Financial Times

Timely reminder of good corporate governance

Two recent high-profile financial institution debacles has provided a timely reminder of the importance of good corporate governance, and also, the importance of the ethical behaviour of high-ranking officials in private and public sectors, according to a top capital market official.

“Even the conduct of internationally renowned Auditors was questioned in both these cases, in the sacrosanct areas of ‘due professional care’ and ‘conflict of interest’,” Udayasri Kariyawasam, Chairman of Sri Lanka’s Securities and Exchange Commission (SEC) said, delivering the keynote address at the 27th International Symposium on Economic Crime at Jesus College, University of Cambridge last week.

“In developing countries like Sri Lanka, we generally associate corruption with public-sector enterprises. In the present scenario, this perception needs revision. Many instances of corporate fraud in Sri Lanka and elsewhere have been associated with private-sector enterprises, with public-sector officials playing a secondary role,” he said.

He said that there are two effective antidotes to corrupt corporate practices. “The first is good corporate governance founded on ethical management practices, which are deeply embedded in an organisation and formally enforced. The second is Public Interest Litigation, if the detrimental results can be reversed, as in the case of corrupt privatisations of public enterprises. We have had two such instances in Sri Lanka within the past few months, where the Supreme Court reversed two major privatization transactions, effected six and seven years ago, as part of the Public Enterprise Reform Program.

The Court censured and fined several high-ranking individuals including top government officials,” he said. He said that a commercial bank in Sri Lanka, which had an ‘inflated’ remuneration scheme for its treasury operations staff, discovered a breach of procedure in its dealing room which led to a huge exchange loss, which caused the two top officials of the bank to resign, triggered an investigation by the Central Bank, and a probe by the SEC into possible insider dealing in share sales prior to the discovery of the forex loss.

“Clearly, the ‘greed factor’ tempted some officers at this bank to cut corners, and take disproportionate risks due to the exorbitant treasury bonuses they could earn, if things went well. Indeed, in the absence of proper control procedures, if things went well as they expected, their improper actions would have gone undetected, they could have covered the losses, and even won accolades for their outstanding performance in forex trading.”

“A very large group of successful companies in Sri Lanka, carrying one of the oldest and most respected brand names, got into financial difficulties recently and started collapsing like a house of cards. Closer scrutiny revealed a dubious corporate structure and operations that were very far from good governance.
There were over 250 companies in the group, with a complex holding company structure that was hard to trace. They all had the same chairman and many common directors. Formal management procedures and internal controls were almost nonexistent. Some companies were regulated while others were not.

In a criminal breach of trust, the unregulated ones used their common name to mobilise public deposits by offering very high interest rates,” he said, adding that the Chairman of the group and many of the directors are currently in remand custody. “Probably for the first time in the world, a Sri Lankan court has sanctioned the conduct of a board meeting in prison to pass a resolution to sell the assets of a company to refund the depositors’ money,” he said.

Top to the page  |  E-mail  |  views[1]
Other Financial Times Articles
World Bank project in the balance
CDL to move into heavy engineering
HSBC first foreign bank in Jaffna
FCCISL accused of forced retrenchment
Action against unregistered private medical centres
People opt for mobiles, SLT fixed-line use falls
COMMENT - Tourism in crisis: Small vs Big
GSP Plus: Was there another way?
Winning consumer confidence in the downturn
Tea prices increase as buyers stock up
Stockmarket - More than six IPOs due in next few months
ICASL: Leading a new beginning for Sri Lanka
Mitsui Sumitomo Insurance renews agreement with Ceylinco Insurance
FR petition over SLT tariffs taken up
Timely reminder of good corporate governance
SLT fixed line telephone service on the decline
NDB Bank launches website in Sinhala and Tamil
SLT-Call rates to fixed/mobile down by 35%, monthly rental reduced up to 48%
Singlanka says audits of accounts since 2001/02 submitted
Letter - Refunds from Inland Revenue: Call for Presidential probe
Brandix constructs bathing facilities for IDPs
X-ONT SOFTWARE gets CMMi V1.2 certification
Correction - AG’s department opens northern region office
Debate intensifies over who should judge issue
MillenniumIT receives Cisco WebEx programme authorisation status
SLIM appointed partner for World Brand Congress 2009
Govt. urged to impose duty on maximum price of confectionery imports
Hemas Power to acquire more power projects
Hayleys Agro wins big at Ag-Biz 2009 Awards
Exploratory study to reconnect with North and East
Japan provides Rs. 36 mln for livelihood project in Batticaloa
Standard Chartered Hong Kong launches world’s first $150 banknote
Marawila Resorts: Auditors express concern on viability
IMF in Sri Lanka for Quarterly Review
Taprobane Travels marks 30 years with SriLankan Airlines
Sri Lanka Bags Global Best Service Award for Small Destinations from TUI
Interest rates falling, but banks not responding: Why?
Ceylinco problem among issues in confidence-crisis facing construction industry
Biggest problem for doing business in Sri Lanka is tax regulations
Deccan Air ramping up investments in post-war Sri Lanka
Colombo share market to see pre-1994 highs
Now Ceylinco Profit Sharing accused of mismanaging depositors funds
Warning against ‘lucrative’ job offers in Spain
Shareholders of F&G ratify board resolution to repay depositors
Sri Lanka Telecom Services Ltd receives ISO 9001:2008 certification
GK payment plan hangs in a balance
CB wants independent verification on Ceylinco Shriram assets
NAMAL wants rules eased on unit trusts


Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2009 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution