The Business Times story last week on some 15 directors resigning drew a lot of attention, telephone calls and letters from interested parties expressing concern and reservation over the story.
Some of those who were agitated believed the report was designed to give some leverage and an advantage to the older directors, stepping down under Corporate Governance Rules of the Central Bank, by seeking another extension of their term. “Was there a reason for publishing the article? Some directors are using it to try and seek a further extension of their term,” one caller, who requested anonimity, asked.
There is little the paper can do if readers interpret stories the way they want. The story was a straightforward one without any bias or innuendo; just simply stating the facts. It was intended to inform our readers about developments in the banking sector. The Central Bank, it is learnt, is strictly enforcing the rule and no extensions are to be permitted.
The report said that Mahendra Amarasuriya, Chairman of Commercial Bank – who has served on the board for a very long period and Arthur Senanayake, Chairman of Sampath Bank and one of its founders are among 15 directors of banks stepping down in December. Others include Sunil G Wijesinha, Mohan A Abeynaike, Lakshman J.K. Hettiarachchi, Denzil J Gunaratne (all from Sampath) and Dr. H.S. Wanasinghe (Commercial Bank). B.R.L. Fernando, director at Commercial Bank, is also stepping down.
As far as this newspaper is concerned, the question of whether or not the report would give some of the aging directors a leg to stand on and help them to seek another extension doesn’t arise as the Business Times has consistently promoted values of corporate governance, ethics and integrity in the private sector and the need to stick by the rules, and there has been no wavering on this principle.
The paper has in fact in the past raised the propriety of aging directors (over 70 or 80 years) sitting on boards and unable to keep pace with current developments and provide value in the boardroom -- apart from being a crony of other directors or belonging to the ‘old boys club’. In the same breath, we have raised issue with the role of independent directors on boards, many of whom are friends of other directors.
How independent can one be with these close links and connections? There are just a handful who sincerely perform their role and are ‘truly’ independent in the real sense of the word.
When the governance rules were promulgated by the Central Bank in 2008, there was opposition from bankers and the dissatisfaction led (later disgraced) Lalith Kotelawala to sue Central Bank Governor Ajit Nivard Cabraal over the rules saying it was essentially designed to prevent him from continuing as Chairman of Seylan Bank. The rest however is history and many are thanking the stars that Kotelawala had to quit or step down after the collapse of the Ceylinco Group which was precipitated by the Golden Key scam.
Under the Banking Act, no one can serve for more than nine years as a non-executive director but when the law was promulgated in 2008, the Central Bank allowed 3-year extensions from directors who sought the extension on the grounds that there should be a transition period to allow younger people to take over and that this cannot be done overnight.
The 3-year extensions end in December and has thus triggered a round of concern and anxiety for directors who enjoy many perks in office. The mandatory code on governance came as a result of the need for proper accountability to the public with the financial markets in a bind internationally. “Weak governance could lead to banking failures which could eventually undermine the public confidence in the banks. Therefore, it is necessary that banks are managed with prudence and accountability,” the regulator said in a statement at that time. It said the proposed corporate governance code is intended to make the board of directors of banks responsible and accountable for management of the affairs of banks inclusive of the business and risk management.
The crisis at Seylan Bank subsequently is a good example as to why the Central Bank was correct in enforcing these rules. Reveberations of the 2008 crisis continued earlier this year when three senior officials of Seylan Bank including CEO Ajitha Pasqual quit as they had served as directors on the board of the, then crisis-hit bank.
A Central Bank directive of November 24, 2010 says that based on the ‘assessment of fitness & propriety of officers serving executive functions in licensed commercial banks”, all senior managers must give an undertaking through an affidavit affirming that they have not been involved in any fraud, deceit, criminal activity or found guilty by a commission of inquiry or tribunal. The regulator was however found wanting as far as the ‘fit and proper’ rule is concerned as three officials who figured in the infamous oil hedging deals were this year appointed CEOs of banks with Central Bank approval.
It is true (to a point) that experience cannot be acquired through qualifications or other means and replacing senior and experienced directors is not easy with young, inexperienced blood. However, in this case, this is inexcusable because senior directors and the board had three years to prepare the ground for replacements to take over. As it has been clearly displaced in the past, very few directors of companies are prepared to step down and lose many perks and the power of office.
The interests of the organisation, good governance and the intergrity of an individual are furtherest in their minds.
Thus the Central Bank should,, vigorously reject any request for further extensions, if there are any.