Governance in unlisted public limited companies

Wednesday, 18 February 2015 00:00 - - {{hitsCtrl.values.hits}}

The article by a reader that appeared on 6 February under the caption ‘Good Governance should apply to Public Limited Companies as well’ was good reading material. I am in agreement with the writer in his analysis as how directors in control of such companies operate and pay themselves and their immediate, salaries and perks by securing employment in positions where they are not competent to hold but justified by their shareholding. The writer has suggested to set-up a unit under the Registrar of Companies (ROC) and conduct a special audit by random selection. I understand that in some developed countries once in five to eight years the Tax department conducts a full audit of the corporate. This is an alternative to the writers’ suggestions and it will serve as a deterrent to directors charging personal expenses to the company. The tax authorities in those countries are very friendly, understanding and does not harass the tax payer. This should be the spirit how a tax audit should be conducted even in this country. This will improve tax compliance and increase the tax revenue thereby assisting the Government to reduce indirect tax burden on the common man. I have invested in eight unlisted public limited companies. The administration and management style in almost all are very much the same and the bad issues highlighted by the writer are prevalent. The profits are not in line with businesses of similar in nature and dividends are insignificant and inconsistent. I can understand the writer’s plight; presumably he may have invested in such companies as I have been a victim. The worst I suffered is by investing in a company running a hotel in Colombo. I invested in the early ’70s and up to now I have not recovered my investment. Over the 40 years dividend were paid only four to five times. The company is family controlled and run by them and all the key positions are held by them and the incompetency’s being a factor for the losses incurred. Overpaying themselves and allegations of charging the personal expenses to the company makes the situation worse. The company with such a track record recently requested shareholders to subscribe further giving hope of listing which up to date is a nonstarter. I hope that the CGIR and the fiscal authorities’ attention are drawn by the contents of this note as this is a matter of public interest. In summary the Government has to bring in some form of discipline as the general public expects the State to control by means of checks and balances and legislation. R. Fernando