More questions than answers
A review of the CLICO collapse and forensic report
It was with baited breath that I, and I believe the rest of Barbados, awaited the release of the second forensic audit report on CLICO International Life Insurance Limited (CLICO) this week. What was it going to say? Would it shed any light on who was responsible for the collapse of such a colossal organization in this country and throughout the region? And finally, what are the implications of the findings in the report?
Well, I don’t know about you, but apart from one major detail, I don’t think that anything new was revealed from the excerpts I saw in the Midweek Nation of March 11. Maybe I will have to wait until I obtain a copy of the full report and comment again.
But since we are here, I do have some questions that I believe should at least cause us to take pause and to seriously consider our next move.
These questions relate to governance, issues of transparency and accountability, and our laws dealing with financial institutions. Questions relating to whether Barbados is ready to consider the implementation of laws that prohibit insider trading? And should the definition of a related party transaction be revised in the context of information released in the report? In this comment, I will focus primarily on the issue of governance.
On trying to conduct an Internet search to obtain an annual report for CLICO Barbados, I was amazed to find not one. Only two reports for Colonial Life Insurance Company (Trinidad) Limited (2004 and 2007) were located.
The reason for searching for the annual reports would be to obtain information pertinent to making an assessment as to the soundness of its corporate governance structure. Since annual reports for the Barbadian entity were not at my disposal, I used the Trinidadian reports as proxy for the Barbadian company.
The 2004 report merely listed those individuals on the board of directors with no mention of any other board committees such as an audit committee, risk committee or reference to any form of internal controls. The 2007 report made one reference to a governance framework, but failed to detail the structure or its mandate outside of mentioning that it had “defined terms of reference for the board, its committees, and the associated executive team”.
Now considering at this time –– 2007 –– Trinidad’s corporate governance structures appeared to be somewhat more developed than those of Barbados’, I would dare to say that the annual report of its Barbados affiliate would not have contained much more information. (Please someone correct me if I am wrong.)
The role of good governance is to ensure that events such as those which caused the demise of CLICO do not occur. They are effectively the checks and balances put in place by an independent board and various board committees to ensure the viability of the organization and to maintain the stability of the financial system as a whole.
For the sake of comparison, let’s take a look at the 2007 annual report for Sagicor Financial Corporation. We find a report with over 14 pages clearly outlining the governance structure of the organization, with details that include their responsibility as a corporate citizen; not only the names, but also the qualifications and association with the company of each board member; and finally details about what governance and risk management are, and how the company deals with them.
So why in Barbados would two companies providing the same services be allowed to report in two completely different ways, you might ask? The obvious reason is the way in which each company was incorporated.
Sagicor is a public limited company with shares traded on the Barbados Stock Exchange and various others. CLICO, on the other hand, was incorporated as a “private” company. They both would have been bound by the regulations in the Insurance Act, and those of the Supervisor of Insurance. However, Sagicor was additionally bound by the requirements of the Stock Exchange of Barbados and its additional reporting requirements. We must remember that the Financial Services Commission was established in 2011.
So this leads me to another question: should organizations involved in receiving funds from the general public for investing, or organizations with a “fiduciary” responsibility to the general public be allowed to be incorporated as a private company? Well, I think not! And it is simply for two reasons: there must be some level of accountability and transparency.
For public companies, the largest shareholders must be declared in the annual report, especially if they are also directors of the company. I would therefore suggest that we look at our financial laws and regulations and agitate for these companies with fiduciary responsibility to become public companies.
This will not only result in increased transparency and accountability for depositors and investors, but also encourage movement on our currently waning Stock Exchange.
Having said all of this, it is events such as the CLICO “fiasco” (as I have often heard it called) that usher in change.
Since then, as mentioned above, Barbados has established the Financial Services Commission, and I am sure that it is conducting and performing its regulatory role in a manner that should at least alert it to any other insurance organization heading down the path which CLICO took in 2008.
Often we consider only the losses incurred in terms of dollars and cents, forgetting the faces of the hundreds of people who have been negatively affected by these types of events in life-changing ways. Yesterday,
I listened to the popular radio programme being hosted by Mr Peter Wickham. He relayed a story of having to listen first-hand
to the plight of a woman affected by the collapse of CLICO.
For seven years she had contributed to a pension plan and subsequently went home from work on some form of disability. She decided to take early retirement and to live off the pension she had prepared for herself. This pension she received from CLICO was her only source of income.
When the company collapsed, so did her pension payments. How can we all not be touched by this woman’s plight, and the hundreds of other people out there with similar stories?
What can we do to ensure that our citizens are never subjected to this again?
Is this a case of “Buyer, beware!” in the same vein that financial service companies are required to “Know your customer”?
As depositors, investors and policyholders, I urge everyone to get to “know your financial institution!” and who is at the helm of these organizations making the decisions. With every investment comes some risk. Let us do what we can to ensure that they are minimized; that we conduct our own research and demand a level of transparency which we can be comfortable with.
Finally, I wish to support and encourage Mrs June Fowler and the Barbados Investors & Policyholders Alliance to keep up the good fight on behalf of all of those who suffered loss from this tragic situation.
(Diana Weekes-Marshall, a chartered accountant, is a lecturer in accounting at the University of the West Indies. Email: email@example.com)