The Sri Lanka Institute of Directors recently concluded its comprehensive Board Leadership Director Certification program which spread over a period of four months – March to June. The SLID graduate member certificate awarding ceremony was held at the World Trade Centre on 28 July with Thilak Karunaratne, Chairman Securities and Exchange Commission of Sri Lanka as the Chief Guest. 

The participants included chairmen, directors, CEOs, GMs and senior managers from a wide range of companies. Those participants who were awarded the Certificate of Graduation were Anandhiy Gunawardhana, Partner, Julius & Creasy and Director of Jacey Trust Services Ltd., Prof. Malik Ranasinghe, Senior Professor, University of Moratuwa and Director of Sampath Bank PLC, Cheminda Amerasinghe, Director/COO Macbertan Ltd., Sirimal Fernando, Deputy Managing Director, Astron Ltd., Chaminda Hettiarachchi Director, CF Insurance Brokers Ltd., Chandika Hettiarachchi, Director, CF Insurance Ltd., Chaminda Jayawardana, Director, Dehigama Hotels Company Ltd., Sheran Jayawardena, Director, Majestic Holdings Ltd., Niral Kadawatharatchie, President/CEO, Freight Links International Ltd., Chitra Sathkumara, Exec Director/CEO, Ceybank Asset Management Ltd.

The course compiled with material developed by the International Finance Corporation (IFC) Global Governance Forum and is accredited by the Securities and Exchange Commission of Sri Lanka (SEC).

“It was an in depth course, delivered by an excellent panel, well-qualified and experienced in their respective fields. The time spent was worth it,” said Professor Malik Ranasinghe, Senior Professor University of Moratuwa/Director Sampath Bank PLC, a satisfied participant who followed the full course.

In his address, Chief Guest Karunaratne speaking on the promise of good governance said “‘Yahapalanaya,’ or ‘good governance,’ an expression in vogue today among emerging nations, especially in Asia such as India, Indonesia, Sri Lanka and even China with current regimes in these countries coming to power promising the people to implement the essence of this phenomenon in their administrations. I am happy to note that by and large this promise has been kept by the present regime in Sri Lanka.” 

Continuing, he cited the examples of the Asian financial crisis of the 1990s and the crisis of 2007 which were due to lack of good governance and also the lack of transparency. Continuing he said that corporate governance is concerned about holding a balance between economic and social goods as well as individual and communal goods. Having dealt with governance extensively he concluded by reiterating that good corporate governance is something that largely comes from within. In simple terms it is doing what is right. It is also not a matter of whether it is legal but rather, ‘it is the right thing to do’.

Niral Kadawatharatchi, President Freight Links International Ltd. had this to say: “The Board Leadership Program was well organised and the subjects were quite relevant for effective board governance. It was indeed educative and the competent lecturers and panellists made a valuable contribution.”

The four part programme which has 16 modules covers a wide range of areas clearly focused on Board Governance. The four main parts include corporate governance, the board, strategic leadership and financial stewardship and accountability. The lectures were conducted by eminent professionals well experienced and qualified in their given areas. 

Each part has four modules and each module was ably handled by a lecturer and at the end of each part (two full days), a panel discussion was held, covering all aspects which led to a healthy exchange of ideas and experiences which greatly benefited the participants. All participants received a comprehensive resource kit, a case study for pre course reading and a workbook covering lecture notes.

“I recommend the training program for directors conducted by SLID for the excellence of its course structure, content and resource personnel. I benefitted greatly from the exposure provided and also from sharing of experiences and insights,” stated Anandhiy Gunewardhana, Partner, Julius & Creasy.

While each part had more than 30 participants, 10 SLID Ordinary members who successfully completed all four parts received ‘Graduate Member’ certificates. The balance participants have the option of completing the program with the second intake.

In order to become a Graduate Member one has to be an Ordinary Member of SLID and need to complete all four parts of the program.

The second intake commences with Part 1 on 26 and 27 August at Galadari Hotel, VIP Lounge. Those interested should contact the Secretariat on 2301646/8 to ensure participation.

SEC Chief calls for stronger culture of corporate governance in Sri Lanka

Following is the address by Chief Guest Thilak Karunaratne, Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), at the certification ceremony of the Board Leadership Director Certification Program conducted by the Sri Lanka Institute of Directors (SLID) on 28 July

Good evening ladies and gentlemen! It gives me great pleasure to be with you today. Let me also take this opportunity to thank the Chairperson and the committee of Sri Lanka Institute of Directors (SLID) for inviting me to deliver the keynote address. I also applaud SLID for the initiatives taken to inculcate a stronger culture of corporate governance in Sri Lanka.

On a personal note, I joined SLID at its inception as a life member but could not play an active role in your organisation due to other commitments.

Prior to establishing SLID in the year 2000 there was another Institute of Directors which commenced operations in the 1970s and as a young executive with a multinational with local operations I successfully followed a one year part time course in Business Management conducted by them. However, I am unaware of what happened to that institute later on. 

“Yahapalanaya” or good governance an expression in vogue today among emerging nations especially in Asia such as India, Indonesia, Sri Lanka and even China with current regimes in these countries coming to power promising the people to implement the essence of this phenomenon in their administrations. I am happy to note that by and large this promise has been kept by the present regime in Sri Lanka.

Implementation of principles 

of good governance

However implementation of the principles of good governance in a country would be a futile effort unless and until the principals of this ideology cascades to all units of the economy. In such a context one could not undermine the importance of corporate governance in organisations.

The Asian financial crisis in the 1990s showed us quite clearly how dearly the governments, financial institutions and other corporate bodies had to pay for lack of good governance. The financial crisis of 2007 which was partly due to unethical business behaviour, lack of accountability and transparency also stresses on the importance of good corporate governance. Nearly a decade later the dire need for good corporate governance continues to torment the economies across the globe. We saw how Prime Minister Shinzo Abe of Japan stressed the importance of corporate governance in Abenomics with the aim of restructuring the Japanese economy.

Why is lack of good governance in organisations detrimental to economic growth? Differently stated why is corporate governance so important? Corporate governance is concerned about holding a balance between economic and social goods as well as individual and communal goods. One could argue that a corporate governance framework encourages efficient allocation of resources. As we all know efficient allocation of resources is a catalyst for economic growth in the real and financial sectors.

The Government or the regulator cannot foster corporate governance in isolation. It should be a joint initiative by all relevant stakeholders. I am pleased to note that several organisations have come forward to further this cause by offering various formal educational programs. The SEC has rendered its support for such initiatives over the years. As examples, during Ronnie Peiris’s tenure as your Chairman, the SEC supported your educational programs by providing resource personnel from our Commission. We have also partnered with accounting bodies in Sri Lanka and provided the relevant impetus in formulating a Corporate Governance Code. 

I also appreciate the commitment made by the corporate world to adhere to this ideology in their organisations. The enthusiasm to follow programs of this nature is a manifestation of this interest. Let me also take this opportunity to applaud the dedication of the Directors to pursue this training program amidst their busy schedules.

Mervyn King, Chairman of the King Report–The King Report on Corporate Governance is a ground-breaking code of Corporate Governance in South Africa– very correctly articulated the true gist of Corporate Governance. I quote: “Organisations need to practice qualitative corporate governance rather than quantitative governance thereby ensuring it is properly run”. Again he said: “You cannot legislate good behaviour”. Thus genuine efforts should be made to adhere to the true spirit and essence of the code.

Importance of good governance not fully understood

It is disheartening to note how certain listed entities have not fully understood the importance of good governance. Negligence on their part not only exposes these companies towards greater risk but the effect also trickles down to the capital market. Just to quote some examples:

• The infamous NSB/TFC share deal where a stock broker, perhaps acting in concert with sections of the top management of both NSB and TFC (the findings of the SEC investigation on the matter is still pending with the Hon. Attorney General for his opinion) sold approx. 7.8 million TFC shares at highly inflated price of Rs. 50.00 to NSB. The share price of TFC was around Rs. 30.00 at that time. After the deal went through the then Chairman of TFC told the media that the deal was completely value driven and an investment for the future of both corporate entities breaking all codes of good governance. On 27July 2015, the share price of TFC was Rs. 14.00 and according to the latest Annual Report the Net Assets value per Share was Rs. (51.44).The SEC was able to reverse this deal which saved NSB Rs. 390 m then.

Such phenomenon is not limited to Sri Lanka. At times even world famous companies in developed economies could fall short of good corporate governance

•    In 2007 Lehman Brothers was ranked the #1 ‘Most Admired Securities Firm’ by Fortune Magazine. But in 2008 it was revealed that Lehman executives together with the company’s auditors, Ernst & Young hid over $50 billion in loans disguised as sales. The company went bankrupt after the incident, the largest bankruptcy in the history of US.
•     Toshiba Corp., the 140-year-old electronics conglomerate that has its hand in everything from installing power lines to supplying iPhone parts, has been embroiled in an accounting scandal since May this year. The investigation has found out that the company has overstated operating profits by at least 151.8 billion yen ($1.2 billion) between 2008 and 2014. The company’s chief executive announced his resignation last week and two previous CEOs who retained company posts are also resigning.

For those who believe in hell I would say with apologies to Dante, “the hottest places in hell are reserved for those who commit such offense in the corporate world”.

In order to minimise such manipulative actions in the corporate world, the SEC is seriously looking at incorporating in the new Act which is being drafted, the function of whistleblowing by employees as well as audit companies who will bring to the notice of the regulator such misdeeds prior to damage is done. This will help the SEC to take pre-emptive action. Complete security for employees and audit firms where their jobs and mandate are concerned and legal provisions protecting them being prosecuted for such affirmative action will be incorporated in the new Act. Where the whistleblowing employees are concerned if the allegations are true they will be rewarded with bounties.

As a director it is your responsibility to divest your personal aspirations and strike a balance between the goals of the organisation and other stakeholders including shareholders. A director is bound to take precautions and act as a prudent man or a woman would do when managing his/her own affairs. They could be guided by the Corporate Governance Code. They are constantly expected to uphold the principles of accountability, transparency and risk management along with a myriad of other principles prescribed in the Code. 

I don’t intend to give an in-depth analysis on each of these principles. But let me stress on the importance of accountability of the Audit Committee and its fiduciary responsibility of safeguarding the interest of minority shareholders.

The role of directors 

Moving on, when referring to the role of directors one could not forget the pivotal role of Independent Directors in implementing the principles as well as the true spirit and essence of corporate governance. Ideally they are expected to be truly independent from the management and act as the trustees of shareholders. This implies that they are obliged to question the conduct of organisations on relevant issues. They are also expected to bring objectivity to the oversight function of the Board and improve its effectiveness. One could also argue that they are expected to be responsible for the prevention and detection of fraud. 

We often tend to question whether these directors are truly independent. Are they able act on behalf of the shareholders? If not are they faced with conflicting interests? These are a few areas you are expected to ponder upon.

We do understand that at times organisations might encounter certain constraints when implementing the prescribed principles. In such situations we could mitigate these constraints through joint initiatives rather than deviating from the given principles.

Corporate governance is a constantly evolving discipline. I urge directors to be pragmatic leaders who would encompass the current changes when formulating and implementing strategies and business processes. This would not be a tedious task if organisations view corporate governance from the perspective of intellectual honesty. Corporate boards should focus on enhancing transparency, increasing director accountability and giving greater voice to shareholders over critical boardroom decisions. Equal importance should be given when contemplating on mergers and acquisitions, IT governance, eliminating bribery and corruption, compensation governance and above all continue to adopt stringent measures to mitigate risk.

Let me reiterate that good corporate governance is something that largely comes from within. In simple terms it is doing what is right. Therefore one must not ask whether it is legal but rather rephrase the question to “is this the right thing to do?”

I conclude by wishing all the recipients of Board Leadership Director Certification all the very best in their future endeavour especially in implementing good governance in their corporates. 

Thank you.