Financial Rambling

TUXEDO MINUTES AND CONSTITUTIONAL RIGHTS

2009-12-26T09:29:00.000-08:00

By STANLEY FRENCH

In three of the four public companies in St Lucia owned by share subscription, the minutes of the meetings of shareholders are signed by the Secretary and Chairman of each company before being forwarded to shareholders for information only. Meetings do not have agenda items which provide for shareholders to express their opinions on errors and/or omissions and matters arising contained in distributed minutes. The signatures of the Secretary and Chairman are therefore the authority for the correctness of minutes. To the best of my knowledge, infallibility was not bestowed on humankind in St. Lucia. The three companies are St. Lucia Electricity Services Limited (LUCELEC), East Caribbean Financial Holding Company Limited (ECFH) and Windward and Leeward Brewery Limited (WLBL).

I first dealt in some detail with the arbitrary practice in an article published in two parts in the St. Lucia Mirror newspaper of Friday 21 April and 28 April 2006 and posted on the blogspot financialrambling.blogspot.com. My latest article on the issue is titled Tuxedo Minutes which was published in the Weekend Voice newspaper of 22 August 2009 and will be posted on the blogspot.

In Tuxedo Minutes, I asked: What does freedom of association mean if freedom of expression is denied?

St. Lucians are presently engaged in a national exercise with respect to the review of the Saint Lucia Constitution Order 1978 (the Constitution) which is the supreme law of the land. Section 10 of the Constitution states the following with respect to the protection of freedom of expression. I quote it in full.

(1) Except with his own consent, a person shall not be hindered in the enjoyment of his freedom of expression, including freedom to hold opinions without interference, freedom to receive ideas and information without interference, freedom to communicate ideas and information without interference (whether the communication be to the public generally or to any person or class of persons) and freedom from interference with his correspondence.
(2) Nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of this section to the extent that the law in question makes provision –
(a) that is reasonably required in the interests of defence, public safety, public order, public morality or public health;
(b) that is reasonably required for the purpose of protecting the reputations, rights and freedoms of other persons or the private lives of persons concerned in legal proceedings, preventing the disclosure of information received in confidence, maintaining the authority and independence of the courts or regulating the technical administration or the technical operation of telephony, telegraphy, posts, wireless broadcasting or television; or
(c) that imposes restrictions upon public officers that are reasonably required for the proper performance of their functions, and except so far as that provision or, as the case may be, the thing done under the authority thereof is shown not to be reasonably justifiable in a democratic society.

A company is a free association of persons who have chosen to come together for the objects of the company for which there is an internal constitution referred to as the Articles of Association or the By-Laws, depending on the Culture we are mimicking.

It is useful to look at the voting power resident in the boards of directors of LUCELEC, ECFH and WLBL with respect to the authorised shares of the companies. The voting ordinary shares held by the board of LUCELEC total 85.56% of the authorised voting shares of 15,000,000. The 85.56 % is broken down as follows (see the Management Information Circular for 2008):
Emera (St. Lucia) Limited of Canada 20%,
First Citizens Bank Ltd, owned by the Government of Trinidad and Tobago, 20 %.
National Insurance Corporation of St. Lucia, 16.79%.
Castries City Council, 16.33%.
Government of St. Lucia, 12.44%.
Minority/Malayway holding, 14.44%.

The ordinary shares of ECFH are owned as follows (2008 Annual Report):
Government of Saint Lucia, 20%
Republic Bank of Trinidad Limited, 20 %
OECS Indigenous Banks & Financial Institutions, 15 %.
National Insurance Corporation (St. Lucia), 15%
Private Individuals & Institutions, 30%.

At 16 January 2009, the number of issued shares of WLBL was 1,117,516 of which 91.65% was owned by the three major shareholders as shown below.
Heineken International, 72.7%.
Desnoes & Geddes, 10%.
National Development Corporation, 8.95%.
Minority holding is the lowest of the three companies.

In each company, the power of decision making rests with the board which may treat the opinions of minority/malayway shareholders as irrelevant, if convenient. In any case, a board member cannot be elected to represent malayway interests unless the candidate is favoured by the substantial shareholders represented on the board. It is in this context that a board can have its way irrespective of the unreasonableness of its position. This situation will not arise in a company in which voting rights are distributed among shareholders and not dominated by the board, such as 1st National Bank St. Lucia Limited.

In St. Lucia and other countries of the English-speaking Caribbean, malgovernance, national and corporate, has become an issue of great concern. The emphasis on governance is placed on the financial aspects of companies. However, the non-financial can impact adversely on the financial.

The annual reports of the public companies reveal inconsistency in the treatment of agendas for meetings of shareholders. The Companies Act does not stipulate that consideration of errors and omissions and matters arising be omitted from the agenda. It simply does not list these two items as ordinary business and requires them, if included, to be identified as special business which is defined by clearly stated and simple criteria.

The exclusion of the two items from agendas would have board approval and, in my opinion, is a denial of a constitutional right of shareholders.
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This article is not to be reproduced without the prior written consent of the author. This article was published in the Mirror and Weekend Voice newspapers of St. Lucia on November 13 and 14, 2009 respectively.

ECFH AND NDC

2009-03-25T16:04:00.000-07:00

By Stanley French

The 2007 Annual Report of the 1st National Bank St. Lucia Limited (1st National) stated that the Bank was engaged in aggressive competition for available business and there was fierce competition for term deposits throughout the year. St. Lucians have been bombarded by financial institutions with advertising in the press and electronic media, billboards, walls, anywhere and everywhere. The growing trend in the crowded financial environment in St. Lucia in which 1st National has been and will be operating can be briefly summarized as follows. The Royal Bank of Canada has re-acquired RBTT Bank Caribbean Limited making it the largest bank in St. Lucia and the English Speaking Caribbean, ahead of the First Caribbean International Bank and the Bank of Nova Scotia. CL Financial, the holding company for the Republic Bank of Trinidad and Tobago, CLICO, CMMB and various subsidiary interests, is one of the two largest shareholders in the East Caribbean Financial Holding Company Limited (ECFH), the Government of Saint Lucia (GOSL) and Republic Bank each holding twenty percent of ECFH shares, the maximum holding permitted by any entity (including its subsidiaries) under the Banking Act of Saint Lucia. The Bank of Saint Lucia is one of the five subsidiaries of ECFH.

Financial Investment and Consultancy Services Limited continues to grow and the credit unions have become extensive, quick and reliable sources of finance for their members. The resuscitated St. Lucia Development Bank is likely to yet open its doors in 2009.

The First Citizens Bank of Trinidad and Tobago (FCB) which is for all practical purposes owned by its Government was selected for a loan of US$30 million to St. Lucia Electricity Services Limited (LUCELEC) in October 2003 despite offers by the Caribbean Development Bank (CDB) and Bank of Saint Lucia (BOSL). I commented on this matter at length in the July 31, 2004 issue of the Crusader newspaper in an article titled Concern about Financing Lucelec’s Development which is available on the blogsite financialrambling.blogspot.com. At about the time that the loan to LUCELEC was agreed on, FCB negotiated with the Commonwealth Development Corporation (CDC) for the purchase of twenty percent (20%) of LUCELEC’s shares. CDC had owned 44.87% of LUCELEC’s shares. The Public Utilities Restriction on Shareholding (Saint Lucia Electricity Services) Act No.11of 2003 prescribed that no entity other than CDC can own more than 20% of LUCELEC’s shares, bringing the provision in line with the Banking Act. Emera Inc; a power company of Canada referred to (like CDC before it) as a “strategic shareholder”, and FCB acquired 20% each, the remaining 4.87% evaporated on the East Caribbean Stock Exchange. FCB has also been involved in tourism development in Marigot Bay. A pronounced public relations exercise by FCB through full page advertisements of cocktail receptions in the St. Lucia press during May 2008 suggests that FCB may be opening a branch in St. Lucia.

BOSL grew out of the Government-owned and/or controlled National Commercial Bank of Saint Lucia. GOSL owns 20% of BOSL which is GOSL’s commercial bank. The structure of BOSL’s ownership makes it regional/Caribbean. It is both refreshing and disappointing to note that in a 1983 document, Sir Vincent Floissac, a former Director of the St. Lucia Cooperative Bank Limited/1st National, observed that up to 1981 the Bank was virtually operating as the National bank of St. Lucia in many respects up to 1981. BOSL is a St. Lucian bank in the legal sense.

In 2007, GOSL appointed the Managing Director of ECFH and BOSL on an interim board of directors of the National Development Corporation (NDC). With effect from April 1, 2008, he was re-appointed to the seven-member board of NDC, this time as Deputy Chairman. I had informed shareholders of 1st National at its Annual Meeting in May 2008 that, in my view, the appointment was not in consonance with good governance. In July 2008, the new Minister responsible for NDC requested the resignation of the Board of Directors so that he could appoint his own members. The Minister retained the Managing Director of ECFH/BOSL on NDC’s Board. A version of this article was prepared for press release but withheld as a mark of courtesy to the new Minister following his call for resignations.

The functions of NDC in economic activities, as stipulated in section 4 of the National Development Corporation Act, Chapter 15.24 of the Laws of Saint Lucia, are as follows:

(1) It is the function of the Corporation to stimulate, facilitate and promote investment opportunities for foreign or local investors in the following economic activities –
(a) tourism;
(b) hotel development;
(c) information technology;
(d) agro business;
(e) entertainment; or
(f) any other economic activity which, in the opinion of the Minister,
will be conducive to the economic development of Saint Lucia.

(2) Under its functions under subsection (1), the Corporation shall promote
the development of land and industry by persons or other bodies including
local authorities in accordance with this Act.

Clearly, NDC is a, if not the, major window for investment in St. Lucia.

Also, it is to be noted that NDC is a shareholder in 1st National.

It is unacceptable for the Managing Director of ECFH/BOSL to be on the board of NDC because the board position
(a) may provide him with inside information on new investment opportunities in St. Lucia thereby giving ECFH/BOSL advantages over other banks and financial institutions operating in St. Lucia, especially the indigenous 1st National which has served GOSL and St. Lucians well for some seventy (70) years; and
(b) has the potential for conflicts of interest.

This brings to mind the issue of interlocking directorates in public and statutory corporations. Wikipedia, the internet encyclopedia, states the following:

“Interlocking directorate refers to the practice of members of corporate board of directors serving on the boards of multiple corporations. This practice, although widespread and legal, raises questions about the quality and independence of board decisions.

Watchdogs point out that interlocking directorates may cause conflicts of interest, poor governance and poor compensation decisions, a lack of fresh perspective, and the concentration of corporate power into a single extended social network. CEO interlocks are seen as a particular concern for potential conflicts of interest. Proving direct harm to stockholders is difficult, though, because there is no clear definition of how much overlap is acceptable, and in any case board members are selected by stockholders’ votes.”

The relevant regulating authority for public companies in St. Lucia should consider legally defining the extent of overlap acceptable for interlocking directorships. These are times which require great circumspection in company matters.

The St. Lucia Bankers Association, formed several years ago and comprising the six commercial banks operating on the island, has not been visible or vocal over the years but has stated that it plans to raise its profile to play a more meaningful role in the community. Will this association redress or continue to accept this situation which gives a member an advantage in serving the St. Lucian economy?

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This article was published in the MIRROR newspaper on Friday, December 5, 2008 and in the WEEKEND VOICE on Saturday, December 6, 2008 in St. Lucia. This article is not to be reproduced without the written permission of the author.

The COW Notice

2008-09-15T16:56:00.000-07:00

By Stanley French

“We must not make a scarecrow of the law,
Setting it up to fear the birds of prey,
And let it keep one shape, till custom make it
Their perch and not their terror.”
Measure for Measure
Shakespeare

From behind the un-cracked windshield of my moving vehicle, I watched the tail-gate of a truck with an open metal box having a capacity of some ten cubic yards. My eyes caught a notice fixed to the tailgate but the notice was unreadable because of my distance from the vehicle. I therefore moved closer to the moving truck, meanwhile ensuring that my distance from it permitted me to stop suddenly without a collision, a fundamental requirement of any tried and tested highway driving code. I was forced to move up to the truck at a distance, much closer than the 90 ft proclaimed, from which I could read the sign which displayed the following:

BEWARE
We Accept No Liability
For Broken Windshields
Stay 90 Ft. Clear

The sign had a white background and a surrounding red borderline. The logo and related wording on the doors of the truck indicated that it is the property of the C.O.Williams
Group of Companies (COW), a Barbadian company also registered in St. Lucia. I have seen trucks with this sign on several occasions in the Rodney Bay/Reduit area, where construction is extensive, loaded with earth, crushed stone and such materials. The notices are sometimes unreadable at any distance and therefore ineffectual because they are plastered with mud from construction sites and quarries.

Clean or muddied, I find the notices unacceptable. They are substitutes for what the company should provide to protect other road users from windshield damage resulting from flying debris such as crushed stone. The boxes of the trucks are not covered to prevent their contents from being blown around. Apart from breaking windshields, the flying debris and particles spread dust and other pollution and can cause bodily injury to unsuspecting persons, e.g. eye injury. This does not appear to be in keeping with moving earth to please, the dictum of COW. In this age which is sensitive to environmental concerns, a company with COW’s experience should be aware of international best practice in transporting construction materials.

Sections 81 and 87 of the Motor Vehicle and Road Traffic Act No.10 of 2003, under the jurisdiction of the Ministry of Communications, Works, Transport & Public Utilities through the Saint Lucia Transport Board, provide the following with related penalties upon conviction:

“81. (1) The registered owner and the driver of a vehicle commit an offence if –
1. any person in the motor vehicle litters the road or surrounding land; or
2. a load being carried is not properly secured on the motor vehicle and results
or may result in littering of the road or surrounding land.”

“87. (1) No person shall operate a motor vehicle of a class or type that, by regulations made under this Act, is required to have installed or incorporated in it, a system or device to prevent or lessen the emission into the outdoor atmosphere of an air containment, unless the motor vehicle has a system or device installed on or incorporated in it and makes effective use of the system or device.”

The Act therefore treats with littering and air contamination and is inadequate because it does not address the specific issue of transporting unsecured cargo which is physically harmful to life and property. Nevertheless, the display of the notice on the nation’s public road network is unacceptable.

The questions which the notice raises include the following:
(a) Has any authority approved the use of the notice?
(b) Which institution is responsible for policing its display?

The relevant institutions in St. Lucia should have the display of the notice discontinued. I would be disappointed in the Barbadian traffic authority if it permitted COW to display such a notice on its public road network.
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The COW Notice appeared in the Mirror newspaper in St. Lucia on August 29, 2008, and the Weekend and Star newspapers (in St. Lucia) on August 30, 2008.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

The WICB Roro

2008-09-15T16:44:00.000-07:00

By Stanley French

If there was not a roro about the present West Indies Cricket Board (WICB), it would have to be invented.

The Trinidad Guardian of Saturday 5th July 2008 carried an article titled “WICB concerned over Hunte’s office” by Vinode Mamchan. In an excellent article titled “Sowing The Seeds Of Insularity” which appeared in the Mirror, St. Lucia newspaper of August 1, 2008, Mr. Rupert Branford dealt with some of the possible issues arising out of “that WICB Affair” and Mamchan’s feeble exercise – “the ugly spectre of insularity, double dealing and treachery which has blighted our cricket administration over the years”, “the selfish insular self-seeking agendas” and the possibility of “malicious intent”.

In reading Mamchan’s piece, one is left with the impression that WICB has only one member in Dr. Julian Hunte and not sixteen (16), excluding the President, who are responsible for policy matters to be implemented by executive officers. Apart from the twelve representatives of its constituent six-member boards, WICB includes Sir Hilary Beckles, Principal of the Cave Hill Campus of the University of the West Indies, Messrs. Clive Lloyd, former Test captain and Ken Hewitt, chartered accountant. Dinanath Ramnarine of Trinidad, representative of the West Indies Players Association, completes WICB which has a constitution.

Those of us who know Dr. Hunte reflexively find it comical that the persons who think that he would damage his reputation in the vulgar manner in which he is referred to as “the subject of raging controversy” are barking up the wrong tree and for the inconsiderable amount of US$150,000.

The Mongiraud area of the quarter/parish of Gros Islet is well suited for the location of the St. Lucian President’s office. At least some ten (10) of the most reputable hotels in St. Lucia are located in the adjacent Rodney Bay area and the Beausejour Cricket Ground (BCG), the country’s international cricket facility, is also in the quarter of Gros Islet. The President’s office, hotels and BCG are accessed via the main road from the George F.L. Charles Airport in the capital city of Castries, about six miles away.

An obvious question is: What would be the difference if the building is owned by Dr. Hunte, not the company of which he is a major shareholder, if the WIC Board of Directors found the building and its location befitting the office of the President and was in agreement with the terms and conditions of rental?

It is useful to briefly retrace Dr. Hunte’s journey to the WICB presidency. After years of club cricket and representing St. Lucia between 1956 and 1963 (he was a member of the Windward Islands squad in 1960), he became the President of the St. Lucia National Cricket Association and the Windward Islands Cricket Board from 1964 to 77 and 1970 to 95 respectively. He was the representative of the Windwards Board on the West Indies Cricket Board of Control (WICBC) from 1971 to 95, Vice President of WICBC from 1971 to 94 and of the West Indies Cricket Board (WICB) from 1995 to 99. From 1995 to 1999, he represented WICB on the International Cricket Conference (ICC) and was a member of the ICC Development Committee. In that period he was also Chairman of the WICB’s Cricket Development Committee for the Americas.

Dr. Hunte joined the St. Lucia Labour Party (SLP) in 1983 and became its Political Leader in 1984 following its debacle at the polls in 1982. He was the Parliamentary Representative for the Gros Islet constituency and the Leader of the Opposition from 1987 to 1996 when he resigned from the SLP leadership. The SLP Government appointed him the Ambassador to the United Nations in 1999, then Minister of Foreign Affairs after the resignation of George Odlum. St. Lucia was elected to the Presidency of the United Nations General Assembly in June 2003 and he performed creditably in the position. Pope John Paul II conferred on him Knight of the Grand Cross Piann in July 2004 and the University of Sheffield awarded him an honorary Doctor of Letters in January 2005. Through all the years, he has been the Managing Director and/or Chairman of West Indies General Insurance Company Limited, the holding company which owns the building which houses the President’s office and has been the subject of what Mamchan calls “a raging controversy”.

The last seven Presidents of WICBC/WICB were Messrs. Allan Rae (Jamaica, 1981 – 1988), Clyde Walcott (Barbados, 1988 - 1993), Peter Short (Barbados, 1993- 1996), Patrick Rousseau (Jamaica, 1996-2001),Wesley Hall (Barbados, 2001 - 2003), E.H.C. Griffith (Barbados, 2003-2005), and Kenneth Gordon (Trinidad & Tobago, 2005-2007).Which of these gentlemen had better credentials than Dr. Hunte for the Presidency and how would we grade their performances during their tenures?

I find it interesting that at the closing date of 27 June 2007 for the receipt of nominations for the Presidency, the only nomination received by WICB was on behalf of Dr. Hunte. Where were the leaders from the traditional countries? Did they see in West Indies cricket a decrepit state of affairs from which they should distance themselves? Dr. Hunte took up the challenge; he does not run away from challenges. When the SLP was in tatters in 1982, he accepted its leadership and built it into the organisation which narrowly lost two general elections in 1987 and one in 1992, and swept into office in 1997 and 2001 under his successor.

Milud, enter Anthony Astaphan, a legal luminary of the Eastern Caribbean. CEO Donald Peters engaged him, a fellow Dominican, as legal counsel when the WICB sent the CEO on administrative leave until his meeting with the Finance, Audit & Human Resource Committee of the WICB would be held to consider his handling of Mamchan’s “raging controversy”.
In a release by the Caribbean Media Corporation (CMC), which appeared in the Trinidad and Tobago Guardian of Wednesday 6th August 2008, titled “Peters’ lawyer wants probe into WICB’s affair”, we are informed that Astaphan is calling on the regional leaders to conduct a probe into the affairs of WICB’s operations. The call was made following Dr. Peters being sent on administrative leave and Corporate Secretary Tony Deyal being fired. The CMC release reported Astaphan as stating the following:

“I think that the time has now come for the governments of the regions (sic) to have a complete commission of enquiry into the conduct of West Indies cricket.”

“The entire operations of West Indies cricket to include the administration of governance of West Indies cricket, the policy of West Indies cricket, the question of selection of players and who should be on the Board.”

“Now that the matter involving Dr. Peters is over, I hope that for the sake of West Indies cricket, something such as this does not happen again.” (my emphasis)

The above quotes are pretty piffle. A possible interpretation is that institutions cannot be self-regulating and self-determinant without the patriarchal intervention of the movers and shakers that we regard governments as.

Dr. Peters is an employee of WICB and the terms and conditions of his employment would be stated in his contract with WICB. It seems necessary to remark that he was still employed while on administrative leave. His legal counsel could advise him not to respond to his employer’s request for his appearance before its committee at the risk of having him fired.

There were comments by Mamchan attributed to Dr. Peters which the CEO should have been required to explain to the Board. Why didn’t Astaphan deal with Mamchan and not WICB?

“I am aware that the WICB has an office in St. Lucia for which we are paying but I cannot say where it is located and who owns the building,” said Peters.

“Chief Executive Officer (CEO) of the WICB Dr. Donald Peters confirmed that the WICB was paying for an office in St. Lucia but could not verify if the building was owned by Dr. Hunte.”

“Peters confirmed that Hillaire (sic) was now employed by the WICB to work in Hunte’s office.”

According to the Guardian of 6 August 2008, the CEO returned to the job on Monday 11 August “after having cordial talks” with the President on Friday 8 August and “also meeting with the (WICB Finance, Audit & Human Resource) committee on Sunday” 10 August. But is the matter involving Dr. Peters over, as stated in the above-quoted CMC release of 6 August 2008? I am not aware that WICB has issued a closing statement on the matter.

WICB is a private company, registered in the British Virgin Islands, which is owned by six (6) member boards viz. Windwards, Leewards, Jamaica, Guyana, Trinidad & Tobago and Barbados. The Companies Act of St. Lucia informs me that :
Subject to any unanimous shareholder agreement, the directors of a company shall-
(a) exercise the powers of the company directly or indirectly through the employees and agents of the company; and
(b) direct the management of the business and affairs of the company.

If a Board is not performing, the constituent members of the company should replace it and this has been happening over the years as the various Boards have limped along. Where do Astaphan’s governments come in? They do not have a red cent in West Indies cricket. They own most of the venues from which they receive revenues for their use, including national returns in the name of sports tourism consisting of hotel incomes, transportation costs, departure taxes etc. So why does Astaphan drag into the matter of the representation of his client in an employment related matter the red herring of Governments’ intrusion into something which is not their concern? We are back in the patriarchal malaise that if governments are not in it, it cannot work.

There has never been greater transparency in WICB’s management than there is today. The new composition supports this. WICB has produced a draft Strategic Plan, 2008 - 2012, the first in some eighty years, for the development of West Indies cricket which it has posted on its website and has invited comment on the document from the public. An open forum, to which the public will be able to contribute, will be held on the Plan in February 2009 at a venue to be determined. The sourcing of funds by the present Board in the past year has greatly increased. West Indies governments have more than enough on their plates with which they are struggling than to meddle in West Indies cricket. I recall the thinking of my home-grown St. Lucian cricket genius, deceased Mindoo Phillip, on the matter of government involvement in cricket. In an essay on Mindoo which I published in 2004, I stated the following:

“A related dimension to his personality came through in a television interview in July 1999. In response to a question, Mindoo expressed his disagreement with Caribbean politicians getting involved in the future direction of West Indies cricket and gave his full support for continued administration only by the WICB. He ended with a comment which essentially was as follows: “One day, you are on top and you give licks. Another day, you take licks. It is West Indies time to take licks and rebuild. Life is like that.” It is this way of seeing that has informed his pursuits,
which is why he seldom exhibits depression or acrimony as he has gone about the
business of his sporting life.”

We are taking our licks and rebuilding.

I am always cognisant of the past. In the1960s the genius of Sir Frank Worrell recognised that the resurgence of West Indies cricket rested with the Eastern Caribbean islands and he proved to be correct during the years following his death. We may very well see in the present era a resurgence of West Indies cricket through the present management in which the Eastern Caribbean has a significant role.

The present Board should be encouraged by what it has achieved to date in its short tenure, especially in the light of the plethora of problems and difficulties which it inherited. While the Board continues to strive to restore West Indies cricket to its respectable place, it is supported on the field by players who should be mindful that they were selected for professional performance and not their good looks. The financial grass in cricket is at its greenest ever for West Indies players. The Board will have to exercise much caution in determining the lengths of rope over the lush pasture.

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The WICB Roro appeared in the Mirror newspaper in St. Lucia on August 29, 2008, and the Weekend and Star newspapers (in St. Lucia) on August 30, 2008.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

THE ECFH ADDITIONAL PUBLIC SHARE OFFER

2008-04-06T06:51:00.000-07:00

By Stanley French

East Caribbean Financial Holding Company Limited (ECFH) had its fifth annual meeting (AM) on April 4, 2007.

On April 12, 2007, the Star and Voice newspapers of St. Lucia published an ECFH notice giving April 18, 2007 as “the record date for the determination of shareholders entitled to receive notice of the Special Meeting of Shareholders slated for April 26, 2007.”

On reading the notice of Record Date, I telephoned the Secretary of ECFH and informed her that the date of April 26, 2007 was problematic because two public companies had already sent out notices for their AMs to be held on that day i.e. 1st National Bank St. Lucia Limited (FNBL) at the National Insurance Corporation Conference Centre in Castries and Windward & Leeward Brewery Limited (WLBL) in Vieux Fort. The selection of the same date and venue for the Special Meeting of ECFH, for which notices had not yet been sent to shareholders, was in my view unsatisfactory. Some may opine that the date was selected to minimize the number of shareholders attending the meeting.

It is known that the annual corporate season for AMs is from April to May. For 2007, it was April 4 for ECFH, April 26 for FNBL and WLBL, and May 4 for St. Lucia Electricity Services Limited.

In the Weekend Voice of April 14, 2007, a notice was published in which the date of the Special Meeting was changed to April 27. The Record Date of April 18, 2007, for the determination of shareholders entitled to receive notice of the Special Meeting, was unchanged.

I also pointed out to the Secretary that at the AM of shareholders of ECFH on April 4, there was no indication that a Special Meeting would be held in the not too distant, far less the immediate, future.

The post mark on the envelope in which I received my notice for the Special Meeting of Friday, April 27 was April 17, 2007 which meant nine (9) days notice for the meeting. The notice (on page 1 of a document entitled Management Proxy Circular) was accompanied by (i) a Management Proxy Circular (page 2), (ii) a Resolution for Waiver of Notice (page 3), (iii) a statement entitled Capitalization of ECFH through Additional Public Offer (pages 4 & 5), (iv) a Special Resolution of East Caribbean Financial Holding Company Limited (page 6) and (v) a Form of Proxy (page 7).

The notice stated the agenda as follows (page 1):
To consider a Resolution to waive the Notice of the Meeting
To approve the Issue of Shares through an Additional Public Offer
To consider and adopt a Special Resolution to Amend the Articles of Amalgamation
To transact any other business that may properly be brought before the meeting. (my emphasis)
Item 4 should not have been on the agenda because a Special Meeting should deal only with special business.

The Resolution for Waiver of Notice proposed that shareholders consent to:
The Company convening a Special Meeting of Shareholders and voting upon the resolutions required to be considered thereat, notwithstanding that less than twenty one (21) days notice has been given for convening the meeting (my emphasis);
The company sending the Management Proxy Circular less than twenty one (21)
days before the date of the meeting (my emphasis).
A note to the Resolution stated that the waiver is being proposed in accordance with section 113(1) of the Companies Act of Saint Lucia, Chapter 13.01 Revised Laws of Saint Lucia, 2001 and Section 12.4 of the Bye Laws of the Company.

The Special Resolution of ECFH, item iv above, stated that the Company is authorized to issue a maximum of 20,000,000 ordinary shares and sought to increase the authorized share capital to 50,000,000 to facilitate future growth and expansion.

I was the first shareholder to address the Special Meeting. I pointed out that for meetings of shareholders legislation seeks to ensure that the
(i) timing of a notice is linked to determining the Record Date, and
(ii) notice is not so long before a meeting that it is forgotten nor so soon before the
meeting that it defeats the shareholder’s ability to inform oneself of the issues at
hand, or to organize with fellow shareholders.
Sufficiency and content of a notice were of major importance. The 150% increase in authorized share capital sought by the board of directors was a serious matter and should not be treated as instant coffee.

How is a shareholder to give waiver of a notice if inadequate time has been given for receiving the notice? There are ECFH shareholders who reside outside St. Lucia where the company’s head office is located. I also pointed out that the insufficiency of the notice deprived shareholders of their proxy rights. Since it is required that completed forms of proxy be submitted to the company not less than forty eight (48) hours before the time and date of the meeting, the deadline would fall on Tuesday, April 24 because Wednesday, April 25 was a holiday. (Subsequently, I learned that the deadline should be Friday, April 27 - the date of the meeting - because of the holiday).

Regarding the note to the Resolution of the Waiver of Notice, I quoted section 113(1) of the Companies Act of Saint Lucia, Chapter 13.01 Revised Laws of Saint Lucia, 2001 which states the following:

(1) A shareholder and any other person who is entitled to attend a meeting of shareholders may in any manner waive a notice of the meeting; and the attendance of any person at a meeting of shareholders is a waiver of notice of the meeting by that person, unless he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called (my emphasis).

I ended by stating that, on the basis of the grossly inadequate notice, the meeting was illegally convened and I would not participate in it and departed from the meeting.

Before my statement which ended with my voting with my feet by my withdrawal from the meeting, I requested the following information from the board of directors:
(i) Was the external auditor of the company mandatorily invited to the
meeting in accordance with the provision of subsection 111(1) of the
Companies Act 1996?
(ii) The number of shareholders present at the meeting.
The Secretary, who chairs all meetings of shareholders of the company from a lectern in the presence of the chairman of the company, replied that the auditor was invited, was not yet present but was expected to attend the meeting, and the shareholder count was not yet made. After the meeting I was officially informed that the auditor did not attend and the number of shareholders present was forty five (45). I also received a list of the proxies received by the management of ECFH. It is to be noted that there was no tabling of proxies at the Special Meeting. Such tabling is not the practice at ECFH meetings of shareholders. However, it is the standard practice at meetings of FNBL shareholders which contributes to transparency.

I had been in the illegally convened scenario before. In 2000, before the flawed merger of the National Commercial Bank (NCB) and the St. Lucia Development Bank which led to the formation of Bank of Saint Lucia, shareholders of the NCB received the notice and related annual report for the AM in the days leading up to and including April 29, 2000, the date of the AM. I attended that meeting but followed subsection 113(1) of the Companies Act and stated that I had attended the meeting for the purpose of objecting to the transaction of any business on the grounds that the meeting was not lawfully called in light of the woefully short period of notice. A vote was taken by a show of hands among shareholders on a motion to hold the meeting despite the late notice, thereby “legalizing” the illegal on the basis that, among the shareholders present, there was a majority vote for holding the meeting. After registering the sole “no vote”, I withdrew from the meeting. It is to be noted that some members of the board of ECFH were on the board of NCB in 2000.

In the case of annual meetings, inadequate notice is reprehensible in light of the provision in subsection 107 (a) of the Companies Act that an annual meeting shall be called not later than 15 months after holding the last preceding annual meeting. In St. Lucia, late notices for meetings of shareholders of public companies have been “legalized” by simple vote counts by show of hands among shareholders at meetings.

Section 543 of the Act states that a “special resolution means a resolution of which at least 21 days’ notice is given which is
(a) passed by a majority of not less than 75 per cent of the votes cast by the shareholders who voted in respect of the resolution; or
(b) signed by all the shareholders entitled to vote on the resolution.”
In other words, a special resolution cannot be passed when the notice to shareholders for the special meeting is less than the prescribed 21 days.

Voting at the Special Meeting of April 27, 2007 was by show of hands for every special resolution but there was not a count of hands to record the voting results. Proxies were irrelevant because there was no call for a poll to determine the shareholding vote with respect to the resolution.

To sum up, the Special Meeting of April 27, 2007 was not lawfully called and that was brought to the attention of the meeting as prescribed by the Law. The resolutions were not approved in accordance with the minimum notice stipulated in the Law. In my view, what transpired at the Special Meeting is not lawful. ‘

The Additional Public Offer (APO) was begun and continued unsatisfactorily.

Some particulars of the APO were as follows;
1 Launching of Prospectus June 12, 2007
2 Prospectus first released to public on ECFH website June 12 to 14, 2007
3 Registration of Prospectus June 14, 2007
4 Second release of Prospectus to public June 14, 2007
5 Offer opened June 18, 2007
6 Offer closed June 22, 2007
7 Allotment of pre-emptive rights June 25, 2007
8 Allotment to general public June 26 to 27, 2007

A right of pre-emption is a right to purchase property before or in preference to another person. When a rights issue, whether obligatory or not, is made by a public company, the company should send to each shareholder a circular/letter inviting him/her to subscribe for further shares in proportion to his/her existing holding. Modern practice is to embody a rights offer in a provisional letter of allotment by which the new shares are allotted to the share holder, subject to his/her right to reject them if he/she does not wish to subscribe. The rights offer recognizes that one’s shareholding is adversely diluted if the additional shares are not purchased. The dilution can result in a reduction in a shareholder’s dividends and voting strength.

It is clear that the time for the exercise of the shareholders’ pre-emptive rights given by ECFH was unreasonable if not farcical. ECFH is St. Lucia based but its shareholders are resident throughout the Caribbean region and the wider world. The company is listed on the Eastern Caribbean Securities Exchange (ECSE). How could shareholders be given notice of their rights in sufficient time (9 days between opening and closing of offer) and also to make the financial arrangements to subscribe to these rights in that period? It must be noted that agreement by a shareholder to purchase shares allotted to him/her must be accompanied by payment.

The above-listed dates show that the Prospectus was illegally released to the public before it was registered by the Registrar of Companies on June 14, 2007. This version of the Prospectus, released from June 12 to 14, was therefore merely a draft document. Section 311 subsection (1) of the Companies Act 1996 stipulates that “no person shall issue a prospectus unless a copy thereof has first been registered by the Registrar and the prospectus states on its face the fact of the registration and the date on which it was effected.”

An annual report gives a shareholder information about a company’s past. A Prospectus gives views about a company’s future. Whatever means ECFH used to release the Prospectus to the public, it was not sent to all existing shareholders without which they could not make informed decisions about exercising their pre-emptive rights. The period from the release of the Prospectus to the public (including shareholders) and to the closure of the Offer was nine days. This was fully implemented in the period from June 7 to 25 when I, a shareholder resident in St. Lucia, was out of the State. My situation should be compared with that of the many shareholders who are not resident in St. Lucia and would be deprived of adequate notice and their rights.

It is common, though not mandatory, practice for existing shareholders to be given an advantage over the non-shareholding public through a lower offering share price. The trading price was EC$11.00 for ECFH shares on the ECSE at the time of the APO which was made to all purchasers at EC$12.50.

The Voice newspaper of June 30, 2007 reported that there was an over-subscription of the APO, exceeding EC$100 million or 8,000,000 shares. Section 1.9.4 of the Prospectus states the following:
On satisfaction of the pre-emptive rights, any shares remaining shall be allotted to the remaining subscribers in the following priority:
Saint Lucia Nationals;
Employees of ECFH and its subsidiaries;
Registered pension and other trust funds, Credit Unions and Cooperatives, Mutual funds; and
Other investors.

How are St. Lucian minority/malayway shareholders (and employees of ECFH and its subsidiaries), existing and potential, expected to respond meaningfully to an Offer within the five to nine days allowed? In my view, less than sixty days is unacceptable for shareholders with pre-emptive rights in the first instance.

Consider the case of the Government of Saint Lucia which, like the Republic Bank Limited of Trinidad and Tobago, owned 20% of the 14,760,889 ordinary shares issued at December 31, 2006 as given in the 2006 Annual Report of ECFH. Government and Republic Bank would each hold 2,952,178 shares at December 31. With the APO of 8,000,000 shares, the Government and Republic Bank would each have to purchase 1,600,000 shares at a cost of EC$20,000,000. Republic Bank is a financial institution and could purchase immediately. What was the mechanism that the Government used for such expenditure which would result in Government’s shareholding of 20% being retained, a situation which some may think desirable?

So why non-compliance with the Law? Is it because, inter alia,
(a) shareholders, minority/malayway shareholders, are deemed to be reluctant to seek legal redress because of such a time-consuming, burdensome and expensive exercise to which directors would respond, not at their personal expense but at the expense of the company?
(b) of contempt for the rights of minority/malayway shareholders?
(c) fait accomplis dumped on hapless minority/malayway shareholders are difficult if not impossible to reverse?
(d) of lapses in management?

The question which many persons are asking about both the ECFH Special Meeting of June 27 and the APO is: Why was this haste necessary?

Governance in the public corporate sector in St. Lucia is in need of serious attention. I seriously doubt, and I will not stray far from St. Lucia, whether the above-mentioned non-compliance would occur in Barbados, Trinidad and Jamaica.

One last word. This article cites the Companies Act 1996 of St. Lucia which has been available to the St. Lucian public by purchase. A revised version, entitled the Companies Act, No. 19 of 1996, Chapter 13.01 Revised Laws of Saint Lucia 2001, has been published but is not available for purchase. Since the revised version has not significantly changed anything and is not available to me, I have referred to the Companies Act 1996.
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This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

Jamaican Long-Term Savings Product with a Tax Advantage

2007-10-07T12:30:00.001-07:00

Are you saving for a medium-term goal? I expect most of you have at least one medium to long-term saving objective – funding your retirement. A few years ago, the Jamaican Finance Ministry actually created a tax-break that can help you earn more on money that you are comfortable not touching for at least 5-years … yes the Finance Ministry did something aimed at benefiting you the investor! The “Long Term Savings Account” is offered under different names (for branding purposes) by Jamaican securities and banking institutions. Don’t get caught up in the names of the product used by each firm, just ask about the “Long-term Savings Account” when discussing the product with an institution.

Here’s how the Long Term Savings Account (LSA) works:
You can invest a maximum of J$1,000,000 per year up to a total maximum of J$5,000,000. If account is maintained for at least 5-years without withdrawing the principal, then the interest earned is tax-free. This tax-free status is allowed as long as you also do not withdraw more than 75% of the interest earned on the account. Therefore, you can withdraw up to 75% of the interest earned in the account and still earn interest free of tax. The tax-free element of this product means that you potentially earn 25% (the individual tax rate) more on a LSA than a Certificate of Deposit or a Repurchase Agreement. The interest rate earned on the account is determined by the specific institution you open the account with. The interest rate on the account is reset at intervals – usually every 90-days, 180-days, or every 365-days, depending on the agreement you enter into with the financial institution at the inception of the account.

The principal benefit of the LSA is its tax-free characteristic. Many of us place significant funds on short-term fixed income investments that we then continuously roll-over so that the investment in fact is maintained for a long-period. If before investing, we can better clarify the financial objectives and appropriate investment period for funds we would be able to better choose the investment alternatives suitable and in so doing likely improve the returns we earn on the funds. Let us assume that you have J$1,000,000 to invest for 6-years. You calculate that in the event that you do need to take funds from the investment, you would not need to withdraw more than 50% of the interest earned. Currently you have invested the J$1,000,000 in a repurchase agreement earning 11% per annum and taxable (so that the after-tax yield is per annum). In this case you would increase your return by a third if you simply invested in an LSA instead of the taxable repurchase agreement! With the LSA you would have J$1,872,472 at the end of the 6 years, with the Repo/CD you would have J$1,601,525. The interest on the LSA would be J$270,947 or 45% more than in the case of the taxable alternative.

The other benefit of the LSA is that it can be opened without a large amount of money. Also, persons that do not have a pension plan available through their employer or who need to supplement their pension plan can consider the LSA to assist in meeting that need.

I surveyed a most of the financial institutions that offer this product and found that the interest rates vary considerably between institutions. I asked each institution to quote the rate they would pay on a LSA if the amount to be invested was J$1,000,000. The periods shown below refer to the frequency that is used in resetting and paying interest on the LSA. The responses (with the 3 most attractive shown first) are listed below:

Dehring Bunting & Golding
Reset & compounding frequency
90-days: 11.95% p.a.
180-days: 12.10% p.a.
365-days: 12.2% p.a.
Minimum investment: J$100,000

Jamaica Money Market Brokers
Daily variable: 12.36%
30-days: 11.25%
90-days: 11.35%
180-days: 11.55%
365-days: 12.0%
Minimum: J$100,000

Mayberry
90-days: 11.5%
Minimum: J$250,000

Barita
365-days: 11.5%
Minimum: J$50,000

NCB Capital Markets
90-days: 10.95% p.a.
180-days: 11.05% p.a.
365-days: 11.30% p.a.
Minimum: J$200,000

Pan Caribbean Financial Services
90-days: 11.10% p.a.
365-days: 11.25% p.a.
Minimum: J$100,000

Victoria Mutual Wealth Management
180-days: 10.15% p.a. (interest credited in April and October)
Minimum: J$25,000

(The institutions listed above are licensed non-bank financial institutions. Merchant banks also offer the LSA product. However it was generally found that the yield on LSAs offered by merchant banks were appreciably lower than those offered by the non-banks. The explanation I received for this was that the bank product is eligible for deposit insurance in accordance with the rules and up to the relevant amount covered by the Jamaica Deposit Corporation, and that JDIC coverage adds an expense to the bank that the non-bank does not bear. Personally, I do not believe that the JDIC rationale presents a good reason for individual investors to select the low yielding bank versus higher yielding non-bank product. The LSA funds with the non-banks should be backed by fixed-income instruments (instrument-types specified by the regulator) and I think that this is a reasonable level of risk mitigation. And remember, always keep your funds with institutions YOU are comfortable with, and that are well managed and capitalized).

THE END

________________________

J$: Jamaican Dollar
LSA: Long-term Savings Account
P.A. : Per annum

This commentary may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable but the accuracy of the information is not guaranteed.

A FLAWED MERGER

2007-08-30T20:09:00.000-07:00

By Stanley French

The twentieth Annual Meeting (AM) of the shareholders of the National Commercial Bank of Saint Lucia Limited (NCB) held at the National Cultural Centre on Saturday, 28 April 2001 was a historic occasion. According to the minutes of that meeting, 409 members of the company were present which compares with 421 and 23 at the AM of April 2000 and April 2002 respectively. The meeting was historic, not for its attendance, but because for the first time in St. Lucia shareholders of a company (NCB) owned by public subscription were meeting to consider a special resolution for the amalgamation of two companies i.e. NCB and St. Lucia Development Bank (SLDB), a company wholly owned by the Government of St. Lucia (GOSL).

The Special Resolution read as follows:

“Be it resolved that the National Commercial Bank of Saint Lucia Limited and the Saint Lucia Development Bank amalgamate into one Company under the provisions of the Companies Act of Saint Lucia No 19 of 1996 and the Conclusion of the Cabinet of Ministers of the Government of Saint Lucia.

Be it further resolved that the amalgamated Company shall be known as the East Caribbean Financial Holding Company Limited which said Company shall own the following subsidiary companies to the extent indicated:
(a) Bank of Saint Lucia - 100%
(b) Mortgage Finance Company of Saint Lucia Ltd. - 100%
(c) Offshore Finance & Services Company of Saint Lucia Ltd. - 100%
(d) Insurance Company of Saint Lucia Ltd. - 55%-100%
(e) Property Holding & Development Company of Saint Lucia Ltd. - 55%-100%
(f) Legal & Financial Services Company of Saint Lucia Ltd. - 40% “

The notice was signed by the Company Secretary/Legal Officer on behalf of the Board of Directors.

Before AM 2001, the NCB Board of Directors sent a Management Information Circular to the Company’s shareholders providing information on the proposed amalgamation/merger. A summary of the contents of the Circular is as follows:

(1) The Prime Minister invited a Committee comprising Messrs. Marius St. Rose (NCB Managing Director), Rudy Gurley (SLDB Chairman and NCB Director), Adrian Augier (Office of Private Sector Relations) and Dr. Bernard La Corbiniere (Permanent Secretary, Ministry of Finance and Economic Affairs and NCB Director) to explore the possibility of the merger;

(2) The Terms of Reference of the Committee were stated as follows:
(a) Advise on the desirability and benefits of such a merger.
(b) Develop feasible proposals regarding purpose, objectives, functions, ownership and financial structure, governance, organizational arrangements and general modalities and principles for the merged entity.
(c) Prepare an operation plan for the implementation of the merger.
(d) Negotiate and seek consensus on the proposals with the Government of Saint Lucia and the Boards of Directors of the two institutions.

(3) The Committee identified six advantages arising from the merger of the two
institutions;

(4) The Committee agreed that the merger was a desirable initiative and
recommended the merger to the Government;

(5) The Cabinet of Ministers by Cabinet Conclusion No. 29 of 2001 concluded that
the institutions proceed to effect an amalgamation (a copy of the Cabinet
Conclusion was appended to the Circular);

(6) Selected components of the proposed initial capital structure of the merger were
stated;

(7) Selected aspects of governance of the proposed merger were stated;

(8) Cabinet considered a Memorandum dated October 30, 2000 by the Ministry of Finance and Economic Affairs and agreed to the merger; and

(9) “The Cabinet Conclusion was then tabled before the Boards of both Banks, who thereupon agreed to proceed to merge the two Banks into one institution by July 1st, 2001.”

The Circular, including appendix, was some eight (8) pages long.

Apart from Government’s 100% ownership of the preference shares, shareholders of the East Caribbean Financial Holding Company Limited (ECFH) are of two types i.e. substantial and minority. A substantial shareholder is one who owns at least 10% of the number of shares and is entitled to one Board member for every 10%. Thus, at the time of the merger in 2001, Government had 4 directors (40% shareholding) and Barbados National Bank one (10.92%). With Government’s sale of 13% of its shares to the National Insurance Corporation (NIC) in 2002, Government and NIC had two and one Board member respectively.

A minority shareholder holds less than 10% but in accordance with Section 134 of the Companies Act No. 19 of 1996 such shareholders can pool their holdings to achieve 10% and thereby have a seat on the Board. Thus, Antigua Commercial Bank (4.22%), National Commercial Bank of St. Vincent and the Grenadines (3.95%), National Commercial Bank of Dominica (3.95%) and St. Kitts, Nevis, Anguilla National Bank (1.98%) have by written agreement pooled their voting rights and have one Board member for their 14.10%.

It is to be noted that the Board’s substantial shareholders represented at least 65.02% of the shares at the time of the merger. The Government, quasi-Government and representatives of minority shareholders who have been beneficiaries of Government’s surplus vote constituted the majority on the Board.

The mechanism by which the Committee communicated its findings and recommendations to the Government is not stated. However, it is reasonable to assume that it was a written report for such an important and serious matter. Nowhere is the availability of such a report to minority shareholders stated. A report was certainly not sent to minority shareholders with the Management Information Circular. Therefore, minority shareholders, unlike the NCB Board, had limited information for consideration of such a major matter as the merger.

Before AM 2001, I had discussed the Circular with some Jamaican friends with immense experience in banking and financial matters. I noted that they either frowned on the proposed merger and/or found the Circular contemptuous of minority shareholders by the manner in which it had presented the matter to them. At the AM, I made no contribution with respect to the discussion on the proposed merger. I am aware of the attitudes of Boards to minority shareholders’ opinions in what Sir Blom Cooper has described as “a culture of studied indifference.” There were the predictable utterances of the Board, given the statements in the Circular. Some minority opinion supported and some disapproved of the proposed merger. I was particularly impressed by a minority shareholder who (I subsequently learned was an accountant) strongly disagreed with the merger of the development and commercial banking institutions and recommended they be separate subsidiaries under the umbrella of the ECFH. The merger was approved by a show of hands. If it was not, the Chairman had the legal authority to overrule such a defeat by calling for a poll on the resolution thereby ensuring victory with the majority shares controlled by the Board.

It has become doctrinal in some corporate circles in St. Lucia (officially released by at least one Board to the company’s shareholders) that minutes of meetings should state decisions, conclusions and the points arising out of discussion of major matters. I have no objection to the doctrine but I expect it to be honoured more in the observance than the breach.

I had pointed out at AM 2001 that the minutes of the preceding meeting were skeletal. Under Any Other Business, I made a simple request – that, in light of the historical importance of the meeting, the minutes should state the points arising out of discussion of the merger by shareholders and their various representatives and proxies.

However, the minutes of AM 2001 stated the following at Section 7:
“Tabled: A resolution for the amalgamation of the National Commercial Bank
of Saint Lucia Limited and the Saint Lucia Development Bank in
accordance with the terms and conditions outlined in the Agreement for
Amalgamation between National Commercial Bank of Saint Lucia Limited
and Saint Lucia Development Bank, which said agreement had been
made available to all shareholders.” (my emphasis).

In a memorable contribution, a minority shareholder recommended that the commercial (NCB) and developmental (SLDB) institutions be made subsidiaries and not merged. It is easy to ignore the viewpoints of minority shareholders when a Board represents the majority interest of substantial shareholders. It was a widespread view that the oil of commercialism did not mix with the water of development. SLDB was entering the marriage with a healthy dowry and confidence supported by seven previous loans from the Caribbean Development Bank, a thorough institution. It remains to be seen what becomes of the Government’s assurance that the development component of the merger will be sustained, particularly with respect to credit facilities for small and medium-sized enterprises.

It is reasonable to assume that the Agreement for Amalgamation would have been available to the Board members of NCB but the Agreement was not sent to shareholders,
as asserted by the minute, either before AM 2001 or since. The Committee’s report on its Terms of Reference was also not available to Shareholders. Shareholders therefore had inadequate information for consideration of the merger.

Section 221 of the Companies Act No. 19 of 1996 states the following:

“(1) The directors of each amalgamating company shall submit the amalgamation agreement for approval to a meeting of the shareholders of the amalgamating
company of which they are directors, and, subject to subsection (4), to the holders of each class or series of shares of that amalgamating company.

(2) A notice of a meeting of shareholders complying with section 111 shall be sent in
accordance with that section to each shareholder of each amalgamating company;
and the notice –
(a) shall include or be accompanied with a copy or summary of the
amalgamation agreement; and
(b) shall state that a dissenting shareholder is entitled to be paid the
fair value of his shares in accordance with section 226;
but failure to make the statement referred to in paragraph (b) does not invalidate an amalgamation

(3) Each share of an amalgamating company carries the right to vote in respect of an amalgamation, whether or not the share otherwise carries the right to vote.

(4)The holders of shares of a class or series of shares of an amalgamating company are entitled to vote separately as a class or series in respect of an amalgamation when the amalgamation agreement contains a provision that, if contained in a proposed amendment to the articles, would entitle those holders to vote as a class or series under section 215.

(5)An amalgamation agreement is adopted when the shareholders of each amalgamating company have approved of the amalgamation by special resolution of each class or series of the shareholders entitled to vote on the amalgamation.

(6) An amalgamation agreement may provide that at any time before the issue of a certificate of amalgamation the agreement can be terminated by the directors of an amalgamating company, notwithstanding approval of the agreement by the shareholders of all or any of the amalgamating companies. “

The Circular did not provide a summary of the Amalgamation Agreement. It is noteworthy that the Management Information Circular for the amalgamation did not bring to the attention of shareholders that By-Law No.1 for the merged company (ECFH) was the NCB By-Law No. 1.

It is a corporate convention in St. Lucia that the agenda for Annual Meetings provides an item up-front for the consideration of the accuracy and acceptability of minutes by the identification of errors and omissions. This item has not been permitted by NCB and ECFH Boards. At the AM of May 2003, as a housekeeping item with respect to a point of procedure, I requested that the agenda be amended to include as item no.2 the consideration of the minutes of the previous AM (for 2002) for errors and omissions. The Acting and Presiding Secretary mined the book by Mr.Grenville Phillips, entitled “The Administration and Conduct of Corporate Meetings”, for reasons why my request could not be granted. I recognize that the book is of some value, being the first of its kind in the Caribbean, and pointed out that it was merely one person’s opinion, but to no avail. The book is treated like the Pope’s definition of cafeteria religion in the United States i.e. one takes this and that but bypasses this and that. The following major statement in it is ignored:

“Shareholders are entitled to ask at annual meetings any questions which
are not sensitive with respect to the operations of the company and entitled
to answers to them.”

The Chairman of ECFH decided that the agenda was settled and its amendment would not be entertained. Later in the AM, a shareholder brought to the attention of shareholders the major error with respect to the availability of the Amalgamation Agreement.

Following AM 2003, I have requested and received in July 2003 my copy of the Amalgamation Agreement from ECFH. However, I was appalled to receive simultaneously an “ammended” (sic) copy of the erroneous minutes of AM 2001, section 7 of which reads as follows:

“Tabled: A Resolution for the amalgamation of the National Commercial Bank of
Saint Lucia Limited and the Saint Lucia Development Bank in accordance
with the terms and conditions outlined in the Agreement for amalgamation
between National Commercial Bank of Saint Lucia Limited and Saint
Lucia Development Bank. The said terms and conditions were
contained in the Management Information Circular which
had been made available to all shareholders.”(my emphasis).

This treatment of minutes is unacceptable. The “ammended” version, not available to all shareholders, was signed by the Chairman and the current Secretary.

Comparison of the Amalgamation Agreement dated 31st. March 2001(still not available to all shareholders) and the Special Resolution passed by shareholders at AM 2001 reveals that Section 4 of the Amalgamation Agreement does not include Legal and Financial Services Company of Saint Lucia Ltd; which is listed in the Special Resolution, as a proposed subsidiary of ECFH.

Whatever the legal implications of the foregoing, corporate governance in St. Lucia needs serious attention. It is expected that sooner or later students and professionals of corporate law and practice will be commenting on the matter.

In conclusion, it is my view and that of some professionals in law and banking that the merger is flawed and needs to be revisited.

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A Flawed Merger appeared in the Thursday Voice in St. Lucia on 22 April 2004, and was reprinted in the Weekend Voice newspaper of 19 January 2008.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

CONCERN ABOUT FINANCING LUCELEC’S DEVELOPMENT

2007-08-30T19:51:00.000-07:00

By Stanley French

The Lucelec News, the newsletter of St. Lucia Electricity Services Limited (Lucelec), announced in its issue of September 2003 that “negotiations are continuing with local and regional banks for financing of the expansion programme. The indications are positive and, as of now, any one of three banks in Trinidad or the CDB (Caribbean Development Bank), could be the preferred financier. Drawdowns are expected in the fourth quarter of the year.”

It seemed logical that CDB was among the financing institutions to be approached because, prior to the company going public in 1996, the Government of Saint Lucia, the Commonwealth Development Corporation and CDB were the major contributors to the development of the company.

The Lucelec News of November 2003 announced “the conclusion of negotiations with First Citizens Bank Limited (FCB) of Trinidad for a loan of US$30.0 million, primarily to finance the next phases of the Company’s expansion. Several financial institutions had made offers of finance, and in the end the terms from FCB were the most attractive. The Loan Agreement and related security agreements were signed on 22nd October 2003.”

The 2003 Annual Report of Lucelec stated the following on page 41 under Note 16, captioned “Commitments”:

On October 22, 2003, the company entered into a loan agreement with First Citizens Bank Limited for a loan of US$30 million to finance its capital expansion programme including generation, transmission and distribution and wind energy. The loan is for a period of 15 years and interest is charged at a rate of 7.15% per annum. The amount drawn from this facility at December 31, 2003 amounted to US$2,294,518.

The company had capital commitments at December 31, 2003 of $36,828,645 (2002-$Nil) in respect of work contracted for the Cul de Sac power station “C”.

The draft Capital Programme 2003-2004 was dominated by the expansion of the Cul-de-Sac Power Station and began in the last quarter of 2003 “following completion of negotiations with Wartsila” for the procurement of generating equipment. Provision was also “made for the purchase of 2 x 600kW Wind Turbines to commence the Wind Power Development Programme in line with commitment of 10% penetration of alternative energy by 2007. Other non-routine long-term programmes are:
a. Replacement of Mercury Vapour street lamps with High Pressure
Sodium variety.
b. Systematic replacement of meters 10 years in service or more
c. Installing Lv fuses for domestic services
d. A feeder metering programme
e. Developing a geographic information system”.

I requested from the management of Lucelec that the components of the programme and their costs and financing be made available to me as a shareholder. This request was denied. This discussion will therefore be conducted with the above information in the public domain. Unlike Lucelec, CDB is transparent in its policies and procurement procedures.

At the Annual Meeting of Lucelec held on May 22, 2004, I expressed my confusion at the non-participation of CDB in the financing of the capital expansion programme, given that CDB was one of the institutions with which negotiations were conducted. CDB’s Press Release No. 07 of 2002 announced that its Board of Directors at a meeting of October 10, 2002 “accepted a recommendation that for the six-month period beginning January 1, 2003, the interest rate on loans made from CDB’s Ordinary Capital Resources (OCR) be reduced from 5.75% (p.a.) to 5.5% (p.a.) for all loans approved after April 1, 1984, to the public sector and private sector financial intermediaries, and After April 1, 1984 – but before March 15,1991 – directly to the private sector. The rate for all loans approved directly to the private sector after March 15, 1991, will be reduced from 7.75% to 7.5%.”

The OCR is CDB’s commercial source of funding. The rate of 5.5% p.a. to Governments (public sector) remains unchanged to this day. Public utilities such as Lucelec have benefited from CDB’s OCR rate of interest to the public sector (my emphasis). The grace and repayment periods for the OCR, which are both negotiable, are 0 to 5 years and 20 years respectively including the grace period. For expansion projects, CDB allows utilities to purchase the brand named goods which the utilities favour when compatibility of equipment and maintenance of established contacts with existing suppliers are important for project viability, including minimization of delay in the procurement process. CDB also engages in co-financing of projects, whether it is for various discreet components or shared financing of a component. So why settle for 7.15% p.a. from FCB instead of negotiating 5.5% p.a. with CDB in whole or in part?

The Chairman of Lucelec, Mr. Marius St. Rose, informed the meeting of shareholders of the following:
(a) There was urgency in securing the finance to commence the capital programme, and
(b) the 7.15% p.a. accepted rate was fixed for the 15 year period.

My response was that bridging finance is always an option for dealing with urgent situations and that CDB provided retroactive finance i.e. accommodated financing the cost of eligible project items purchased prior to CDB’s approval of the project loan. Also, CDB’s rates, while not fixed, have been steadily decreasing over the years and this pattern did not suggest future increases. I could have added that the urgency may have resulted from tardiness in Lucelec’s planning process and CDB may lower not increase an agreed lending rate. I could have also added that the Bank of Saint Lucia (BOSL) could have provided the bridging finance.

Excluding refinements such as commitment fee etc; the differences in interest for 7.15% p.a. and 5.5% p.a. for 15 years for loans of US$30, 15 and 10 million (mn) based on a declining balance are about US$5.0 mn (equivalent EC$13.5 mn), US$2.4 mn (EC$6.5 mn) and US$1.6 mn (EC$4.3 mn) respectively. Obviously, the higher interest payments would impact adversely on the cost of electricity to the consumer. Private and commercial consumers, including the St. Lucia Hotel and Tourism Association, and members of the St. Lucia Chamber of Commerce, Industry and Agriculture have been complaining about the high cost of electricity. In addition, reductions in interest payments would be in the national interest.

My final point at the Lucelec Annual Meeting of May 22, 2004 was that BOSL was not participating in the deal.

Forward to the Annual Meeting on May 27, 2004 of East Caribbean Financial Holding Company Limited (ECFH) of which BOSL is a subsidiary.

I expressed the view that Lucelec and ECFH are “sister” companies because
(a) they have interlocking directorships (the Chairman of Lucelec is, inter alia,
the Managing Director of ECFH, Chairman of one of its subsidiaries and Director
of five subsidiaries); and Miss Emma Hippolyte is, inter alia, Director of Lucelec,
Chairperson of an ECFH subsidiary and Director of four ECFH subsidiaries), and

(b) the Government of St. Lucia (and quasi-Governmental institutions such as the National Insurance Corporation) has substantial holdings in both companies which it was holding in trust for the citizenry of St. Lucia. Castries City Council owns 16.33% of the Lucelec shares.

The official explanation given by the Board for BOSL’s non-participation in the deal is that bids were invited for the financing and that the bid of FCB was the most attractive at 7.15% p.a. with BOSL offering 7.25% p.a. The difference of 0.1% between the two interest rates is miniscule, if not negligible. A preferred bid should be the lowest evaluated (my emphasis). A reduction in interest payments would be a criterion for such an evaluation including the consideration that interest payments may be made locally not externally.

I do not appreciate why it was necessary for the financing to be put out to bid. The Chairman of ECFH refers to the company as “the nation’s bank” (page 11 of the Annual Report 2003). Elsewhere, it is referred to as “the largest indigenous financial institution in Saint Lucia.” Given the interlocking directorships and the substantial national interest reflected in shareholding, why wasn’t a deal negotiated with Lucelec? On page 11 of ECFH Annual Report 2003, the Chairman states that “the liquidity levels remained high throughout the review period (2003), a situation that was compounded by a reduction in the number of lucrative investment prospects available locally” (my emphasis). The reference to high liquidity recurs in the Annual Report. The Managing Director states on page 19:

“This achievement was attained in a very competitive business and banking
environment where increased savings and reduced borrowings led to
liquidity management challenges (my emphasis) in an operating medium
that was, and still is, characterized by reduced interest rates on both loans
and investments and where global factors, contributing to domestic,
economic difficulties posed serious threats to portfolio quality.”

“The net loan portfolio recorded a small negative growth of 1%, due mainly to reduced number of bankable projects during the year and increased competition in the domestic market.” (Page 26)

“Liquidity was relatively high for the Group throughout 2003.” (Page 26)

“The negative growth of the loan portfolio resulted in a significant amount of excess funds that were placed in regional securities and various earning deposits at other banks.” (Page 26)

Why keep this liquidity where it is not earning significant income or contributing to national development?

In a brief section on Development Banking, the ECFH Annual Report 2003 states on page 41:
“The Bank remains committed to granting loans for development purposes
thus promoting economic development despite the volatility and high
risk associated with the sector. In 2003 the portfolio experienced an 8%
expansion over 2002 and stood at $214 million at the end of the period.
The rate of growth of this portfolio was restrained as the Bank undertook
to provide such loans in partnership with international finance institutions
as a means of diversifying the risk. Thus the amount shown here is
understated and not a true reflection of the Bank efforts in this regard.”

We can say with certainty that there is very low risk in financing development in Lucelec which not only enjoys a monopoly but is guaranteed under the St. Lucia Electricity Services Act a rate of return on investment. The Report shows that at December 31, 2003 there was no investment by ECFH in the power sector of St. Lucia.

As the Management Information Circular submitted to shareholders stated with respect to the amalgamation of National Commercial Bank of Saint Lucia and The Saint Lucia Development Bank, an advantage arising from the merger would be that “the much larger capital base will allow the merged institution to make much larger loans than any one of them could have done independently and in so doing would also reduce the current over exposure problem that currently exists with one of the institutions.”

I remain not satisfied with the explanations given at the Annual Meetings of Lucelec and ECFH on May 22 and May 27, 2004 respectively with respect to financing arrangements for Lucelec’s capital expansion programme.

The Commonwealth Development Corporation (CDC) owned 44.87% of Lucelec’s ordinary shares. The Weekend Voice of 17 April 2004, through a release from the East Caribbean Stock Exchange (ECSE), reported that CDC sold two million, two hundred and forty thousand (2,240,000) of its shares (representing 20% of the ordinary shares of Lucelec) directly to the Caribbean Basin Power Fund St. Lucia Ltd (CBPF). No significant information has been released to the St. Lucia public about CBPF, a major investor in a monopoly utility which underpins the economic and social conditions of the country.

In his introductory statement to the Annual Meeting of Lucelec of May 22, 2004, the Chairman informed shareholders that CDC was negotiating the sale of an additional 20% of the company’s shares from its holding to an investor who was not identified. The St. Lucia press (the Star of June 23, 2004) reported that CDC sold two million two hundred and forty thousand (2,240,000) shares, representing 20% of the company’s shares, directly to the First Citizens Bank Limited of Trinidad and Tobago.

___________________________

Concern About Financing Lucelec's Development appeared in the Crusader newspaper in St. Lucia on July 31, 2004.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

TREATMENT OF MINUTES BY TWO PUBLIC COMPANIES IN ST. LUCIA

2007-08-30T15:00:00.000-07:00

By STANLEY FRENCH

There are four companies in St. Lucia which became public viz. St Lucia Cooperative Bank Limited (1937)/renamed 1st National Bank St. Lucia Limited with effect from January 1, 2005 (`1st National), Windward and Leeward Brewery Limited (WLB - 1974), St. Lucia Electricity Services Limited (Lucelec - 1996) and East Caribbean Financial Holding (ECFH - 2001). Lucelec and ECFH have adopted the practice of not placing consideration of minutes for errors and omissions and matters arising on their agendas. Lucelec did so from 2004 and ECFH from 2002. The Shareholders of 1st National voted at a special meeting in 2004 to retain the company’s practice of consideration of minutes and matters arising on its agenda for its shareholders’ meetings. Lucelec and ECFH are therefore the two public companies relevant to this discussion.

The starting point must be the Companies Act No.19 of 1996 (the Act) of the independent state of Saint Lucia. Section 112 of the Act states the following:

(1) All business transacted at a special meeting of shareholders, and all business transacted at an annual meeting of shareholders, is special business, except –
(a) the consideration of the financial statements;
(b) the directors’ report, if any;
(c) the auditor’s report, if any;
(d) the sanction of dividends;
(e) the election of directors; and
(f) the re-appointment of the incumbent auditor.

(2) Notice of a meeting of shareholders at which special business is to be transacted shall state :
(a) the nature of that business in sufficient detail to permit the shareholder to form a reasonable judgment thereon; and
(b) the text of any special resolution to be submitted to the meeting.

Section 114 of the Act states that a shareholder of a company who is entitled to vote at an annual meeting of the shareholders may
(a) submit to the company notice of any matter that he proposes to raise at the meeting , in this Division referred to as a “proposal”; and
(b) discuss at the meeting any matter in respect of which he would have been entitled to submit a proposal.

Section 115 of the Act provides for a proposal by a shareholder to be submitted to the company at least 90 days before the anniversary date of the previous annual meeting of shareholders. However, the Board of Directors has the authority to submit any matter to the company as special business by simply placing it on the agenda which is required to be sent to shareholders with notices for a meeting “not less than 7 days nor more than 30 days before the meeting”. It must be noted that the Act does not stipulate that
(i) confirmation of minutes, and
(ii) matters arising from the previous meeting
cannot be considered. However, it is clear that these two items, and any other, can be included on agendas as special business.

The Board of Directors of Lucelec, it seems to me, understood this. The first annual meeting of Lucelec was held in 1995 and the most recent in 2005. For annual meetings between 1995 and 2002, the first two items on the agendas read as follows:
(1) To confirm the Minutes of the (number as applicable) Annual Meeting (date as applicable).
(2) Matters arising out of the Minutes.

However, items 1 and 2 were stated on the agenda for AM 2003 as follows:
(1) To consider as special business (my emphasis) and if thought fit, pass by Ordinary Resolution the confirmation of the Minutes of the thirty-seventh Annual
Meeting of Shareholders of 4th May 2002.

(2 ) To consider as special business (my emphasis) and if thought fit, by Ordinary Resolution the confirmation of the Minutes of the Special Meeting of
Shareholders of 7th August 2002.

(3) To consider and confirm by Special Resolution (my emphasis) the By-Law No.1 of St. Lucia Electricity Services Limited and to repeal by Special Resolution (my emphasis) the Articles of Association of St. Lucia Electricity Services Limited.

Alas, for AM 2004, the Board of Lucelec unilaterally discontinued the practice up to 2003 of considering minutes and matters arising and the agenda was changed for the first time as follows:
(1) To consider and adopt the Directors’ Report.
(2) To consider and adopt the Auditors’ Report and the Financial Statements for the year ended 31st December 2003.
(3) To re-appoint the incumbent auditor.
(4) To approve a final dividend in respect of the year ended 31st December 2003.
(5) To elect directors.
(6) To transact such other business as may be properly brought before the Meeting.

It is to be noted that matters arising are to be dealt with under item (6), the final stage of a meeting, which seems to me that the horse is being hitched after the cart. It also seems to me to be a token concession to the following statement in paragraph 536 on page 140 of The Administration and Conduct of Corporate Meetings by the Barbadian, Grenville Phillips, the first book on the subject from the Eastern Caribbean :

“Shareholders are however entitled to reasonable access to non-sensitive corporate data, to ask questions at annual meetings concerning the affairs of the company and to receive replies to general questions concerning any aspect of the company’s business.”

The Chairman of Lucelec informed the 2004 meeting that the agenda was in conformance with the provision of the Act. However, this is incorrect because Section 112 of the Act allows the company “to transact such other business as may be properly brought before the Meeting” only as special business. However, agenda items (1), (2) and (3) for AM 2003 stated above are also in conformance with the Act because they are identified as special business. Therefore, conformance can depend on the tactical choice of a Board.

Let us consider the agenda for AM 2004 of ECFH which was as follows:

1. To receive the address by the Chairman to Shareholders
2. To receive the Management Report
3. To receive the Reports of the Auditors and the Directors, and to consider the Audited Financial Statements for the Year ended December 31, 2003
4. To announce (my emphasis) Dividends for the 2003 Financial Year
5. To appoint Auditors and Authorise Directors to fix the remuneration of the appointed Auditors
6. To transact any other business as may be properly brought before the meeting

Item 4 above does not recognize that section 112 of the Act stipulates the sanction of dividends and substitutes announcement. Following from the above, item 6 is unacceptable because it is not stated as special business. Prior to AM 2003, item 1 allowed the ECFH Chairman to read his address to the annual meeting in the presence of the press and the electronic media (a photo and publicity op for news bulletins) but since the address is presented verbatim in the Annual Report, shareholders objected to the unnecessary reading of the printed address and associated time wasting and agreed to take the address as read. At AM 2004, I objected to items 1 to 3 being listed as ordinary business on the simple premise that Section 112 of the Act provides for one “Directors’ Report, if any”, but the Chairman disallowed my objection.

In my article entitled A Flawed Merger which was published in the Voice newspaper of 22 April 2004, I stated that at AM 2003 a shareholder drew attention to a serious flaw in the selected minutes for AM 2001 of the National Commercial Bank (NCB) which were sent to shareholders for information only. The minutes stated incorrectly that the “agreement (for amalgamation of N C B and St. Lucia Development Bank) had been made available to all shareholders.” In my view, this was not in compliance with the provisions of the Act with respect to the amalgamation of companies. As a result of the shareholder’s revelation, the Board issued an “AMMENDED” (sic) version of the erroneous minute. The “ammended” version stated that “the said terms and conditions were contained in the Management Information Circular which had been made available to all shareholders.” The original version was distributed to all shareholders but, as the Chairman of ECFH stated, the “ammended” version was sent only to shareholders who had subsequently requested it. I requested that I be sent a copy of the amalgamation agreement but was instead sent a copy of the agreement and the “ammended” minutes which I did not request. I know of only one other shareholder who received a copy of the agreement and the “ammended” minutes. It is to be noted that the major error was identified by a shareholder in AM, not by the Board or Secretary of ECFH. At ECFH AM 2003, I requested that consideration of the minutes be included on the agenda but the Chairman disallowed my request.

In a document entitled Conduct of Corporate Meetings submitted to shareholders under cover of a letter dated 4th January 2000, the Board of Lucelec decreed that minutes would henceforth record decisions, conclusions and the main points arising out of discussion of important matters. I have no major difficulty with that, except that what is important for one shareholder may be trivial for another. I also expect the decree to be honoured more in the observance than the breach. How can this be ensured when all shareholders who attend a meeting are not allowed to comment on the accuracy of minutes?

How can minutes be acceptable when they are not laid before the court of shareholder opinion? How can minutes be approved ex-cathedra by a Board of Directors and be acceptable in a court of law? What does freedom of association mean if freedom of expression is denied? How can the Eastern Caribbean Central Bank, in carrying out its function of regulation of banks, accept as legitimate selected minutes which have not been authorized by shareholders? Are there not examples of questionable minutes being approved by Boards? How can one entrust the correctness of minutes to the management of a company which would accept proxies on the day of an Annual Meeting because the notice for that meeting was sent woefully late to shareholders?

A list of examples of questionable conduct by Boards can be compiled to convince the man on the Gros Islet minibus that it is unreasonable and unacceptable to allow unfettered control of the accuracy of minutes by Boards and thereby foster dictatorship by such Boards. Minutes of shareholders’ meetings submitted by Boards are in my view merely draft until shareholders attest to their accuracy and acceptability.

While practice in foreign institutions may be considered, it should not be imposed on local institutions especially when it serves no useful purpose and conflicts with other local laws, practice and conventions. In St. Lucia, which celebrated its twenty-seventh anniversary of Independence in 2006, there has been a convention for at least some one hundred years that corporate and other agendas for meetings provide up-front for the consideration and acceptability of minutes by the identification of errors and omissions and consideration of matters arising.

There is no basis on which the consideration of minutes for accuracy at a meeting can be inimical to the governance of a company. On the contrary, it can be beneficial. No rationale has been offered for the exclusion of the consideration of minutes from agendas. A common justification by Boards for the exclusion is that shareholders’ meetings are shortened in length. Yet, at the end of such meetings, directors lime in the foyers partaking of refreshments, a corporate blocko if you will, and wasting time which would be best utilized in formally extending the discussion of corporate matters. The annual meeting seems to be one of the occasions which Boards must suffer and deal with in a skeletal and perfunctory manner, and as if non-financial matters are irrelevant. There is no prescription as to how long a shareholders meeting, which happens once a year for the benefit of all shareholders, should be. The duration of such a meeting will depend on its content and is sometimes determined by the manner in which the Chairman moderates discussion of the matters raised. It is worthwhile to repeat here the above quotation by Mr. Phillips.
“Shareholders however are entitled to reasonable access to
non-sensitive corporate data, to ask questions at annual
meetings concerning the affairs of the company and to receive replies
to general questions concerning any aspect of the company’s business.”

Some company officials justify the practice that shareholders (meaning minority or malayway shareholders) are not allowed to consider minutes for errors and omissions because such is not the practice in some advanced business cultures. I dare say that a foreign investor would decline to invest in a St. Lucian company because of inadequate financial returns, current or projected, and not the consideration of minutes for accuracy and matters arising at a shareholders’ meeting.

There has been the suggestion that the minutes should be issued by the company to all shareholders shortly after the relevant meeting, say within one to two months, and the shareholder can submit comments to the Secretary. This is a potentially burdensome exercise which can only lead to the frustration of minority shareholders who can orally comment and exchange comments with ease within the collective environment of a meeting. It also means that minority shareholders are required to do the work of the management of a company which they own. It is presumed contemptuously that minority shareholders forget what was said a year before even though the Annual Report under discussion provides blank pages for note taking.

In the Government Information Press Release attached to the Saint Lucia Government Gazette, Vol. 173, Issue 26, dated June 28, 2004, the minutes of the 2003 bi-annual meetings of the National Emergency Management Advisory Council and the National Emergency Management Organisation held on August 15, 2003 were presented. The agenda for the meetings included (iii) Errors and Omissions from Minutes of July 27th, 2003, (iv) Confirmation of Minutes and (v) Matters Arising. The Chairman of the meetings was the Prime Minister of Saint Lucia.

In the document entitled Conduct of Corporate Meetings referred to above and issued to shareholders under cover of a letter dated 4th January 2000 as a guide to shareholders for the conduct of meetings, the sources stated for the document were
(i) the Companies Act, No. 19 of 1996;
(ii) Roberts Rules of Order; and
(iii) The Administration and Conduct of Corporate Meetings
by Grenville Phillips.

The Companies Act is silent on the correction or alteration of minutes. Robert’s Rules of Order, the classic work on the procedures of parliament and other assemblies, provides for the correction and approval of minutes at meetings in considerable detail. Robert’s describes minutes distributed to shareholders as draft which are final and authorized only after correction, if any, and approval at shareholders’ meetings.

Phillips describes the minutes approved by the Board of Directors, signed by the Chairman and Secretary and distributed to shareholders as original which version cannot be altered. However, “the correction or alteration must be dealt with as a separate matter at a later meeting and should be minuted accordingly. The new minutes should make reference to the incorrectly recorded item or to the amended decision with reference to the matter previously dealt with at the prior meeting” (page 133). How is this possible if there is no heading on the agenda for the consideration of the minutes?

The Law should sometimes be used as a shield, not a sword.

___________________________

Treatment of Minutes By Two Public Companies In St. Lucia appeared in two parts in the Mirror newspaper, St. Lucia on April 21 and 28, 2006.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

FOR WHOM THE POLE TOLLS

2007-08-30T14:56:00.000-07:00

By Stanley French

I owe an apology to John Donne, the English 16th to 17th century poet, for the title of this article because of his lines which follow and have been immortalized:
“Don’t ask for whom the bell tolls,
It tolls for thee.”

For about eight years, I have been expressing my concern about the hazards associated with the dangerous placement of poles by utility companies on St. Lucia’s roads. I brought it to the attention of shareholders of St. Lucia Electricity Services Limited (LUCELEC) at the company’s annual meeting in 1999. In my memorandum submitted to the Review Commission of LUCELEC in March 2000 and in newspaper articles in 2003 and 2004, I dealt with the matter. In my submission to the Commission, I stated the following:

“My concern is with respect to the safety of the public. A large number of Lucelec’s poles have been installed on the shoulders of roads and close to the edge of the carriageway. Shoulders are provided for vehicular traffic, including the use of their space for manoeuvre in dangerous situations. These poles are potential death traps, especially on the island’s main/arterial roads where speeds are higher than on lower class roads (my emphasis).

LUCELEC’S main concern with respect to poles damaged by vehicular traffic, as borne out by discussion at AGM (Annual General Meeting) 1999, has been about
(a) recovery of the cost of replacing the damaged poles from motorists’ insurance companies,
(b) loss of revenue to LUCELEC through loss of electricity, and
(c) the cost of damaged poles being passed on to the consumer.

However, there can be cases where road users suffer damage and loss as a result of the dangerous placement of poles.

Apart from the conspicuous danger to road users, there is the cost to the taxpayer through the Government of St. Lucia (GOSL) of the relocation of such poles where GOSL has to widen roads to, inter alia, accommodate increased traffic. At AGM 1998, in response to my question, the Board informed Shareholders that if such poles have to be relocated, the taxpayer (GOSL) and not LUCELEC must meet the cost though the poles are within the corridor which is the road reserve and is the property of GOSL.

Poles should preferably be placed on the extremity of the road reserve. Where this is not practicable, appropriate engineering and legal criteria should prevail. The location of the lighting standards on the Millennium Highway is in my view commendable.

Generally, there is a lack of protectors on the guy wires/ stays which support poles. The naked guy wires are hazardous to pedestrians, road users and others.
It is recommended that
(a) the relevant GOSL agency prescribes minimum distances from the edge of the carriageway for the location of poles by all utilities on various classes of road;
(b) where (a) is not achievable, appropriate measures be taken to reduce the direct impact of vehicles on poles; and
(c) guy wires be continuously provided with protectors.”

The Commission did not address the issue. I observed the installation of LUCELEC poles close to the road carriageway/travelway on an island main road as recently as September 2003.

The cost of relocation of poles resulting from widening of the main road in the Cul De Sac-Odsan area is presently being met by GOSL.

Also, the recovery of the cost of damaged poles from motorists’ insurance companies can be seen as grandstanding for minority shareholders. The loss of revenue to LUCELEC through loss of electricity and the cost of damaged poles are likely being passed on to the consumer who is always the sucker.

A friend who is aware of my strong disapproval of the dangerous location of utility poles sent me photographs of a confrontation between a motor vehicle and a LUCELEC pole on the Gros Islet main road in the vicinity of the Gros Islet Polyclinic. The accident occurred on January 29, 2006 and the photographs were taken on that day. The photograph is interesting because it captures five features of our roads i.e. the utility pole, the guy wire to the pole, the road sign nearer to the carriageway than the pole, the speed hump (sometimes called sleeping policeman) and growing roadside vegetation.

Whatever caused the car in the photograph to veer off the road, it is clear that the electricity pole in the road shoulder has caused the damage to the vehicle. It is to be noted that part of the vehicle is still on the asphalted carriageway after a head-on collision with the pole. While it is clear that significant damage was done to the vehicle, I do not know what effect the impact had on the passenger(s).

Vehicles are involved in accidents for a multiplicity of reasons which cannot be foreseen and include dangerous driving, avoidance of dangerous driving and unexpected ailments such as strokes and heart attacks. Some of the causes of accidents are created by institutions responsible for the road network. For example, speed humps/sleeping policemen are the same black colour as the asphalted roads because the paint to highlight them is not affordable. Road signs are not visible because they are covered by trees which are not trimmed.

A major responsibility of road planners must be the safety of road users, be they motorists, cyclists or pedestrians. Too many factors threaten the safety of road users in St. Lucia and too much lip service is given to the matter. Road users should not, a priori, be judged and condemned for their difficulties. This is dangerous and “holier than thou”. The emphasis in dealing with safety should be preventative and not corrective. I would not dare suggest what got the driver in the difficulty which resulted in the accident captured in the photograph.

Apart from killer utility poles, commercial advertising panels are indiscriminately and illegally planted in road shoulders. These panels are also dangerous to motorists.

The island’s roads are aligned by these tall, robust crosses on which road users/vehicles are periodically impaled. It is touching to see the regularly refreshed bouquets affixed to the poles, elevated to the status of shrines, at which loved ones were written off.

Speculation is possible about the reasons for the installation of utility poles in locations where they are potential death traps.

___________________________

For Whom The Pole Tolls appeared in the Mirror newspaper in St. Lucia on April 7, 2006.

This article is copyrighted. This document may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable.

Main Types of Investments Available in the Jamaican Market

2007-08-26T03:36:00.000-07:00

An Overview of Jamaican Investment Types
(adapted from a Presentation originally prepared on March 17, 2007)

Main Investment Types:

Fixed Income (CDs, Bonds)
Equities (Stocks)
Alternative Assets

Definition - Fixed Income Instrument:
A fixed income instrument (bond, money market paper, marketable debt instrument) is an obligation for which the issuer promises to pay the holder a specified amount of interest on specific dates for a specified length of time and to repay the amount borrowed (principal amount) on a specified date(s).

Example: Fixed Income Security
Variable Rate Local Registered Stock (LRS) debt instrument:
Issuer: Government of Jamaica
Coupon Rate: 10% per annum
Tenor: 10 years
Interest payment: Quarterly on Mar 31, Jun 30, Sep 30, Dec 31.
Principal repayment: Annually in equal installments.
Terms: Unsecured
Example: Fixed Income
Principal amount invested: J$50,000
Cash flows received:
End of Q1: $1,250 (50,000*10% /4)
End of Q2: $1,250
End of Q3: $1,250
End of Q4: $6,250 (50,000/10 + $1,250)
End of Q5: $1,125 (45,000*10% / 4)
Etc.…

In computing the return in the above example, withholding taxes (currently 25% of the interest earned) are ignored for the purpose of simplicity. Withholding taxes would reduce the net interest earned and net percentage return to the investor. Non-taxable vehicles exist which can mitigate this tax impact. Also, non-Jamaican investors can apply to the Ministry of Finance regarding removal of the withholding tax deduction from relevant investments.

Fixed Income Investments are issued locally by:

Government of Jamaica:
Bank of Jamaica:
[http://www.boj.org.jm/]
Corporations

These investments are available to the local and overseas investing public through Jamaican licensed financial institutions.

Financial Institutions also issue their own "proprietary" fixed income instruments, such as:

Certificates of Deposit (CD) (i.e. a simple placement of funds with a financial institution the terms of which are evidenced by a 'certificate' issued to the investor; for example, placement of US$10,000 for 6-months with Safe & Sound Financial Services at 6% p.a.).

Repurchase Agreement (Repo) (i.e. an investment which represents an interest in underlying securities so that in the event of default by the issuer there exists collateral which the investor can claim to fully or partially attempt to recover her funds; for example, X Financial J$100,000, 12-month repo agreement secured by a $120,000 GOJ T-bill).
Structured Notes (i.e. a note with special features; for example, a principal-protected USD note that gives the investor a return equal to the greater of the percentage gain in the S&P 500 over the period or 0%).

Characteristics of Fixed Income Instruments:

Income (cash flow) is generally predictable (as suggested by the name) once the issuer does not default.
Value does not appreciate (if bought at issuance and held to maturity). If sold ("broken") before maturity a loss or gain may be incurred/made by the investor.
Available in small & large investment amounts.
Available in LCY & USD (& EURO).

Fixed Income Instrument Summary:

Pros

Changes in interest rates, foreign exchange rates, etc will not reduce principal amount if held to maturity.

Provides regular income (via interest). Zero-coupon bonds and some bonds/notes with complex or custom features are exceptions.

If the issuer goes bust (bankrupt) debt-holders rank ahead of equity-holders in terms of rights to receive pay-out from any funds available from the liquidation of the company's remaining assets.

Cons

If the issuer goes bust, the entire principal can be lost (this can happen with any type of borrower even a government).

Inflation (increases in living costs) may outpace the fixed income received.

Withholding cost is applicable and deducted unless you apply and prove that you are not subject to the Jamaican withholding tax (current rate: 25%, applied to the interest earned).

Definition - Equity Instrument:
An equity instrument (stock or share) is issued by Corporations and gives the owner a share of or interest in the ownership of a corporation in return for the potential of dividend income and appreciation in the value of the shares. The equity-holder's liability or potential for loss is limited to the amount of her investment (including transaction costs). The value of a company's stock over time is significantly determined by its earnings (i.e. profitability). Factors such as the standard of Corporate Governance (the integrity of the company's accounting and reporting, management processes, and leadership), the quality of products and services, and the level of the dividend are also company-specific factors that may influence the stock price.

Example: Equity Security
Scotia Group Jamaica common stock:
Issuer: Scotia Group Jamaica Limited
Exchange listing: Jamaica Stock Exchange
Price per share: $25.10
Dividend per share: $0.35
Example: Equity Security
Principal amount invested: J$50,000 (2000 shares at $25 per share)
Gain (loss) as at different points in time:
End of Q1: $0 Gain (share price $25 versus original $25)
End of Q2: $2,000 Gain (share price $26 versus original $25)
End of Q3: $10,000 Loss (2000*$20 – 2000*$25)
End of Q4: $6,000 Gain (2000*$28 – 2000*$25)
End of Q5: $10,000 (2000*30 – 2000*25)
NET GAIN as at Q5 : $10,000

The net gain changes daily depending on the closing share price.

In computing the gain dividends are ignored for the purpose of the above example. To turn a gain into cash, the share holder could sell some of his/her shares via his/her stock broker. Stock-brokerage commissions and charges would be incurred. These charges are also ignored in this simplified example. For a discussion of transactions and charges in the Jamaican stock market please refer to the blog posted previously on August 24, 2007.

Equity Summary:

Pros

Share prices can increase significantly over time thus equities can be a solid wealth-building tool.

Returns (the increase in share prices plus dividends) usually keep-up-better with the rate of inflation (than fixed-income returns) over the medium to long term.

Cons

The share price can decline. It is possible to lose a part or all of the amount invested.
Many stocks pay little or no dividend, and hence do not provide an automatic, steady source of cash income.
Changes in interest rate outlook, economic factors, business confidence, industry developments, etc. can negatively affect share prices.
Unpredictable income stream.

Alternative Assets Summary:

I will not delve in detail into the area of alternative assets here. In this overview, I will simply point out that there are other investment categories that are available to investors to supplement the fixed income and equity types. Alternative investments include:

Real estate

Commodities

Currencies

Investing in one of those asset types directly would be the direct or 'pure play' approach. Another option is to gain exposure to these areas via the equities one invests in or via mutual funds focused on particular sectors.

Typically alternative investments are added to portfolios for the following reasons:

because they move counter to other investment classes in a portfolio and thus their negative correlation may begin diversification benefits;

because they tend to be higher-risk and therefore higher-return investment types, and thus provide the potential for the investor gain great purchasing power protection in her portfolio.

as a tactical decision, because the asset class is deemed to have the potential to out-perform for a finite period

Summary of Key Characteristics of Fixed Income & Equity investments:

Life cycle - What stage are you at?:

Pre-adulthood: Clueless stage - "Investment…what investment!!! Is that a new clothing line?"

(Age) 20s-30s: Saving & borrowing to fund aspirations, such as home-ownership and purchasing a car stage - Wise to incur only 'good debt' (debt for assets that appreciate and/or throw off income) and avoid 'bad debt' (debt for consumer purchases). Pay cash for consumer items as much as possible and manage credit cards wisely (pay more than the minimum).

(Age) 40s: Wealth building for asset accumulation, funding children's education, and retirement stage - Equities are usually recommended by advisers as an important part of the portfolio at this stage. Real estate can also be a valuable inflation hedge.

(Age) 50s: Portfolio building for retirement stage. A retirement plan should be in place. There should be a clear understanding of how the employer's pension plan works and the contribution to the employers pension plan should be looked at (maxed if possible assuming the plan is a good one). Supplemental investments should be built to at least achieve a future monthly income commensurate with an acceptable post-retirement standard of living.

(Age) 60s & beyond: Retirement stage. Investments are now being drawn down at a sustainable rate. Key need is income (steady portfolio income), so volatile and non-income producing assets are reduced as a percentage of the portfolio.

The above is a generic approach the main aim of which is to provide you with food for thought.

Suggestions Regarding Approaching Investment Research:

Equity

Research the issuers financial performance, business strategy, dividend policy, and be comfortable with the management’s capability/integrity.

Consider the investment case for companies whose products you like and use daily. Complexity does not equal profitability - sometimes you hold in your hands while making breakfast hints regarding good companies to invest in!

Look at the past volatility of the share price to see if you are comfortable with the level of volatility.

Use for investment goals with a medium to long term time frame.

Review investments periodically. If the reason you invested still holds, consider staying with the stock. If not - especially if the investment is making a loss - be decisive and sell.

Do not trade to frequently (relax, remember Rome was not built in one day … or one year!)

Don't follow the crowd blindly!

Fixed Income

Check out the issuers credit risk rating, business outlook & repayment history.
Estimate expected inflation over the tenor of the instrument and seek investment with a coupon that will exceed this.
Think about the time frame over which you can afford to invest the funds. This should be consistent with the purpose of the investment.
Consider the currency that best suits your investment purpose. For example, maybe you have all LCY investments and a bit of USD and/or Euro denominated investments would be useful to hedge FX changes over the medium to long-term.

General Suggestions Regarding Managing your Investments:

Balance: Both equities and fixed income investments can play a valuable role. Generally the younger the person, the more weighting towards equities.
Diversification: Especially for equities consider not making any single investment dominate your portfolio.
Risk: Decide how much risk you are comfortable with (not your friend … you!)
Tracking: Keep records. Know your return. Know your Account Rep. Ask questions. Stay involved and be the ultimate decision-maker.

General Suggestions Regarding Financial Management:

Estate Planning: Always have a will in place!

Peace of Mind: Try to avoid borrowing against your primary residence once you have paid off your original mortgage.
Legal Ownership: If you are contributing to paying for an asset, then your name should be on the title/certificate. Always keep copies of the proper documentation evidencing this.
Decisions: When in doubt (about an investment, signing a document, etc) sleep on it. Never rush a decision that will have long-term consequences when you do not feel comfortable.

Some places to consider beginning your journey:

Dividend-paying blue chip stocks: Established (blue chip), dividend paying stocks seem especially compatible with long-term goals and retirement planning.
Low-cost Mutual funds or Managed Portfolios: If you don’t have much time to research stocks/investments yourself then find a low-commission mutual fund. (Pay attention to the fees charged, and the holdings comprising the portfolio).

THE END

YOUR FEEDBACK AND QUESTIONS ARE WELCOME
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Unless stated otherwise amounts referred to are Jamaican dollars (JMD).

This commentary may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable but the accuracy of the information is not guaranteed.

Transaction costs in the Jamaican Equity Market

2007-08-24T10:12:00.000-07:00

Equity markets can be one of the most effective avenues through which individual investors can both contribute to and benefit from the economy. Truly well organised, transparent, and efficient equity exchanges offer small and large investors alike the opportunity of:

building wealth and satisfying future financial needs, such as retirement;

diversifying their investment allocations and thus mitigating against future volatility in any asset class;

being more connected to economic and corporate governance in their community & country via actual and perceived involvement;

having greater independence, for investors with the time and interest in following the market themselves, in managing their financial affairs.

The Jamaica Stock Exchange (JSE), established in 1968, has been in operation for almost 40 years and is the most active stock exchange in the English-speaking Caribbean. The exchange is a private limited liability organisation that is owned by its members. The members of the exchange are the stock-brokers that have bought a 'seat' (or right to trade) on the exchange. With the establishment of the Financial Services Commission (FSC) any financial trading exchange in Jamaica is required to be approved by the FSC. JSE has such approval.

The number of stock-brokers operating in the Jamaican equity market has grown to eleven (11)as at August 2007. Most of the stock-brokerages are affiliates of the larger financial groups. Just under half of the brokerages entered the business in the 1990's.

Despite the growth in the number of stock-brokers and the addition of newer players, the transaction costs that the ordinary individual investor is charged for equity transactions by brokers in the Jamaican market remain high. Also, interestingly each of the brokers generally impose the same level of charges, and these charges have been stagnant for some time. The charges for equity trades are, with amazing consistency, the greater of 2% of the transaction value or $500, plus a JSE trade fee of $110, plus a JCSD cess of 0.19625%. GCT is added to these charges. The only material variation in commission among the equity brokers is in the case of Victoria Mutual Wealth Management which charges $300 commission for transactions under $15,000 and 1.5% commission for transactions involving amounts $1,000,000 or more. Several of the brokers indicated that better pricing was available for large clients such as institutions and very high net worth investors.

In markets just a 2 hour flight or 5-second internet connection away, brokerage commissions of US$9.95 are available with access to an enticing list of real-time statements, market pricing, research and investment screening services. That's a flat commission of US$9.95 for a transaction with a value of US$50 or with a value of US$5,000. Since the US market deregulated transaction pricing and it has witnessed the growth of new niches in the industry and a tremendous explosion in participation by investors from all walks of life in the market. This has contributed to market depth and also sophistication.

In addition to exceeding the lower commissions of many brokerages in the U.S. and Canada, (based on a small sample) the commissions in the Jamaican industry appear to exceed the commissions in other English-speaking Caribbean islands. Also, of interest in the comparison is that Trinidad's TTSE equity trade transaction fee (0.15%) is lower than the corresponding JSE/JCSD (0.19625%) fees imposed, and Trinidad does not charge a value-added tax (VAT, which in Jamaica's case is the 16.5% GCT) on equity trades. Lets look at the dollar and 'sense' impact of the transaction cost structure.

For example, if you purchase on the JSE 100 shares of a company whose share price is $20, then you would pay in addition to the $2,000 cost of the shares, $500 in commission, plus a $110 trade fee, plus cess, for a total transaction cost on the purchase of $715. The cost of the purchase leg of the transaction would then represent 26.3% of the total transaction amount (including fees & cost). So assuming you will eventually sell the shares and thus incur a second set of transaction costs on the sale, if you are a small investor seeking to accumulate shares over time you would need the shares to experience a 72% increase just to break even on this transaction. For a transaction of a similar value via an online US brokerage you would pay a flat US$9.95 commission which would be 25.6% of the transaction value.

Let's use a larger transaction size. If you purchase 1,000 shares of a company listed on the JSE whose share price is $25, then you would pay in addition to the $25,00 cost of the shares, $500 commission, plus $110 trade fee, plus cess, for a total charge of $768. The cost of the transaction would then represent 3.0% of the total amount of the investment (including transaction costs). So if you are a small investor seeking to accumulate shares over time you would need the share to experience a 6% increase just to break even on the transaction. For a transaction of a similar value via an online US brokerage you would pay a US$9.95 commission which would be 2.7% of the transaction value.

If you purchase on the JSE 5,000 shares of a company whose share price is $25, then you would pay (in addition to the $125,000 cost of the shares) $2,500 commission, plus $110 in trade fees, plus cess, for a total charge of $3,326. The transaction costs would represent 2.6% of the total amount (including transaction costs) of the investment. In this case your just purchased shares have to appreciate in value by over 5.5% before you begin to have an incremental gain given the costs associated with the purchase and sale legs. To put this 5.5% in perspective, a 5.5% return on $125,000 compounded monthly over 5 years would result in the original $125,000 growing 76% to $164,463 by the end of the period. For a purchase transaction of a similar value via an online US brokerage you would pay a US$9.95 commission, or just 0.55% of the transaction value.

As you can see, the relationship between transaction cost and potential return improves dramatically for the US case as amounts inch up, whereas the lower to middle income investor in Jamaican equities faces a significant percentage deficit as a result of the impact of the transaction costs, even for a respectable transaction amount such as a transaction between $100,000 to $200,000.

The typical trends reflective of a competitive and developing market for any product generally include:

price reductions as the number of participants increase (the computer hardware market is an excellent example of this),
service providers absorption of regulatory and other unavoidable costs within their pricing rather than passing these on the the consumer both in order to use price as a basis of competition and to present simplified pricing to the customer,
expansion of the variety of delivery channels (for example, the internet, automated telephone services and the like).

In Jamaica there has not been much evidence of items #1 and #2 occurring with respect to stock-broking services. It is unlikely that the great similarity in commission structure across the brokerages is a coincidence. It appears that the participants have simply followed the historical pricing of the industry incumbents who existed before them, and with little exception newer entrants to the industry appear to have decided it was beneficial not to rock the boat by implementing innovative and lower pricing structures. I question whether they have been correct in the assumption that differentiation via pricing would not benefit the consumer and the industry. The local telecommunications industry is a good example of a sector in which an entrant with a new perspective redefined the customer approach (including pricing elements) and thereby expanded the market.

The stock market in Jamaica is regarded by some, especially small investors, with a fair deal of distrust. This is contributed to by perceived cases of misleadingly marketed, badly overpriced initial public offerings (at least, badly for those who bought), and some instances in which shareholders (especially minority individual investors) appeared to get the short-shift regarding accountability and governance from listed corporations. For now what I would like to focus on is the distrust stemming from the view, which arguably is supported by the current almost identical and long-standing pricing followed by the industry participants, that the Jamaican equity market is a game in which the dice are loaded in favour of the financial & larger institutions and weighted against the average individual investor trying to seriously build his own wealth and not that of his stock-broker. Therefore, relatively high transaction costs may be negatively affecting the Jamaican stock market in several ways, such as by:

constraining the growth of the number of investors in the market especially in the lower and middle income segments;
constraining the amount invested in equities by individual investors via reducing the return on investment experienced by those investors;
perpetuating a distrust of the equity brokerage community by some investors via sending the message that the compensation for services is often excessive and open to little competitive influence.

Of course, the lack of a vibrant stock market also has implications for the wider economy and private sector development. This is very important as the inability of the stock market to fulfill its role, can encourage overly conservative or overly risky approaches to investments. For example, if the failures among listed companies are considered high or sudden the average individual may withhold her capital from the private capital markets and thus result in good businesses being unable to raise equity. Conversely, if the market is considered to be as unfathomable as gambling then many investors seeking to build investment income and wealth may conclude they may as well turn to low transparency, high-return alternatives. The stock market should be a primary facilitator of capital being allocated to entrepreneurial and viable business ventures. A stock exchange is relied on to provide oversight and capabilities that give investors confidence in the bona-fide nature of the listed businesses in which they are investing their hard earned cash (the stock exchange does not and cannot guarantee a listed business will not fail, however its rules should ensure investors and their advisers have sufficient, clear, and timely information so they can make good investment decisions).

Questions for you the investor to consider:

Are you paying attention to transaction costs in your financial transactions? Transaction costs are one of the items that can make a big difference in the return you realise on your investments and therefore on whether or not you achieve your financial goals.
Are you from time-to-time calling around to financial providers other than the one you currently use, to check comparative charges and the investment amounts where improved pricing is offered?
Are you including transaction cost as a decision-making component when you choose your financial provider?
Are you negotiating costs and fees with your financial provider?
Are you taking time to consider the most efficient ways to execute your investments? Sometimes waiting until you have a certain minimum amount before making an equity investment is a suitable approach.

Questions for the industry to consider:

What justification is there for the almost identical pricing evidenced across the stock-brokerage industry?

What is the JSE's view, given its mandate of "Providing a fair, transparent, and efficient stock exchange", regarding the present pricing among players in the industry and its role in encouraging its members to take a more dynamic and market friendly approach to pricing?

Appendix

List of the Jamaican Stock-brokerages:

Barita: 876 926 2681

Capital & Credit Securities: 876 946 1770

Dehring Bunting & Golding: 876 960 6699

First Global Financial Services: 876 926 1275

Jamaica Money Market Brokers: 876 920 5050

Mayberry: 876 929 1908

M/VL: 876 926 4319

NCB Capital Markets: 876 960 7108

Stocks & Securities: 876 929 3400

Pan Caribbean Financial Services: 876 929 5583

Victoria Mutual Wealth Management: 876 960 5000

Jamaica Stock Exchange Contact Information:

876 922 7981

http://www.jamstockex.com/

Links to examples of stock-broker commissions in the US & Canada:

http://www.tdameritrade.com/commissions.html#eq_internet
http://www.bmoinvestorline.com/ProductsServices/5Star.html

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Unless stated otherwise amounts referred to are Jamaican dollars (JMD). USD amounts are converted at the rate of J$69.00/US$1.00.

This commentary may not be reproduced, copied, redistributed (electronically or otherwise), and/or published in whole or in part without the express written permission of its author. The information is has been carefully complied from sources believed to be reliable but the accuracy of the information is not guaranteed.