SEC, CSE must correct anomalies in system - Ex chairman, CNCI

To create a win-win situation and ensure that stakeholders benefit from the capital market the SEC and the CSE would take steps to correct the anomalies and bad practices prevalent in the system, said former Chairman, Ceylon National Chamber of Industries K.C. Vignarajah.

He said that the lack of independence of the independent directors, external auditors and even the company secretaries, instances of insider trading at the Colombo Stock Exchange, lack of transparency and material information in a timely manner, lack of effective action to curb errant CIs creating ‘Shareholder Fatigue’, lack of action to ensure ‘minimum public float in PLC’s, lack of fair and equitable dividend payout policy to satisfy all groups of shareholders and the lack of adequate information on financial performance and on the correct valuation of all the assets of the company, have all caused much disillusionment in the minds of knowledgeable local and foreign investors who are outside the circle of the groups who have controlling interests and their related parties.

He said that there has been a progressive attempt to codify rules and best practices of corporate governance.

Many of them are routinely implemented and accepted. Some others could be acceptable, if controlling interests and the directors genuinely implement the spirit of the codes.

Only controversy and abuse result when the controlling interests incorrectly interpret the codes to their advantage.

Vignarajah said that to ensure good corporate governance the election of independent directors and auditors is a must. No director should be appointed if there is a conflict of interest.

In practice the persons with controlling interests and related parties are appointed.

Vignarajah said that the direct and easiest manner of correcting this convoluted scenario, is to have the independent directors and auditors elected by the independent minority shareholders (IMS).

This would ensure good checks and balances by persons who are working towards the same goals of maximising efficiency, accountability, profitability and transparency in achieving the most desirable goals.

This would also entail, the necessity to jettison the idea that the independent director should not have a significant shareholding in the company.

The so-called independent directors without a meaningful shareholding in the company, has invariably turned out to be mere mercenaries in the context of current status of the professions and institutions!! Artificial criteria suggested by different bodies, and/or nominations by them, will not be successful. They are only self serving and not acceptable.

Giants of corporates, who created great shareholder wealth, would have been eliminated, ab initio, by their criteria. eg. Iconic Ken Balendra of JKH, Lal Jayasundera of Hayleys, Ratna Sivaratnam of Aitken Spence, A.Y.S.Gnanam in the local scene, or Bill Gates, Richard Branson and many others overseas.