Greg Christie, in the inaugural issue of the Public Opinion, proffered views on Jamaica’s future and the implications of corruption on the country. His political-economic treatise of the matter which emphasized the magnitude of the potential for the adverse socio-economic consequences that corruption portends is substantial. It inspired an examination of the governance concept through two perspectives – the broader country context and at the firm level – to ascertain that nature of its association with economic well-being.
Various measures of country-level governance have been adopted by governments, multilateral agencies, and academia. Most of them capture constructs such as: government interference with private sector, public sector efficiency; output of public goods; size of government and political freedom; law enforcement; corruption; contract repudiation and expropriation risk; legal efficiency; shareholder rights and legality.
Widely accepted reports on country governance are generally issued by Transparency International (TI), the International Country Risk Guide (ICRG) which measures country governance and develops country risk ratings using constructs such as government stability, socioeconomic conditions, corruption, law and order’ and the World Bank.
The World Bank, through an ongoing special project – done via collaboration between the Natural Resource Governance Institute (NGRI), Brookings Institution and World Bank Development Research Group – produces the Worldwide Governance Indicators (WGI) that reports aggregate and individual governance indicators for over 200 countries and territories over the period 1996–2015; and it’s widely accepted across these sovereignties. The indicators cover six dimensions of country-level governance:
|· Voice and Accountability||the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and freedom of press.
|· Political Stability and Absence of Violence||– the likelihood that a government will be destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.
|· Government Effectiveness||– the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.
|· Regulatory Quality||– a government’s ability to formulate and implement sound policies and regulations that permit and promote private sector development.
|· Rule of Law||– captures the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
|· Control of Corruption||– the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests.|
During the last 15 to 20 years, CARICOM countries have adopted several legislations designed to “impose order and discipline, regulate businesses, protect the public, and enhance transparency, disclosure and accountability” (CARICOM Secretariat, 2006). So how have the countries’ Gross Domestic Product (GDP) – a proxy for the economic well-being of the nation – reacted to the World Bank’s assessment of the efficacy of their actions to improve governance. I have summarized in the three graphs below the relationship of GDP to the WGI rankings for Jamaica, Barbados, and Trinidad & Tobago to provide some insights into the linkages between the measure.
- The data suggest that, in the case of Jamaica, political stability and absence of violence and terrorism and the rule of law are highly correlated with GDP, 0.74 and 0.66 respectively;
- Voice and accountability did not display any significant association with the country’s GDP; and
- Government effectiveness (0.21), Regulatory Quality (0.54), and Control of Corruption (0.47) had negative associations with GDP.
- In the case of Barbados, the data suggest that Government effectiveness (0.47), Control of Corruption (0.16), Voice and Accountability (0.14) had positive associations with GDP;
- Political stability and absence of violence and terrorism had no significant association with GDP;
- While Rule of Law (0.53); Regulatory Quality (0.41) had negative associations with GDP.
Trinidad & Tobago presented a markedly different picture from the other two countries examined, with political stability and absence of violence and terrorism (1.0), Rule of Law (0.68), and Government effectiveness (0.44) being positively correlated with GDP;
While, Regulatory Quality (0.92), Control of Corruption (0.16), and Voice and Accountability (0.10) were negatively correlated with GDP.
These correlations do not provide explanation of the associations, but rather demonstrate that the WGI – a perception index that provides rankings across 200 countries – give the degree to the country ranks on rated dimensions, relative to others, and its GDP performance generally. Many of the issues disclosed in the WGI full report are common across boundaries. I found that Goldsmith’s (2007) research recommendations persist and are restated here for consideration by policymakers:
|Bad Institutional Pattern||Typical Reforms|
|Public administration: Government workers are recruited and promoted for partisan connections (patronage)||Competitive entrance and advancement, job tenure for civil servants|
|Judiciary: People with close ties to government get preferential treatment in court (no rule of law)||Lifetime tenure for judges, merit plan for nomination|
|Issue advocacy: Established families and big businesses get special consideration in legislation (rent-seeking)||Registration of lobbyists “revolving door” rules for ex-officials|
|Campaign finance: Election campaigns are paid for by large, secret donations
from wealthy interests (political capture phenomenon)
|Disclosure of donors, donation caps, public funding|
|Elections: Voting is marked by bribery, intimidation, and deception to obtain predetermined outcome (rigged balloting)||Secret ballot procedures, election commission|
|Legislative process: Lawmakers provide targeted individual or group favours to maintain local popularity and they neglect production of public goods (clientelism)||Expand the franchise, emphasize nonselective government programmes that benefit broad categories of people based on objective criteria|
|Investor rights: Managers misappropriate corporate assets, mistreat small shareholders (inefficient capital markets)||Accounting disclosure requirements, minority shareholder rights, curbs on insider trading|
Adopted from (Goldsmith, 2007)
At the firm level, the adoption of principles of “good” corporate governance has been generally associated with better managed and more profitable corporations, positioned to attract low-cost financing to facilitate growth. The revised Treaty of Chaguaramas (2001), established the CARICOM Single Market and Economy (CSME) which is aimed towards achieving “sustained economic development based on international competitiveness; coordinated economic and foreign policies; functional co-operation and enhanced trade and economic relations with third States” (CARICOM, 2001, p.1). Consequently, great emphasis has been placed on the adoption of principles of “good” corporate governance by corporations internationally.
Campbell (2016) found that in the Caribbean Community (CARICOM), listed companies have generally adopted principles of “good” corporate governance over time. However, they have failed to capitalize on the benefits ascribed to implementation. CARICOM countries have generally been reputed to be replete with weaknesses in their legal, regulatory and governance systems. Most of these countries are also confronted with socio-economic challenges and business ownership is very concentrated with over 86% of companies listed on the major stock exchanges. They comprise of majority shareholding – a single equity holding has 20% or more of ordinary share capital – while most of the remaining 14% had a significant proportion of related parties. The OECD contends that these dynamics can impede companies from realizing the results that the adoption of principles of “good” corporate governance is expected to produce – particularly value capture.
International organizations such as the OECD, G-7, International Monetary Fund (IMF), the World Bank and the United Nations (UN) along with their respective agencies have been playing an increasing role in dispersing ideas, programmes and institutions around the globe. Noteworthy, especially for firms with an international outlook, are the Combined Code on Corporate Governance 2008 United Kingdom; OECD Principles of Corporate Governance (2004); and Sarbanes Oxley Act of 2002.
These policies, codes and laws generally diffuse through the increasingly connected global systems and have influence on governments, loan conditions and conferences and periodic reports. International consultants, particularly those that are paid from funds obtained from multilateral organizations, are also very influential in guiding policy adoption. Consequently, policy decisions taken by governments in CARICOM have been adopted through various policy diffusion mechanisms, mostly through the dictates of multilateral organizations and international consultants who are more often compensated by these institutions.
Of the three countries covered in this article, Jamaica appears to have undertaken the most corporate governance reform initiatives which could have been instigated by the financial meltdown experienced by the country in the mid-1990s. Among the changes were: the establishment of the Company Registry (with responsibility for administering the Companies’ Act); the Securities Council/Securities and Exchange Commissions which administers the Securities Act; Stock Exchange which makes and enforces rules relating to publicly listed companies; and the Commissioners of Insurance.
However, the efficacy of CARICOM countries’ legal and regulatory systems has been questioned repeatedly and has been found to be unequal, expensive, uncertain, slow, complicated, fragmented, and adversarial. As a result, the promised benefits of the adoption of good corporate governance principles seem illusionary at best. For instance, although companies acts in the region generally incorporated provisions enabling shareholders to take legal action against directors for fraud, shareholders have not been able to successfully challenge any decisions taken by a board of directors that in their view was detrimental to their interest. All such challenges have decapitated as there is no mechanism in place to provide the required support.
Corporate governance in emerging markets like Jamaica is believed to be threatened because of weaknesses in the underlying political, economic and structural framework and the rule of law (as seen in the graphical depiction above).
It is for those reasons that Campbell recommended, the immediate attention of policy makers and corporate stakeholders towards:
- Strengthening of the legal systems.
- Strengthening the monitoring of companies.
- Promulgating amendments to give minority shareholders the right to take legal action not only against directors but also against the dominant shareholder(s).
- Legislating that agreed corporate governance principles, along with the stock exchange rules should be mandatory; and proffering appropriate sanctions should a breach arise.
These firm level improvements will likely yield better performance and cumulatively improve the country’s overall GDP, thereby creating greater resources for the well-being of us all.