Control failures at the NDB Bank, given the fraud it has reported, raise important questions about how corporates and Boards function, and how accountable they are for failure.
The ongoing forensic audit by Deloitte, India, should provide clear pointers, though how widely those will be communicated is not known. Even so, and even while completion of that audit is awaited, bodies such as the Institute of Chartered Accountants of Sri Lanka (CASL), the Securities and Exchange Commission of Sri Lanka and the Sri Lanka Institute of Directors, which are expected to lead the conversations on financial reporting, internal control, and corporate and boardroom governance, should be visibly doing more than they seem to be doing now. The CASL should stay reminded of criticism that in the past it has shied away from acting against prominent members when action seemed to be warranted.
The shocks from the fraud underline the need for better governance. That need is not new; the shocks are a symptom of an ailment that existed all along. The jury must, for now, stay out on whether these new circumstances will galvanise action.
Much has been said and continues to be said about the fraud. I offer these suggestions on matters I think are worth mulling over broadly:
Directors must completely understand-
- The responsibility they carry as Board Members and Board Committee members. They are expected to protect shareholders’ interests; their commitment must go beyond nominal compliance with the law and regulations.
- Relevant changes in the corporate landscape as they arise; the need for keeping up-to-date is continuous.
- Directors must also be reminded that any delegation of authority does not allow an abdication of responsibility for what is delegated.
- Directors must appreciate that they are individually (and not only collectively) responsible for falling short, when governance fails.
- Accountability needs to be enforced, sadly by making directors and auditors pay for their failures in appropriate circumstances (something that is presently alien to Sri Lanka). I say this with a heavy heart; the legal action filed on the fraud may show us how this accountability plays out.
- Board appointments must be meaningfully vetted, and Board / Directors’ performances effectively monitored. This should not be the box- ticking exercise it often is now; Chairpersons must take significant responsibility for this.
- Directors who perform unsatisfactorily should be removed.
- There should be a limit (perhaps four?) on the number of Boards a Director can sit on.
- Going slightly further afield, public reporting should be revisited. In this regard-
- Does the (awards- driven) need for haste in publishing annual reports compromise checks, balances and good judgement?
- Can reports issued to shareholders be less daunting; don’t 500- page reports (in printed or digital form) obscure the wood for the trees and actually dissuade examination?
- Can two levels of detail then apply – a simpler report available to shareholders generally (in both digital and printed form), and a detailed version available to analysts, professional investors, and shareholders asking for it?
- Can claims made by the corporate in these reports, and declarations of compliance with governance expectations, be audited, as quite often they may be only puff pieces?
- Can awards for reporting and performance be critically re- examined, with those not measuring up being eliminated?
- Box – ticking must be shunned; awards must recognise real achievements worthy of acknowledgement only.
Can these thoughts, which are mine and mine alone, help Directors and Institutions take governance to a better place than it seems to be in now?
(The author is a retired finance professional with interest in national and corporate governance)
