter 11:27 (the Financial Regulations Obligations) The Equal Opportunity Act 2001 The Financial Institutions Act Chapter 79:09 The Partnership Act Chapter 81:02 Unfair Contract Terms Act Chapter 82:37 Finance The Insurance Act Chapter 84:01 (as amended) The Income Tax Act Chapter 75:01 The Corporation Tax Act Chapter 75:02 The Value Added Tax Act Chapter 75:02 The National Insurance Act Chapter 32:01 The Securities and Industry Act No. 17 of 2012 The Central Bank (Amendment) Act 1994 The Central Tenders Board (Amendment) Act No. 39 of 1991 The Exchange Control Act Chapter 79:50 The Finance Act (Various) Compliance and Regulatory The Financial Intelligence Unit of Trinidad and Tobago Act Chapter 72:01 The Anti-Dumping and Countervailing Act No.

4 11 of 1992 The Adverse Trade Practices Order 2000 The Customs Act Chapter 78:01 The Data Protection Act No. 13 of 2011 The Financial Unit of Trinidad and Tobago Regulations 2011 The Economic Sanctions Act No. 15 of 1994 The Fair Trading Act No. 13 of 2006 The Negotiable Instruments (Dishonoured Cheques) Act No. 9 of 1998 The Moneylenders Act Chapter 84:04 The Regulated Industries Commission Act No. 26 of 1998 The Town and Country Planning Act Chapter 35:01 Health, Safety, Environment The Occupational Health and Safety (Amendment) Act 2006 The Consumer Protection and Safety Act Chapter 82:34 The Environmental Management Act Chapter 35:05 Labour The Industrial Relations Act Chapter 88:01 The Retrenchment and Severance Benefit Act Chapter 88:13 The Minimum Wages Act Chapter 88:04 The Trade Unions Act Chapter 88:02 The Workmen s Compensation Act Chapter 88:05 Investments The Foreign Enterprises Act Chapter 19:08 The Foreign Investment Act 70:07 International Laws USA: The Foreign Corrupt Practices Act (FCPA) and Foreign Account Tax Compliance Act (FATCA) Canada: Corruption of Foreign Public Officials Act (CFPOA) United Kingdom: Bribery Act 2010 (UKBA) DRAFT.

5 September 2013 The Energy Chamber of Trinidad and Tobago 7 Background Improving Corporate Governance In 2011 The Energy Chamber of Trinidad and Tobago (ECTT) embarked on an Inter-American Development Bank (IADB) initiative aimed at improving the practice of Corporate Governance in private and public companies in Trinidad and Tobago to facilitate the creation of an ethical, non-corrupt business environment that will reduce excessive levels of risk and promote a competitive and stable economy. For companies to improve their Corporate Governance practices they must first assess their current Corporate Governance practices in relation to the legal requirements of Trinidad & Tobago and international best practice. Best practice references include the OECD Principles of Corporate Governance , the OECD Guidelines on Corporate Governance of State Owned Enterprises, the Corporate Governance Guidelines and Principles for Unlisted Companies in Europe developed by the European Confederation of Directors Associations (ECODA), the Ministry of Finance State Enterprises Performance Monitoring Manual and the Trinidad and Tobago Corporate Governance Code (in press).

6 See Appendix 1. The ECTT Corporate Governance Maturity Framework was developed to provide this guidance in Corporate Governance practices firstly to member companies of the Energy Chamber of Trinidad and Tobago and secondly to the business community of Trinidad and Tobago. Following the OECD Principles of Corporate Governance , 2nd Edition, 2004 ( ) we adopt the definition: In its Principles of Corporate Governance , The OECD has stated: Together with guiding Corporate strategy, the board is chiefly responsible for monitoring managerial performance and achieving an adequate return for shareholders, while preventing conflicts of interest and balancing competing demands on the corporation. The Maturity Framework , grounded in international best practice and customized for the Trinidad and Tobago context addresses the specific Corporate Governance practices relevant to three (3) types of organizations: 1.

7 Closely Held Company1(CHC), 2. Listed Company2 (LC) or 3. State Owned Enterprise3 (SOE). This Corporate Governance Maturity Framework will provide the essential guidance for the Directors, Board Members, CEOs and Senior Managers of these organizations as they work towards a higher level of best practice Maturity in Corporate Governance . OTHER GUIDES IN THIS SERIES INCLUDE: Orientation Guide for new directors Corporate Governance - frequently asked questions Corporate Governance legislative Guide Corporate Governance involves a set of relationships between a company s management, its board, its shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

8 Good Corporate Governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring . 1 Private; Majority of shares are held by one or a few owners. 2 Companies listed on a stock exchange. 3 Organizations where the Government of the Republic of Trinidad and Tobago has controlling interest. 8 The Corporate Governance Maturity Framework The Corporate Governance Maturity Framework (see Figure 1) provides an understanding of your performance on the following six (6) key areas of Corporate Governance based on applicable legislation and most widely accepted international principles. I. Board Roles II. Board Composition III. Board Tasks IV. Board Processes V. Disclosure and Transparency VI.

9 Relations with Shareholders Each key area is further defined by twenty four (24) Corporate Governance indicators. The Framework is customized for three ownership structures Closely Held Companies, Listed Companies and State Owned Enterprise. Each of the 24 indicators is structured at four (4) levels of Maturity providing a clear path for Chairmen, Directors and CEO s to move from basic compliance with legal requirements (Level 1) to advanced Governance practices (Level 4). The Maturity levels are defined as follows: LEVEL 1: Complying with legal baseline. This level speaks to legal requirements related to the specific indicator (within the jurisdiction of Trinidad and Tobago). LEVEL 2: Understanding need to professionalize Corporate Governance . At this level an organization has understood the benefits associated with this Governance dimension and has developed a formal procedure to address it.

10 LEVEL 3: Significant concrete steps. At this level there is evidence that the organization has acted on or implemented the formalized Governance procedures of Level 2 LEVEL 4: Advanced Governance practice. At this level the organization has mastered the Corporate Governance practices. The Corporate Governance Self- Assessment Tool (go to ) uses this Framework to provide com- panies with a clear understanding of current Maturity levels, while this Guide can be used to better understand the factors involved in moving to the next level. FIGURE 1 Corporate Governance Maturity Framework I. Roles 1. Division of Roles 2. Duty of Care 3. Duty of Loyalty Composition 4. Appropriate Composition 5. Choosing Directors 6. Independence of Oversight 7. Number of Directors III. Board Tasks 8. Directing, Delegating, & Monitoring 9.