Financial Times

Conflict of Interest

Several years back – during the tenure of Ranasinghe Premadasa as President – the then Deputy Secretary to the Treasury (DST) also served as Chairman of the Ceylon Petroleum Corporation (CPC).
In one particular instance, the CPC Chairman wrote to the DST (one and the same person) seeking a duty revision from the Treasury on oil imports or sales. The DST writes back to the CPC Chairman, saying this cannot be granted! If this is not conflict of interest, what is?

Current Treasury Secretary Dr. P.B. Jayasundera is also serving as Chairman of SriLankan Airlines. Is there a conflict of interest here? What if SriLankan wants a handout from the government and seeks support from the Treasury? The argument from government quarters is that S. Paskaralingam, Premadasa’s ‘Super Bureaucrat’ also served as Treasury Secretary and AirLanka (later designated SriLankan Airlines) Chairman at one and the same time … so why raise this issue now?

To us and every decent citizen in this couuntry, two wrongs don’t make a right. What is wrong is wrong particularly in the current context of governance and transparency, the buzzword across Sri Lanka’s working population in the public and private sectors and whether the rules are obeyed to the letter or not is a serious question confronting the public today.

The private sector is no saint and conflict of interest issues are popping up all over despite the focus on governance and transparency. Some business leaders, we spoke to, are holding their heads in shame over the state of play in Sri Lanka in the governance field. “We are breeding a set of crooks and wheeler dealers,” said one angry, retired executive, who also quit on a matter of principle. He quickly asked that we should not quote him fearing repercussions.

This week, there was drama at the annual general meeting of the Chartered Institute of Management Accountants (CIMA) where the CEO and outgoing President were unable to respond to queries raised by members on the accounts which wasn’t ratified for the first time ever in the history of this professional body. Separately questions were being raised on the conduct of the outgoing president by council members, some of it relating to conflict of interest issues.

In other sectors, Mihin Air, the government’s debt-ridden budget airline got a massive loan from Lankaputhra Bank which was essentially set up to help small and medium scale entrepreneurs. From all accounts, the Bank may have to write off the loan given the losses the airline is totting up like a taxi meter. The conflict of interest issue here is that the chairman of Lankaputhra Bank and the Mihin Air CEO – at the time the loan was received – are father and son (the Vas Gunawardene’s).

Governance and transparency is a serious issue in Sri Lanka despite profound statements made by sections of the business community to ‘do good’. Part of our focus today is the conflict of interest relating to Dhammika Perera, Chairman and Director-General of the state-owned Board of Investment (BOI), and his powerful dabbling in the stockmarket.

Perera made massive inroads into the stockmarket, buying into Hayleys as the company sought to correct its financing imbalance. Hayleys has a crisis of raising cash internally and due to its share structure which has been geared to prevent any take-over bid or hostile raid, the company is compelled to resort to costly commercial borrowings.

Last week, Perera’s aides said the aggressive investor, who has extensive interests in banking, hotels, power, manufacturing, finance, casinos, shipping, ceremics and many other sectors, wanted to buy upto a 10 percent stake in Hayleys, through Perera’s Vallibel Holdings. This week, aides says Vallibel wants a 15 percent slice in the company, having gone beyond the 10 percent level.

Aides hotly deny Dhammika Perera is aiming for a hostile takeover and merely sees it as an investment in a well-run company but the foray has caused enough concern for Hayleys’ directorate since Perera is the biggest single shareholder and is still mopping up stock in the market. His stake also rightly entitles him to a board position. Hayleys management is indeed worried. “Companies like Haycarb and Dipped Products are pioneering industries and have succeeded under a workplace culture enshrined in these organisations. There might be a clash of interests in case of a take over,” a worried company source said.

Raids on Hayleys apart, the question being seriously raised is Perera’s conflict of interest in his position as chief of BOI where he has access to a lot of priviledged information on many export sectors. On the other hand most of his companies are BOI companies.

“Mr Dhammika Perera has access to a lot of information that could benefit his business and stock market trading activity. Whether he makes use of it or not, is not the issue. The issue here is the access to such information. Government officials should declare such interest in such situations,” a governance specialist said. Most members of the business community concurred with us on Dhammika Perera’s conflict of interest issues but declined to be named for fear of incurring the ‘wrath’ of the government that could jeopardise their own business interests.

While there is no clear rule on governance of heads of state companies who have extensive business interests elsewhere, there are instances where some previous officers have declared their business interest and stepped down from boards of directors they were serving on when taking government positions – to ensure there is no conflict with their new position.

If the government is interested in governance and ensuring professionals run these institutions, then it is paramount that all officers should either declare their interests or step down from directorates of businesses that would come into conflict with their work in state bodies. This should, where appropriate, apply to the private sector too where governance in this context is found wanting.


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