Published Thursday 8th May, 2008

The owners of the Tobago Hilton property, Vanguard Hotels Ltd, put out full-page advertisement in the newspapers over the last few days, under the rubric “A bright new future for Hilton Tobago.”

The Vanguard advertisement leaves us with more questions than answers since we are not told the new name of the resort after the Hilton departure on May 15. More importantly, eTeck is starting a massive repair programme, while the hotel remains open and in transition to a new management. Surely this cannot be the best arrangement for the future of this troubled project.

The advertisement was silent on critical aspects such as the price to be paid to the non-state shareholders (twice reported in another newspaper to be in the region of $200 million) and the redress being sought against the designer and/or contractor. We will certainly have to keep this one alive in the public eye as bacchanal flourishes elsewhere.

There is a precedent issue which needs a fuller exploration from tourism experts, if we are to be serious about avoiding a repetition of this failure.

In the last 20 years in the Caribbean region, there has been an almost complete rebuilding of the large-scale, high-quality hotels in all the countries.

The dominant model seems to be the all-inclusive one and those resorts can be found in Barbados, St Lucia, St Vincent, Cuba, Dominican Republic, Grenada and so on.

T&T have an educated population, with outstanding natural and cultural offerings, in addition to no shortage of capital.

Yet our only serious foray into that arena has met with signal failure. The sobering question is: why did Tobago Hilton fail?

It would be a challenging and worthwhile exercise to have the Arthur Lok Jack Graduate School of Business conduct an in-depth study of the many issues arising here. To name just a few:

l        Feasibility studies: what was the quality of the feasibility studies done for this project?

The break-even point: Dr Rowley’s public statement alluded to early difficulties in this project. At what stage was it clear that Hilton Tobago was falling short of its targets? Why was it falling short that early in its life?

l        Repairs: what are the lessons to be learned from the serious state of disrepair of the property? What can we do to improve the accountability of designers and contractors in these situations? Can we develop a working repairs and maintenance model for our country?

l        Share prices: what is the correct approach to determine the true value of the privately-held shares in this failed project? When one considers that Vanguard has three shareholders, only one of which—the State, which owns 47 per cent—is paying for the $45 million in urgent repairs. This is virtually a cash-call situation which usually has the effect of diluting the shareholding of the non-contributors.

As a closing point, after just about finishing the first piece on the Hilton Tobago, I asked an informed and passionate Tobagonian—who is active in the tourist industry—for views on the situation.

I am obliged to paraphrase here but the strong opinion was given that this huge government investment was announced as a fait accompli when the monies allocated could have formed part of a more open and transparent process to improve Tobago’s tourism instead of being found post-haste to assist these incautious, big-time investors.

This situation could involve up to $250 million of taxpayers’ money and it demands our closest attention.

Closer look at Udecot

It is sobering, to say the least, to see our Prime Minister on the defense and to read the Udecott advertisements which are its response to allegations.

More sobering still, the discussion is, at this point, quite light and has yet to deal with the meat of the matter. Our Prime Minister has often stated that Udecott is an effective state-owned company for the physical development of the country.

Udecott is often portrayed as a model state agency which has the confidence of the Government as can be seen by the quantity and prestige of the projects under its control.

Of course, the recent discussions arising from Dr Rowley’s post-dismissal claims have prompted questioning on the role of Udecott.

Some time ago we promised to dedicate some time to the Udecott experience and it is now that time.

Next week we begin, but it is important to place a marker here:

Executive chairman

Since the retirement of its CEO, Wayne Agard, in late 2005, Udecott has been run by an executive chairman in the person of Calder Hart. Please note that this executive chairman system is anomalous and none of our successful companies (private or public) use it.

In 1991, following a series of financial disasters, the Cadbury Committee was appointed by the London Stock Exchange and other regulatory and professional bodies. The committee was mandated to report on “Financial Aspects of Corporate Governance” and completed its work at the end of 1992.

One of the key recommendations of the Cadbury Committee was on the proper role of the chairman in avoiding the financial collapses of the past.

The recommendations of the Cadbury Report have been widely adopted and it is instructive for us to quote from its findings—

“The chairman’s role in securing good corporate governance is crucial. Chairmen should be able to stand sufficiently back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to their shareholders.

“Given the importance and particular nature of the chairman’s role, it should in principle be separate from that of the chief executive. If the two roles are combined in one person, it represents a considerable concentration of power. We recommend, therefore, that there should be a clearly accepted division of responsibilities at the head of a company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.”

Our most active state enterprise is under the control of an executive chairman, who also chairs the nation’s largest pension fund. That hardly represents best practice, whatever our Prime Minister might like us to believe.

At the most fundamental level there is something amiss in the structure of Udecott. But we continue next week.

Afra Raymond is a director of Raymond & Pierre Limited. Feedback can be directed to afra@raymondandpierre.com.