The Code of Best Practice on Corporate Governance launched on Monday by the Institute of Chartered Accountants of Sri Lanka (ICASL) saw regulators saying that this code is ‘just too good to pass’.
“This is a good step and it is just too good to let it pass,” Ajith Nivard Cabraal, Governor Central Bank said, addressing the gathering at the launch. Asite Talwatte, Co-Chairman, ICASL Corporate Governance Committee and Managing Partner, Ernst and Young explaining the code said that it deals with directors and directors' remuneration, accountability and audit and the relations with shareholders.
“The directors’ section deals with their appointments, the board balance, clear division of responsibility between Chairman and CEO, directors’ independence and the board performance evaluation,” he said. He said in the nomination committee the majority shall be non executive directors (NEDs), together with the Chief Executive and one of their main duties is maintaining the right mix in the board after evaluating structure, size, composition and competencies of the board. He also said that the board should have a balance of executive and non-executive directors, such that no individual or small group of individuals can dominate the boards’ decision taking.
“At least two or one third of total directors (whichever is higher) shall be NEDs and if the Chairman and CEO is the same person, NEDs should comprise a majority of board,” he said.
He noted that the decision to combine the posts Chairman and CEO need to be justified and disclosed. “A Director would not be independent if he/she has a significant shareholding in the company (a significant shareholdings - can be defined as a shareholding carrying not less than 10% of the voting rights of a company) and he has served on the board of the company continuously for a period exceeding nine years from the date of the first appointment,” he explained.
He said that the directors’ remuneration section specifies that companies should establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of individual directors. “Major transactions section says that subject to the compliance with requirements of the Companies’ Act, directors should disclose to shareholders all proposed corporate transactions, which if entered into, would materially alter/vary the company’s net asset base or in the case of a company with subsidiaries the company’s group net asset base.”
He said that major transactions include, transactions that acquire, sell or dispose greater than half the net value of company assets or of a subsidiary which has a material bearing on the consolidation, transactions which effect the company’s acquiring rights or interests or incurring obligations or liabilities of a value which is greater than half the value of the assets before the acquisition and transactions or series of transactions which will or have effect of substantially altering the nature of the business carried on by the company. The code was drafted by the Securities and Exchange Commission and the ICASL.