Archive for August, 2011
Professional body offers business case for integrity
(CNS): The UCCI’s Executive Training Centre has a few limited slots available at a special free workshop on integrity at work. Presented by the Chartered Institute of Securities & Investment, the interactive workshop, aimed at all business professionals, will look at the economic case for behaving honestly. The UCCI said that the 75 minute session has been presented to over 5,000 people worldwide and poses real business dilemmas to the participants, who are askedto respond anonymously using interactive technology. The collective results will be revealed, however, and will form the basis for debate during the workshop when presenters will demonstrate the case for integrity at work.
The workshop, which is free, is open to all but there only a few places available. It will take place at the UCCI training centre on 15 September and starts at 5pm. To reserve a spot on the much lauded workshop contact events@ucci.edu.ky.
There will be a cocktail reception following the session.
US cable accuses CHEC of being involved in bribery
(Insidethegames): Hambantota, which is bidding for the 2018 Commonwealth Games, has found itself at the centre of the latest WikiLeaks controversy after it was revealed that the United States Government believed the Chinese were bribing Sri Lankan officials to win contracts linked to the redevelopment of the city. China has been the driving force behind a major infrastructural development phase with an international airport, international port, and railway line being built in Hambantota, which was devastated in 2004 by the tsunami. Phase Oneof the new Hambantota Port was constructed by the China Harbour Engineering Company (CHEC) at a cost of $360 million.
"It is likely that corruption and political patronage are significant factors playing into the focus on Hambantota," said the cable sent from the US Embassy in Sri Lankan capital Colombo published on WikiLeaks.
"Often when Chinese companies win contracts, their success is due in part on their widespread distribution of graft to senior Sri Lankan Government officials. While it is currently unknown to what extent President Mahinda Rajapaksa is involved in Hambantota development, it seems logical that his hand is also out when commercial enterprises, especially the Chinese, jockey for contracts and projects."
PAC to decide on witnesses for AG’s reports
(CNS): The new chair of the public accounts committee says it will be up to the members to decide when and who to call as witnesses when the committee begins to examine the auditor general’s latest reports. Having officially been voted into the chair at the last sitting of the Legislative Assembly, Moses Kirkconnel as held one meeting with his committee members so far to recap and prioritise what work the committee has to do, he said. The PAC has been without a chair since the former holder of the seat, Ezzard Miller, said he could not do his work because of the failure of the government members in particular to turn up for meetings. (Photo Dennie Warren Jr)
The member for the Sister Islands, who was the only opposition member of the previous committee, was appointed chairman by the other members of the LA earlier this month and Kurt Tibbetts, the former leader of the opposition, was appointed as a new member.
Since Millerresigned, the Auditor General Alastair Swarbrick has submitted three new reports. There is one further outstanding report which has never been made public as it was undertaken by the previous auditor general (in connection with the affordable housing project) prior to the law being changed which allows publication of the auditor’s reports in the immediate wake of the documents being handed to the Legislative Assembly.
Given the gravity of Swarbrick’s findings, the public is likely to be watching closely for the witnesses that the committee chooses to call on the reports delivered to the country’s parliament about the mismanagement of the government’s procurement process. However, Kirkconnell said he expected that the committee would still be prioritising the progress on government’s overall accounts and ensuring that the country finally gets a set of up to date accounts for the most recent financial year on time.
The new chair said he was unable to supply a date for when the PAC would be holding a public session to scrutinize the findings of Swarbrick’s office but said it would be discussed at the next closed door session of PAC, which he said was due to take place on 6 September.
“When we meet on 6 September we will prioritise how we will deal with all of the outstanding reports,” Kirkconnell told CNS. “I believe that there are reports that will require more witnesses to be called but part of the process is that the committee must decide. I agree that the report on procurement is an important one.”
Kirkconnell said that now that the committee has a chair, following the long period of the committee not meeting, the important thing is to take stock and try to get things back on track.
The chair will also be looking at the issue surrounding the process under which the auditor general’s reports are made public documents. In the past the public had to wait until the Public Accounts Committee had examined witnesses and assess those reports before they became public. This resulted in important reports remaining under wraps for many years and some never seeing the light of day. The standing order was changed, however, to allow reports to become public documents as soon as they were handed to Speaker at the Legislative Assembly.
In order to give the MLAs some time to digest the reports and ensure all members received a copy, the Office of the Auditor General (OAG) had agreed to give the LA a few working days grace before presenting its reports to the media and the wider public. The OAG’s most recent report on the procurement case studies was leaked, however, before the AG had schedule a media conference, illustrating the increasing difficulty in a modern democracy of trying to keep things secret and fuelling the AG’s position that once the report is handed into the LA, it should also be presented to the public as well.
Amateur Hour Cancelled
It was bound to happen. There are over 10,000 directors serving Cayman Islands funds – everyone from rank amateurs to serious professional firms – and fund governance has been one of the fastest growing sectors within the hedge fund industry.
Questions had been raised in the press by some institutional investors about the performance of some independent directors during the recent financial crisis and now many of these questions have been decisively answered by the Grand Court of the Cayman Islands Financial Services Division (the “Court”), in its August 26th, 2011 judgment against the independent directors of the Weavering Macro Fixed Income Fund (the “Fund”).
Substantial case law on directors’ duties and responsibilities to trading companies already exists, but this is the first time that the Court has dealt with a case specifically involving directors’ duties to a hedge fund. In a sound, well reasoned decision, the Court found the independent directors guilty of willful neglect or default in their duties to the Fund and ordered them to pay US$111 million in damages.
This blockbuster award should send a strong message to all recalcitrant directors to either perform their duties and responsibilities properly, or pay a heavy price.
Now this judgment may not end the discussion about whether amateur or professional fund governance is more effective – Luddite beliefs that are deeply ideological – but the Court did repeatedly confirm its view that independent directors should perform a “high level supervisory role” in a “professional, businesslike manner”. Fair minded people can form their own judgments about what “professional” and “businesslike” mean when they see it.
To illustrate, the guilty directors fit the amateur model completely – retired and working from home; numerous years of investment management experience with reputable institutions and no other directorships. The Court found they “had appropriate professional credentials and met the ISE's (Irish Stock Exchange’s) independence requirement.”
For proponents of the amateur model, they could not have been more perfect examples – yet investors suffer devastating losses at their hands. It is highly doubtful that this catastrophe could have occurred in a professional fund governance firm, with professional full-time directors having vast fund directorship experience, ably assisted by professionally qualified staff following established policies and procedures based on industry best practices.
The Court decision reaffirmed what astute fund investors and sponsors already know – the professional fund governance model does far more work and is far more productive than the amateur model. I’ve operated both models and can tell you unequivocally that the professional model is far more effective.
The Court made some meaningful observations in key areas that are instructive to the fund industry:
Board meetings
Some hold that that the number of board meetings is the litmus test for director performance; however, it is not uncommon for some directors to hold frequent meetings to go “through the motions” believing that the more meetings mean the better (especially if the meetings are being held in attractive locales) and that their obligations begin and end in the boardroom. This spectacle is pure form over substance. Amateurs love this approach and scoff at the SEC’s recommendation to hire staff with the appropriate skills to assist them in discharging their duties. Perhaps now they will heed the SEC’s advice and better understand the value of having professional staff and why they can’t simply attend a few meetings, pick up their check and hit the golf course.
The Court exposed this charade and did not accept that the regular quarterly board meetings could be “relied upon as the single most important way in which they claim to have discharged their functions”.
Purely focusing on board meetings misses the big picture, as the Court found, as they maybe held merely to “create the impression that the Directors were reviewing the affairs of the company on a regular quarterly basis”.
Duties and responsibilities
In confirming that director duties go beyond the board meeting, the Court held that directors have “a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors.” They need to satisfy themselves, on a continuing basis, that the various professional service providers are performing their functions in accordance with the terms of their respective contracts and that no managerial and/or administrative functions which ought to be performed are being left undone.” The Court was also critical of the directors in that they never prepared an agenda for the board meetings, never asked any of the service providers to participate in board meetings and never inquired of the service providers – yet another example of where the professional model excels. It is difficult to imagine any directors meeting the Court’s expectations without employing a team of professionals with a broad range of deep hedge fund skills to assist the director in reviewing complex matters, researching issues and asking probing questions.
Fund operations
Fundamentally a hedge fund is different from a trading company in that it operates through delegates and not employees. The Court repeatedly recognized the ability, indeed the necessity, for directors to delegate to competent service providers within the hedge fund structure, but also made very clear that such delegation does not absolve the directors of the duty to supervise such delegation, albeit at a “high level”. Importantly, the Court confirmed that the “directors were not expected to supervise [the "Fund"] trading activities”, making clear that a director is neither a shadow or pseudo investment manager as some have promoted themselves.
Indemnification
Although, these directors were indemnified in the typical manner under the Articles of Association, such indemnification did not protect their egregious conduct. Effectively the Court’s decision proves the speculation that indemnification leads to directors behaving with impunity to be patently false. Indemnification is intended to protect conscientious, well meaning directors from frivolous actions and the Court will not tolerate any misuse of indemnification provisions.
Crisis management
Historically independent directors responded to a crisis by resigning and distancing themselves from a fund. During the recent financial crisis, questions arose whether directors acted too precipitously in imposing gates or acted too slowly in liquidating positions. Reasonableminds can debate these issues, but these directors found a way to do even worse – they did nothing. Despite not having any other directorships, these directors did not perform effectively. Directors prove their worth in a crisis and the 2008 financial crisis was the true stress test of a director’s capacity to perform effectively. The Court agrees “the way in which these Directors behaved during this most serious financial crisis is, in my judgment, the most compelling evidence that they never intended to perform their duties as directors.”
Recordkeeping
The Court found that the directors were “not able to explain why he signed these agreements or how he thought that the arrangement could benefit the … Fund.” They were also not able to demonstrate the basis for approving certain side letters observing that “there is no evidence that the Directors made any enquiry or sought to understand whether or not the execution of side letter agreements of this sort could impact adversely on the macro fund.” The Court further observed that “whilst it is common practice for Cayman Islands funds to enter into side letters of this sort, it seems to me that independent directors need to be alive to the issues which are likely to arise.”
While the case did not turn on this issue, the industry should find the Court’s emphasis on documentation noteworthy.
Overall, this is an excellent decision for fund investors and continued confidence in the Cayman Islands fund and alternative investment industry. It proves that the system works effectively and should blunt any criticism by those proposing extreme concepts and agitating for radical overhaul. Simply put, the Cayman Islands will hold directors accountable for their poor performance.
Don Seymour is the founder and a Managing Director of dms Management Ltd.
TD12 becomes Katia and heads west-northwest
(CNS): Tropical Strom Katia the Atlantic’s 12th tropical storm of the season formed at around 6am local time and was headed WNW at about 17mph. Located about 535 miles WSW of the Southernmost Cape Verde Islands, Katia has maximum winds of 40mph but poses no threat to the Cayman Islands. The National Hurricane Centre said Katia was expected to speed up and Strengthening is forecast over the next 48 hours. The storm is expected to be near hurricane intensity by late Wednesday or early Thursday. Tropical storm force winds extend outward up to 35 miles from the centre. Meanwhile, local forecasters said rainy weather is expected over the Cayman area today with fresh winds and rough seas over the next 24 hours.
Robbers target George Town fashion store
(CNS): Police were on the hunt Monday night for two masked gunmen who robbed a fashion store on Shedden Road at around 7:15pm. The robbers pulled up outside Awescay Fashions next to Funky Tangs in a grey Honda Civic. The men, who were armed with what appeared to be firearms, entered the store, threatened the woman who was working there before making off with a sum of cash. They drove off in the direction of Martin Drive but police said they believed that the robbers turned on Tigris Street and back on to Shedden Road. Both suspects are described as being of slim build and between 5'8" to 5'10" in height.
Police said they were described as brown skinned, wearing gloves and had black t-shirts wrapped around their faces. The suspect who spoke during the commission of the robbery had what has been described as a Caymanian accent.
No shots were fired and no-one was injured in the incident.
Anyone with any information about this crime, or who saw the suspects or the car before of after the crime, should contact George Town CID on 949-4222 or the confidential Crime Stoppers number 800-8477 (TIPS).
Charges officially dropped against government MLA
(CNS): Prosecutors officially dropped assault charges against Bodden Town backbench MLA Dwayne Seymour Monday when he appeared in Summary Court in connection with an altercation outside a Seven Mile Beach Hotel last year. Seymour and his friend, Joseph Minzett, had been charged with assaulting an American fitness trainer who was visiting Cayman to see Seymour’s estranged wife. Seymour was also charged with the more serious count of perverting the course of justice in connection with the same case but was acquitted by a jury following a Grand Court trial in May. (Photo Courtesy Cayman27)
Following that verdict, the crown had indicated it would be unlikely to pursue the assault charges against the politician as the director of public prosecutions had said it was not in the public interest.
The Bodden Town UDP representative was accused of being involved in a fight with the man, whom he believed was having an affair with his wife, outside the hotel after he had heard he was on island. During the trial Seymour had denied starting the fight and denied telling a security guard who said he witnessed the fight to keep quiet about the incident.
Speaking to Cayman 27 on Monday outside the court house after learning that the case against him had been officially dropped, the MLA said he was relieved and had always been surprised at the charges as he had been the one that had wanted to press charges against Yap, whom Seymour claimed at trial had started the fight.
“It’s just so hard being charged in something like this when I was the one who pressed the charges against someone, and it was chosen to press charges against me by the police,” Seymour said. “It’s very unfair, but there is a god and we’re all answerable to him. And so thankful for all the supporters who supported me and prayed for me – and just stuck by my side. All my friends and family and you know it’s a wonderful day and put it behind me now and get on with the business of the country.”
No analysis over road move
(CNS): A freedom of information request submitted to the National Roads Authority asking for the business case model and traffic analysis regarding the proposed closure of 2000 feet of the West Bay Road revealed that no studies have been done on the move. Ezzard Miller asked the NRA for minutes of the board meeting where the issue was discussed and for any reports, research or analysis they had that would demonstrate the need to close the road, justify the move by government and assess the potential impact. However, the NRA told Miller that while the extension of the Esterly Tibbetts Highway formed part of its long term traffic plan, no study had been done on closing the West Bay Road.
Miller said recently that he was surprised by the revelation as he understood it was normal practice for some kind of business case to be made before major traffic changes are made. According to the redacted minutes that were given to the independent member for North Side, the issue was discussed by board members only once at a board meeting on 14 June this year. The minutes revealed that the proposed closure was discussed at a meeting between the ministry, Dart and the NRA and then passed to the board, which voted to approve the move and recommended that the Esterly Tibbetts extension be gazetted to Rev. Blackman Drive.
The road closure has raised some controversy as it involves swapping Crown land (public property) as part of a deal with Dart in order to allow the developer to create an ocean front resort on the site of the former Courtyard Marriott.
Government intends to swap the crown land in exchange for the cost of the Esterly Tibbetts extension in to West Bay, a revamp of the existing public beach, an additional public beach further north along the West Bay Road, land in Barkers for a National Park, cash for community projects and more land in West Bay for Grace Christian Academy to build a new school.
The land that government will be giving to Dart in exchange for this swap-list, however, will increase the value of the developer’s land significantly and make the resort a much more profitable venture. Dart has said that without the change to the road layout the current derelict site would never be an attractive proposition for any developer to renovate.
The road currently dissects the hotel footprint from its beach front and in the past guests staying at the hotel were forced to cross the busy road in order to reach the beach. At the new resort planned by Dart the West Bay Road will be diverted behind the new resort on to the Esterly Tibbets bypass from Governor’s Way to Yacht Drive. The 2000 feet of road will be closed and Dart will use the land to develop a new a larger public beach, its own beach front resort and bicycle/pedestrian pathway along the ocean front.
The premier and his Cabinet have stated that the move is a good deal for the Cayman people as not only will Dart be swapping a considerable amount of land in return and paying for the new extension, which government cannot afford to fund, it will also begin developing a desperately needed new four or five star hotel, boosting the tourism product in the long term and creating jobs in the short term.
Miller and the opposition members have, however, questioned the value of the deal as they say it will boost the value of the property purchased by Dart significantly. Miller said that local real estate agents are estimated that the worth of the land could be increase from the $30 million that Dart has reportedly paid for the land to more than $100 milllion.
Opposition member and former roads minister, Arden McLean, has also raised a number of questions about the closure and noted that the problem with the extension of the Esterly Tibbetts Highway if the West Bay Road is to be close is the access back onto the original road. He says without proper access, all West Bay residents will be forced to go to Batabano or traffic problems could be created where drivers try to rejoin the coast road.
Local activist groups in West Bay are also concerned about future access to the beach along West Bay Road as so much has been lost to developers over the years. They also have concerns about the amount of land that is increasingly being concentrated in the hands of just one developer.
Nevertheless, government has considerable support for the venture from other parts of the community as a result of the promised boost to the local economy that the project and the total deal with Dart, known as the ForCayman Alliance, is expected to bring.
Alongside the West Bay Road projects, the proposal includes Dart’s commitment to capping and remediating the George Town landfill and developing a new modern waste-management facility in Bodden Town. Under the deal Dart is also committed to developing more of Camana Bay, in particular the residential elements of the town, which the developer says will create further employment opportunities and boost the domestic economy.
Bush recentlystated that the negotiations between government and Dart were on-going and he would be pushing to get more out of the investment alliance for the Cayman people before signing the main agreement, but whatever the outcome, he said, the deal was a positive move for the whole country.
Clifton Hunter to open in March says minister
(CNS): The education minister said last week that the first of the new government high schools will finally open in March 2012 in the middle of this school year. After years of controversy, contract disputes and political rhetoric the first of the state of the art schools envisioned by the previous minister will should be operational before Easter. Rolston Anglin said once the school has been completed, the ministry will liaise with teachers and parents to plan the move with minimum disruption to students. The Clifton Hunter is one of two new secondary schools that became a political football between the government and opposition the second is the new John Gray campus has since been put on hold.
At present pupils who will attend the new campus are already divided from those students attending John Gray High School and are currently using the George Hicks site which will eventually become a technical school.
Speaking at the orientation session for the new academic year on Friday Anglin outlined his ministry’s priorities. He updated the teachers on the $10million primary school project, which is already underway, and promised much-needed additions and upgrades. He did not mention whether money expected to come from Dartas part of the deal between the developer and government would replace or be in addition to the $10million set aside in the budget for the primary schools revamp.
Challenging teachers to do better, and offering to continue the support in professional development he said other strategic aims included a focus on literacy and numeracy, new graduation requirements, a national campaign that celebrates achievement, professional standards for teachers, targets for school achievement and a national strategy to gather education data that will track individual student progress.
The minister also pointed to “employability” which he said would come under the spotlight this year with plans to expand vocational education, strengthen career advice and implement a work readiness programme, Work Keys, in all high schools, the minister revealed.
Meanwhile, the latest new recruits into the teaching profession were taken on “Cultural Caravan” last week when the new teachers took in a tour of the museum, the National Gallery, Pedro St. James and the Nurse Josie Solomon Senior Centre, located beside the Mission House in the heart of Cayman’s first capital, Bodden Town.
The centre is a treasure trove of artefacts, photographs, arts and crafts as well as recreations and depictions that highlight Cayman’s heritage and heroes. The teachers also got to taste traditional Caymanian food and a chance to explore the grounds and examine native plants.
Spearheaded by the National Museum, the programme ensures that the 29 new teachers do not begin functioning in Cayman in a cultural vacuum. The minister said in order for educators to make meaningful contributions in “it is imperative for the teachers to get a good grasp of what makes us Caymanian.”
Restaurants encouraged to put lionfish on menu
(CNS): The local effort to cull and contain the invasive lion fish currently threatening reef life across the region is gathering pace especially as more and more local chefs are placing the tasty marine treat on the menu. Stephen Broadbelt owner of Ocean Frontiers demonstrated to ten top restaurant owners this past weekend how the fish can get onto their menus. He explained that the divers and spear-fishermen have been specially trained by the Department of the Environment to cull the fish using a DoE issued spear and they can then deliver the marine booty to chefs on demand. (Photo Lennon Christian)
Broadbelt explained that chefs, while wearing gloves can remove the spiky, venomous top, bottom and dorsal fins with kitchen shears• Once finless the soft scales can be scraped away and the fish gutted in the normal way as the fish itself is not poisonous.
He explained that restaurants can help in the goal to destroy the predatory Lionfish before they are big enough to reproduce by serving them up on local menus and encouraging the community to acquire a taste for the succulent white fish.
Broadbelt said local divers are also encouraging sea life to also add the lionfish to their diets by feeding them to moray eels, snappers, nurse sharks and groupers and encourage them to develop a taste for the finned marauders and hopefully join in the cull. So far over 5000 fish have been bagged by trained divers this year and the need to stop them reproducing continues a single fish can produce two million eggs annually.
CITA has a number of ongoing lionfish efforts including seminars and hunts as well as dive safaris and cooking demonstrations. For more information contact info@cita.ky or the DoE at 949 8469 or DoE@gov.ky