Trust. The doctrine of Trust, another pillar in the success and governance of Sri Lankan corporates. Among firms that value shareholders, the standard flag bearers of success are transparency, accountability and reliability (which connects a company’s reputation to its customer base). While customers must have faith in a company’s ability to deliver reliable products, shareholders [...]
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According to one speaker at a recent discussion on Sri Lankan corporates and the boardroom, it was stated that trust “is a fundamental driver of business success and the evolving landscape of stakeholder demands requires a proactive approach to reputation management”.
I was reminded of this during a conversation recently with Kalabala Silva, the often-agitated academic. “Are companies loyal to their shareholders and customers,” he asked. “What do you mean,” I asked in return. “Well……there is a lot of corruption and in this context are companies responsible to shareholders?” he repeated.
“There is a general sense of accountability and with a stern Securities and Exchange Commission (SEC) on their backs, companies are more accountable now than before,” I said.
In the past week, questions have been asked in social media posts as to the contents of a preliminary forensic audit report by Deloitte Touche Tohmatsu India for the National Development Bank PLC (NDB) over the internal fraud that exceeded Rs. 13.2 billion. NDB informed the Colombo Stock Exchange in a posting that De Lotte had “identified suspicious transactions totalling approximately Rs. 13.58 billion linked to an internal fraud investigation. This preliminary figure updates and exceeds the bank’s initial internal fraud exposure estimates of Rs. 13.2 billion”.
However, there was not much more information on the fraud, with the report being titled ‘confidential’ and submitted as per rule to the Central Bank. “The public and shareholders need to know how the fraud was perpetrated,” said one social media post, adding: “Why is there so much secrecy when shareholders have a right to know what is going on?”
At the discussion in the boardroom, many interesting issues emerged which have not been discussed at length elsewhere. They include the need to increase directors’ remuneration, the danger of cybersecurity, are independent directors really independent, family businesses, the effectiveness of directors serving on too many boards and that board appointments are no longer a ceremonial one.
Here are some thoughts expressed at the Corporate Summit:
Are independent directors friends of the family?
The independence of the directors came under scrutiny in the NDB fiasco: Why didn’t the directors’ red flag the unusual fund transfers when they were happening for several months, before they were discovered by a whistleblower? Was it a case of running with the hare and hunting with the hounds? This is a sore point for independent directors and the role that they (should) actually play in a boardroom – being as independent as it can get, rather than acknowledging every decision taken by the other board executive directors.
On what shareholders and IIs look for in a company:
Colombo’s stock market has weathered many storms, particularly the pumping and dumping fiasco many years ago where high-net investors ‘neatly’ manipulated low value shares, resulting in huge losses for many smaller investors who burned their money in what was regarded as ‘good stocks’ to invest.
Well, it was time to check out the ‘options’ under the margosa tree where the trio had gathered for their weekly ‘gossip’. “Ena sumaney mama balaporoththu wenava gedera yanna, magey gamata (Next week I am planning to go home to my village),” said Kussi Amma Sera. “Eih (Why),” asked Serapina. “Mata naya gevanna thiyenawa mudal poliyata deepu ekkenata (I have some debts to pay to the moneylender),” replied Kussi Amma Sera. “Matath dan mathak wuna…..mama mudal hoya ganna oney mama nayata gaththa eva apahu gevanna (That reminds me……I too need to find some money to settle some loans that I took),” added Mabel Rasthiyadu.
Winding up, the role of independent directors, as stated above, far exceeds that of simply being a person of repute, integrity and honesty. Their actions should be conveyed through questioning and clarifying every decision a board takes to ensure it passes the test of governance, transparency and accountability. A well-performing board that ticks all the boxes of questions raised by shareholders and IIs is a board that has performed par excellence. On a parting note, last week’s fraud perpetrated by officers at four private banks also raises questions of proper controls, transparency and accountability.
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Print Edition – The Sunday Times, Sri Lanka
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