Wednesday, February 06, 2008

Governance and growth

The recent Contractor General’s report on the “light bulb scandal” brings to mind the very important issue of governance. Over the past few years, Jamaica has been plagued with many governance issues in the political arena. We remember when the PNP government came to power in 1989, shortly thereafter JAG Smith was sent to prison for impropriety in the farm workers fund. This was the first time a former government Minister was imprisoned for misuse of funds.

From the 1990s to present we had reports on issues such as the Shell Waiver, NSWMA, Operation Pride, Intec Fund, Cement Crisis, Trafigura, etc. All in their own right costing Jamaica billions of dollars, not just directly but in lost opportunities. The “light bulb scandal” is nothing more than a continuation of the poor governance that has plagued this country and caused us untold amounts of damage to our economy. If we are serious about halting this trend then it is important that the allegations made by the Contractor General be properly investigated and the appropriate action taken. When referring to these “scandals’ it is always important for proper investigations to be done, as the associated parties could very well be innocent and it is important not to write off someone based on just an allegation.

Poor governance
The fact though that so many of these allegations come to the fore consistently is evidence of the fact of the poor governance that this country has seen since independence. And it will continue because successive governments have failed to put the necessary controls in place to ensure that this type of mismanagement of funds is difficult. This, I am convinced, is a primary problem for the aneamic growth rates, and decline of social standards, that Jamaica has always experienced.

Growth is stymied because the poor governance we have mad almost certainly ensures that the country’s resources are not used in the most efficient manner. So what happens is that the money we earn or borrow is spent without a return being generated on those funds, and the markets stop operating efficiently. In addition because our leaders are responsible for this type of behaviour it sends a signal to the youth that this type of behaviour is acceptable, and could be a reason why young politicians, and their followers, do not see anything wrong about flouting controls. The result is that we create a second tier leadership that carries on with the same behaviour patterns they have learned from the older leaders. This is supported by the allegations made by the Contractor General of the flagrant way in which the contracts were distributed, showing little concern for any appearance of legitimacy, if these charges are true.

Governance concerns are not just an issue in governments, however. And it is not just a concern in Jamaica. For example in the USA we remember the incidents of Enron and WorldCom, and we also remember cases of politicians brought up on charges of using public assets (such as airplanes) for private purposes. The difference between the USA and Jamaica is that when it happens in the USA it becomes of major public concern and is dealt with in a timely manner.

In the case of Jamaica, however, we find that governance issues, such as the banks during the FINSAC era, Trafigura, Dyoll etc., arise and it seems as if they are never brought to an end. Even today, after years and costing the country billions of dollars in debt and lost growth opportunities, there is still no resolution to the banking crisis in the 1990s. Even if there are then the public is not made aware of the final outcome so there is no learning.

UTECH auditors
One recent governance issue that had me concerned also was the matter of the suspension of the internal audit staff from UTECH. One source informs me that the internal auditors were sent on leave by the management and not the council. If this is the case then it should be of major concern not only to the Internal Auditors Association and the Institute of Chartered Accountants, but also the PSOJ, JCC, and everyone concerned about proper governance.

My reason for saying this is that internal auditors are supposed to answer only to the board of directors (UTECH Council) and not management. This line of reporting is necessary to ensure the independence of the internal auditors so that they can carry on their duties without fear of any backlash from management, whom they are supposed to ensure operate within the internal controls of the organization. When internal auditors are sent on leave based on suspicion only then this is a serious governance issue and all well thinking organizations should be concerned about the message that this is sending to the society.

The report on this incident indicates that the report was distributed to all members of council, as well as other parties. The leaking of the report is a serious breach of trust and I hope that when the matter is fully investigated that strong action is taken against whoever was the source of the leak. But it is important that the matter be investigated properly before any drastic action is taken. Even though the internal auditors were subsequently reinstated, it would be very interesting to understand what their state of mind is now when approaching any future investigations, if it is possible for them to be sent on leave and then reinstated, just based on a suspicion.

What is even of greater concern is that UTECH is an institution of learning, which no doubt would teach their students about the necessity of independence of internal auditors as a necessary ingredient for proper governance. This would be the case of “do what I say and not what I do” and I trust that UTECH will make a statement to clear up this issue, as I do not believe that the allegations made against UTECH could be so.

If we are to move this country forward though it is going to be necessary that good governance prevails. It is important for us to understand also that the main issues of governance are not to do with politicians. It is not politicians that run countries, but boards of public bodies, and the public sector. If we change our politicians each year and never address the sectoral level of management then we will always have the same result. So the low growth rates, and underachievement, that we have seen in this country has a lot to do with the management by boards and the public sector, as it is very difficult for any politician to make changes without their cooperation.

The fact is that many politicians in the past have appointed people to manage public bodies, based on friendship rather than competence, and it has resulted in not only them looking bad but also Jamaica suffering from the mismanagement. But I guess reputation has never been a consideration for some persons, as they rely on the “nine day wonder” phenomenon.
It is important for us to remember then that if a country, or company, is to realize its full potential then proper governance is going to be necessary for maximum growth. Proper governance ensures that returns are maximized, and is the only way that we can increase productivity and eventually compete effectively on the world stage.


Anonymous said...

I was recommended this blog by my cousin. I am not sure
whether this post is written by him as nobody else
know such detailed about my trouble. You're amazing! Thanks!

Here is my blog - best diet

Anonymous said...

Thank you for sharing your info. I truly appreciate your efforts and I will be waiting for
your further post thank you once again.

Feel free to surf to my weblog; diet plans that work

Anonymous said...

I am sure this post has touched all the internet users, its really
really pleasant article on building up new

Here is my website declaring bankruptcy in florida

Anonymous said...

If some one needs expert view regarding running a blog afterward i advise him/her to pay a visit
this webpage, Keep up the pleasant job.

Also visit my homepage healthy diet plans

Anonymous said...

Touche. Great arguments. Keep up the good spirit.

Also visit my blog - waist to height ratio chart

Anonymous said...

You ought to be a part of a contest for one of the best blogs on the net.
I most certainly will recommend this web site!

my homepage ... diet plan

Anonymous said...

Hi there, I do believe your web site might be having internet browser compatibility problems.
Whenever I take a look at your web site in Safari, it looks fine but when opening in Internet Explorer, it has some overlapping issues.
I just wanted to give you a quick heads up!
Besides that, great site!

My weblog - diet that work