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Sunday Dec 15, 2024
Friday, 4 April 2014 00:00 - - {{hitsCtrl.values.hits}}
The Sri Lanka Institute of Directors (SLID), the pioneers in boardroom governance and leadership, once again brought together some of the country’s leaders for a panel discussion on pertinent issues relating to leadership with a particular interest in leading contemporary boards. The panel included some heavyweights of the likes of Jayampathi Bandaranayake, Chairman of Central Finance Company PLC; Harry Jayawardena, Chairman of Aitken Spence PLC; Sunil Wijesinha, Chairman of United Motors Lanka PLC and Razik Zarook, former Chairman of the Bank of Ceylon PLC, with Commercial Bank Chairman Dinesh Weerakkody serving as the moderator.
The discussion initially revolved around the experiences of each panellist on the said topic and was then opened to the floor for a much-awaited Q&A session during which a full house of participants grabbed the opportunity to ask each panellist their advice and insight on leadership as a whole.
Harry Jayawardena
Speaking first, Jayawardena attempted to define the various types of chairmen prior to describing his own position as one. “When you say ‘chairmen,’ there are different categories. Some are appointed by the shareholders, some for friendships, for want of a chairman, some come by right, by acquisitions of shares. So I belong to the category of having an interest in my companies.”
Commenting on the acquisition of new companies, he was clear on placing minimal attention to the status of its accounts, stating that what is required mostly is the ability to take a risk and deal with it rather than blindly following the reports on the accounts of the particular institution. He pointed out however, that one must conduct a thorough study of such an entity prior to engaging in any form of acquisition instead of ‘blindly’ venturing into such an approach.
Also speaking on the topic of ‘rubber stamping’ one that has gained considerable interest in recent times, Jayawardena went on to point out that, at the end of the day and after the initial matters on the viability of the project have been identified, the chairman’s decision was final on deciding on the acquisition. He also pointed out that on a board appointed by shareholders rubber stamping had no place, as the role of the shareholder becomes more vital and aggressive in its involvement.
Jayampathi Bandaranayake
Speaking on his experience in the multinational sector, Bandaranayake had a somewhat different experience to share. Speaking primarily on the challenges faced by chairmen in Sri Lanka, he related that the central theme was really to sort out who leads the company.
Relating his experience as a non-executive chairman, he pointed out that the primary challenge faced by such chairmen is that of chartering a path which will on one hand support the CEO and his team in the pursuance of the goals set by the board, i.e. endorse the decisions made by the management by way of checks and balances, and on the other hand ensure that the management team will remain subordinate to the board in regard to matters of governance and should strictly conform to the directions of the board. This he regarded as a fundamental shift which is still in an evolutionary phase with the dual roles of the chairman and CEO being relatively new to the private sector of the country.
A question then arose on whether the above roles should be separated for the betterment of the company. Bandaranayake replied that it ultimately depended on the type of the company. In a small company in which the focus is on a single business, one might not even require it being listed on the CSE. It could remain a private company because then the owner can be the CEO and direct the business. But as organisations become substantially bigger, you need to bring in the capital and many more investors.
There you need to give the investors the confidence that the business is being run not only for the interest of a particular section who is the majority but in fact it is done in terms of the set rules and regulations. In such a situation the board must ensure that there is no deception in the financial statements of the company because it may reflect on the economy of the country as well. Referring to the situation in other countries he pointed out that in most of the developed countries, as organisations get bigger, no single shareholder can have over 40% or 50% of a company resulting in safeguarding the investors.
Referring to the code of Governance and Best Practices published by CA Sri Lanka, he pointed to an entrepreneurial leadership as against the leadership of the company; in which the entrepreneurial leadership consisting of the board led by the chairman covers areas of governance and control.
Sunil Wijesinha
Sunil Wijesinha speaking on both, the role of the board as well as the role of the chairman; an area he too considered as one that generates some confusion. Referring to the board as the ‘brains on’ entity and the management as the ‘hands on’ entity, he went on to state that the board is expected to take a macro view or a ‘helicopter view’ of the business and guide the management and the CEO rather than get involved at the ‘ground level’.
He too was of the view that the role of the chairman varies from place to place. Speaking from his own experience he related instances in which he had to take a more direct role in certain affairs and on certain boards. A non-executive chairman however should not be ‘hands on’ and should allow the management and the CEO to handle the day to day affairs.
Overall the board has two main functions. The primary, known as the ‘conformance dimension’ that covers compliance to regulations and laws, and ensuring the integrity of the accounts which is done by way of internal auditing, external auditing and whistle blowing; something that is more often done anonymously in Sri Lanka unlike other countries which follow a much more structured process. He was also of the view that a fair knowledge of accounting can be of primary value to a chairman.
The other role of the board, referred to as the ‘performance dimension’ consists of the creation of value for the business; which can be executed through the engagement of the entire board collectively, or by some, more forcefully than the rest.
Razik Zarook
Speaking candidly was Razik Zarook on the subject of leadership, managing boards and powerful shareholders. Although a chairman is regarded as the Primus inter pares or first amongst equals, it is advisable that one does not presume the role of an all knowing guru but instead ensure that there is free discussion amongst the Members of the Board.
Likening the role of a chairman to that of a conductor of an orchestra he went on to state as follows: “You must allow free discussion amongst all the Directors and allow them the opportunity to express all their views. Sometimes you will find that the cords they strike would be in total disharmony, but as the conductor you should be able to listen to them and harmonise it all into a beautiful tune. It is at that point that you should strike and they would say ‘yes that is what we agree upon’.” This however he noted is an area that requires paramount tact and intelligence.
Speaking from his experience at BOC, he related how important it was to discuss matters freely and arrive at a decisions rather than dominating the conversation merely because of your status as a chairman. Also it was much more beneficial to record one’s statement as a reservation rather than an objection or dissent, he stated. Commenting on stakeholders and instances where one’s biggest stakeholder is the government he explained that it was important to strike a balance between the needs of the government and the priorities of the company. There is no single rule for the above and you may be required to innovate depending on the requirements and circumstances.
Answering a question on the challenges faced by chairmen of state institutions as opposed to private institutions, Zarook was critical on insulating one’s corporate management from any political pressure. Speaking from the perspective of a bank he pointed out to some of the key areas in which these challenges are faced, such as those of the human resource and recoveries that deal in recruitment, rescheduling of loans with regard to parate execution and requests with regard to transfers. Therefore he reiterated the importance of insulating the corporate management from any political pressure whatsoever in order to ensure that the management can perform its duty with no undue stress or demand.
Evaluation, remuneration and separation of roles
Speaking on the evaluation and remuneration pertaining to the chief executives, Jayawardena spoke of the importance of setting reasonable goals as well as the fulfilment of same. He was also of the firm view that the role of the chairman should be separate from that of the CEO although the chairman should be able to oversee the actions of the CEO.
Commenting on the separation of roles with regard to listed companies and Multi National Companies (MNC) Bandaranayake was of the view that a separation of powers and roles as well as a systemised approach is essential for the better performance of the individual as well as the company. The CEO is generally entrusted with the operation and deliverance of results which is systematically monitored.
As organisations get more complex there needs to be proper performance management systems set up to support the results that have been set out in the company plan and ensure that the roles and functions cascade down to the relevant individuals. On the other hand there will be a remuneration committee and reward policies set up in terms of what is affordable and what is just and fair. In this manner you are able to incentivise the better performers and weed out the others. Thus in many major companies as well as MNCs the board is not required to directly step in to check these individual departments.
He too reiterated that clarity as to who runs the company is important and if the decision is made to separate the CEO and Chairman, then a clear distinction of roles must be adhered to.
Answering a question on the remuneration of directors Wijesinha explained that there is no standard method of determining this amount but rather it depended on the organisation, its balance sheet and the director. Referring to the various rules on remuneration both local and global, he stated that it needs to be sufficient to make it worthwhile for the director to take an interest and study the board papers, prepare well and make a good contribution.
On handling a contemporary board, it was felt that apart from tact and patience, it was important to create a psychological profile of the Members of the Board. It is equally important to build mutual trust and confidence amongst the members and to never resort to an open conflict with a fellow Member.
The selection process
Commenting next on the role of the Nominations Committee and the selection process for key management personnel, the panel was of the view that the services of a Nomination Committee would be effective in acquiring the right candidate to the right position. Whilst Nomination Committees are not mandatory for every organisation unless it is a bank or a listed entity, it is generally appointed to look into board selections as well as the appointment of top management. It is also an objective method of making recommendations to the board by attempting to match the skills of the particular individuals with the needs of the organisation.
Speaking on the selection of the key management personnel it was felt that although the CEO may conduct the preliminary selection procedure, it was necessary that the final decision remains with the Board. In the failure of Nominations Committee however the said function can be performed by a Sub Committee of the Board and the Board.
The panel was next quizzed on the perfect balance to be maintained on the board, to which it was agreed that not only the different professions but also the characteristics of the individuals must be considered for this purpose. It was also pertinent to have a balance between the executive and non executive directors on the Board.
Succession planning
The other matters discussed included succession planning and gender balance. Referring to the former, although the panel collectively felt that succession planning was an essential process of any company with regard to filling key positions, it was important to groom and develop the correct candidates at an early stage.
The responsibility in this regard not only lies in human resources and the remuneration committee but also on the board which should play a dynamic role in indentifying and grooming the correct people from the level of middle management. These personnel are then brought up to the senior management level and given the necessary exposure and training. This is where the line of succession must be determined. Maybe they were performing a generalist role in the middle management, but the identification and thereafter training and exposure can be provided to groom them into specialised roles. It was also felt that a focus on academic skills alone was insufficient as what was essentially required was a collection of people with ‘proven practical ability’. Hence a path must be created to enable the above which is another function of the board. In fact this has been made mandatory in the financial service sector of the country.
However the panel cautioned against the drawing of a succession plan which may result in creating certain expectations in individuals who may turn out to be incompetent to perform as expected. Therefore the board must take extremely care not to give any guarantee or promise to any individual on the above and it must have the option of making changes to the company’s succession plan. It was also agreed that year-end evaluations of a director conducted by the board was indeed of great value for the betterment of each individual as well as the company as a whole.
Discussing the strategy planning of a company, it was generally designed by the management team and presented to the board for ratification. It was noted that this was an area where the role of the Non Executive Directors’ contribution became vital.
Gender and cultural balance
Focusing on other contemporary issues of maintaining a gender and cultural balance on the Board, Zarook pointed out the status of international rating organisations which pay close attention to this area with regard to funding as well as rating. Gender balance is usually maintained in lower levels of management and with regard to new recruitments, but unfortunately due to various reasons this balance declines considerably at higher levels.
Whilst agreeing that each company should take necessary steps to counter this issue, it was determined however, that the ultimate decision on whether a Member should remain on the Board should not be decided on the basis of gender, but instead on one’s competence, skill and performance. On a global scale, Norway has passed legislation on making female participation on Boards mandatory to a certain level.
An expert in the field, Weerakkody moderated the forum with a very casual air making everyone feel comfortable to clarify their areas of concerns. Many were the inquiries from the participants sent via written notes to the Moderator who deftly tossed them to the most suitable of the experts. The forum was indeed engaging and enlightening whilst being entertaining and ended on a very congenial note.
The forum was sponsored by Dialog Enterprise and Diesel & Motor Engineering PLC and the Cinnamon Grand, Colombo was the Exclusive Hospitality Partner that evening.
