Rights – Surely not in Sri Lankan companies!
The recent outcome, following the high profile extra ordinary general
meeting of the most profitable local bank with sustainable competitive
advantages, was interpreted by some as a victory for minority rights
in Sri Lanka. This proposition is far from the truth. There was
never a high level of commitment to minority rights in companies
in Sri Lanka.
If there is such a commitment how come the election, re-election
by rotation and re-election of those over 70 years in age are all
handled in such a casual fashion without justification of the capability
of the directors and the special value they bring to the board room
in assuring good governance and shareholder value enhancement. It
is known that some directors adopt a strategy of meeting the minority
shareholders who arrive early, ahead of the meeting to avoid questions
being raised at meetings.
shareholders must also bear a large proportion of the responsibility
for not exercising their role in demanding accountability and good
How many boards annually assess their performance using the format
recommended in the Code of Best Practice for Good Governance of
the Institute of Chartered Accountants, made compulsory by the Securities
Regulator for listed companies? How many boards allocate time to
assess how they can serve their trustee and governance roles better
and with more efficiency and effectiveness leading to enhanced shareholder
value? How many boards assess the general and specific needs to
enhance the knowledge, skills and attitudes of directors to guide
companies? How many board members allocate a minimum of 80 to 120
hours per annum for capability development, to prepare for meetings,
follow up on meetings etc as recommended by some Institutes of Directors?
The answer to all of the above questions being “a very few,
if at all”, how can there be a commitment to minority rights?
issue of minority rights is further compounded by some directors
regularly attending meetings not having read and at times even without
opening the board paper packet and at times making the meetings
a place for a regular siesta and feasting.
If a survey is carried out amongst directors to assess their knowledge
of and commitment to company law, minority rights, the code of best
practice of good governance, expected board room practices, binding
key provisions of the articles of association and the memorandum
of association objects clause, you will be surprised with the results
that are bound to have markings in the lowest quartile.
It has now become a fashion to publish in annual reports a governance
This also delivers nothing when the very same company accounts show
that company resources and even policyholder resources having been
pledged as security for loans obtained by the majority shareholders,
contrary not only to expected norms of good governance and minority
rights protection but also outside the legal framework. What guidance
can minority shareholders expect from professional independent auditors
who believe in such a case a note to the accounts instead of an
audit qualification or a highlight would suffice.
directors care for the rights of minority shareholders and creditors,
will they not regularly carry out with diligence a review of the
“going concern status” of the company, its liquidity,
solvency, productivity, effectiveness of resource management and
sustainable competitiveness? If they do so how come we have companies
going belly up suddenly, continuing to operate with even more than
half the equity wiped out, (some times even without a audit qualification)
and with large losses due to not having effective risk mitigation
strategies in place.
The regulators have also let down the minority shareholders, with
many critical issues being determined on a strict interpretation
of the words of the statute and regulations rather than the actual
intent and spirit.
best examples have been in respect of the action of majority shareholders
“acting in concert”. Even the tax authorities have not
supported the minority shareholders by failing to use the provisions
relating to “deemed dividend distribution”, where major
shareholders do not pay an optimum dividend and fail to justify
the rationale for low dividends.
With the auditors, financial analysts/intermediaries and the financial
media being more concerned of the repercussions of being truly independent
and taking on the leaders of business houses that maintain their
cash flows, what hope can minority shareholders have as institutional
shareholders also fail to exercise their rights to accountability.
With legal delays and high costs, lack of an effective and independent
ombudsman/arbitrator, and effectively enforced chamber codes of
conduct, a state of hopelessness faces the minority shareholders.
In the context of the above it was no surprise that a former business
leader advised the minority shareholders to seek salvation in organized
action outside the legal framework including boycotts, protests
and demonstration of peoples power as the way forward to gain due
accountability. (The writer could be reached at - firstname.lastname@example.org).