A specific place for corporate governance in annual reports

Avoid haphazard dumping

Ten billion-rupee turnover corporates annual reports of FY 2010 and 2011, public and public quoted commercial banks, were studied to ascertain whether there is a specific standard followed by the leading commercial banks when reporting corporate governance and also whether there is a mandatory requirement of following a particular order of content in the report format.

Heap of topics

Having perused 10 annual reports, it was observed all largest commercial banks have reported corporate governance as mandatory regulatory obligation. The following are regularly used topics in most of the annual reports – there are whole heap of things banks report as they deem fit:

Our Vision, Mission and Values, Highlights, Your Bank in 2010, Performance Highlights, Financial Highlights, Operational Highlights, Key Messages, Chairman’s Vision, MD’s Review, Management Team, Board of Directors, Board of Directors – Profiles, Corporate Management, Chief Managers, Senior Managers, Management Discussion and Analysis, The Economy & the Banking Sector, How Trends Set, Financial Review, Key Performance, Indicators, Personal Banking, The Ultimate Card, Corporate Banking, Recoveries, Development, Banking, Inclusive Banking, Information Technology, Treasury, Marketing, Corporate and Product, Branding, Mainstreaming the North and East, The Capital Restructure, Training, Our Delivery Channels, Subsidiary Companies, Governance, Corporate Governance Report, Risk Management and Compliance, Corporate Responsibility, Corporate Social Responsibility, Financial Reports, Audit Committee Report, Nomination Committee Report, Credit Committee Report, Risk Management Committee Report, Human Resources and Remuneration Committee Report, Strategic Planning Committee Report, Shareholder Relations Committee Report, Annual Report of the Board of Directors on the Affairs of the Company, Directors’ Statement on Internal Control Report, Managing Director’s and Group Chief Financial Officer’s Responsibility Statement, Directors’ Responsibility for Financial Reporting, Auditors’ Report, Income Statement, Balance Sheet, Cash Flow & Reconciliation Statement, Statement of Changes in Equity, Significant Account Policies, Notes to the Financial, Statements, Supplementary Information, Income Statement in US$, Balance Sheet in US$, Ten Years at a Glance, Capital Adequacy, Sources and Distribution of Income, Sources of Financing, Utilisation of Funds, Value Addition, Share Information, Debenture Information, Branch Network, Correspondent Banks and Exchange Companies, Milestones, Glossary of Financial and Banking Terms, Notice of Annual General Meeting, Notes 286, Form of Proxy and Corporate Information.

High quality reports

Whilst respecting all banks for achieving billion-rupee benchmarks, including revenue and profits, a tremendous improvement and professionalism in presentation, quality and clarity of these respective annual reports was observed.

Nowadays there may be competitions held home and abroad for best preparation or presented annual report and probably all these banks may be trying to position themselves by doing the best report.

My research revealed that some banks get their annual reports done by an outside agency. Also some corporate messages are done by some agents or outsiders based on the corporate information furnished by them. However and whatever said and done, the job is done to enhancing the quality of presentation and corporate positioning. This is what we say competition enhances quality of the product.

The annual report is a boast of corporate persona of promised task achieved. It is a character displaying how strong corporates are in terms of competing similar banks in the same industry. It is a show-off piece, and a showcase of performing an act of promise to its authorities and as well as to their shareholders, lamented by some executives in a very cool manner.

The researcher inquired whether they have any idea of revenue/income or profitability relationship to the provision of employment, they just kept mum; the researcher also inquired whether they set target for braches in term of performance and some confirmed that they manage the bank on set goals.

An annual report is a comprehensive report on a company’s activities throughout the preceding year. Annual reports are intended to give shareholders and other interested parties information about the company’s activities and financial performance. Most jurisdictions require companies to prepare and disclose annual reports, and many require the annual report to be filed at the company’s registry. Companies listed on a stock exchange are also required to report at more frequent intervals (depending upon the rules of the stock exchange involved).

Corporate Governance guidelines are given in the Code of Best Practice on Corporate Governance issued jointly by the Chartered institute of Accountants of Sri Lanka (ICASL) and the Securities Exchange Commission of Sri Lanka (SEC) and the Banking Act Direction no 11, 2007 on Corporate Governance for Licensed Commercial Banks in Sri Lanka issued by the Central Bank of Sri Lanka and subsequent amendments done to which it became fully operational with effect from 1 January 2009.

No standard format

I observed there is no standard format followed by the respective banks in reporting on corporate governance executed by the banks. I do not know whether these reports have been done according to standards accepted by the principal governor or the state.

The 10 annual reports that were observed, it was noted that corporate governance reporting of course ran into some six to 36 pages or more. Does it mean that some banks are very committed in professional reporting and some are not? Does it mean more pages mean more professional work done in practicing corporate governance?

Since it is a doctrine of management discipline expected of professional practice by the respective banks and not expected of just junk reporting or unprofessional way of reporting, I inquired from offices whether they are expected to follow any guidelines in reporting and they said they follow the Central Bank guidelines. It was also revealed that there is no specific format as such given to them to follow a standard reporting – e.g. corporate governance report should appear after the General Manager’s review and should comprehend the following areas of activities thereafter. They do not know and the researcher also does not know.

Some banks report director’s interests after the corporate governance policy details and others thereafter. Some annual reports, reported directors’ statements, risk management report, financial review human capital, CSR, management decision analysis before reporting of corporate governance. Some banks reported integrated risk management before the corporate governance policy details and some others thereafter.

Some banks use reporting risk management, risk management governance structure, some use integrated risk management, and some use risk management integrated decision. Further some go beyond using risk management governance structure, and performance governance. Also some banks reported management decision making analysis before corporate governance. Some reports are huge and some are relatively small and some used completely different content page indexing method from the beginning of the report to the end.

Standardised reporting required

I suppose these are observed by the respective principal authorities who are responsible for governing corporate governance when assessing the standards if they opt to see standards are necessary in all corporate annual reporting. The researcher also compared Corporate Governance Disclosure in Annual Reports, A Guide to Current Requirements and Recommendations for Enhancement of other countries and suggest that it would be useful to our local banks as well observe and follow.

Also, if an annual competition is held to select the best annual report, how would one set guidelines or parameters to select the best? The researcher feels it would be a herculean task to select the best annual report as it is. These finding are enlightened to all banks; please observe 10 largest commercial banks quoted and non-quoted annual reports for the FY 2010/11 and a create forum to standardised reporting.

(The writer is an Independent Researcher and PhD Aspirant/Sri Lanka.)