Governance for profit and reputation

The Jamaica Stock Exchange (JSE), through multiple channels, has sought to promote the principles of good corporate governance, indicating as well that the practice is linked to improved profitability.

Research from sources connected to Harvard University indicate that it is investors who will increasingly demand the transparency linked to corporate governance standards.

For the seventh-consecutive year, Russell Reynolds Associates, which publishes its results at corpgov.law.harvard.edu/ and spoke to over 50 experts from major investors, regulators, advisors, and advocates say that that new trends predicted for 2022 on the corporate governance front are assertive investors willing to vote for change.

Other trends are higher standards for climate disclosure and action; enhanced board effectiveness required; and further emphasis on equity, diversity, and inclusive culture initiatives at the board and corporate level

It was noted, “More assertive, demanding investors who feel empowered to demand action and disclosure on a growing number of topics, and, with failure to meet those demands, are more likely than ever to vote against companies and individual directors at annual shareholder meetings.

The JSE launched its Corporate Governance Index (CGI) towards the end of the first quarter of 2016 and commissioned an independent monitoring and evaluating committee for the CGI.

The CGI is maintained by the JSE and evaluated by the PSOJ Corporate Governance Index Review Committee (CGIRC), an independent body created to ensure transparency and accountability and to maintain the credibility of the assessment system.

New report

The JSE released the latest report for the review period April 1, 2020 to March 31, 2021, the JSE in collaboration with the CGIRC assessed the corporate governance practices and principles of the companies listed on the JSE for more than a year. Companies are awarded a CGI Rating from AA to NR.

A AA rating means the company’s performance was excellent in terms of the various principles of corporate governance as documented in the JSE’s Corporate Governance Index.

For an A rating, the company’s performance was very good in terms of the various principles of corporate governance as documented in the JSE’s Corporate Governance Index.

BB means the company’s performance was good in terms of the various principles of corporate governance as documented in the JSE’s CGI.

B means the company’s performance was fair in terms of the various principles of corporate governance as documented in the JSE’s CGI.

CC means the company’s performance was weak in terms of the various principles of corporate governance as documented in the JSE’s CGI.

C means the company’s performance was very weak in terms of the various principles of corporate governance as documented in the JSE’s CGI.

NR This indicated that no rating was applied due to insufficient information on which to base a rating or that the company has listed for less than the stipulated period for which rating would be applicable.

Ratings

Managing director of the JSE Marlene Street-Forrest stated in her report, “The overall Average CGI for the period 2020/2021 is B.

“This indicates that most companies’ performance was fair in terms of the various principles of corporate governance as documented in the JSE’s Corporate Governance Index Manual.

“For the 2020/2021 CGI, a total of 88 companies were reviewed. Of this total, only 20 companies granted the JSE permission to publish their CGI ratings.

Street Forrest told Sunday Finance that as a member of 115 global exchanges which are members committed to the sustainable stock exchange, “We felt that it was important to measure how all the listed companies were doing as it relates to good governance. We created the corporate governance index with joint finding with IDB.”

She noted that company performance is judged based on central criteria looking at the rights of shareholders, the treatment of shareholders, JSE requirements, PSOJ corporate governance code, the requirements of the Securities Act and the Companies Act.

Street Forrest commented, “We have seen an improvement both measured from our best practices award as well as from the corporate governance index.”

The managing director has said elsewhere that profitability and a direct return on shareholding flow from improved corporate governance when companies implement as required.

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