Noble: What is man? The chequered legacy of Lawrence Duprey

“We didn’t want anyone to be in doubt of what we were offering policyholders because dishonest agents, men who lied, could have destroyed the company.” Ray Dieffenthaller, a friend of Cyril Duprey. (Express, 28 August 2024.)

The recent passing of Lawrence Duprey, a business titan, should cause us all to pause. A man who strode our corner of the world as a colossus departed in virtual silence.

What are the lessons we ought to glean from the CL Financial demise? What is a man in the grand scheme of things?

We obtained three important clues worthy of consideration. Carlos John, his faithful lieutenant, reported: “Regardless of your views, no one dared challenge him. He was the majority shareholder. It would have been corporate suicide to do otherwise.

“[…] Behind that somewhat carefree, easy-going outward demeanour was a humble, generous man who was made of sterling stuff. He was confident and invincible…he confided to me: ‘I am the board.’”

Louis Lee Sing, in his tribute, spoke of the professionalism of two other lieutenants, Lennox Archer and Mala Ghandi.

These two insights need to be balanced to appreciate what may have been happening during the dynamic growth of CL Financial.

In his contribution, Selwyn Cudjoe shed light from the perspective of being a Central Bank board member. He noted: “Amid the charges and counter-charges, it was difficult for the board to obtain CLICO financial records, which would have allowed us to see what was taking place within his company.”

This statement was the most significant disclosure.

To understand the magnitude of this statement, we need to recognise that CL Financial was a regional financial conglomerate.

“The collapse has had spillover effects throughout the entire Caribbean (the 15 Caribbean Community states) except in Jamaica and Haiti, leading to costly government interventions, with the highest gross exposure at 15 per cent of 2009 GDP in the OECS/ECCU region.” (Hunter Monroe)

Jamaica was spared because it had stricter financial legislation after its 1990 debacle. CL Financial’s approach there was to the rum industry.

How does one run such a complex business without proper accounting? How were decisions being made?

Both Lee Sing and Cudjoe raised the issue of black entrepreneurship and its fate, exemplified by recent events. The topic of black entrepreneurship is a worthy one. This approach conflates the lack of essential business awareness by Lawrence Duprey and his executive team.

We are better served by separating the two issues to analyse the situation.

Business has a dark side: failure. The risk of failure is a constant companion to all entrepreneurs. Every business is susceptible to decline, if not outright failure.

In his 2009 book How the Mighty Fall, Jim Collins describes the five stages of companies. The first stage is hubris, which is born out of success. The feeling is, “We are so great; we can do anything!”

The second stage is “Undisciplined Growth”. In this stage, the company strays from the creativity and discipline that made them great. It then starts to stray into areas lacking the requisite expertise or the critical positions in the new businesses lacking the right people.

With this overreach, decline is often self-inflicted. We do not know whether they entered the third phase: denial of risk and peril. But we know that the sale of the annuity-type products and the approach to the Central Bank of Trinidad and Tobago was stage four: grasping for salvation.

The Government’s intervention saved the business from stage five: capitulation to Irrelevance or Death.

The statement reported by Carlos John reflects a similar position as Tyco’s Dennis Kozlowski at the height of that US conglomerate’s success. By most accounts, Kozlowski was also a relatively shy, unassuming guy.

But he, too, demanded that the board trust him and give him increasing limits for acquisitions.

Kozlowski earned the nickname “Deal A Day Dennis” on Wall Street. He spent some $60 billion on acquisitions over a decade.

Dr Bhoe Tewarie gave insight into the difference between what was written and what was done within the walls of CL Financial.

He said: “It was very difficult to monitor the group because control rested with the chairman (Duprey) and Sakal. That has to do with the whole character and culture of governance. The audit committee was not as active as I think an audit committee should be.”

Dr Bhoe Tewarie’s testimony at the Colman Commission indicated that he was alarmed by the CL Financial 2007 financial statements, which were presented in 2008. He told then-Governor Ewart Williams that he did not believe Duprey would have been forthright with Williams.

The value of this advice was seen in the events surrounding the Methanol Holdings (International) Ltd/ Proman fraudulent sale valued at US $46.5 million. That took place three days after the Government/Central Bank intervention.

(Note that the Government eventually sold these shares to the same external investors, Proman, in December 2023 for US $347 million.)

As CEO, Kozlowski surrounded himself with executives who did his bidding. He rewarded them handsomely. Greed, a severe lack of corporate governance, and fraudulent actions sent that company to the wall. Kozlowski was jailed.

The Colman Report on the CL Financial collapse is reportedly being reviewed for criminal charges.

The other unremarked issue, by all the commentators, is the scramble by persons who invested in the deposit-like products, Flexible Premium Annuities and Executive Flexible Premium Annuities. Credit Unions and individual investors throughout the Caribbean were exposed.

The products offered returns substantially higher than bank interest rates. However, these products were not subject to stricter banking regulations and supervision needed for deposit-taking institutions.

These products appeared to be a last-ditch effort by CL Financial to hoover up cash to maintain liquidity. These funds were used to support real estate in the US and the Methanol plant, both high-risk and long-term investments. Short-term assets financed long-term illiquid investments.

For much of the 1990s, investors did not want to let Tyco’s improbably high reported growth rate of nearly 40% spoil their fun. Same as did those investors who rushed to purchase the Annuity products.

They believed that what was too good to be true was true!

The game was up when the methanol prices collapsed, and the 2008 financial crisis hit. The real estate foray in Florida folded.

Cudjoe’s comments illustrate that CL Financial’s internal accounting systems were ineffective. It also means that the risk management function was either absent or deficient. As was subsequently learnt, the company could not borrow more.

Such behaviour mimics Tyco.

“He never developed a set of business practices that brought true synergy to his disparate businesses. He had little patience for quality control, nor did he invest enough in information technology (therefore, he could not control the company).”

Looking at the entire Caribbean region, we understand the interlocking investments better. The company was collecting funds in one jurisdiction and investing in another.

Here, the local and regional regulatory oversight was inadequate for the supervision of that dream.

The region was relying on Trinidad and Tobago’s authorities. However, the local regulators were not able to monitor and manage it.

Ewart Williams, then Central Bank Governor, said: “[…] the Central Bank has consistently focused on these deficiencies but has been stymied by the inevitable challenge of change and by inadequacies in the legislative framework which do not give the Bank the authority to demand these changes.”

Poor and rich people took losses. Afra Raymond quantified: “[…] With the Government’s planned bailout of CLFG (CL Financial Group), Standard and Poor’s expect net general government debt will rise to 28% of GDP in fiscal 2011 from 15% in fiscal 2010, though it will remain below the 36% median for ‘A’ rated sovereigns.

“[…] That is a difference of 13%. Yes, that is 13 times more than the USA…”

Do we recall the scramble by investors to try to recoup their investments? Do we remember that legislation had to be passed to prevent deposit holders from suing to enforce their claims?

Apart from the cash injected by the Government, this was the cost of the bailout.

Lee Sing asked: “…as I have reflected, questioned why, despite the state being repaid its pound of flesh, it has wickedly chosen not to return his business to him?”

The short answer is that to be an executive in the financial sector, one has to be able to pass the fit and proper test. This test evaluates whether the person is fit to occupy their position and their propriety is beyond doubt.

We should also note that initially, the intent was to return the business to the shareholders. “The intention will be to return Clico to its original moorings.”

What should we make of this affair?

Macbeth is prescient.

“And all our yesterdays have lighted fools/ The way to dusty death. Out, out, brief candle! / Life’s but a walking shadow, a poor player/ That struts and frets his hour upon the stage/ And then is heard no more. It is a tale/ Told by an idiot, full of sound and fury, / Signifying nothing.”

Life is “dust to dust”. Few things are substantial or consequential in the long term. We can put on a show and strut about with eloquence. But to what end? Shakespeare says it is nothing. An empty void.

Should we not consider our hustle? Why do we beat down others when the memories of our lives fade away after our death? What is life? What is truly important?

Kozlowski is now a chastened man.

“I was piggy,” he said, “But I’m not that person anymore.”

He now lives in a two-bedroom rental on the 35th floor of a building overlooking the East River. He describes how he adores his wife (his third) and treasures his time with his grandchildren.

Maybe if we could recognise that life is short, our lives will be complete and meaningful. Psalm 90:12 says: “Teach us to realise the brevity of life, so that we may grow in wisdom.”