Regulation and governance

By FS

(March 01, Colombo, Sri Lanka Guardian) There were wide-ranging views – some not connected to the discussion – when Transparency International (TI), Sri Lanka organised a discussion on corporate collapses like India’s Satyam and Golden Key aimed at learning lessons and coming up with some suggestions on how to avoid such collapses.

In essence the discussion was all about creating more transparency in corporate transactions and the accountability of directors in these companies. While the discussion often moved away from the main issue, it nevertheless raised some salient points – one of which was for TI (or any other group) to consider providing a report card or analysis of progress and issues of the regulators, particularly the Central Bank (CB) and institutions like the Colombo Stock Exchange (CSE). This could include raising public concerns as to whether these institutions are doing what they are expected to do by the law or rules, or whether the rules need to be changed to make them (regulators) more effective. A valid point was also made that the CB may not be involved in too much monitoring of the non-registered institutions due to a resource constraint.

The CB came in for criticism, sometimes unfair, particularly in guiding Sri Lanka’s investing public in where to put their money. While the point was made that greed overtook sanity in ‘big bucks’ investors putting their cash in companies like Golden Key, another participant raised a more valid point that small-time investors are compelled to take high risks and invest in high-return fixed deposits instead of low-interest, safe havens like banks because these returns are insufficient for day-to-day needs. With inflation levels higher than interest rates, interest on deposits should be higher than inflation for a positive return.

As of now, any collapse in a company or individual collecting deposits from the public using a different technique is blamed on the Central Bank. While the Central Bank must take the blame for some issues, it is unfair to attribute the failure of the moneylender, ‘cheetu’ or any other unofficial form of deposit-taking, collection and lending on the CB. Like fraud and corruption, these are systems that have been entrenched in our societies and won’t change. It’s a lifestyle, a culture and the only way to change mindsets, like Chandra Jayaratne suggested, is a change in values where society is guided by honesty, trust and accountability.

Jayaratne, a former Ceylon Chamber of Commerce (CCC) chairman and who has repeatedly bemoaned the failure of regulators, institutions, chambers of commerce, civil society and the media to correct the wrongs in society, also explained at the TI discussion the difficulty he had to bring in a Code of Ethics at the CCC.

On Thursday, the CCC main committee by a one-vote majority decided that John Keells Holdings (JKH) didn’t violate the Code of Ethics vis-a-vis the criticism it faced in the Supreme Court judgment in the LMS privatisation case.

Two issues have arisen in this probe – members being concerned about leaks to the media on the CCC proceedings on this inquiry issue on the grounds that this is an internal matter and not for public discussion; and the second is the allegations that there was a conflict of interest in CCC Chairman Jayampathi Bandaranayake being involved in the proceedings, since he is connected to JKH – being a director at JKH associate (and now subsidiary), Union Assurance Ltd, and JKH Chairman Susantha Ratnayake being a director at Ceylon Tobacco Co where Bandaranayake is the chairman.
Some members raised this issue and urged Bandaranayake not to take part in the proceedings to ensure the process is independent but the CCC chairman has stood his ground, saying he has obtained legal advice on the matter.

With all this talk of governance, transparency and accountability, one wonders whether the CCC is on the right track in keeping these matters away from public scrutiny – particularly when it preaches about governance in public institutions, civil society, etc.

In the CCC booklet on Corporate Governance, the opening paragraph says: "It is clear (therefore) that with the right to exercise economic freedom, the private sector takes on a responsibility and promise to society to behave in an ethical manner and to promote socio-economic development," which in essence is a social contract with the people.

The media also came in for criticism for inadequate reporting on the Golden Key crisis, in particular radio and television, and this was mentioned at the TI discussion. One CCC member, during a conversation on an earlier occasion and unrelated to the TI discussion, went so far as to say that while the press says media freedom is under threat, it hides corporate issues and concerns from the public due to advertising pressures.

“What media freedom … when ‘corrupt’ companies with huge advertising budgets are protected although the public has a right to know what happens in these companies?” he had asked a media colleague. But when asked about the CCC inquiry against JKH, the member clamps down and says “I cannot speak about it .. we have a strict code and we have been concerned about leaks to the media.”

To all individuals who criticise the media, the regulators, the Central Bank, it’s important to examine one’s conscience and ask the question: “Have I been fair, just and equitable in what I do? Have I invested in companies because of high interest rates after knowing the risks?”
-Sri Lanka Guardian