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Monday, 4 August 2014 00:03 - - {{hitsCtrl.values.hits}}
Expert views on role of independent directorsTo present expert views on the role of independent directors, the symposium facilitated a constructive panel discussion. Moderated by SEC Director Corporate Affairs Suriyapperuma, the panel featured as speakers The Carlyle Group Indonesia Managing DirectorRajiv Louis, SEC Director General/Officer in Charge Dhammika Perera, National Chamber of Commerce of Sri Lanka President and SLID Representative Sunil Wijesinha, CSE Director Hiran de Alwis, BSE India CRO Vora and President’s Council Cabral. Q: There is quite a lot the BSE has done in the space of independent directors and corporate governance. I would like to understand the impact it has created among the investor community in India? Vora: India has the highest number of listed companies in the world, about 5,300. Since we have a range of companies some of them perform well and some don’t. While we were deliberating the need of better corporate governance practice and code in line with international best practice, there was an issue where some of the smaller companies were not able to comply with the provisions. So for about 500 companies we are proposing an enhanced corporate governance code which will be implemented in October. Before kicking off the implementation process we had discussions with the companies on their views in this regard. In terms of impact we have seen an increasing number of institutional participation. In 2014 after the new government came in, Foreign Institutional Investors (FIIs) reached an all-time high investment level. The feedback we have is that there is lot more participation which we think will lead to a higher shareholder activity. The voting patterns of independent directors still remain a mystery. So the regulation has mandated mutual funds to disclosure how they vote and their reasons. That will lead to a higher amount of disclosures. That has led to higher valuation for some of the better managed companies. It’s a positive work in progress. Q: It is now a common practice to make use of private companies to bring in or take out value from entities. These were observed during review processes. In that context, how can the role of independent directors be more effective so investors continue to have faith in the company? Wijesinha: As an independent director I think you need to have greater degree of care. While an independent director should be familiar with the business, they should also be able to have an independent view ask naïve questions. Some experts in corporate governance recommend that independent directors should not be too familiar with the subject so that they can ask naïve questions that can trigger information to come out. Sometimes on boards it is found that there is too little information on a prospective proposal or is given too much information that one is unsure what is relevant and important. In the case of investments, there have been issues when increasing capital. If the entity is controlled by large groups they may not want to take decisions that are in the best interest of the company. It may be in their interest. That is an area where independent director have a greater role to play. Q: When investing of divesting do you consider the role of independent director as an imperative part of the decision making process? Louis: For us reviewing the independent directors role in meaningful. A reason for that is because majority of businesses in South East Asia are family owned. For them independent directors are family members in the periphery or friends. So during the due diligence process we go through this in a substantial manner. We hire global investigative firms to not just go through family members but also independent directors so we get a feel on what this individual brings to the company. So if a person does not contribute actively to the board he has no place in the company and that is how we feel. Q: There is a lot of emphasis to understand the role of independent directors. How is this valid to those who want to invest in the stock exchange? De Alwis: To have a wall of protection you must make sure companies are run properly and a mechanism is the role of an independent director. Being independent on the board means you have to act independent. The practical reality in Sri Lanka on that is difficult since more people here are friends. We have to understand this reality. So for the independent director, in my view I will advocate to make use of those terminologies. Those directors have to be independent and that should be done for better protection of the firm and shareholders. Regulation is there for facilitation and should not impede progress. This balance is what is called for. Q: Can independent directors play a constructive role in an enterprise without attracting liabilities? Cabral: Firstly, one has to treat himself as a director. So whatever decision is taken by the board collectively, every individual is responsible. It is necessary to go through previous minutes of meetings so you are well aware. You should not take over past sins of the company. Q: Is becoming an independent director a luxury added to your profile? Is there any obligation that comes from it? Perera: Becoming an independent director maybe a luxury and privilege under certain circumstances. But of course, being a director you are exposed to certain obligations stemming from the SEC Act and even the listing rules. The Company’s Act does not distinguish the directors. To be more specific the third rule of the SEC act says every listed company has to comply with the listing laws. And rule 17 states that the directors of the listed companies should ensure compliance for the listing requirement on a continuing basis. Q: Why has The Carlyle Group yet to enter Sri Lanka? What is the outlook you have for the nation? Louis: We would like to invest in Sri Lanka. It is not that we have shied away from it. It’s just that we have criteria to fulfil from our side. The current size of our Asia fund is about $20 billion so we look for entities which match our investment criteria. Before entering a market we require entities to have a minimum investment of $ 150 million for a stake of 10%. We look at the size, and there are not many companies of that size in Sri Lanka. However we are looking at investing here and are taking active steps towards it. The overall outlook we have for Sri Lanka is positive. But the only challenge is the minimum requirement from our end where we require the criteria to be met. |