Financial Times

Companies need greater corporate governance

 

The Colombo Stock Exchange (CSE) is seeking to improve corporate governance on listed companies in Sri Lanka, according to its Chairman Nihal Fonseka. Addressing a CSE/Ernst & Young workshop on 'Understanding the DNA of Corporate Governance - sharing th Malaysian Perspective' in Colombo this week, Mr. Fonseka noted that corporate governance culture has to evolve from the top and become part and parcel of everyday life. He hopes that listed companies will graduate into good governance practices, given the recent turmoil of global markets.

Mr. Fonseka added that good corporate governance has proved useful for market development and up until 1998, corporate governance in Malaysia was worse than what it is in Sri Lanka today. Malaysia has made great strides since then and has emerged and reached a fair level. Mr. Fonseka said that instead of reinventing the wheel, Sri Lanka can learn from Malaysia's model although it is an evolving process.

Ernst & Young Risk and Business Solutions partner in Malaysia, Philip Rao said Malaysia has good rules but need far better enforcement in applying the necessary principles and complying with best practices. He said corporate governance is all about promoting fairness, transparency and accountability including higher standards of behavior and performance and realizing long term shareholder value. Malaysia introduced its rules in 2000 but were revised in 2007. Listing rules have also been amended in 2008, creating greater cohesion between them and the code of best practice.

Mr. Rao said internal drivers of the governance framework include shareholders, board of directors, CEO and management, internal and external auditors, communication and disclosure and measurement and accountability. The board of directors, whose overarching role, apart from overseeing the business is to ensure that sound culture exists allowing the principles of good governance to thrive. The CEO and management run the business and fine the 'rules of the game' including establishing an effective governance and internal control system with the relevant checks and balances.

Mr. Rao described the external drivers of the governance framework to be government and regulatory bodies, the investment community, the financial community and the business and social environment. The government and regulatory bodies have a vested interest in ensuring that orderly conduct of the financial markets. They achieve this by regulating the markets through various mechanisms including amongst others, stringent enforcement of regulatory compliance, daily monitoring and supervision of trading activity and creating awareness amongst the investing public on the need to expect sound corporate governance principles to be upheld. Like Malaysia, Mr. Rao said regulators throughout the world have placed increasing pressure on corporations to ensure that they adopt corporate governance best practices and provide adequate disclosure to stakeholders.


 
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