Corporate Governance Listing Rules on Board policies

Effective governance is paramount to ensuring transparency, accountability, and sustainability 

Under the new Corporate Governance Listing Rules, it is mandatory for all companies listed on the Colombo Stock Exchange to publish the policies outlined below by 1 October 2024 on their websites. This requirement is aimed at ensuring compliance with a stringent framework of policies that promote transparency, accountability, and ethical conduct. These policies are instrumental in shaping the operational landscape of companies, building trust among stakeholders, and safeguarding shareholder interests. 

This article delves into the essential policies that listed entities must establish and uphold to navigate the complex regulatory environment mandated by the Corporate Governance Rules that will be effective from 1 October 2024. Additionally, companies are required to disclose their Governance Policies on their respective websites. Listed entities are required to establish and maintain a comprehensive array of policies, which include:

• Policy on matters relating to the Board of Directors
• Policy on Board Committees
• Policy on Corporate Governance, Nominations, and Re-election
• Policy on Remuneration
• Policy on Internal Code of Business Conduct and Ethics for all directors and employees, including policies on trading in the entity’s listed securities
• Policy on Risk Management and Internal Controls
• Policy on Relations with Shareholders and Investors
• Policy on Environmental, Social, and Governance Sustainability
• Policy on Control and Management of Company Assets and Shareholder Investments
• Policy on Corporate Disclosures
• Policy on Whistleblowing
• Policy on Anti-Bribery and Corruption

Outlined below is a brief overview of each policy.

Policy on the matters relating to the Board of Directors

A company’s boards of directors play a pivotal role in shaping its trajectory and ensuring sustainable growth. Adherence to robust governance principles is not just a requisite but a cornerstone of the operational ethos. Central to this commitment is the Board Governance and Remuneration Policy, designed to uphold transparency, accountability, and efficiency in the decision-making processes.

This includes; Balance of Representation, Minimum Board Composition, Roles and Functions, Board Diversity, Frequency of Board Meetings, and Directorship Limits.

Policy on Board Committee

Effective governance is paramount to ensuring transparency, accountability, and sustainability. The pivotal role of robust governance practices in driving long-term success. Central to this commitment is the Board Committee Policy, meticulously designed to uphold the highest standards of corporate governance. This Board Committee includes the Nominations and Governance Committee, Remuneration Committee, Audit Committee, and Related Party Transactions Review Committee. 

Policy on Corporate Governance, Nominations and Re-election

This Policy serves as a guiding framework, outlining director qualifications, nomination procedures, and governance standards in the realm of corporate governance. This policy underscores commitment to transparency, diversity, and shareholder engagement in director selection, ensuring robust governance practices and shareholder confidence.

Key highlights of the Policy are; Board Composition, Independence Criteria, Nomination Committee, Re-election and Performance Evaluation.

Policy on Remuneration

In the pursuit of excellence in corporate governance and ethical business practices, companies have to establish robust policies governing remuneration and business conduct. These policies serve as guiding principles, ensuring fairness, transparency, and integrity in all aspects of the operations.

This includes; Remuneration Policy which includes components such as base salary, bonuses, incentives aligning with the governance policy and Remuneration Committee which adheres to regulatory standards and composition requirements in developing transparent procedures ensuring impartiality and fairness in the process.

Policy on Internal Code of Business Conduct and Ethics for all directors and employees, including policies on trading in the entity’s listed securities

This Policy sets stringent standards for directors and employees, emphasising integrity, compliance, and responsible behaviour. Prohibiting unethical practices such as fraud and conflicts of interest, this policy promotes transparency and accountability. It provides clear guidelines for reporting violations and protects whistleblowers, fostering a culture of integrity and trust within the organisation.

Policy on Risk Management and Internal Controls

In the pursuit of long-term resilience and value generation, Companies should recognise the paramount importance of robust risk management and sustainability practices. Risk Management and Sustainability Policy exemplify the commitment to identifying, assessing, and mitigating risks, including those related to environmental, social, and governance (ESG) factors. 

This includes; Risk Identification and Mitigation, Sustainability Practice, Resource Conservation and Sustainable Procurement to establish efficient utilisation to drive continuous improvement in risk management.

Policy on Relations with Shareholders and Investors

Companies should prioritise transparent, proactive, and inclusive engagement with shareholders and investors. The Shareholder Relations Policy reflects the dedication to fostering trust, facilitating communication, and soliciting feedback to inform decision-making processes.

This includes; Communication Mechanisms, Transparent and timely communication, Voting Procedures and Feedback Mechanisms (e.g.: a dedicated hotline for shareholders).

Policy on Environmental, Social, and Governance (ESG) Sustainability

Environmental, Social, and Governance (ESG) Sustainability is at the heart of operations in all companies and should be committed to minimising the environmental footprint, fostering social well-being, and upholding governance standards to ensure a sustainable future for generations to come. This policy applies universally across company’s operations and is subject to regular internal review to ensure adherence and effectiveness.

Such as; operational controls to minimise waste, pollution, and resource depletion, investing a zero-tolerance policy, engaging with communities, prioritising employee well-being, and fostering diversity within the organisation, complying with laws, review practices, and manage conflicts of interest. 

Policy on Control and Management of Company Assets and Shareholder Investments

Companies should ensure the integrity and value of the assets and shareholder investments is paramount. The Management of Company Assets Policy establishes rigorous procedures and controls to manage, utilise, and safeguard the resources responsibly, while upholding financial integrity and shareholder value. 

Asset Management Procedures adhere to national and international standards, with a focus on continual improvement towards a carbon-neutral energy landscape. Companies prioritise renewable and clean energy sources while complying with relevant regulations and companies should uphold a zero-tolerance policy for practices harmful to natural resources and ecosystems, striving to exceed environmental standards through continuous improvement and stakeholder engagement.

Policy on Corporate Disclosure

Transparency and accountability are central to corporate disclosure practices in every company. This Policy prioritises the timely and accurate dissemination of material information to shareholders, regulators, and the public. This reflects the dedication to regulatory compliance and stakeholder transparency, fostering trust and confidence in the market.

This includes; Annual Reporting which serves as comprehensive repositories of information, providing stakeholders with insights into their financial performance, operational metrics, and significant developments and Regulatory Compliance which companies adhere to the requirements of corporate disclosure by ensuring the accurate and timely dissemination of information. 

Policy on Whistleblowing

Ethical conduct and accountability through our Whistleblowing and Corruption Policy should be prioritised by all Companies. This policy provides a secure framework for reporting misconduct, ensuring confidentiality and protection from retaliation. Employees can make protected disclosures without fear of reprisal, with robust channels in place for reporting unethical behaviour. Vigilance officers or the Audit Committee investigate disclosures thoroughly, with strict action against false complainants and employees retaliating against whistleblowers. 

Policy on Anti-Bribery and Corruption

Companies should maintain a zero-tolerance policy towards bribery and corruption, emphasising honesty, integrity, and professionalism. This policy aims to establish responsibilities and commitment to compliance with anti-bribery and anti-corruption laws. Unacceptable actions, such as accepting gifts from third parties involved in negotiations or offering payments for business advantages, are strictly prohibited. Business hospitality is permitted if reasonable and non-influencing, with caution exercised to avoid compromising business judgment. 

The above policies are presented in a broad overview. Each company, based on its area of business, may need to customise these policies to align with industry requirements and the specific needs of the company. The Colombo Stock Exchange has not outlined specific details regarding the standard requirements to be met currently. 

Is it necessary to go beyond the minimum in disclosing these policies? The exchange may introduce standards periodically that companies must adhere to regarding their policies. For example, the anti-corruption policy may need to be regularly updated to comply with regulations issued by the relevant authorities pertaining to gifts, conflict of interest, appointment of integrity officers, among other aspects. These revisions should be made once such regulations are in place.

Currently, the minimal requirement is to disclose policies to shareholders and the public through the company website.

By adopting these comprehensive corporate governance policies, we affirm that the commitment to the highest standards of integrity, accountability, and sustainability. These policies are designed to foster a transparent and ethical corporate culture, safeguard the interests of shareholders, and contribute positively to society and the environment. Adherence to these principles will ensure the long-term success and resilience of organisations, providing a robust framework for ethical business conduct and sustainable growth.

(The author is an Attorney-at-Law and the former Director General of the SEC Sri Lanka and head of Corporate Legal Consultants, a boutique style legal firm focusing on Financial Regulation. He could be reached on cadermalik

@icloud.com.)