Governance of SOEs - Integrity Group Barbados

For the corresponding period in the previous year, the losses were at $470 million, before subsidies of $325 million. The Prime Minister gave a clear statement that “The SOEs must be revamped to give Government and the public greater value for money.”

There is clear support for the Prime Minister’s view.

The International Monetary Fund (IMF), in its December 2021 Staff Report stated that “Barbados’ SOE sector is large – 58 entities pre-program, 60 per cent of which are commercial – and have been a persistent strain on public finances. The vast majority of entities are reliant on subsidies to sustain their operations and have traditionally lacked adequate accountability mechanisms to ensure value for money and limit broader fiscal exposure.”

In his 2019 report, the Auditor General, Mr Leigh Trotman, reported several questionable transactions at the Barbados Water Authority (BWA) which at March 31, 2017 had assets totaling around BB$667 million. In a statement issued on February 15, 2022, the President of the Institute of Chartered Accountants of Barbados (ICAB) expressed concern about the “notable silence” from Government on troubling matters raised in the 2021 Auditor General’s Report, and called for urgent action regarding commercial SOEs, stating that “The underlying theme in the Auditor General’s Report – 2021 appears to be a lack of good governance.

Serious concern

This is of serious concern as a lack of good governance can derail any attempt that Barbados has towards sustainable development. If this goes unaddressed, Barbados will continue to need the intervention of external agencies and may never fully be able to reduce unemployment or have its social programmes and policies achieve their intended objectives.”

IGB shares ICAB’s view that reform of the governance of commercial SOEs is urgently required. The ‘revolving door’ of chairpersons and directors that has been a recurring practice whenever a Government or Minister changes, does nothing to build

commitment and institutional knowledge at the board level.

IGB considers that there are several “best practice” models that can be reviewed and adopted as appropriate. Sweden serves as one possible model. The Swedish Government’s management principles largely adhere to the OECD Guidelines on Corporate Governance of SOEs which include implementing mechanisms to avoid conflicts of interest and to limit political interference in board processes.

The boards of SOEs should have the necessary authority, competencies and objectivity to carry out their functions of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.

The OECD Guidelines further state that SOEs should develop efficient internal audit procedures and establish an internal audit function that is monitored by and reports directly to the Board’s Audit Committee. Board nominees must demonstrate specific and relevant expertise to be considered for election to the board.

A high level of expertise should be a standard in areas like corporate governance, business operations, financial issues and other relevant fields. IGB suggests that to reinforce board autonomy and avoid undue state intervention, fixed terms need to be set for directors. Additionally, corporate governance training should be a prerequisite for all incoming directors within a specific period of their appointment.

The Government’s appointment in 2022 of a Special Advisor for the Reform and Restructuring of SOEs was a first step, but concrete progress needs to be made, including bringing the many long outstanding audits of commercial SOEs up to date. Time is passing and the Government must establish a timeline for delivering on SOE reform. The Barbadian public will be looking for meaningful action before another Budget presentation rolls around.

This article was submitted by the Integrity Group of Barbados.