Extra life for old directors in banks

• Shareholder and good governance activist K.C. Vignarajah gets enjoining order staying application of Central Bank rules on retirement of directors over 70 years of age and those completing nine years on boards
• Action largely aimed at ensuring top business leader Mahendra Amarasuriya remains as Commercial Bank Chairman despite 25 years on the Board and 16 years as Chief; leading private sector bank also has a Director over 80 years serving for 21 years
• Over a dozen previously planning to quit by end 2010 likely to stay on until outcome of case fixed for hearing on 27 January

Over a dozen old directors on boards of commercial banks have received a new lease of life following an injunction obtained by shareholder and good governance activist K.C. Vignarajah staying the application of Central Bank rules requiring them to call it quits by year end.

Colombo District Court early this week issued an enjoining order over a case filed last year by Viganarajah. The next hearing is fixed for 27 January. Two specific rules contested were those requiring directors over 70 years of age and those who have served nine years on a board to retire.

The action by him was aimed at ensuring long standing Commercial Bank Chairman Mahendra Amarasuriya doesn’t retire as expected by Central Bank rules by 31 December 2011. Vignarajah is a shareholder of Commercial Bank and had previously in a separate case succeeded in getting the Supreme Court to instruct Central Bank to act on the crisis-hit Pramuka Bank.The staying of CB rules means some extra lifespan for over a dozen directors who were scheduled to retire from several commercial bank boards on account of the two specific rules – age limit and duration. At Commercial Bank, apart from Amarasuriya, two other directors including Deputy Chairman B.R.L. Fernando and W.A. Wanasinghe, who is over 80 years, were to retire. At Sampath Bank at least five directors including Chairman I.W Senanayake, and three at HNB including Harry Jayawardena were to quit.

The legal roadblock at least for the interim also comes amidst speculation that long-standing Central Banker D.D.D.H. Dheerasinghe who retired yesterday as Deputy Governor would be appointed as Chairman of Commercial Bank. However, Vignarajah told the Daily FT that his action was in the best interests of good governance and wellbeing of commercial banks, which are critical for financial system stability.

“Application of Central Bank rules are detrimental for banks if the directors concerned are healthy, upright and honest. I find Amarasuriya to be one of them. Requiring him to retire will deprive the bank, which is unfair,” Vignarajah opined, adding that shareholder interest was paramount over CB directives.

Amarasuriya is celebrating his silver jubilee on the Commercial Bank Board having been first appointed in May 1986 and as Chairman 16 years ago in January 1995. For Wanasinghe it is his 21st year, prompting industry analysts that it was in the best interests of all stakeholders that such long services must come to an end, opening doors for new blood.

At Sampath Bank, among those who were scheduled to retire at end 2011 were Chairman Arthur Senanayake, Deputy Chairman Sunil Wijesinha, Lakshman Ranasinghe, Mohan Abeynaike and Denzil Gunaratne.

Industry sources opined that since the CB rules were in force, new appointees in place of retirees were firmed up hence the District Court ruling may not have a bearing. However this couldn’t be confirmed.

Vignarajah, whilst conceding that some old directors should go home, pointed out that the CB directive must also take cognisance of the fact that there is a dearth of talent and competent and honest people to take on the fiduciary duties of a director.

Banking industry analysts said that of late, despite the Central Bank imposing strict fit and proper tests for some nominees to commercial bank boards, a few with questionable backgrounds have managed to be appointed. They alleged that this trend had been influenced by swelling State entities’ shareholding in commercial banks.

Central Bank and investing parties however have denied such allegations whilst noting that new appointees come from respective nomination committees.