Christopher Bovell, Guest Writer

January 1, 2007 is an important date for all companies listed on the Jamaica Stock Exchange, and for non-listed companies engaged in the provision of financial services. The Private Sector Organisation of Jamaica (PSOJ) Corporate Governance Code, which was launched on November 9, becomes effective for all such companies ,whose annual reporting periods commence on or after January 1.

The PSOJ is proposing that all such companies adopt and implement part one of the code - 'Principles of Good Governance'.

Principles

There are 16 principles of good corporate governance, which these companies should apply in their governance through their respective boards of directors.

The principles set out in basic terms what a well governed company should do in relation to directors, remuneration, relations with shareholders and accountability and audit. See www.psoj.org for details.

The code also contains a part two - 'Best Practices' - which explains the 16 principles.

More detailed

Part two is much more detailed and companies should also look at them for explanation of how to implement the principles. For example, under the sub-heading, 'directors', there are eight paragraphs, whereas under the equivalent section of best practices there are 40 paragraphs going into greater detail.

No time-frame has been set for companies to begin implementing the best practices.

It is hoped that they will do so as soon as possible, and the PSOJ intends to periodically review and amend the code in the context of international best practices and the Jamaican business climate, including recommending when the best practices should be implemented.

The code has no binding effect on companies. It is hoped that all companies to which it applies will comply with the principles.

Where they do not, it is expected that they will give a reasoned explanation. In the final analysis, it will be for shareholders, analysts and institutional investors to decide what action should be taken in respect of a company which does not comply or fails to give a satisfactory explanation as to why it has not complied.

Endorsed

The Financial Services Commission (FSC) has endorsed the code and its provisions. At the launch, on November 9, FSC Executive Director Brian Wynter gave his full support and encouraged all applicable companies to implement the principles.

The JSE has not yet publicly stated its position, but it is in favour of the code and was consulted in its drafting.

It is expected that in due course the JSE will recognise the code in their listing rules.

It is in the interest of all companies to which the code applies, and also to other non-listed companies, to be guided by the code in the governance of their companies.

It is well recognised in the majority of countries today that a code of corporate governance is essential for the effective running of companies.

In Jamaica, with our new 2004 Companies Act now in effect, it is in the best interest of directors to ensure that they are applying the principles of good corporate governance. If they do not, they might well find that they become liable to their shareholders for failing to perform their duties in accordance with the provisions of the Companies Act.

Christopher Bovell is senior partner at DunnCox, attorneys-at-Law. Email: christopher.bovell@dunncox.com