Chandra J writes to SEC on errant directors and officers of listed companies

Good governance activist Chandra Jayaratne has written to the Securities and Exchange Commission seeking a clarification of the applicable statutory provisions, policies, regulations and enforcement practices to make investors and public aware of errant directors and officers of listed companies. Following are excerpts of the letter copied to Chairman Ceylon Chamber of Commerce, Chairman, Colombo Stock Exchange, Chairman, Institute of Directors, Director General Colombo Stock Exchange, Chairman, Organization of Professional Associations, Governor, Central Bank of Sri Lanka, President, CA Sri Lanka, Chairman, Insurance Regulatory Authority, Registrar of Companies, Commissioner General of Inland Revenue and the Daily FT

I would be most grateful for your kind clarification, as to whether there are in place, requisite statutory provisions, policies/guidelines and regulations, as well as effective enforcement practices (whether enforced by the Securities Exchange Commission of Sri Lanka or by the Colombo Stock Exchange or any other regulatory public authority,) whereby the investors and the general public are made aware of errant directors and officers of listed companies (including associated external auditors, secretaries, registrars and legal advisors).

In specific, I wish to be advised of statutory provisions, policies/guidelines and regulations, as well as effective enforcement practice regularly used proactively by the securities Exchange Commission of Sri Lanka or by the Colombo Stock Exchange or any other regulatory public authority, in making investors and the public aware of errant directors and officers of listed companies, culpable of the under noted violations of the law and noncompliance with laws, regulations and best practice guidelines:

nDirectors and officers of failed deposit taking banking and financial services organisations

nDirectors and officers of failed listed and non-listed and other entities, where public funds have been invested  via prospectuses or statements in lieu of prospectuses or by way of deposit taking

nDirectors and officers responsible for criminal breach of trust

nDirectors and officers responsible reckless management of businesses, demonstrating bad faith and not in the best interests of the company and without exercising  the degree of care, skill and diligence that may reasonably be expected of the errant director/officer

nDirectors and officers responsible for fraud, misappropriation and illegal transfer of assets and engaging in corrupt practices, bribery , malfeasance and malpractices

nDirectors and officers of business entities responsible for gross misrepresentations, mismanagement, and gross negligence  which tantamount to criminal negligence

nDirectors and officers responsible for maintaining books of accounts which fail to reflect  true and fair state of affairs and presenting accounting and other associated information that are not a true fair reflection of the state of affairs

nDirectors and officers responsible for going concern failures due to reckless and bad management

nDirectors and officers who have discharged their responsibilities whilst being in undeclared/unmanaged positions of conflicts of interests and having substantial undeclared/unmanaged related party interests

nDirectors and officers charged with penal sanctions connected with money laundering and transfer pricing and tax evasion 

nDirectors and officers having engaged in borrowing funds, securing bank loans, overdrafts and facilities, with the pre-planned intent of not settling same or securing such facilities by means of deception, knowing very well that the required cash flows will not be forthcoming in the future to settle such liabilities

nDirectors and officers who have engaged in securities offenses, including front running, market manipulations, insider dealings, etc. and further engaging in acts violating sanctions, engaging in illicit and illegal trades etc.

nDirectors and officers failing to abide by the key provisions of the Companies Act, Listing Rules, Best Practices Codes on Good Governance/Ethics/Conduct and Codes dealing with Non Compliance With Laws and Regulations (NOCLAR)

nDirectors designated as independent directors, senior non-executive directors and chairpersons of audit/remunerations/investments/risk and credit committees, who have failed in the discharge of their assigned accountabilities

nDirectors and officers who have failed to make specified market disclosures on a timely and  accurate basis

nErrant directors of business entities referred to above, where the errant directors responsible for scams, frauds and losses to shareholders  have resigned or retired prior to its discovery

In the context that professional associations and Chambers of Commerce being reluctant and reticent in proactive enforcement of Codes of Ethics and Conduct; and especially in “blacklisting” and “Public Announcement” of errant directors and officers, and with the Institute of Directors adopting a role limited to training and developing awareness amongst directors, it is essential the proactive public announcement accountability be assumed by the public regulatory authorities. 

It is therefore incumbent upon the Securities Exchange Commission, as the ‘thought and action leader’ with the closest functional relationship to good governance in the corporate sector that the lead action in regard to such public announcements comes under its initiation and direction.

I look forward to an opportunity to review this submission with you and your team.