Address by Kurt Kisto, Alternate Executive Director Caribbean Constituency Inter American Development Bank, March 27, 2012
Inter-American Investment Corporation (IIC-FINPYME) Integrity Workshop
The Hon. Stephen Cadiz, Minister of Trade and Industry of Trinidad & Tobago; Mr. Jacques Rogozinski, General Manager of the Inter- American Investment Corporation; Mrs. Michelle Cross Fenty, IDB Resident Representative Trinidad & Tobago; Mr. Doogjoon Kim, Representative from the Government of the Republic of Korea and IIC Trust Fund Specialist; Specially Invited Guest, Facilitators, Participants, Members of the Media, Ladies & Gentlemen. A Very Good Morning to you all…
I am especially honored to be able to speak to you here in my home country of Trinidad & Tobago…as it is always good to be home.
It gives me great pleasure in welcoming you all here to this meeting and I would like to extend a special welcome and congratulations to the program partners and the small and micro enterprises represented here today from Barbados, Jamaica and Trinidad & Tobago.
I sincerely thank the Inter-American Investment Corporation for implementing this program in the Caribbean Region toward building capacity in the small & micro enterprise sector for business ethics. I do not need to convince any of you about the importance of introducing structured programs to support ethical behavior in companies; rather, I congratulate you, the businesses, who have the vision and conviction to engage and participate in such a program. This speaks to your realization that business ethics is a necessary tool, not only for enhanced reputation, but an essential component to good corporate governance, competitiveness, business growth and success. In this regard I am sure you can speak to the realness of the issues and the benefits of the program. I look forward to hearing and learning about your experience with the program, and undoubtedly to the richness of the discussion we will have here over the next two days, so as to inform the design and implementation of the next phase, toward deepening and expanding the project throughout the Region.
In directing our focus and energy in our deliberations, we must also consider further perspectives to expand the dialogue from business ethics to corporate governance, at both the national and regional levels. There is no doubt that the last financial crisis for which the Caribbean experienced the internal shocks from regional financial institutions, compounded with external shocks from the global crisis, has left unforgettable cracks in the economic landscape our countries and throughout the Region. While the crisis is deemed a financial one, in retrospect it is plausible to say it may have been ignited by poor corporate governance.
What started out as firm problems became national problems, and mushroomed into regional problems culminating in a global financial crisis; as such, we cannot underestimate the impact of poor corporate governance at the firm level, as it has far reaching consequences globally. Over the last decade financial instruments and markets expanded into new products with globalised assets and liabilities creating a surplus bubble, however, corporate governance did not grow to keep pace with business growth and expansion, thus resulting in a corporate governance deficit. According to the Organization for Economic Corporation & Development in its work on the Financial Crisis and Corporate Governance, “The financial crisis revealed severe shortcomings in corporate governance. When most needed, existing standards failed to provide the checks and balances that companies need in order to cultivate sound business practices… When times were good too many people took their eye off the ball and we now see the consequences.”
As a result of the current financial crisis we are witnessing new rules in the Euro Zone and in the US, all of these in response to the Corporate Governance deficit. At the regional level, we see governments addressing the issue of financial sector reform, led by new and enhanced legislation and the institutional strengthening of compliance bodies, as a necessary response to building rigid corporate governance architecture. The issue of corporate governance also needs to be extended to the state owned enterprises sector, as these enterprises account for a large portion of the GDP in many developing and emerging economies. Good governance in the state owned enterprises sector, as in the private sector, improves corporate performance, the management of public funds and the delivery of essential public services.
With respect to corporate governance and development, The Global Corporate Governance Forum lists the following:
- Improved corporate governance practices increase firm share prices, hence, better- governed firms appear to enjoy a lower cost of capital.
- Operational performance is higher in better corporate governance countries.
- Well governed companies have less volatile stock prices in times of crisis.
- Companies with boards composed of a higher fraction of outsider or independentdirectors usually have a higher market valuation.
- Improvements in corporate governance quality lead to higher GDP growth, productivity growth, and the increased ratio of investment to GDP. The effect is particularly pronounced for industries that are most dependent on foreign direct investment.
- When a country’s overall corporate governance and property rights systems are weak, voluntary and market corporate governance mechanisms have limited effectiveness. Proper regulatory framework and enforcement mechanisms are crucial to promote good corporate governance practices.
- The quality of shareholder protection positively correlates with the development of countries’ capital markets.
- Better corporate governance leads to a better developed financial system, which, in turn, is associated with greater access to financial services for small and medium enterprises and poorer people.
Corporate governance has emerged as an essential tool not only for improving corporate performance, but also a necessary one in advancing the development of market-oriented democracies. Good corporate governance champions the democratic values of fairness, accountability, responsibility, and transparency into private and state owned corporations. It maintains the integrity of business transactions and in so doing strengthens the rule of law and democratic governance. Corporate governance establishes and reconciles private rights and public interests, preventing abuses of both, and serves as a powerful antidote to corruption.
In regard to all of the above, and as we rethink the development paradigm for the Caribbean in the realignment of the global economic and financial system, and as the region moves to consolidating expanding and opening up the capital markets for attracting intra regional and foreign direct investment; I encourage the Inter-American Development Bank to expand this program and take a leadership role in coordination with other multilateral and regional development banks to work with business, labor, civil society and governments, to promote the corporate governance agenda at the business, national and regional levels as a necessary pre- requisite, not only for good business but for facilitating national development, regional financial stability and international competitiveness.
Thank you all.