Who will step up?

Frontier Research told investors recently that Sri Lanka’s economy is changing more fundamentally than at any point in seven or eight decades. The familiar cycle of currency depreciation, money printing and State-propped demand is giving way to growth led by the private sector. Capital, skills and business, it argued, will flow from weaker firms to stronger ones, with no Government rescue for those left behind, and firms may be underestimating how fast this could happen.

Consumers are already showing the way. A Boston Consulting Group (BCG) study with The Ceylon Chamber of Commerce found that just 6% of staples buyers now stay with a single brand, down from 14% in 2020. Brand loyalty, habit and shelf space no longer guarantee customers.

For decades, a falling rupee and a sheltered market forgave a great deal: an expansion that went nowhere, a pricing call that misread customers, a bloated cost base hidden behind tariff walls. That cushion is going. When errors are no longer inflated away, the quality of decisions at the top becomes a competitive advantage in its own right.

Parliament’s Committee on Public Finance (CoPF) heard last week what can happen when oversight fails at every level. Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe told the Committee that National Development Bank’s (NDB) internal auditors, Chief Financial Officer, Board Audit Committee and Board had all failed to detect a Rs. 13.6 billion fraud, despite seeing and signing the financial statements. MP Ravi Karunanayake told the Committee that the bank’s receivables on CEFT, the national instant interbank transfer system, had quadrupled in a year to more than Rs. 12 billion in 2025, and that the external auditor had certified the accounts as true and fair without raising concerns.

Fairness demands caution. The forensic review did not attribute the fraudulent transactions to anyone in an oversight role, the audit regulator’s findings on the external auditors are still pending, and the CBSL says no deposit was compromised. CBSL Deputy Governor K.G.P. Sirikumara told the Committee, however, that some individuals may yet be found responsible for governance defaults or negligence. Whatever the investigations conclude, a balance that grows fourfold in a year is the kind of number Boards are expected to probe until they are satisfied. That a fraud of this scale went undetected at a large listed bank, in the most closely supervised sector of the economy, should end any belief that meeting the rules is protection enough.

The measure of a Board is how often management’s plans leave the Boardroom in a different shape from how they entered it. That depends on who is appointed, why, and what is expected of them once seated, and no regulation can settle it.

In deeper markets, investors force the issue. Analysts pick apart strategy, fund managers vote down Board candidates they consider weak, and share prices punish complacency. Sri Lanka has fewer of those mechanisms. Research coverage is limited, large institutional investors are few, and in many listed companies, a controlling family or group decides any vote. Poor governance is seldom punished in time to matter, and good governance is seldom rewarded enough to be worth the inconvenience.

So the question falls to the corporate sector itself: when will it step up?

It need not wait for a regulator. Boards could report each year, in broad terms, the significant proposals they sent back or reshaped, so shareholders can see the Board at work rather than take it on trust. Groups could give minority shareholders a separate vote on reappointing independent Directors. Chairs could expect hard questions on both at annual general meetings and answer them in substance.

Frontier’s analysis suggests the companies that fall behind will lose access to funding, skilled staff and business partners, not just market share. A Board that questions a bad number early costs far less than one that learns of it from a forensic report. The wake-up call is coming either way.