TRANSFORMING THE GOVERNANCE STRUCTURE OF THE NUTMEG

INDUSTRYChallenges and Options

The existing Structure:

• The Nutmeg Industry Act Chapter 215 of 2010 Laws of Grenada. Statutory Body –GCNA

• Main Creature of the Act is the Grenada Cooperative Nutmeg Association (GCNA). The Act establishes the GCNA as a statutory corporation with perpetual succession. It is a salutary feature of statutory corporations that the assets of the statutory corporation are vested in the corporation itself and not in any particular group of individuals. Statutory corporations are established by statute law passed by Parliament and rarely, if ever, would the statute make provision for the statutory corporation to be owned by a group of persons.

• The existing legislation makes fairly extensive provisions for farmers/growers of nutmegs to become members of the GCNA it does not expressly vest “ownership of the assets of GCNA” or “ownership of GCNA” in these farmers/growers.

Cooperative Nature of GCNA

• The name Grenada Cooperative Nutmeg Association speaks for itself. There is the commonality with cooperatives, for example, in that the existing basis for membership in GCNA is that of being a grower/farmer of nutmeg and that the intent is that all growers/farmers of nutmegs sell to GCNA as the common buyer. In turn, members are able to partake and make decisions regarding the business and affairs of GCNA.

The Board of Directors

• The Act provides for the board to be the governing and executive body of the Association. The board consists of no more than 9 members. Currently 6 elected by members of the Association and 3 selected by the Minister of Agriculture.

• -See section 6(2) of the Nutmeg Industry Act which sets out the functions of the board.

• They include: (i) regulation and control of the export of nutmegs;• (ii) to promote, protect and develop the nutmeg industry;• (iii) to advise the Minister and the Government on all matters affecting the

industry.• Section 14 of the Act addresses the election and nomination of members of the

Board.• In May of each year 6 members of the Association are elected by ballot. The

Minister appoints a public officer and may nominate two additional persons to sit on the board. The members of the board are eligible for re-election or re-nomination as the case may be.

• The Board has the Power to Delegate-The board has the power to appoint a manager who shall be the CEO of the Association. The board also has the power to appoint assistant managers, a secretary and assistant secretary.

Is the Governance Structure Working?

Is there a need to transform the Governance Structure of the Industry?

BOARD MEMBERSHIP

The sole criterion for being a board member of the elected 6 is “membership” in the Association. See section 14 of the Act. The majority of the board is the elected 6 members of the Association. The members of the Association therefore control the destiny of the Association and by extension, the Nutmeg Industry.

Limitations of the Existing Governance Structure

Exclusive vs Inclusive Approach

• Not Inclusive-Excludes at the board level anyone who is not a member of the Association. Essentially, it means that if you do not grow nutmegs you are unable to serve at the board level, unless your appointment is through the Minister. • The Minister’s power to appoint 3 persons is limited to appointing 1 public officer, itself a restriction that may serve no useful purpose, and 2 other persons. But the Minister’s quota is in the minority at all times. • There is a persistent risk that at the board level the Association becomes its own Achilles tendon and is unable to attract the talent needed to fulfill its mandate of promoting, protecting and developing the nutmeg industry.• From a research and development point of view, the existing structure excludes those within the industry that may take a scientific or technological approach to their role in the industry. For example, it would exclude nutmeg processors, whether for food or medicinal purposes.

No or Weak Oversight/ Accountability Mechanism • Section 25 of the Act

mandates that “At least seven clear days before the date fixed for the aforesaid general meetings of the Association in each nutmeg year, the Board shall provide each member of the Association with a statement setting out, simply and clearly, the financial position of the Association and containing reasonable details of its assets and liabilities.

• Section 91 of the Act says “The Board shall, immediately after the end of every nutmeg year, cause the accounts of the Association and of the Board to be audited by some competent person approved for the purpose by the Minister.

RECOMMENDATIONS• 1. That amendments be made to the Act stipulating

that the financial reports of the GCNA be prepared in accordance with the requisite international accounting standards;

• 2. That amendments be made to the Act to strengthen the timelines for the financial reports to be prepared and circulated to the membership of the GCNA. For example, section 25 of the GCNA Act allows for 7 days for the board to present each member with a statement setting out “simply and clearly, the financial position of the Association and containing reasonable details of assets and liabilities”. Compare this with the Companies Act which requires the financial reports to be circulated to shareholders of companies 21 days before an Annual General Meeting.

RECOMMENDATIONS

• 3. That it be mandatory that before the financial reports of the GCNA are issued to shareholders that it be accompanied by an auditor’s report or the report of the GCNA auditor. A similar requirement is contained in the Companies Act for companies.

• 4. That it be mandatory that there should be an audit committee and that provisions are set out for the independence of the audit committee, for example, as set out in the Companies Act, for the majority of the audit committed not to be employees or officers of the Association.

RECOMMENDATIONS• 5. For ensuring that the financial reports of the

Association are approved by the audit committee before circulation to the membership of the Association.

• 6. That Amendments to the Act to bring the Association under the supervision of a regulatory authority. The purpose of this would be to ensure that the Association took seriously its obligations to operate and run the Association in keeping with best practices. The fact of oversight ought to encourage a culture change tending to best practices of accountability prudence.

• The audit under subsection (1) shall include an examination of overdue debts, if any, and a valuation of the assets and liabilities of the Association.

• • (3) All books of accounts of the Association and all monies, documents and things pertaining to the Association in the custody or under the control of the Association or of the Board or of any officer or employee of the Association shall, at all times, be subject to inspection and audit by the Director of Audit or by any clerk of the Audit Department in like manner as though such books of accounts, monies, documents and things were in the custody or under the control of a public officer in his or her official capacity or by any other auditor, whether Government or non-official, as the Minister may direct.”

• Section 92 of the Act also requires the Board to “furnish to the Minister at the end of each half year a statement of the financial and stock position of the Association in such form as the Minister may, from time to time, direct”.

• The Act contains no sanction in the event sections 25, 91 and 92 are not complied with. In effect, while the members elect the majority of the board from amongst its own, and while there are some minimum reporting standards set by the Act, as set out in sections 25, 91 and 92 above, there is no sanction in the event it is not complied with. The requirement to report to the members is a bare minimum and is not in keeping with any modern principles of governance, reporting or accountability. It should also be borne in mind that there is no regulatory body that the GCNA is required to report to or account to.

Recommendations:• 1. That amendments be made to the Act stipulating

that the financial reports of the GCNA be prepared in accordance with the requisite international accounting standards;

• 2. That amendments be made to the Act to strengthen the timelines for the financial reports to be prepared and circulated to the membership of the GCNA. For example, section 25 of the GCNA Act allows for 7 days for the board to present each member with a statement setting out “simply and clearly, the financial position of the Association and containing reasonable details of assets and liabilities”. Compare this with the Companies Act which requires the financial reports to be circulated to shareholders of companies 21 days before an Annual General Meeting.

Recommendations

• 3. That it be mandatory that before the financial reports of the GCNA are issued to shareholders that it be accompanied by an auditor’s report or the report of the GCNA auditor. A similar requirement is contained in the Companies Act for companies.

• 4. That it be mandatory that there should be an audit committee and that provisions are set out for the independence of the audit committee, for example, as set out in the Companies Act, for the majority of the audit committed not to be employees or officers of the Association.

Recommendations• 5. For ensuring that the financial reports of the

Association are approved by the audit committee before circulation to the membership of the Association.

• 6. That Amendments to the Act to bring the Association under the supervision of a regulatory authority. The purpose of this would be to ensure that the Association took seriously its obligations to operate and run the Association in keeping with best practices. The fact of oversight ought to encourage a culture change tending to best practices of accountability prudence.

Who Should be the regulator?

• Some thought can be given to bringing the Association under the Apex Body for Co-operatives under the Co-operatives Societies Act; (ii) Some thought can also be given to the role of GARFIN in providing oversight in relation to the financial reporting compliance and governance requirements.

Recommendations• 7. The introduction of explicit language to address

the duty of care required of directors and officers of the Association.

• 8. The introduction of sanctions in specific instances to make directors personally liable where their actions are clear breaches of the duty of care or where their actions involves breaches of explicit prohibitions under the Act. Obvious examples would be where a director/officer of the Association misappropriates the property of the Association for his/her own use. At the same time directors should be afforded an indemnity where their actions are in keeping with the duty of care.

Recommendations

• 9. The requirement for the GCNA to set out and submit business plans/s and the use of a review system to determine the viability of the plans and to measure its accomplishments against the plans.

• 10. The requirement for mandatory training/education seminars of directors in corporate governance can also be considered.

Role of the Government• Any changes to the Act will require the Government of the day to agree to and

implement the changes whether by amendment of the existing Act or by its replacement with a new Act.

• The Government is the only current partner with the nutmeg farmers. Reference the Minister’s power to appoint 3 members to the board; to change the constitution of the board-section (section 17); the power of the permanent secretary finance to require verification of particulars entered in nutmeg producer’s book; power of the Minister to give general directions to the board and the requirement for the board to furnish information to the Minister.

• Even under the existing GCNA Act, weak as the provisions might be in terms of encouraging answerability, efficient and effective corporate governance, there are existing provisions within the Act that the Government can use to encourage the GCNA to adopt a more results oriented approach to Corporate Governance. For example, the use of the office of the Director of Audit to audit the GCNA. The use of the reporting mechanisms set out in the Act. The use of the Government’s directors to encourage effective corporate governance.

Challenges

• Is the GCNA accountable or answerable to anyone?

IS GCNA ACCOUNTABLE

• 1. Given that the Act allows only for nutmeg farmers to be members the answer should be obvious that it should be accountable to the farmers?

• 2. But by its corporate governance structure and culture can it be demonstrated that this is in fact the case. In my view, the topic presupposes that the governance structure of the GCNA needs changing. It may be that the members are content with the existing structure and if that is the case, it would be difficult to initiate and successfully implement corporate governance change.

IS GCNA ACCOUNTABLE

• 3. Government inertia. The changes highlighted above would require the active leadership participation and support of the Government. Unless the Government of day itself determines that there is a need to transform the Governance Structure of the GCNA, or that it is lobbied to do so, it unlikely that the changes can become a reality.

• 4. The forum like the current one, is but a start in the right direction, however, in beginning the process of transforming the GCNA into a modern, accountable and results oriented entity.

THANK YOU