Wondrous Governance!

Running into danger of being ridiculed for the sour and dangerous side of emerging Wonder of Asia, corporate and banking community was aghast yesterday over the manner in which a top-ex banker was forced to quit Commercial Bank Board of Directors and the State’s influence in appointing a top Defence Ministry official.

What shareholders at Commercial Bank’s Annual General Meeting yesterday morning experienced was against the best practices of good governance as allegations of excessive interference by the Government funds and Central Bank in the management of the country’s biggest private sector bank was loud and clear.

A few justified the  Government action yesterday as there isn’t a single important nominee on COMBank Board to represent state funds that collectively control near 20% stake. In addition state funds also control DFCC Bank which in turn owns 15% stake in COMBank.

 Additionally the Government shareholders also had the proxy of Japan based fund SBI, which owns a near 10% stake though DFCC had decided to abstain in the event of a vote.

Given his professionalism, Ranjith Fernando, appointed to COMBank Board in December 2008 and also the Chairman of Board Audit Committee and a member of Integrated Risk Management Committee of the Commercial Bank, resigned after making a statement at the AGM before his re-election came up for a vote.

The highly qualified Fernando was once the long-standing General Manager and CEO of NDB and Secretary to Ministry of Industries when Prof. G.L. Peiris held the portfolio under Chandrika Kumaratunga administration. He currently serves on several Boards including as Chairman of United Motors, and was seen as a critic of certain Government policies. This however has been dismissed by those who know and respect Fernando.

But damage had been done much earlier. The Daily FT learns that a top official of Central Bank on Friday had made some soft inquiries from COMBank midst a Board meeting about the tenure of Fernando’s directorship. Thereafter it was communicated that Government has a better nominee and in the event of a vote for re-election of Fernando, the Government funds will defeat it. A fresh telephone call was made yesterday early morning before the COMBank Board met ahead of the AGM to find out what was the final stand of the Board regarding Fernando.

Being informed of the Government moves, Fernando had already decided to step down with a statement at the AGM emphasising that the bank’s interest was above self.

Ahead of yesterday’s AGM required proxies had been collected in preparation by the Government group.  With DFCC having decided to abstain from voting on re-election of directors as a policy, the Government had enough votes.

In fact upon being questioned by a shareholder, COMBank Chairman Mahendra Amarasuriya had listed the major shareholders who had opposed the re-election of Fernando. The Proxy of IFC which owns near 10% was with the CEO.

After Fernando stepped down following the statement, all other directors standing for re-election including the 84-year old Shelton Wanasinghe were re-elected. COMBank in a filing to the Stock Exchange said Fernando decided to withdraw from the position of Director prior to considering his re-election. It also said that Lakshman Hulugalle, Director General of the Media Centre for National Security of the Ministry of Defence and Deputy Chairman of National Livestock Development Board was appointed by the Board to fill a casual vacancy on the Board. Dinesh Weerakkody ceased to be a director with the adoption of new articles of association at the EGM held yesterday. He was thereafter appointed to the Board to fill one of the casual vacancies on the Board.

Those who were present at the AGM told the Daily FT that the body language of COMBank Directors was one of sheer disappointment. The rest of the Board of COMBank comprises CIC Chairman B.R.L. Fernando (Deputy Chairman), Amitha Gooneratne (CEO/MD), Ravi Dias (Chief Operating Officer), and Prof. Uditha Liyanage.

Commercial Bank share price declined by Rs. 1.40 to Rs. 266.80 whilst it peaked to an intra-day high of Rs. 270, at which price on Tuesday EPF picked up 1.2% stake or 4.4 million shares in a deal worth Rs. 1.19 billion increasing its stake to 9%.