Sat | Sep 18, 2021

Editorial | Why the AAJ saga should be investigated

Published:Monday | July 26, 2021 | 2:10 PM

William Shagoury’s plea of ignorance that his deputy chairman at Airports Authority of Jamaica (AAJ) was a board member of First Rock Capital after the AAJ bought First Rock’s stocks, deepens the case for a probe by the auditor general and/or the Integrity Commission (IC) into Fay Hutchinson’s behaviour in this affair.

There is no evidence that Ms Hutchinson made personal or private gains – and this newspaper makes no such claim – from having straddled the two entities. Yet, as Mr Shagoury told The Gleaner, there is a clear appearance of conflict of interest, notwithstanding the AAJ’s vehement claim to the contrary. Further, people who sit on the boards of public-sector bodies have not only a duty of care to taxpayers, but must exercise their fiduciary responsibilities with utmost transparency.

In this respect, the attitude and action of Ms Hutchinson’s son and business partner, Andre Hutchinson, a member of the board of the National Investment Fund (NIF), is both strikingly different from his mother’s, and is what we expect of the governors of public bodies. When the NIF board debated its January 2020 acquisition of 10 million First Rock shares (3.5 per cent of the company), Mr Hutchinson, we are told, recused himself from the discussion at “the first mention” of the idea.

We can only assume that Mr Hutchinson’s action was driven by his awareness of his mother’s relationship with First Rock and the likely perception of conflict of interest being derived to him.

Fay Hutchinson was appointed to the board of the AAJ at the change of administration in 2016. She was appointed its deputy chair in May 2019. Last September, when Mr Shagoury did not rejoin the board, Ms Hutchinson was named its chairman. It was during Mr Shagoury’s tenure at the AAJ that First Rock, a private equity firm, began operating in March 2019, before listing on the Jamaica Stock Exchange a year later.

THIRD-LARGEST SHAREHOLDER

In February 2019, under Mr Shagoury’s chairmanship, the AAJ and its 100 per cent subsidiary, the Norman Manley International Airport Limited (NMIAL), spent a combined US$1 million to acquire their first tranche of First Rock’s stocks via private placement. Around the same time, but apparently separately, Ms Hutchinson acquired one million units of First Rock shares. In early 2020, when First Rock made its initial public offer (IPO), the AAJ and NMIAL spent another US$2 million to purchase more of the company’s shares. Effectively, the AAJ now owns 28.6 million First Rock shares, or approximately 10 per cent of the company, making it the third-largest shareholder.

It is not known who initiated the discussion for these acquisitions, or what were the considerations by the board in making the investment. And the issue, at this stage, is not whether it was a good or bad idea. Neither is anyone disputing a board’s prerogative to take action it believes to be in the best interest of a company. Openness and transparency, though, is important to building the public’s trust that the quality of governance which Prime Minister Andrew Holness declares himself and his Government to be committed is indeed attainable.

That, therefore, is why many people find this episode, and the AAJ’s response to it, troubling. Whether at the time of the AAJ/NMIAL private placement purchase of the First Rock shares Ms Hutchinson disclosed her own acquisition is not known. But Mr Shagoury told this newspaper that he was unaware that at the time of the purchase of the second tranche, she had been invited to the First Rock board, which, according to the AAJ’s recent statement, was in her “private capacity”.

“... That would be a conflict of interest,” Mr Shagoury told this newspaper. At least, prima facie, it raises the potential for conflict of interest.

It is unfortunate that Mr Shagoury only learned of Ms Hutchinson’s call to the First Rock board from last week’s reporting by The Gleaner. The obvious question, therefore, is whether the AAJ periodically requests from its directors declarations of their other board memberships and that they report material change in their status.

CONCERN

What, too, is of concern is that even at this stage, with the benefit of hindsight, the AAJ appears not to comprehend the concern people have that a member of its board was invited, in her “private capacity”, to be a director of a company in which the AAJ is the third-largest shareholder, and in which she owned stocks, without declaring that appointment. And especially at a time when the AAJ is about to do, or has done, a significant transaction that is to the benefit of the company to whose board you have been invited. This was not a case that as a significant shareholder, the AAJ had demanded a seat on First Rock’s board.

But according to the AAJ, the invitation was not “construed to present a conflict of interest, therefore, no declaration was made”.

Obviously, Andre Hutchinson has a better grasp of the concepts of corporate governance and of the greater burden of transparency on people who accept invitations to be directors of public-sector entities. It was not only whether Ms Hutchinson did, or would do anything that was adverse to the interest of the AAJ (or, for that matter, First Rock) by sitting on each other’s board. She probably would not. But both parties had a right to know of the potential for conflict.

In this case, the AAJ appears to have been told too late. An investigation by the IC or the auditor general would accomplish two things. It would lay bare the facts, and how people who sit on public boards are expected to operate.

CORRECTION/ CLARIFICATION:

Fay Hutchinson was not a member of the board of First Rock Capital Holdings at the times of the shares acquisitions by the Airports Authority of Jamaica (AAJ) in February 2019 and January 2020. However, in March 2020 when she took up the directorship position at First Rock, Mrs Hutchinson was serving as the deputy chairperson of the AAJ. She was promoted to chairperson of the AAJ in November 2020. She resigned from First Rock on March 17, 2021. Mrs Hutchinson was also a shareholder of First Rock having bought stocks in February 2019.