Financial Times

Focus on governance challenges at CIMA Summit 2009

Globally money laundering amounts to more than US $ 2 trillion to US $ 2.5 trillion annually (which is 5-6% of world gross domestic product in 2006), finance experts said quoting some estimates. Prof. J.D.Agarwal Professor of Finance and Founder Chairman, Indian Institute of Finance, Delhi, India told a high profile gathering at the launch of the Chartered Institute of Management Accountants (CIMA) 2009 Business Leaders’ Summit on Monday that real estate has been one of the most common and the simplest means to launder money.

Speaking on the responsibility of the directors, he said business leaders need to understand that prosperity of organizations depend upon prosperity of people and other sectors of the economy. He said that business leaders need singular visions and missions to give stakeholders what they need. “Most business leaders ignore social engineering and concentrate on productivity, profitability and growth, expansions, maximising firms’ market share, maximising wealth and their bonuses and remuneration,” he noted. He said that business leaders often ignore innovations, macro and global economic environments, business ethics, socially desired corporate governance and inclusive and dynamic growth.

He also noted that most stakeholders need pride, hope, wealth and power, dignity and respect together with a satisfying return on their investment and efforts. He added that the policymakers need to monitor developments in financial markets closely and be ready to take hard steps in-time. Speaking on the challenges before Sri Lanka, Prof. Agarwal said that they range from rebuilding public sector industry, rehabilitation of victims of natural disasters, escalation of food prices and oil shock strengthening infrastructure.

Charles Tilley, CEO CIMA addressing the gathering at the technical sessions on the challenges for governance and sustainability, said that governance failures have three recurrent themes- namely effectiveness of director boards, adequacy of risk managemet and remuneration. “The principles versus sanctions of the boards and the processes for effective oversight and challenge (is a question with regard to the effectiveness of the boards),” he said. He said that risk appetite can vary across the business and it is a pertinent issue whether director boards really focus on their risk appetite and whether they make it actually clear throughout their businesses if they recognize such appetites. He noted that risk is a process not a number/value and that the companies need to recognize this. “Many companies oscillate between over-scrutiny and excessive cost cutting, too much risk aversion and also under-scrutiny, aggressive expansion and empire building,” he said.

Speaking about governance, Mr. Tilley said that the main principles in corporate governance are long term sustainability and leading from the front. “The main issues relating to governance are integrity and ethics, effective board structures (such as the role of non-executive directors and relationships with owners), effective connectivity between board and management and the transparency and effectiveness of reporting,” he said. Speaking on the challenge of public sector and private sector link to economic growth, Lalith de Mel, Chairman Hemas Holdings PLC said that asthe private sector tends to look at the government as its executive arm, the public sector has a large role to play in creating confidence about the future.

“The government has many levers to manipulate and buttons to press to manage the economy. What they do is very visible to the public. If they appear to be hitting the right buttons it can create confidence. If they are not it will create diffidence and also uncertainty about the future,” he said, adding that the authorities need to take a calculated gamble to reduce the complexity of the rules. On the sidelines of the seminar Mr. De Mel told the Sunday Times FT on the same issue of stringent regulation, that rules on firms listing on the Colombo Stock Exchange and insider dealing are very stringent and that they ‘frighten the daylight out of firms who want to list’. “They may not be relevant to the current market conditions. We have a highly over-regulated system which impedes on the dynamism, growth and investment in the market,” he said.

Dr Dieter Kotte, CEO and Partner Casual Impact which is into statistics and management consulting, making a presentation on ‘new challenges/ new strategies’ said that the public sector in Sri Lanka need to streamline administrative services (Good Governance) and improve the formal education sector. “Sri Lanka can professionalize technical-vocational education & training (jointly with the private sector; Public-Private Partnership) and improve international perception.” He also said the private sector should stop worshipping individual Key Performance Indicators and take a more comprehensive, strategic look at performance. “Firms should look for partnerships and strategic alliances globally and also market yourself more professionally while comparing yourself to others and learn from them (benchmarking),” he said.

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