Opinion: Supervisory directors

POSTED: 06/23/14 6:19 PM

Corporate governance and the role of supervisory directors is not only food for thought – if not for action – in St. Maarten. The blundering board of supervisory directors at the postal services (PSS) will cost the company or the treasury (whomever is able to pay the verdict to former director Denicio Richardson) nearly a quarter of a million dollars. Yet, the shareholder has never felt the need to intervene, apparently because the board was unable to reach an agreement with Richardson about his remuneration.

Does this put the supervisory board of directors in the clear? We do not think so. The board, under chairman Hubert Pantophlet and vice-chairman Stuart Johnson should have taken action, after it became clear that there was (apparently) no way to reach an agreement with its director. Since the board did not act, the shareholder should have intervened. None of this happened, so there are two issues at hand here: the failing of the supervisory board of directors, and the failing of the shareholder. The invoice for these failures goes to the citizens who pay their taxes.

Curacao struggles with similar issues. Attorney Karel Frielink, a partner at Spigt Dutch Caribbean (Attorneys at Law & Tax Advisers) in Willemstad, published the following quote from the Amigoe newspaper of June 18 on his legal blog.

“In Curacao a public tender for contractors does not have any added value and it is also not efficient considering the limited number of capable contractors on the island. Minister Earl Balborda (Traffic, Transport and Urban Planning) reports this in a letter he has sent to the Council of Ministers and in which he proposes to hold no public tender for the outsourcing of projects that fall under the “Inhaalslag Onderhoud Openbare Wegen Curacao” – a project to catch up on neglected maintenance of public roads.

Frielink uses this statement to show what the possible effects could be if this proposal becomes a reality. Rewriting Balborda’s statement, the attorney noted: “In Curacao a profile for supervisory directors of government-owned companies that meets international standards has no added value and is also not efficient considering the limited number of capable supervisory directors on the island.”

“I am not saying that this position is correct, but it is a provoking one. Are we choosing from the locally available supply the people who are (“the least bad”? And is this why we set the bar lower because otherwise we do not manage to fill up the board of supervisory directors with locals?” Frielink wonders.

He then presents a quote from Professor Frank Kunneman, published in the Antilliaans Dagblad on June 16. “It is a fact though that on a small island you cannot set the same standards for the profile of supervisors at government-owned companies as you do in a large country. There will be nobody left to do the job. Furthermore, people who do not meet the highest requirements of education and experience could still be effective supervisors. I am however of the opinion that (only) using a broad profile is not sufficient.”

Frielink has his own thoughts about this statement: “The question is of course whether it would not be wise to have experienced and competent people from outside the island take a seat in such a board? A good mix can improve the quality of supervision. A discussion about this topic seems useful.”

Frielink presents another quote from Kunneman’s opinion: “Last but not least the integrity. We all want our directors to be of the highest possible moral caliber. After all, they decide about issues of general interest. In the financial world it has been already been customary for a long time that the Central Bank of Curacao and Sint Maarten conducts an integrity review before approving the appointment of someone as director or supervisor at a financial institution like a bank, an insurance company or a pension fund.

“I plead for the introduction of a similar review for directors and supervisors of government-owned companies and foundations in our country. This task could very well be left to the institute of Advisor Corporate Governance.”

Frielink agrees and has some doubts at the same time: “Who would not agree with this, one would say. What is the use of a complete system of corporate governance rules if those who have to abide by and apply those rules have no integrity? The question is however what we have to understand as integrity (that also has to be of the highest caliber).”

Frielink notes that in Curacao sometimes the idea seems to prevail that somebody must be considered to have integrity if he has no criminal record. In St. Maarten this is absolutely true – forget sometimes. MP Louie Laveist has a criminal conviction but everybody (including Laveist) is okay with the fact that he remains a Member of Parliament. Patrick Illidge is “only a suspect” in a criminal investigation. True, these are not directors or supervisors of government-owned companies, but one could say that they are the supervisors of the government. The way they are treated and the way they behave themselves speaks volumes about the perception of integrity in St. Maarten.

In Curacao, you sometimes hear that someone with a criminal conviction has integrity because his prosecution and conviction were politically motivated, Frielink observes.

A criminal conviction is potentially relevant for the answer to the question whether someone has integrity. Frielink: “It makes a difference whether someone has been sentenced for overspending or for forgery or embezzlement. There are, however, plenty of people who have no integrity and who do not have a criminal record either. This is where we enter complicated terrain, because which standards are you going to use to establish someone’s integrity?

“Are you going to ask statements from current and former employers? Is it necessary to go through the newspaper archives to find out whether there is a link between a candidate supervisory director and “funny business”? And who is going to make the judgment call? Is our corporate governance watchdog capable of this? Or is this also food for discussion?”

Frielink brings up the Central Bank’s definition of someone’s reliability. That definition refers to someone’s behavior, especially to the lack of love for the truth, reliability, law abidingness, openness, sincerity, prudence, punctuality, integrity, discretion and honesty.

Frielink notes that it is not easy to judge someone on these standards: “It is a negative review. It cannot be established whether someone is reliable, but (hopefully) establishing a lack of reliability is easier.”

The attorney concludes that integrity is also a matter of mentality – a position we support entirely – and that it is not easy to measure: “If we want to review the integrity of candidate supervisory directors of government-owned entities, it is necessary to establish a regulation similar to the one for financial institutions. The review must not only include guarantees, but it also has to be executed by an entity that is capable of doing this. That is also a topic for debate and the participants in that debate should not only corporate governance-experts.”

While Frielink hits the nail on the head as far as the integrity-component is concerned, it does not say a lot about the expertise supervisory directors ought to have. In the case of the postal services debacle, we could think of one crucial missing characteristic: decisiveness. How is it possible to let someone work for more than three years without ever establishing his labor conditions? Something like that will never happen in the private sector.

The PSS-drama seems to be a typical result of indecisiveness on two levels: the supervisory board and the shareholder. In the private sector, such failure – certainly when it comes with a hefty price tag of close to a quarter of a million dollars –knows only one outcome: dismissal.

How is it possible for something so costly to happen at PSS? We consider as a possible explanation that those responsible were putting the money of others (the taxpayers) at risk. Had it been about their own money, this would never have happened.

We suggest therefore yet another topic for debate: the liability of supervisory directors. If they can be held financially accountable for wasting public money, they are bound to pay more attention to what they are doing and to behave more responsibly.

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