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A11854 MAHLON HINDS MBA Cooperate Governance Kamala Rampasad De-Sliver CTS College of Business and Computer Science Ltd. 15 1550

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Cooperate Governance Review for Guardian Holdings Limited

ASSIGNMENT: Conduct a review of the governance of your organization (or one with which you are familiar) in the form of a report to the Chairman (or President) of the Governing Board of Directors. In the brief report use the concepts, tools and techniques

Author : Mahlon Hinds

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................... 6 INTRODUCTION ............................................................................................................................ 7 REVIEW OF Guardian Holdings Limited BOARD.......8-10 A. Board Structure .....8 B. Board Processes...9 C. Board Effectiveness...10 CONCLUSIONS....11 RECOMMENDATIONS...12 REFERENCES.......13 APPENDICES.....14&15


Dear Chairman, Good cooperate governance ensures astute risk management, transparency and accountability which inevitability optimizes company performance whilst creating value for its shareholders or owners.(Principles of Good Corporate Governance, A board of directors with good structure, process and leadership from the chairman, will be effective resulting in the aforementioned ideals. A review of Guardian Holdings Ltd (GHL) board revealed a Contravention of generally accepted OECD principles, a breach of the companys constitution and the overall confidence among investors may be affected. I have recommended an emergency director meeting and have stipulated what immediate matters must be placed on the agenda. The pivotal role of the company Secretary, how corporate image can be restored and the required director training and development needed were all outlined in my recommendation.

This report reviews the board of Guardian Holdings Limited (GHL) structure, processes and overall effectiveness. The three major areas of concern are Contravention of generally accepted OECD principles, Breach of the companys constitution and Overall confidence among investors may be affected. The impact of these issues was explored and recommendations were made because if these issues are not dealt with it can affect the well being of the organization. Company Background: Guardian Holdings Ltd (GHL) is the parent company for an integrated financial services group with a focus on life, health, property and casualty insurance, pensions and asset management. The company has continued its growth path showing real strength, dependability and endurance with net profit of 425M and a 29% increase in shareholder earnings. However, during 2010 Guardian (GHL) experienced a significant change in its ownership structure with the acquisition of 13% ownership going to The International Finance Corporation (IFC). Now more than ever the companys leadership comes under the microscopic view of shareholders.

REVIEW OF Guardian Holdings Limited BOARD

A. Board Structure
Guardian Holdings Limited board is made up of eight (8) non-executive directors and two (2) executive directors, ten in total (see appendix 1). This tends to follow the UK model which is known for a board size of 8-12 directors, very high chairman/CEO separation and a high number of outside directors. (Tricker 2009 pg 68) The board committees that currently existing are: an audit committee, a nominating committee, a remuneration committee and a corporate governance committee. The first three are recommended codes of good practice; however GHL must be careful of duplicating effort with its nominating and corporate governance committees. (Tricker 2009 pg 72) A further examination of the membership of these committees revealed the audit committee is in violation of OECD. The OECD principles of corporate governance speaks about transparency and accurate disclosure made on all matters, having the chairman of the board sitting on the audit committee even if he/she is an independent director (which is not the case) creates a definite conflict of interest and therefore is a violation of the OECD. Also, this matter contravenes the standards for boards and their audit committees stipulated in the Sarbanes-Oxley Act. (Tricker 2009 pg 157-160) See appendix 2.

B. Board Process
Board process is defined as how directors make decisions and the behavior of the individual directors themselves. (The Coming Revolution in Corporate Governance Ivey Business Journal 2001.) In view of these established parameters I have identified director competence and director independence as key factors affecting the board process. These are discussed below.
B1.1 Director Competence

In reviewing the profiles of the directors of Guardian Holdings Limited (GHL) I found them all to be well reputable. Their knowledge, skills and experience provide necessary

competencies to provide clear vision and astute direction for the company. This is consistent with Commonwealth Association for Corporate Governance (CACG) which subscribes to board appointments that provide the right mix of proficient directors, each of whom is able to add value to the companys strategic direction. Also as the Cadbury Report put it, the board should include directors of sufficient caliber and number for their views to carry significant weight in the board strategic decisions. (Tricker 2009 pg 160,169) However as palatable as this may sound, it was noted that more could be done to develop directors competencies in a global context. This has become very critical since the companys ownership structure have changed with 13% ownership going to the international financial conglomerate IFC.
B1.2 Director Independence

The Cadbury Report suggested that non executive directors should bring an independent judgment to bear on issues of strategy, performance, resources, key appointments and standards of conduct, thereby providing independent judgment. They must provide an independent voice playing the role of a watchdog protecting the interest of all stakeholders. (Tricker 2009 pg 271) There is a burning issue that is affecting the independent perception stakeholders will want to have of their directorship. In 2008 the companys constitution was amended to increase the maximum shareholding for an individual standing director from 4% to 6%. The chairmans shareholding for that period was just over 4%. Now, in the 2010 financial report the chairman shareholding is now at 6.29% with beneficial interest in the largest substantial shareholder Tenetic Limited. (See appendix 3) Would the directors of Guardian Holdings Limited move to amend the companys constitution again? Are the directors going to break their silence on this issue? Would the chairman make the necessary adjustments and show real stewardship? (Tricker 2009 pg 224) The answers to these questions can regain or further decrease stakeholders perception of an independent directorate and will inevitably affect shareholders confidence.

C. Board Effectiveness
Board effectiveness is not only determined by board structure but it also depends on how directors make decisions and the independence of individual directors themselves. i.e. (Board Process) (improvingboardeffectiveness, Therefore, in measuring the effectiveness of Guardian Holdings Limited (GHL) I have created a checklist of key characteristics of GHL board structure and board process. Each item on the checklist was then rated on a scale of 1-10 and the total score given. (Mapping Your Board's Effectiveness, Harvard business school, See Table 1.1. CHARACTERISTICS RATING

Appropriateness of Corporate Governance model : board size, board structure, chairman/CEO separation and director type i.e.(executive, non- 10 executive, independent) Management of board committees: committee type, committee structure, committee effectiveness. 5 Note# A low rating because of the chairman sitting on the audit committee. Competency of board members: Knowledge, Skills and Experience. 9 #Note competencies within a global context are now needed to provide continued visionary leadership. Perceived Independence of board members: Judgment on issues of strategy, 7 performance, resources, key appointments and standards of conduct. # Note rating is still high baring the serious issue of breach of standards of conduct. i.e.( Violation of GHL companys constitution by the chairman) Total Average Table 1.1 An average rating of 7.75 out of 10 shows that the GHL board is still effective. However the audit committee issue and the constitution breach is greatly affecting its effectiveness rating. 31 7.75

Guardian Holdings Limited (GHL) has been the recipient of many awards regionally even labeled by the World Financial Magazine company of the decade, only possible through visionary leadership from its board of directors. A review of its board however, has revealed a definite conflict of interest with its chairman sitting on the audit committee. This is not only a clear breach of governance principles but is potentially disastrous because the audit committee is to act as a bridge between the independent external auditors and the board avoiding the possibility of powerful directors being too close to their auditors and resolving issues before they reach the board. (Tricker 2009 pg 282-284) Also the breach of the company constitution by GHL chairman has cast aspersions as to whether the company directorship is independent. Lord Cairns an agency theorists said in London High Court in 1874 no man, acting as agent, can be allowed to put himself into a position in which his interest and his duty will be in conflict. This is an opportunity for the chairman to prove wrong, stewardship theorist who argue that, this is what most directors actually do. (Tricker 2009 pg 223 & 224) The effectiveness rating for GHL although being relatively high clearly revealed the great impact the aforementioned issues is having on shareholder confidence. This will indeed affect the company image and inevitably its profits. Mr. Chairman you and the board of directors must act immediately so that Guardian Holdings Limited (GHL) can continue to show Leadership, Strength and Endurance.

The recommendations below are placed in an order of priority. 1. An emergency director meeting must be scheduled by the chairman in which he should place the following on the agenda: Removal of the chairman from the audit committee Breach of the company constitution. Outline what is the breach, how it occurred and possible solutions. 2. As The UK Combined Code outlines, the Company Secretary must play a more active role in ensuring compliance with companys legislation, corporate governance codes and advising on and guiding board and board committee procedures. (Tricker 2009 pg 292294) 3. A committee must be set up to draft an action plan to improve GHL damaged corporate image. They must be given a set time frame to report to the board. 4. Attention must be given to director training and development ensuring their competencies is fine-tuned in globalized context.

1. Corporate Governance principles, policies, and practices Bob Tricker 2009 : pg 68, pg 72, pg 157-160, pg 160,169, pg 271, pg 224, pg 224, pg 282-284, pg 223 & 224, pg 292294,pg 7-12, pg 25-38, pg 57-65, pg 90-96, pg 120-139. 2. Principles of Good Corporate Governance, [accessed March 08 2012] 3. The Coming Revolution in Corporate Governance, Ivey Business Journal 2001. 4. Improvingboardeffectiveness, [accessed March 08 2012] 5. Mapping Your Board's Effectiveness, Harvard business school, [accessed March 08 2012] 6. Guardian Holdings Limited, [accessed March 10 2012] 7. How to Review Your Association's Governance System, [accessed March 08 2012] 8. Board&OrganizationalGovernance, [accessed March 12 2012] 9. Corporate Governance, [accessed March 08 2012] 10. Corporate Governance: Its scope, concerns & theories, [accessed March 08 2012] 11. Effective governance for complex organizations, [accessed March 08 2012] 12. Board Process - Corporate Governance, [March 12 2012] 13. Board Effectiveness, [March 08 2012] 14. CharacteristicsofEffectiveBoards, display.jsp?dcrpath=TRUSTEEMAG/PubsNewsArticleGen/data/2006March/0603TRU_ FEA_Characteristics&domain=TRUSTEEMAG [March 12 2012] 15. BoardEffectivenessEvaluations|TheParagonGroup, nteer-development [March 10 2012]

Directors as at December 31, 2010 Name
Mr. Arthur Lok Jack Mr. Peter Ganteaume Mr. Jeffrey Mack Mr. Imtiaz Ahamad Mr. Douglas Camacho Mr. David Davies Mr. Philip Hamel-Smith Mr. Antony Lancaster Dr. Aleem Mohammed Mr. Selby Wilson

Director/Chairman Director Director/Senior Manager Director Director/Senior Manager Director Director Director Director Director