Is there an effective ‘shared surface’ for professional CFOs to operate in Sri Lanka?

By Chandra Jayaratne

This open letter arises from four recent critical comments. The first was by a competent and highly recognised young lady CFO, the second was by the Secretary to the Treasury, the third by Dr. Rohan Perera and finally the critique of a group of professionals in conversation addressing the subject of ‘Ethics, Values and Professional Commitment of young CFOs in Sri Lanka’.

The lady CFO submitted very openly and with sincerity that there are only a few board rooms in the Sri Lankan private sector which provides effective space for, and encourages and motivates CFO’s to stand up to their professional commitments, values and ethics.

She went on to show by actual personal experiences how not only the Board, but even the professional bodies promoting professional ethics and conduct and the media failed to build a supportive space for the CFOs in upholding standards, best practices of governance and codes of ethics. This non supportive stance had also been experienced even when CFOs were faced with challenges of a hostile board or hostile employer.

In fact the experiences described included how board papers and professional recommendations on transparency, good governance and upholding standards based disclosures, system and control improvements and ethical conduct were physically torn and consigned to the dust bin by superior directors, prior to circulation as board papers. Unfortunately this appears to be a common phenomenon at leading private sector establishments as well.

These incidents were reported to have taken place even in leading listed entities and deposit taking institutions, and involved board members who in annual reports portray upholding the highest standards of compliance, transparency, good governance and ethics.

Dealing with governance issues in the State Owned Enterprises, the Secretary to the Treasury recently stated: ‘It has been observed that chairmen and the boards of management of SOEs and other entities (229 government entities in all, including the 74 SOEs that run commercial activities) do not adequately contribute to the performance of the entity and remain ignorant of their responsibilities, despite the Treasury taking steps to keep boards aware of their responsibilities through either review meetings or the issuance of guidelines,’ and ‘Undermining good governance practices, some entities take important decisions specifically in the absence of Treasury representatives or not in proper consultation with the line ministry nor the Treasury. Despite circular instructions, in some instances board sub-committees, particularly the audit and the management committees which are useful in ensuring best practices in corporate governance are not functioning or have not been appointed. This has marked a clear deterioration of the internal control systems of SOEs.’

 Though not specifically referred to by the Secretary to the Treasury, it is most likely that the CFOs of these SOEs are equally responsible for their failure in effectively discharging their responsibility towards upholding their expected professional roles. The million dollar question not included within the above critique is whether this critical commentary applies equally to the private sector and even to listed entities.

During a recent memorial oration, Dr. Rohana Perera suggested that in dealing with the complex unfolding scenario ‘the role of international lawyer and diplomat lies in the search for a shared surface, with an understanding of the rationale and underlying values of the contending norms and principles’.

Would this not be equally applicable in the complex and unfolding business sector, especially in relation to the ‘the role of fit and proper directors, officers and CFOs? Would it not be essential they too have ‘shared surfaces’ in common with their boards, governing shareholders, regulators, media, and especially professional bodies in dealing with the issues enveloping enforcement of transparency and best practices of good governance, and above all in upholding expected standards and codes of conduct and ethics?

Here any individual or groups of antagonistic stakeholders of business, in a competitive and cut throat world of business, will attempt to undermine the creation and prevalence of shared surfaces’. However such shared surfaces must be created and made sacrosanct through accepted standards and codes of conduct and ethics.

Adversaries, antagonistic communities and individuals must not be permitted to exclude under any circumstances the effective availability of shared surfaces, which shares surfaces will be the best and most powerful shield of protection for righteous persons upholding principles, practices, standards and codes of conduct and ethics.

A group of professionals engaging in an intellectual discussion on the emerging scenario in both public and private sectors of Sri Lanka with specific reference to the NSB-The Finance deal, the perceived market manipulations in the capital markets, financial scams, lack of transparency and market awareness surrounding the restructured failed deposit taking institutions accepted that ‘fit and proper’ directors with strong CFOs and professional organisations playing a pro-active, independent and supportive role in the upholding of transparency, best practices of good governance, professional standards and ethics, were the fundamental foundations for growth and sustainability, delivering stakeholder expectations and assuring equity and social justice.

The critical issues of much concern to market participants, stakeholders and civil society include effective management of conflicts of interests and related party transactions. In addition transparency, accuracy and compliance to standards of published information, the appointment of fit and proper persons to be directors, officers and CFOs of business, naming and shaming processes important for an effective operating environment.

Equally important are effective processes for removal and prosecution of those who fail the fit and proper test. The media must relentlessly pursue policies supportive of creating an environment that ensures public awareness, public debate and engage in actions supportive of upholding the principles of transparency, good governance and empowerment of fit and proper persons.

In conclusion, it is urged that the Institute of Directors and the Ceylon Chamber of Commerce initiates a round table closed door review, attended by invited business sector leaders and also by two nominees each representing each of the professional organisations -Institute of Chartered Accountants, Institute of Chartered Secretaries, Chartered Institute of Management Accountants and Corporate amd Certified Accountants, Chartered Financial Analysts, Organization of Professional Associations, Transparency International Sri Lanka and Business Editors Guild, to develop a ‘way forward strategy’ addressing all the critical issues relevant to having in place transparency, best practices of good governance and upholding of professional standards enforced by fit and proper directors and officers (especially CFOs) who are duly empowered, encouraged and motivated to perform within a structure that is duly supported by the professional organisations and the media.