The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Good corporate governance will be “critical” for Bahamian family-owned businesses as this nation enters the trade liberalisation world, an attorney yesterday saying this will enable them to better withstand greater competition.

Addressing a Grand Bahama Chamber of Commerce luncheon, Carey Leonard, the Callender’s & Co attorney, said corporate governance in Bahamian family-owned businesses generally “does not get the attention it deserves”.

With lenders, creditors and customers increasingly looking for better corporate governance, Mr Leonard said: “Compliance with these higher standards, by a closely held business, will also make it better able to withstand competition or take it public.

“I say that because I believe that as the Bahamas transverses into the World Trade Organisation (WTO), and protection of businesses on the grounds of nationality disappears, many locally, closely-held companies will find that they need to raise extra capital to survive or may wish to sell out, and corporate governance is going to be critical.”

Pointing out that a strong corporate governance framework would help to prevent conflict between family members, and/or majority and minority shareholders, Mr Leonard said it would also help with smooth succession planning and generational transfer.

“A family owned business with clear governance rules and guidelines, and a strong brand, is more likely to survive and grow,” he added.

“You only need to look at some of the businesses in Nassau over the last 50 years or so, and you will see some that are doing really well but, after a generational change, soon closed. This shows that good corporate governance is very important for the family or closely-held company.”

Pointing out that joining the WTO would require major changes to the National Investment Policy, with some sectors previously reserved for Bahamian ownership only opened up to foreign market access, Mr Leonard questioned how the private sector would respond to the threat of increased competition.

Some firms might need to merge, expand or seek new capital investment, and he added: “Are our businesses ready for this? What is the condition of the corporate governance of our businesses?

“Many of us operate our businesses with a single bank account, which is used for both our personal lives and our business.

“Some of us receive cash for business services rendered, don’t even deposit it in the bank, which means that we will be unable to prove our turnover if we go to the bank for a loan or, if we want to merge with someone else, we can’t show how well the business is doing so we won’t be able to negotiate much of a deal, or if we want to sell we won’t get the real value.”

This also had implications for the receipts and record-keeping required by the Bahamas’ proposed Value-Added Tax (VAT), Mr Leonard warned, describing its implementation as “perhaps the biggest storm on the horizon”.

He warned that the Bahamas had at least a decade’s warning of VAT’s coming, given that former finance minister James Smith had talked about it as far back as 2003.

“VAT is treaty driven. It is a requirement of the EPA, which the Bahamas negotiated from 2002 to end of 2007, and signed in April 2008,” Mr Leonard added.

“VAT is also a requirement of WTO. Also, the rating agencies are watching. These agencies want to see the Bahamas have a VAT system. I understand that the IMF would also like to see the Bahamas introduce VAT. This is not a matter of choice, it is compulsory.”

Among the coming ‘storms’ resulting from the Bahamas having to adopt its legislation and regulations to the requirements of rules-based trading regimes, Mr Leonard added, were the new Customs Management Act regulations; the new intellectual property laws; and the expiration of Freeport’s Business Licence and real property tax exemptions in 2015.