The PSOJ (Private Sector Organization of Jamaica), which groups together associations, companies and businesspeople operating in the Jamaican private sector, has published the first version of its code of good governance for MSMEs (micro, small and medium-sized enterprises).

The code unifies the core principles of corporate governance that smaller enterprises should apply to build a more robust system of governance and enhance their transparency, reporting and efficiency, and also improve their investment opportunities.

The following chart includes a schematic outline of the main recommendations in the code, applicable to companies as a function of their size, business turnover and complexity of their operations:

1. Board of Directors (or Advisory Board)

Board of Directors

• Responsible for approving businesses’ policies and adopting decisions to reach strategic goals.
• Must act with due diligence.
• Possibility of receiving external support for effective decision making.

Composition

• Diversity of profiles: talent, experience, independence and knowledge.
• Appointment of directors:
  • Formal and transparent procedures ensuring best candidates are chosen.
  • Number of independent, non-executive directors: minimum 1/3 of total membership of board, and 1 at the very least.
• The positions of chairman of the board and CEO should preferably not be concentrated in one person, and there should be a clear separation of roles and responsibilities of both positions.

Functioning

• Should meet sufficiently often to ensure effective exercise of its duties.
• Annual assessment of the Board and its members. The corporate governance committee (where it exists) will be responsible for supervising the assessment.
• Induction plans for directors, especially non-executive and independent directors.

Support committees

• Constitute at least one Audit Committee and one Remuneration Committee, both chaired by a non-executive independent director.

2. Transparency and shareholder relations

• General Meeting of Shareholders as principal channel of communication with shareholders (at least 21 days notice of meeting)
• Annual report useful for disseminating information to shareholders on: financial situation, performance, ownership, governance and financial statements.

3. Control environment

Audit

• Appointment of an internal auditor under transparent, objective criteria and targets.
• The head of the internal audit must report directly to the Audit Committee.
• One external audit to be carried out each year.
• Every year, the independence of the audit function must be assessed, and every 7 years the possible renewal of the contract with the external audit firm must be assessed.
• Suitable risk management mechanisms must be put in place.

Risks

• Define the risks policy and regularly review the risk management systems.

4. Relations with stakeholders

• Maintain good relations and regular communications with different stakeholders: employees, customers, financiers, regulators, environmental groups, etc.
• Have a Code of Ethics and Conduct.
• Whistleblower channel for employees.
• Focus on long-term sustainability of the enterprise.

The code also contains a specific section with recommendations for family-owned firms. Its appendix details the requirements for eligibility and corporate governance incumbent on enterprising wishing to list on the JSE Junior Market, namely:

• Have a board of directors with an appropriate level of talent and experience, which must meet at least once a quarter;
• Have at least two non-executive independent directors;
• Establish an audit committee and a remunerations committee comprising a majority of independent directors and a fully non-executive membership.