SEC Chief calls for independent directors to take up ‘true’ role on boards

Wednesday, 23 July 2014 00:03 - - {{hitsCtrl.values.hits}}

Says all independent directors should fully understand their roles
Points out independence comes from personal values and professional ethics

By Shabiya Ali Ahlam In the backdrop of some independent directors diverting from their mandated responsibilities, the Securities and Exchange Commission (SEC) Chief emphasised last week that those holding such positions should stay true to their roles. “Some of the independent directors seem to have been appointed only to accommodate regulatory requirements, but their contributions at board level seem to be influenced by their appointing authorities. Having truly independent directors to serve on boards of public listed companies has always been considered a ‘best practice’ and specifically highlighted in our code of best practices for corporate governance,” pointed out SEC Chairman Dr. Nalaka Godahewa during his address at the ‘Symposium on the Role of Independent Directors’ hosted by the stock market regulator in Colombo last week.

Godahewa added that the limitation observed in certain companies could be largely attributed to the fact that no one has made an effort so far to highlight the issue. “We believe that this situation can easily be corrected through better communication and engagement.” According to the Companies Act of 2007 it is stated that the duty of every company director to act in good faith and in the interests of the company. “Irrespective of who nominated you to the Board, once you assumed duties as a director you no longer represent the interests of those who nominated you, but the interests of the company,” asserted the Chief to the fully-packed audience that largely comprised of independent directors. In addition to Godahewa, the event was also addressed by SEC Director Corporate Affairs Harshana P. Suriyapperuma, President’s Counsel Dr. Harsha Cabral, Bombay Stock Exchange Chief Regulatory Officer Nehal Vora, SEC Officer In Charge and Deputy Director General Dhammika Perera, National Chamber of Commerce President and Representative of Sri Lanka Institute of Directors (SLID) Sunil Wijesinha, and Carlyle Group Indonesia Managing Director Rajiv Louis. Highlighting that the ordinary shareholder looks up to the independent directors to bring about the right balance at the board level, Godahewa said: “We would like all independent directors of Sri Lankan companies to fully understand and appreciate their role. Especially if you are a director of a public listed company, you must be conscious of the fact that you are responsible towards a large number of shareholders. By looking after the interests of the company at large, you are actually looking after the interests of all these shareholders.” With the purpose of corporate governance being to facilitate effective entrepreneurial and prudent management that can deliver long term success of the company, the ‘code of best practice on corporate governance’ states that for one to be deemed independent, such a director should be independent of management and free of any business or other relationships that could materially interfere with or could reasonably perceived to be materially interfere with the exercise of their unfettered and independent judgment. Such independence when it comes to boards allows a director to be objective and evaluate the performance and wellbeing of the company without any conflict of interest or the undue influence of interested parties, opined Godahewa. “Your independence also comes from the personal values and professional ethics. A director who is truly independent does so because of the commitment to serve shareholders with integrity, good judgment and common sense. As an independent director you are expected to have the self-esteem and confidence to stand up for an independent point of view at the board level,” he told the audience. In Sri Lanka, the Code of Best Practices on Corporate Governance advocates that at least one third of the board comprise independent directors. Pic by Daminda Harsha Perera