CIMA Survey Reveals Opportunities to Improve Corporate Governance Practices

The Cayman Islands Monetary Authority (CIMA) commissioned a survey in spring 2013 to assess opinions regarding corporate governance and to increase transparency in the Cayman Islands financial services sector. The survey results provide insight into the importance of directorships in corporate governance while revealing opportunities for CIMA to improve investor confidence in Cayman Islands funds.

Corporate Governance

Investor confidence in corporate governance was found to be an issue. No investor surveyed indicated that the corporate governance practices are “outstanding” and only 11% indicated that corporate governance practices for Cayman funds are “fit for purpose”. For investors the three most important elements to assess the robustness of corporate governance standards were i) the experience and qualification of the directors, ii) a list of directors on a board and iii) the number of directorships help by a director.

All groups surveyed (investors, directors, managers and service providers) indicated that a CIMA managed public database would be their preferred method of communication for the details of fund directors.

Limiting Directorships

The research also revealed that ensuring directors have sufficient time to fully apply themselves to every board is a concern for 2 out of 3 of the directors surveyed. The research explored whether CIMA should place limits on the number of directorships held. The findings showed a wide range of opinion on the matter with only 47% of all survey respondents indicating that a limit would benefit the Cayman Islands fund sector.

While limits, in theory, could help ensure that a director does not overextend himself, Laven Partners believes that there are additional important elements to consider.  Will the implementation of directorship limits have a direct impact on improved corporate governance and investor confidence?  Will imposing a limit have the unexpected consequence of requiring certain funds to have less talented directors? How does imposing a limit help increase the regularity and documented minutes of board meetings?  Laven Partners believes it will be difficult for CIMA to determine a maximum limit of directorships a person can have, given the diversity of the funds registered and consequently the work and involvement required from a director. However Laven Partners believes that there is an opportunity for CIMA to increase transparency by capturing, recording and making the number of directorships held by a director publically available. Capturing this information would be an important step forward in helping increase the transparency for Cayman Island funds.

Jerome Lussan, CEO of Laven says: “The changes that should come from these findings will hopefully have a revolutionary impact on offshore fund structures. The findings come at a time when onshore regulators and tax authorities are already tightening their grip on offshore financial services.  At Laven we have always supported better corporate governance standards and disclosures. We work with many fund boards and directors providing them with the specialist support to understand and monitor the fund for which they work. We hope to see real results and improvement following these findings, it will be key for the future of the offshore fund industry.”

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