Cooperate Governance

Review for Guardian

Holdings Limited

Author : Mahlon Hinds

BSc. Computer Science, MBA (Fin)

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

EXECUTIVE SUMMARY

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, www.shareholder.com) 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 company’s 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.

INTRODUCTION

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 company’s 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 company’s 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 company’s 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 director’s competencies in a

global context. This has become very critical since the company’s 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 company’s constitution was amended to increase the

maximum shareholding for an individual standing director from 4% to 6%. The chairman’s

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 company’s 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) (improving‐board‐effectiveness, www.icsa.org.uk). 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, http://hbswk.hbs.edu) 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-

executive, independent)

10

Management of board committees: committee type, committee structure,

committee effectiveness.

Note# A low rating because of the chairman sitting on the audit committee.

5

Competency of board members: Knowledge, Skills and Experience.

#Note competencies within a global context are now needed to provide

continued visionary leadership.

9

Perceived Independence of board members: Judgment on issues of strategy,

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 company’s constitution by the chairman)

7

Total 31

Average 7.75

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.

CONCLUDIONS

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.

RECOMMENDATIONS

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 company’s legislation, corporate governance codes and

advising on and guiding board and board committee procedures. (Tricker 2009 pg 292-

294)

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.

REFERENCES

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 292-

294,pg 7-12, pg 25-38, pg 57-65, pg 90-96, pg 120-139.

2. Principles of Good Corporate Governance, www.shareholder.com [accessed March 08

2012]

3. ‘The Coming Revolution in Corporate Governance’, Ivey Business Journal 2001.

4. Improving‐board‐effectiveness, www.icsa.org.uk [accessed March 08 2012]

5. Mapping Your Board's Effectiveness, Harvard business school, http://hbswk.hbs.edu

[accessed March 08 2012]

6. Guardian Holdings Limited, http://www.guardianholdings.com [accessed March 10

2012]

7. How to Review Your Association's Governance System, http://www.asaecenter.org

[accessed March 08 2012]

8. Board&OrganizationalGovernance,http://iog.ca/en/knowledge-areas/board-

organizational-governance [accessed March 12 2012]

9. Corporate Governance, http://www.ibisassoc.co.uk [accessed March 08 2012]

10. Corporate Governance: Its scope, concerns & theories,

http://cog.kent.edu/lib/turnbull4.html [accessed March 08 2012]

11. Effective governance for complex organizations, http://www.changeboard.com [accessed

March 08 2012]

12. Board Process - Corporate Governance, http://www.gsk.com [March 12 2012]

13. Board Effectiveness, http://www.npccny.org/info/goi51.htm [March 08 2012]

14. CharacteristicsofEffectiveBoards,http://www.trusteemag.com/trusteemag_app/jsp/article

display.jsp?dcrpath=TRUSTEEMAG/PubsNewsArticleGen/data/2006March/0603TRU_

FEA_Characteristics&domain=TRUSTEEMAG [March 12 2012]

15. BoardEffectivenessEvaluations|TheParagonGroup,http://www.theparagongroup.com/volu

nteer-development [March 10 2012]

APPENDECIES

APPENDIX 1

Directors’ as at December 31, 2010

Name Position

Mr. Arthur Lok Jack Director/Chairman

Mr. Peter Ganteaume Director

Mr. Jeffrey Mack Director/Senior Manager

Mr. Imtiaz Ahamad Director

Mr. Douglas Camacho Director/Senior Manager

Mr. David Davies Director

Mr. Philip Hamel-Smith Director

Mr. Antony Lancaster Director

Dr. Aleem Mohammed Director

Mr. Selby Wilson Director

APPENDIX 2

APPENDIX 3